Author Topic: HELP me avoid a terrible investment mistake!!  (Read 3305 times)


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HELP me avoid a terrible investment mistake!!
« on: August 13, 2014, 11:41:02 PM »
Hello fellow Mustacians! I need your help! My boyfriend's grandmother passed away about a month ago, and his mother will be inheriting a considerable sum of money (we are guessing it will be around $1 million US cash, plus some property). Yesterday he told me he wants to go visit his mom to discuss the inheritance with her because she wants to get a financial advisor.

Apparently her cousin's son is a big shot financial advisor and manages some hedge fund (I'm not sure of all the details). She is going to meet with him to discuss investing the money with his firm. Apparently he usually only manages account over $12 million or something but he is going to do a favor for her because she is family.

This has BAD NEWS written all over it! Not only is trusting a family member with that kind of money a recipe for disaster, this guy's fees are 1% AND his returns over the last 5 years have been around 6%. I actually groaned out loud when my boyfriend told me all of this! VTSAX has 0.05% ER and returns over the last 5 years are around 16%. She says she wants someone to manage the money who she can call any time to talk to it about but we think she should invest in Vanguard funds. I told my boyfriend that with those fees alone she will be losing about 13% of her growth and that really convinced him that we need to convince her.

Now our problem is, how do we convince her?? She isn't bad with money, per se, but isn't good either. She has booms and busts of having money and money being tight. She also eats out a lot, spends money on clothes, etc etc, and doesn't mind carrying credit card debt. She really doesn't understand investing well so we need to break it down into simple terms that make it feel safe ams easy for her. Any advice?? TIA!


  • 5 O'Clock Shadow
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Re: HELP me avoid a terrible investment mistake!!
« Reply #1 on: August 13, 2014, 11:46:02 PM »
With 1M or so, Vanguard will provide someone to talk to. "Flagship" is the name for the 1M level of service.  See VG website.


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Re: HELP me avoid a terrible investment mistake!!
« Reply #2 on: August 13, 2014, 11:48:07 PM »
Awesome, good to know! I will look into Flagship!


  • Pencil Stache
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Re: HELP me avoid a terrible investment mistake!!
« Reply #3 on: August 14, 2014, 02:21:10 AM »
How old is your boyfriend's mother, sekretdino? Is she of an age that she will need a dividend income stream? What is her 'risk profile' as financial planners say in Australia? Is she comfortable with good quality equities? Would she be more comfortable with buying houses in her neighbourhood and renting them out?

Edit: I should have added that 1% of $1M is $10K in fees, which is high. If your boyfriend's mother wants to see a financial planner, she might ask around, and select a local who caters for clients with 'only' $1M. Choose a planner who has lived in her town for a long time. He/she is unlikely to be reckless or incompetent, because he/she lives in the same town as his clients.
« Last Edit: August 14, 2014, 02:27:24 AM by Leisured »


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Re: HELP me avoid a terrible investment mistake!!
« Reply #4 on: August 14, 2014, 02:38:36 AM »
I doubt any sane investor would put 100% of their investable assets in 1 hedge fund. I see some recommend 1-5% total assets going to hedge (multiple) and maybe another 1-5% in private equity (multiple). That being said, 6% CAGR is pretty poor but past 5 years have been tough for hedge.

What I am trying to say is the cousin probably got good intentions and to invest 1M in a fund would be a rare exception, but the investment is likely not appropriate given the amount of assets.
« Last Edit: August 14, 2014, 02:43:00 AM by chesebert »


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Re: HELP me avoid a terrible investment mistake!!
« Reply #5 on: August 14, 2014, 07:55:54 AM »
Tim Ferriss: “If you were 30 years old and had no dependents but a full-time job that precluded full-time investing, how would you invest your first million dollars, assuming that you can cover 18 months of expenses with other savings? Thank you in advance for being as specific as possible with asset classes and allocation percentage.”

Warren Buffett: “I’d put it all in a low-cost index fund that tracks the S&P 500 and get back to work…”

Best advice ever, although you'd want some bonds in the mix rather than 100% S&P.  (Source: )

If you're more conservative, put 60% in an S&P500 etf (SPY) and 40% in a treasury etf (TLT)

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Re: HELP me avoid a terrible investment mistake!!
« Reply #6 on: August 14, 2014, 08:21:09 AM »
Hate to say it, but if she isn't very good with money, an annuity (with at least a portion of the funds) might be a good option for her.  Vanguard can help her with that as well.  Cases like hers are like fresh meat in front of a lion that hasn't eaten in a month, the wrong folks will eat her money for lunch.  At least if she has an annuity, she will be guaranteed some level of income for life, even if she messes everything else up.


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Re: HELP me avoid a terrible investment mistake!!
« Reply #7 on: August 14, 2014, 08:54:52 AM »
Bottom line:  Bring her to an independent CFP.  Draft out a strategy for investment.  I'm sure it will include lots of mutual funds/ETFs for stocks, bonds, probably even some real estate, commodities and annuities.  She isn't rich enough to be plopping down her life savings in a hedge fund.

A few points if she's unwilling to follow that advise:

1)  Your boyfriends mom's cousin's son (what a mouthful) is pitching a hedge fund.  These are open to accredited investors only.  $1M in liquid wealth is the MINIMUM level of funds needed to be an accredited investor.  Most accredited investors put between 0-25% of their non-business non-residence wealth in accredited in plural...some private timberland, some private equity, a few hedge funds, etc.  Your boyfriend's mom is planning to put close to 100% of her liquid wealth into a single product.  This is not a smart idea.  Hedge funds are highly illiquid, meaning when she probably needs her money the most, she won't be able to access it.

2)  Hot shot hedge fund guys are a dime a dozen, and more often then not they are pure BS with a trendy idea and no real track record.  Qualify this guys -- I don't care that he's family.  If he's a hot shot hedge fund guy, he should have CFA and ideally CAIA listed after his name on his business card.  If he doesn't have either, he is the flavor of the week destined to blow up and lose everything for his investors.

3)  You can't compare raw returns.  Without knowing what the hedge fund strategy is, a pure "his fund vs total market index" is meaningless.  Maybe he runs a market neutral strategy, meaning the expected risk is the same as short term government bonds.  So maybe his 6% should be compared against a 1% T-Bill return, instead of a 13% stock market return.  Point is, the comparison is meaningless and brings me to a common reiteration to lots of investors -- STOP CHASING RETURNS! (or at least compare it to a proper benchmark)


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Re: HELP me avoid a terrible investment mistake!!
« Reply #8 on: August 14, 2014, 11:44:08 AM »
Thanks for the advice everyone! I'm at work (ugh) so I'll have to read it all more in depth later.

A little more context: b/f's mom just turned 60. She will have a pension from her job and her husband's 401(k) for retirement, and she gets some money every year from a settlement that happened years ago.

I definitely agree that her funds should be diversified into more stable allocations like bonds, some cash, etc. Also, taking her to an independent CFP who will be accountable as her feduciary is a great idea.