Author Topic: Guidance/resources re: efficacy of managed funds and prediction of performance?  (Read 2068 times)

Tulip

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 Hi Everyone!

I've been a lurker on the forums for a little while now (taking in a lot of the great advice given to others!), but haven't been motivated enough to register until now. I read a lot of the great advice on the forums, so I am hoping I might get a little help/input on a situation.

For the past couple of years I have really gotten interested and involved in financial topics and have been working hard to get my own financial house in order. MMM and jlcollinsnh (particularly his stock series) have been a big influence on my thoughts regarding finances for the past year or so. I would only classify myself as a beginner and realize there is a ton of information that I do not know. Having said that...

My Dad has been talking a lot lately of the devaluation of the dollar (in a "the sky is falling" kind of way). A couple of weeks ago he was asking me to look up the cost of gold coins for him and we had a conversation with him contemplating if gold was the way to go and "hedge" against the devaluation of the dollar. He also mentioned that the company who manages his retirement accounts should have moved the money he had in investments into cash when they saw the markets tumbling in 2008. This has all pretty much lead to further discussions with his financial advisor. He has spoken with his financial advisor very recently who has told him that there is a managed fund that constantly monitors his investments and it will know/alert when the fund(s) is going down, will roll the money into cash, and will then roll it back into the fund when it gets to "the bottom" so that money is not lost on the way down. He says a computer (program) does it all. He said there is a 1.5% fee per year for the service. (This is the explanation in his words.) Now, again, I do not claim at all to be any kind of an expert in investing matters and this is where I would love some guidance. From what I have read in my own study, financial managers/computers that "predict" performance of funds/market is pretty much hooey and darting in and out of the market/funds is not the way to go. I've read some on Bogle and his investing advice makes sense to me. (I thought the Frontline/PBS video on The Retirement Gamble was extremely interesting. This was one of my first introductions to John Bogle and opened my eyes to what financial advisors and fees could do.)

My request is for resources, reading material, etc. that I can show my Dad that these "managed" funds are not worth the fees and that the claim that it can be predicted when a fund/the market will tank is really not reliable. My Dad is already retired and his rationale is that he may not have much in his retirement accounts, but he wants to keep as much of it as possible (obviously). I'm just concerned that in actuality the fees are going to cause more damage, but so slowly that it won't be alarming, and that he's basically paying for a false sense of security. I feel that if I had some hard data or articles to give to him he would read the material. OR am I the one who is in error and needs to relax about this? I realize ultimately he needs to do with his money what he is most comfortable with and I'm not responsible for his decisions, but I love him and don't want to see him misguided (and I definitely don't want to be the one misguiding him!).

Thanks for your time and I appreciate any comments/advice/resources you can share with me.

mh1361

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Have you tried telling him to read jlcollinsnh? Since Jim is retired, older, and has a lot of life experience, maybe your Dad can relate to Jim's style and advice. He might not be quick to read MMM since he's no doubt skeptical of the whole early retirement thing, but he might find jlcollinsnh useful. I think you should be trying to get your Dad away from those fees if you can.

Tulip

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Thanks, mh1361. I'll see if I can get him to read some from jlcollinsnh. He's not crazy about spending time on the computer, but maybe I could at least print out the stock series and see if he would read that. I do feel I should keep trying to get him away from the fees. I don't want to push to where he won't listen to me at all...I'll have to find a nice balance between being proactive and then giving him time to come to his own conclusions (hopefully to get away from the fee services!). I appreciate you responding!

matchewed

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https://personal.vanguard.com/pdf/s296.pdf

Depends how good your dad is at statistics but that can help.

Another tactic is just to look up a fee calculator and demonstrate how much he is paying out in fees for a given portfolio regardless of performance.

Tulip

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Matchewed, thanks so much! That document and your other suggested tactic are great approaches. I appreciate the help!