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  • Let’s talk Money & Investments

    I am curious as to people’s experiences with financial advisors! Either good or bad. I am asking this after doing some review of my Dad’s retirement account. Fortunately, my dad has a pension so his 401k savings really are not needed but what I see.

    The advisors typically charge around 1% of the portfolio total per year. For this, they appear to follow a percentage breakdown that is easily structured and probably can be completed with a couple hours of work.

    Bonds 35%
    large growth 15%
    large blend 30%
    mid cap 12%
    small cap 8%

    Mid and small cap are a mix of blend and growth type funds. I realize the above represents a “diversification” of funds, with the intent of making the portfolio “safer”.

    some of my thoughts after looking at returns.

    Is there a good reason to hold foreign funds specifically vs US since their returns are much worse for 1, 3 and 5 year time periods?
    Do small cap really make any sense to anyone. Why invest a set percentage to small caps which like foreign only funds, severely lag behind large cap funds?
    Do blend and value funds make sense? I know they supposedly provide safety, but after having a large crash this year, growth funds at every size outperformed the blend and value counterparts. Have the rules changed where people flock to the growth companies as a chance to buy cheap when the market crashes?

    Bond funds often have such minimal returns, it’s almost like why bother considering they take big hits during market crashes as well.

    It seems to me, the structured formulas for diversification and safety are really doing a better job of capping the upside of investments then protecting from downside risk.

    Am I wrong. Appreciate different thoughts on this.




  • #2
    If your dad is close to retirement age 65% equity is pretty strong. Especially with all the question marks out there right now. My answer to most everything you asked is that it depends. A good advisor is well worth 1% per year but you have to be careful of advisers who preach diversification only because they have maxed out their commission on a particular fund.

    I have always kept 10% in an international fund because that is what we are supposed to do but it has never paid off. Lately the money has been made on tech stocks whether they are small-cap, mid-cap, or large-cap. Over time they will all have their day in the sun. I’ve never had a value fund that I thought was worth it. I’m sure they are out there but I have had no luck. Growth funds are a different story. I have had good luck with them in good markets but they can get hit pretty hard in a downturn. Again, it depends on who is managing it.

    Bonds are another story. When market interest rates go up bond values go down and vice versa. Obviously market interest rates are very low right now so the question is what bonds are they buying? If they are buying long-term bonds they would get smoked in a rising rate environment. Most good bond funds keep the maturity is pretty short but do your homework. The days of getting rich on bonds are long ago.

    not sure if that is helpful but that has been my experience.
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    • #3
      Originally posted by BADGER View Post
      Bond funds often have such minimal returns, it’s almost like why bother considering they take big hits during market crashes as well.
      Hey, Michael Milken made upwards of $500,000,000 a year on Bonds.

      Related to getting advice from others the most important thing, never listen to someone who claims to always had positive returns

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      • #4
        I appreciate the thoughts. Dad is 84 so while I am looking at his portfolio, some of these things apply to me. I talked to a fidelity adviser as part of my companies 401k benefit and her advice for my portfolio was to move some money to balanced or value funds. I am very heavy in growth funds along with some index funds for the DOW 500 and the NASDAQ. Honestly for young people, I don't know why they wouldn't put at least 50% in QQQ and fill in the text.
        I typically dump any fund less than 4 stars and think it pathetic to see a fund with less than that when being run by a manager. A 3 star fund is usually below average.

        Your comments on value and blend funds mirror what I have seen, but let me add what I found. The value and blend funds are just now making slight gains YTD while the good growth funds are all double digit positive. I compared a highly rated large blend and to a good growth fund going back to 2012. Only one year did the blend fund have better performance. My view is blend and value cap upside better than they actually protect downside. I have almost no bonds, but like value funds,they seem to cap upside more the downside. I was looking for other views but at this point, I still like my QQQ, FOCPX, FBCGX, ACFOX and CPOAX growth funds. I'm always open for recommendations on a good fund or ETF.

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        • #5
          I have always be self-directed. My roll-over 401(k) has grown 4X in absolute terms today in 13 years not counting my RMDs, some money to buy two RVs, a house and a condo garage which had I been able to leave that money in would be 5X or more. I broke all the conventional rules in both my 401(k) and IRA. I elected to place all my money in the company stock (Target) and then rolled it over to mostly Apple. I retired in 2007 just before the crash and when Apple introduced the iPhone. Peter Lynch's advice in investing in what you know.

          I put my wife's roll-over 401(k) with Ameriprise and it has grown about double in absolute numbers in 12 years and withdrew only RMDs. Both my wife and I have small Roth IRAs. I did they financial rules of thumb distributing like Badger's example to protect my investment and it went down. I did manage my wife's and since she is a former nurse I invested her money in only health care stocks she could understand and it tripled. The Roth IRAs were money to experiment with and don't amount to much.
          Davydd (Anglicized Welsh name for David...that's all)
          Certified BPT Taster Pursuing Pork Tenderloin Sandwiches
          Long lost Speedway Sparkplug thrashing about in the deep woods of Minnesota

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          • #6
            good financial advisor with bigger company is worth the expense to me.
            being a part-timer in that world and looking with emotion versus trends is dangerous.
            i beat the indexes every year even with the advisor taking his part.
            i'm not an advisor, but curious what do you actually want to achieve with your 85yo dad's account?

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            • #7
              I have a small amount that I let my financial advisor play with:

              January 1 - $41K
              April 1 - $38K
              July 1 - $40K

              I guess the moral of the story is ... don't panic and stay the course

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              • #8

                That is good question because my dad has a great government pension which he will carry his whole life. If he lost everything in his 401k, it probably would have no effect on how he lives. The question on advisors came up because I looked at his returns since August 2018 and they were negative going into 2020 before the crash. I thought that sucked considering the market the last few years.. He had a few “income” funds that lost significantly more value than they produced and he has only taken the minimum distributions while having over 200k invested. He frankly just seemed to have too many funds making little to no money or “income” funds which paid dividends, but dropped value significantly.

                I compare this to my admittedly aggressive portfolio Which yielded the following.
                YTD= 8.78%
                1 year = 21.3%
                3 year = 13.87
                5 year = 9.44%.

                I look at my very aggressive portfolio and ask myself if it just crushed the returns of the supposedly safer portfolio in a year with a very bad market crash, where is safety and what is is the purpose of the more conservative portfolio? Admittedly I moved about 10% into cash on the way down but when I look at which funds did better this year it isn’t close, the growth funds crushed all other fund types for returns.

                I have always saved a lot and started early so I am well ahead of most recommendations for my retirement . But as I get closer to retirement years, I find myself asking if diversification like advisers practice is really as sound as the conventional wisdom suggests. As TD noted, he has foreign investments because he "should" and they along with blend and value funds have never paid off. I think I find the same things David and TD noted that they really don't seem to pay off. They get hurt in a bad market less, but they lag far more in good markets to where the never seen to actually pay off.



                Last edited by BADGER; 08-01-2020, 06:10 PM.

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