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Why do we attempt DIY wealth management?

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dozulu
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Why do we attempt DIY wealth management?  Reply with quote  

Since I see both skilled and novice investors here, I have to ask this question...

We would not try to take out our own gallbladder, we hire a skilled surgeon.

We would not attempt to do our own haircuts, we hire a skilled stylist.

We would not attempt a serious legal defense, we hire a skilled lawyer.

Many of us (not me) will even hire a professional decorator for our home.

With all of this willingness to spend money on professionals, why are we so unwilling to hire skilled, knowledgable professional money management?

Why are we so willing to go cheap in this most important area of our lives?

Like all professions, some are better than others at their job. But it seems to me sheer foolishness to try to operate on your own financial body. No matter how many articles you read, most of us cannot spend 24 hours a day monitoring financial markets. Nor should we. Hence the need for skilled professionals.

Yes, we have evidence of skilled self managed wealth on this forum. But I see posts from people who have no clue at all about money skills. Not everyone will be a succesful investor on their own.

I pay 1/2 % for my professional wealth advisor. This is his lifetime career. He is very skilled at it. Fabulous guidance. Saved my bacon several times. I see many posts that I mply professional money advisors are not helping their clients. This is opposite of my Ameriprise guy. He is gold standard.

I could never do what he does for my portfolio!

So why are we tend to go cheap where our money is concerned?
Post Wed Oct 21, 2015 3:47 pm
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oldguy
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quote:
With all of this willingness to spend money on professionals, why are we so unwilling to hire skilled, knowledgable professional money management?


For many of us, it is not the cost, ie the 1/2 %. It is a trust issue. Remember, professional managers (such as mutual fund managers, etc) only match the SP500 generic market about 15% of the time _ and it's not even the same 15% every year. So you have a very high chance of getting one of the 85% that lags the market.
Additionally, a fund manager has to follow the company policy. If s/he puts an unsophisticated client into an all-stock portfolio (in the case of a young investor) and explains "average' and "fluctuation" - in most cases that client will love making money, but the minute the market dips the client wants to sell out, sue the broker, and move to a new broker. So, obviously, to stay in business, the money manager has to stay with the "company line, cannot freely advise the client to do the actual best thing.

That means that you will get a mediocre result - all clients are steered into meritocracy. And that's not all bad, in fact it's safe - but it also dictates that you can never be wealthy.
Post Wed Oct 21, 2015 4:27 pm
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dozulu
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I disagree, and sort of agree.  Reply with quote  

Thank you for your reply.

I could not disagree more with your comment that professionals get lukewarm results! If this has been your experience, you have my sympathy. Wealthy families do not DIY their asset allocations. Neither is their the constant 'client churn' you describe. My advisor has many many 1M+ clients and is very selective who he takes on to manage. One of his clients, an average guy who worked average
job till retirement now has 2.5M in his portfolio. And this is after all the up and down of the market. My advisor will not sell annuities, or products not in the clients interest. We plot a portfolio course, weather storms we cannot avoid, and after fees are still way way above the market performance average.

I cannot imagine a wealth advisor putting a clients money 'into a fund'. That kind of manager doesnt care if his client makes money. My portfolio holdings run 3 single spaced pages of small print. This is carefully weighted diversification.

I do agree with your comment about trust, or lack if it. Most DIY investors are part of an emotional panic driven herd. Allowing emotions, either greed or fear, dictate your money decisions will always lead to disaster.

My advisor picks and chooses his clients. Not everybody is a good fit. My advisor actually fired a client! I have sent him friends who were unsure about their investment advisors and he looks at what their portfolio is structured like and tells them, "Your advisor is doing a good job." So he is not headhunting for profit.

Most DIY types are unskilled and buy their 401(k) based on a small selection of options. Most get more worry than peace from their investments. Your average guy is never going be disciplined enough to stay the course with investing. But for those people like myself, who have a wealth advior that knows us very well, we get FABULOUS results. Yes, even the average guy, saving over time, well managed, can wind up with lots if wealth. I know, it has happened for me and many others who are blessed enough to have this great guy in our corner.

He himself is wealthy. But Money is all he does. Your average part time guy doesnt have the space or time in his life to keep up with the financial market. The professional advisors have lots of information sources that average investor doesnt have.

I do not have to reinvent the wheel. Wealthy people gave quality advisors, which is the difference between the wealthy and the rest of the herd. If you want to be wealthy, you must make the sound choices that the wealthy make in their portfolios. This requires a specialist. That is why most DIY investors do not get wealthy and get wiped out by emotion driven decisions.

Yes, people with advisors get wealthy!
Post Wed Oct 21, 2015 5:43 pm
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oldguy
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>>> I could not disagree more with your comment that professionals get lukewarm results! If this has been your experience, you have my sympathy. Wealthy families do not DIY their asset allocations. >>>>>

Actually, not my experience, I don't use a fund manager. But the data shows that 85% to 90% of fund managers under-perform the generic index (SP500). Here's one site - but there are several, they all agree on that 85% number.

http://money.usnews.com/money/personal-finance/mutual-funds/articles/2012/10/12/study-active-funds-consistently-fail-to-beat-benchmarks

But it sounds like you have a winner, so no need to DIY - congratulations.[/quote]
Post Wed Oct 21, 2015 6:05 pm
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dozulu
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But you are exceptional  Reply with quote  

Oldguy,

Most investors are not as smart as you! You are the rare bird, able to make good wealth choices.
Where did you learn your skills? Did you have great money in your family growing up?

My tribe was not wealthy growing up. But my mom, the family money manager, taught me about compound interest, and in those days, she bought 20 year cds at 12 %. Back in the day when the common banks actually paid decent returns. But she had lived thru 1929 as a young girl, and had a strong need for saving. Today, most do not save diddley. Spend all they make and then some. Many put NOTHING away for retirement. They buy and buy until they can just barely survive the minimum payments. The only people who get rich here are their creditors.

I am amazed, flumoxed, and dismayed by the lack of education in school about money, saving, investments, credit. Schools in America devote hours and hours each week to teaching kids how to chase balls around fields or gyms, skills which will be useless in adult life, but teach nothing about money skills that every single kid will eventually need desperately to survive and prosper.

Lack of money skills is one of the best predictors of future financial trouble. Little wonder then most of America is in some sort of money pickle.

You are one of the successful self taught. Between easy credit and lack self control, most Americans are going to be in bad shape come retirement.
Post Wed Oct 21, 2015 7:13 pm
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littleroc02us
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I agree with OldGuy, I don't use a financial planner. I invest with no load investment providers such as Vanguard and have been very successful with the VTSAX and VWELX funds which require no more then dollar cost averaging throughout the year. The returns have been great and the fees are well below .05%.

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Wed Oct 21, 2015 7:50 pm
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oldguy
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quote:
Where did you learn your skills? Did you have great money in your family growing up?


Great money? No, not hardly, during WW2 we lived in a 22 x 22 foot 1 bedroom cabin w/o running water, w/o indoor plumbing, etc. Went to a one-room country school. We (family of 5) were there for 7 years. But I have nothing but fond childhood memories of that era - so I guess kids don't pay much attn to poverty or crowded living.

I'm a retired engineer, math/physics is my major skill - my math served me in two major ways. Gave me a good solid career income, and (2) provided the skills to invest that income well. So, self taught, partly trial & error, mostly good math - and I became wealthy.
Post Wed Oct 21, 2015 8:25 pm
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dozulu
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IQ and determination  Reply with quote  

Oldguy,

IQ and determnation trump everything. No surprise you were successful.

I have been reading and was somewhat shocked that the wealth of the parents is the best indicator of the children having money. It seems although we imagine everyone is able to succeed, stats shw that we mostly wind up in the same socio ecnomic group we were born into.

But ultimately, brains beat everything. My late husband was a similar type guy. Scarey smart. But like you, he had to learn financal skill he did not have growing up. It can be done.

For my part, I do not have the luxury of screwing up the program and recovering at age 58. I would give it a go if I had more years to recover if I mess up.
Post Wed Oct 21, 2015 8:50 pm
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Wino
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I have to go along with the others concerning financial planners. I have had three, and my wife still has one. in my opinion they are no better than conmen. Each and every one of them steered me or her into high front-end load investments, and NONE of them outperformed the S&P 500. My money is also in Vanguard, with some in Fidelity, and some I invest myself.

This year, I am up over 15% so far. Well above the market. I wouldn't trust a "financial advisor" as far as I could throw one. In fact, I'd like to throw at least one or two I've met, just to see how far I could do it.

Count me in to the "just put it into various funds at low loads, and watch it grow group," rather than the "give it to the financial advisor, and watch his income grow" group.
Post Thu Oct 22, 2015 3:10 pm
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dozulu
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Wino,

Do you think anybody could do this? Somebody like me with no experience? My late husband handled everything but I am scared spitless to mess up the money. I have friends who have helped themselves to the poor house.

There is no place to learn this skill if you have a decent size portfolio. Maybe the number of commas in your balance doesnt matter, none of us wants to lose money. I would be more willing to try this if there was a step by step guide. Maybe with 10k to try it out.

All the people on this site seem to have experience with investing on their own. I assume nobody here is losing money because everyone touts their success.
Post Thu Oct 22, 2015 3:25 pm
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oldguy
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quote:
There is no place to learn this skill if you have a decent size portfolio. Maybe the number of commas in your balance doesnt matter, none of us wants to lose money. I would be more willing to try this if there was a step by step guide. Maybe with 10k to try it out.


'Investing' is an interesting dichotomy - in theory it is complex, options, derivatives, ETFs, funds, dividend stocks, growth stocks, yada. But when that theory is reduced to practice, it is very simple. Note that the planners, salespersons, etc are measured against the the SP500 Index - ie, only 15% of them can match/beat the SP500 Index. So the answer is deceptively simple - buy the SP500 Index. It covers all industries, all major sectors, all major companies - ie, it is a great diversification. And low cost - the no load find companies all provide it. Obviously, planners can't do this or the would be accused of doing nothing - so they buy most of the SP500 stocks individually (several pages of stocks) - ie, they replicate much of the SP500 index.

A big test for most of us is patience - people cannot resist trying to sell during a dip and then buy back in after the dip. Some "wait for the market to recover so that they can get back in" - lol, think about that , they wait for the market to peak so that they can buy, exactly backwards. You must buy incrementally, never sell, and accumulate shares. It is actually empowering to understand that the market cannot be timed - you are now free to "invest' rather than "trade". Very Happy
Post Thu Oct 22, 2015 4:17 pm
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ken-do-nim
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This is a great thread and I hope you don’t mind my resurrecting this discussion from last year. I’ve been wondering why I have little interest in seeking a Financial Advisor myself. Maybe if I actually gave it a try and found a good one I’d like it, but otherwise I think I’m doing well and it’s hard to see the value statement. The comparisons mentioned in the first post - surgeon, home repair, auto mechanic - no way I’m even going to try those things. But perhaps the better analogy for personal finances is going to the gym by yourself and working out, as opposed to getting a personal trainer. If you take the time to learn how to use the machines properly, take enough exercise classes, and if you’re motivated to go enough, you can get yourself into shape.
Post Fri Sep 09, 2016 1:23 am
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