Author Topic: Total newb investor question - broker vs. un-managed account  (Read 2774 times)

Spendysaurus

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Total newb investor question - broker vs. un-managed account
« on: October 02, 2017, 08:51:06 PM »
For a handful of years we had a low cost (.35%) account with Charles Schwab.  They were always friendly and helpful when called but if we didn't call, never heard from them.  It grew from $142k in 07/2012 to $198k in 07/2014.  I know this was a strong period of growth and we likely could have done better.  It was just something I didn't think about.  Last year we moved it all ($217k - we used some) to a broker who costs 1.25%.  He essentially did nothing other than get rid of some dead weight and keep the SPDR S&P Divident ETF SDY. 

I now have an extra $220k from a house sale to invest but I'm not sure I want to dump it all on one man.  He's smart and all but something tells me we should take a different approach.  I kind of want to give the broker and Charles Schwab equal amounts for a year and see who returns more.  Is that a dumb idea?

lost_in_the_endless_aisle

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Re: Total newb investor question - broker vs. un-managed account
« Reply #1 on: October 02, 2017, 09:23:06 PM »
1 year is not a statistically significant amount of time to decide which is better. Picking stocks via a game of cow bingo might have higher returns over a year-long period than an index. What is clear is that 1.25% is ridiculous unless your guy happens to be Warren Buffet.

Spendysaurus

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Re: Total newb investor question - broker vs. un-managed account
« Reply #2 on: October 02, 2017, 10:00:22 PM »
First point. My thinking is that since the fund would be the same in each account, it would prove whether or not the added value of a dedicated broker is all that valuable.

Second point, Charles Schwab offers the same kind of outsourced brokers for .65 - .90%, depending on a couple of things.  You'll never meet these guys.  There are brokers all over the country who ask for 2 - 3%.  Which I think is ridiculous.

Should I ask him to match his rate to CS's?  Thank you for your time.

MDM

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Re: Total newb investor question - broker vs. un-managed account
« Reply #3 on: October 02, 2017, 10:01:20 PM »
I kind of want to give the broker and Charles Schwab equal amounts for a year and see who returns more.  Is that a dumb idea?
Yes, for exactly the reason litea gave.

Consider picking your desired asset allocation and putting that in a three-fund portfolio (or similar) instead.

If you can resist the urge to market-time, you are highly likely to do better than paying anyone 1.25%.  Of course, if you need someone to save you from yourself when the market dips, an advisor may be worthwhile.  Vanguard's PAS (and others) can be had for much less than 1.25%: for PAS, 0.3%.

Bicycle_B

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Re: Total newb investor question - broker vs. un-managed account
« Reply #4 on: October 03, 2017, 12:21:10 AM »
Hi SpendySaurus.  Get out of the broker's account entirely. Use Schwab or Vanguard.  Pick an asset allocation (MDM gave a nice allocation) and buy that asset allocation in the cheapest way (unmanaged funds with low fees).  Do not pick a "man" or "woman" or "nice nonbinary broker", pick investments and minimize your fees. 

Think of it this way.  Your expected long term return on invetments is 4% to 6% after inflation - let's say 5% in round numbers.  Paying the broker 1.25% means giving away a quarter of your investment's return.  Stop this immediately!

Frankies Girl

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Re: Total newb investor question - broker vs. un-managed account
« Reply #5 on: October 03, 2017, 12:41:53 AM »
I posed the same sort of idea back at the beginning when I was just starting to get interested in investing.

It's basically you trying to be logical, but without really understanding the logic behind investing itself. So it's a logic fail.

Advisers aren't in the business to make you money. They are in the business to make THEMSELVES money, and then their company money. You are just the vehicle they are using to achieve these goals. If they happen to make you some money using your money, that's a happy accident. Advisers use all kinds of spiels to draw in clients: they'll tell you they are looking out for you, you're too busy/naive, the stock market is super complex and scary, you aren't nearly as smart as them, that they have your best interests in mind, can beat out any other group or funds or whatever... they will tell you anything to get your business, and they are very well trained to manipulate the facts/data/perception and prey on those that are unable or unwilling to do the research/learning themselves. Unless they are fiduciaries (and no, most all of them are not) then they are not even liable to invest your money in ways that protect and serve your best interests.

Have you read the stock series by Jim Collins? He wrote a book that is a fun read based off the website.
http://jlcollinsnh.com/stock-series/

I'll direct you to one of the chapters that is quite relevant: http://jlcollinsnh.com/2012/06/06/why-i-dont-like-investment-advisors/

Spendysaurus

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Re: Total newb investor question - broker vs. un-managed account
« Reply #6 on: October 03, 2017, 11:25:53 AM »
Wow, everyone, thank you so much for the kick in the pants and motivation to dump him.  I don't want to hurt his feelings.  He still manages the IRA's and the company 401k.  Maybe I'll pull out piecemeal.  One thing that bothers me is that he refuses to talk simple language.  It's like he always tries to make it as confusing as possible. Most likely a tactic to get his customers to believe that they need him.

MDM

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Re: Total newb investor question - broker vs. un-managed account
« Reply #7 on: October 03, 2017, 11:46:06 AM »
I don't want to hurt his feelings.
You could pay the 1.25% to a deserving charity and tell him you are doing so in his honor.  Would that make him feel better?

Stimpy

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Re: Total newb investor question - broker vs. un-managed account
« Reply #8 on: October 03, 2017, 12:40:09 PM »
One thing that bothers me is that he refuses to talk simple language.

It's call Salesmanship.  Hit em with BS, then charge up the rear!$!  Works wonders on the masses (Ignorant masses anyway...)

As all other have said, drop em like a box of rotten tomatoes.  And if you really feel bad, take that 1.25% he gonna charge you and get a fancy pants car (or something else expensive and stupid!) or as suggested give it to charity.   That way it's at least going somewhere where it will make a difference.

boarder42

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Re: Total newb investor question - broker vs. un-managed account
« Reply #9 on: October 03, 2017, 01:06:45 PM »
You need to boot him yesterday. 

here is a good calculator to show what you're wasting

https://www.begintoinvest.com/expense-ratio-calculator/

Paying someone 1.25% vs .04% of vanguard admiral shares could cost you 7.6MM over 40 years if you retired with 2MM dollars.  let that sink in for a while.

Heroes821

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Re: Total newb investor question - broker vs. un-managed account
« Reply #10 on: October 03, 2017, 02:51:12 PM »
I wouldn't even keep the IRAs with him.  Read the JLCollins link above and move everything to Vanguard or similar you can self manage just fine.  401k through a business is an entirely different issue and if he tried to "take vengeance" (highly unlikely) on your 401k allocations he'd be in a very bad position to continue working.


Personally, I use Vanguard, I hear Fidelity and Schwab are also good places for self directed accounts.

Spendysaurus

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Re: Total newb investor question - broker vs. un-managed account
« Reply #11 on: October 04, 2017, 01:54:20 PM »
So glad I dumped Facebook and got back into reading this blog.  He's always been available and whatnot so a personal relationship has developed, that's all.  I do like the suggestion to donate the money that would go to him.  I can imagine the phone call:. "So you know the $5,000 you were expecting to make off this account next year, surprise, it's going to charity!"

I used his services for a year and feel a little dumb now but oh well, life goes on.

Heroes821

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Re: Total newb investor question - broker vs. un-managed account
« Reply #12 on: October 04, 2017, 02:33:02 PM »
Don't worry about feeling dumb Spendy, my "broker" only sold me life insurance and when I told him I wanted to diversify into anything else he insisted that I need more life insurance first... to which I replied by ignoring all of his communication since then and cancelling my policy.

elaine amj

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Re: Total newb investor question - broker vs. un-managed account
« Reply #13 on: October 04, 2017, 02:45:18 PM »
My DH insisted on doing something similar to what you're did. A few years ago, he gave a chunk of money to TWO different brokers to "test them out". Of course, neither of us really understand how ROI and how to properly evaluate investments. he fell for all the sales talk. I washed my hands of it and told him to go ahead and take a chunk of money and go ahead and experiment.

A couple of years later, this forum gave me the push I needed to insist we liquidate all those investments and move them to a simple couch potato portfolio with index funds. It took a ton of convincing (and my DH is still not fully convinced but has agreed to let me do as I wish). It helped that when we liquidated, we avoided talking to the brokers and let our bank deal with them. We opened an investment account with our bank, handed the list of accounts over, and they handled it from there. I know DH still feels a bit bad (they sure get ya on those personal relationships!) but I was on a mission to simplify and I felt a huge sense of relief after we did.

Now I still have to figure out how to do the same things with DH's retirement accounts! We're with DIA and Voya and I have no clue and haven't taken the time to research it yet. I'm going to have to figure out how to switch the investments in them over to Vanguard funds or something similar.

firescape

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Re: Total newb investor question - broker vs. un-managed account
« Reply #14 on: October 04, 2017, 06:36:32 PM »
I remember feeling reluctant to move all of our money away from our EJ advisor, who we'd know for years, thinking it was somehow unfair, or selfish.
Then I realized that he (while sitting in his walnut trimmed office), didn't feel at all bad about taking over 1% of our hard earned investment dollars, even on years we lost money!
That reluctance was short lived, I moved every nickel to Vanguard and enjoyed doing it.
But on your 'big girl pants' and do what is best for you.

boarder42

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Re: Total newb investor question - broker vs. un-managed account
« Reply #15 on: October 04, 2017, 06:54:02 PM »
I remember feeling reluctant to move all of our money away from our EJ advisor, who we'd know for years, thinking it was somehow unfair, or selfish.
Then I realized that he (while sitting in his walnut trimmed office), didn't feel at all bad about taking over 1% of our hard earned investment dollars, even on years we lost money!
That reluctance was short lived, I moved every nickel to Vanguard and enjoyed doing it.
But on your 'big girl pants' and do what is best for you.

News flash. Your EJ advisor was raping you for way more than 1%. Those guys are the scum of the earth. Huge front load fees and over 1% expense ratios. You're looking at 6% a year sometimes with the good ones who will move you around and hit you with those front load fees alot.

Spendysaurus

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Re: Total newb investor question - broker vs. un-managed account
« Reply #16 on: October 04, 2017, 09:34:46 PM »
Don't worry about feeling dumb Spendy, my "broker" only sold me life insurance and when I told him I wanted to diversify into anything else he insisted that I need more life insurance first... to which I replied by ignoring all of his communication since then and cancelling my policy.

Haha, that's great!  I fortunately have known better than to buy life insurance.  For now, anyways.

Spendysaurus

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Re: Total newb investor question - broker vs. un-managed account
« Reply #17 on: October 04, 2017, 09:45:40 PM »
My DH insisted on doing something similar to what you're did. A few years ago, he gave a chunk of money to TWO different brokers to "test them out". Of course, neither of us really understand how ROI and how to properly evaluate investments. he fell for all the sales talk. I washed my hands of it and told him to go ahead and take a chunk of money and go ahead and experiment.

A couple of years later, this forum gave me the push I needed to insist we liquidate all those investments and move them to a simple couch potato portfolio with index funds. It took a ton of convincing (and my DH is still not fully convinced but has agreed to let me do as I wish)

My DW said my experiment was a horrible idea as well.  That's why I came back to this site after a 3 year hiatus.  I kept thinking to myself: but is it really??? 

I'm also concerned about transferring the IRA's.  I don't even know what the expense of those are right now and how it'll get done.  I want to put $11,000 before the deadline this year so I should send him a check.  I'm also trying to relocate the family so no time to do anything else. Never any time, that's how I signed with the broker in the first place.

Spendysaurus

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Re: Total newb investor question - broker vs. un-managed account
« Reply #18 on: October 04, 2017, 09:51:11 PM »
So glad I dumped Facebook and got back into reading this blog.  He's always been available and whatnot so a personal relationship has developed, that's all.  I do like the suggestion to donate the money that would go to him.  I can imagine the phone call:. "So you know the $5,000 you were expecting to make off this account next year, surprise, it's going to charity!"

I used his services for a year and feel a little dumb now but oh well, life goes on.

Earlier in another post, you indicated that you didn't want to hurt his feelings, and now this...

I think you are far to invested in your broker's emotional state.

Forget about him for now and focus on transferring your money and managing it yourself.  The less you have to deal with him the better.  Remember: He is a salesman, and you are a (leaving) client.  You have to assume that he will say practically anything, within the bounds of the law, to keep your business.  But its not like he actually cares.

I will be strong, LAS. Have no fear.  To be fair, in our costal community of southern Maine, people know each other.  I will likely see him again.. Whether it's at a sandwich shop or where our children hangout or through colleagues. It adds another dynamic.

Spendysaurus

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Re: Total newb investor question - broker vs. un-managed account
« Reply #19 on: October 04, 2017, 09:55:19 PM »
I remember feeling reluctant to move all of our money away from our EJ advisor, who we'd know for years, thinking it was somehow unfair, or selfish.
Then I realized that he (while sitting in his walnut trimmed office), didn't feel at all bad about taking over 1% of our hard earned investment dollars, even on years we lost money!
That reluctance was short lived, I moved every nickel to Vanguard and enjoyed doing it.
But on your 'big girl pants' and do what is best for you.

Yes, in the world of finance, I do feel like a vulnerable girl, even though I'm a father of 4. Just been way too busy with life and engineering.  Now put me in the car repair shop and watch a man with girl pants on Superman punching some mechanics!

elaine amj

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Re: Total newb investor question - broker vs. un-managed account
« Reply #20 on: October 04, 2017, 09:58:41 PM »
I feel your pain. Frankly I hate the investments side and always feel stupid when working on it. And yet...its such an incredibly important thing and really really essential to understand your own money. Unfortunately,  not something that it is good to delegate or hire out  :(

Don't send him a check. Just open up a pretty new account at Vanguard or whatever and stick your $11k there. Then when u have a bit more breathing room, hand a list of your current accounts to Vanguard and ask them to help u transfer it over (at least that's how I did it in Canada...I imagine the US is not much different?)

You're really not the only one. I am a master at procrastinating over investments. I eventually  handled most of our Canadian investments.  Tonight, two YEARS after I moved my Cdn investments...I am finally tackling our US investments. I think the first steps of my plan figured out and will start selling and buying funds tomorrow.


Sent from my STH100-1 using Tapatalk
« Last Edit: October 04, 2017, 10:00:39 PM by elaine amj »

Mighty-Dollar

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Re: Total newb investor question - broker vs. un-managed account
« Reply #21 on: October 06, 2017, 04:18:55 PM »
For a handful of years we had a low cost (.35%) account with Charles Schwab.  Last year we moved it all ($217k - we used some) to a broker who costs 1.25%.
Why on earth are you paying people for investing help? You need to understand what an advisor does and how a 3rd grader can do what they do.
https://www.youtube.com/watch?v=lMwkZbbIY7U
Also understand how as little at 1% will cost you a lot over a lifetime.
https://www.youtube.com/watch?v=tnLiz-h65iI
« Last Edit: October 06, 2017, 08:20:03 PM by Mighty-Dollar »

Spendysaurus

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Re: Total newb investor question - broker vs. un-managed account
« Reply #22 on: October 10, 2017, 10:13:56 PM »
Don't worry man. I've been reading through the recommended articles and I can't wait to drop him! It was a year, $2,400 wasted but not really. I learned a few things in the process and he helped convince my wife to sell our 2nd home. I've also learned to never trust another broker. He literally just kept the money in SDY and billed me for the right to call him and request trades. I told him as I was hiring him he'd have a year to beat the return SDY provided but he did nothing to even try. What a dink.