Author Topic: Convincing people about managed funds?  (Read 1596 times)

Mrs. D.

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Convincing people about managed funds?
« on: February 23, 2020, 05:42:07 AM »
For my whole life I've thought of my dad of as "a savvy investor." He's made millions in the stock market and advises lots of family and friends on how to manage their investments. He handles other people's estates and taxes. In a non-official capacity, he wields control over a large sum of money. His training is in law, not finances.

When I was 14 and got my first job as a camp counselor, he encouraged me to save some of my income by offering to dollar-match anything I put into a Roth IRA. I bit, so he opened the account and selected a few mutual funds. I've been contributing and watching my money grow ever since. Recently, I've been taking control over my finances more (I'm 34 now) and analyzed my holdings to find that they were all managed funds with pretty high fees. One fund was .89%. I sold them all off and bought low-fee index funds.

I brought this up with my dad and his response was, "It's your money, you can do what you want. But I'd be worried that those funds can't keep up with the actively managed ones." Citing stats about the long-term performance of managed funds, even telling him about Orlando the investing cat didn't seem to have any effect. A fee calculator showing him what .89% could do to my portfolio over the long haul also didn't sway him.

My assets are still pretty small (we have about 220K invested) so the effects of the fees haven't been deleterious. But my dad has been growing his money for 40 years. It's hard for me to imagine how many hundreds of thousands (or millions) he's given up in his PNW.

Has anyone succeeded in convincing people (in real life, not here on mmm) to change strategies? Do you have an article or lit review that can speak with authority? I'm not worried about my dad. He's set for life. But it does irk me that he's advising so many other people and giving them polluted advice IMO.

ScreamingHeadGuy

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Re: Convincing people about managed funds?
« Reply #1 on: February 23, 2020, 06:46:12 AM »
https://www.fool.com/investing/2018/01/03/warren-buffett-just-officially-won-his-million-dol.aspx

But like Buffalo Chips signature goes, “People would rather be wrong, and emotionally comfortable, than allow you to upset their worldview“.
« Last Edit: February 23, 2020, 06:48:07 AM by ScreamingHeadGuy »

nereo

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Re: Convincing people about managed funds?
« Reply #2 on: February 23, 2020, 08:55:10 AM »
The financial industry invests billion$$ convincing people that wealth management is big and complicated and scary, and they bombard us with ads daily.  That's a very hefty barrier to overcome.  There's also a cognative quirk that people (particularly well-educated people) think they are somehow more likely to 'beat the average.'   For people over 50, much of their adult life was during a time period when index funds were rare or unavailable, and it was expensive and difficult to manage your own portfolio.

Best I've been able to do is to constantly show people study after study which shows how managed funds lose out to index funds. Often it isn't enough.  But Vanguard's $5.6 Trillion in assets does suggest that slowly more people are getting the message.

Retire-Canada

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Re: Convincing people about managed funds?
« Reply #3 on: February 23, 2020, 01:00:34 PM »
Has anyone succeeded in convincing people (in real life, not here on mmm) to change strategies? Do you have an article or lit review that can speak with authority? I'm not worried about my dad. He's set for life. But it does irk me that he's advising so many other people and giving them polluted advice IMO.

I convinced my GF to switch to index funds. I have not convinced nobody else despite a number of what I thought were compelling arguments. I've stopped trying.
« Last Edit: February 23, 2020, 01:45:24 PM by Retire-Canada »

reeshau

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Re: Convincing people about managed funds?
« Reply #4 on: February 23, 2020, 01:07:53 PM »
If your Dad is 40 years into his investing career, and is succeeding (i.e. has millions) then why worry about this?  He is doing fine, so return the favor and let him do his thing.

It would be different if your Dad was a firm indexer, but as he hit 70 he went to a free lunch, and came out switching over to 100% variable annuities.  Or if he was a close friend, just starting out, and sure he found a way to get rich quick.  Those would be things demanding intervention.

Are the fees costing your Dad?  Yes.  Has he managed to invest through significant market downturns without blowing the whole thing?  Yes.  Then, even if fees are costing him more than the minimum, he is still succeeding by any metric.
« Last Edit: February 23, 2020, 01:10:11 PM by reeshau »

hodedofome

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Re: Convincing people about managed funds?
« Reply #5 on: February 23, 2020, 02:08:48 PM »
He’s probably thinking back to the good ole days of the 80s and 90s when you had Peter Lynch doing 30%+ a year. Then people like him retired, the tech bubble popped, and all those funds have underperformed since. He probably has so much money now that he hasn’t cared to do an updated comparison.

grobinski

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Re: Convincing people about managed funds?
« Reply #6 on: February 23, 2020, 02:12:09 PM »
I have been referring a lot of people to the Frontline program The Retirement Gamble lately. It's getting a bit dated, but is still impactful to everybody I know who has watched it. It doesn't seem that investment companies or employers have changed the game significantly in the 17 years since it came out.

https://www.pbs.org/video/frontline-retirement-gamble/

Here is a nice expense ratio comparison calculator I've also been sharing.
https://www.begintoinvest.com/expense-ratio-calculator/

My recently former employer is currently transitioning to a single provider (Fidelity) for all of its various plans. The default re-mapping of people's investments pushes most current elections to target date funds. A letter recently went out to everybody attempting to justify the decision which IMO abjectly failed in it's fiduciary responsibility. It feels to me like the institution was sold relatively high fee funds to the detriment of it's employees and retirees. Bizarrely, the smallish pool of "core funds" available for election includes no Fidelity funds, the indexes in the pool are Vanguard for example - wtf? Access to BrokerageLink is also an option, but the details of that option are very scant at this time. I'll probably roll all of my funds into an IRA if I can't get into funds I want within the 401a and 403b options available to me.

I emailed a couple committee members expressing frustration with the plan, this included high vs low fee growth scenarios and suggesting informing employees that high fees will impact performance: I've gotten no response.

I also shared my thoughts with a number of former co-workers and I hope they're aware of the impact of fees on their savings.
« Last Edit: February 23, 2020, 03:17:35 PM by grobinski »

Ockhamist

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Re: Convincing people about managed funds?
« Reply #7 on: February 23, 2020, 02:23:21 PM »
The average managed fund underperforms indexing.   Even well-above average managed funds underperform indexing.

But some managed funds overperform.

It is hard and a lot of work to pick funds that will beat the indices, and most people aren't in a position to do so, and so for most of us going with indexing is the smart choice.    But some funds do overperform, some quite substantially, and some people do the research and have the skill to pick them.

Your dad has been doing this for a while, and sounds like he's doing pretty well for himself financially.   Maybe he could have done better with indexing, but it doesn't sound like you know that to be the case.  If you want to convince him he's wrong, the first step would be making sure that you're right.

I don't mean this unkindly, but you sound pretty darn arrogant, being so sure that you know better than him, and judging him for giving others "polluted advice."  The evidence you presented didn't sway him?  Why not?  You might want to come at that conversation from a humbler starting point, maybe even considering the possibility that your financially successful father who so many other people turn to for financial advice might know a thing or two.
« Last Edit: February 23, 2020, 02:25:59 PM by Ockhamist »

Buffaloski Boris

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Re: Convincing people about managed funds?
« Reply #8 on: February 23, 2020, 03:31:56 PM »
Quite the honor to have my tagline cited on a thread. LOL!

For me, I gotta admit I’m pretty agnostic on the whole managed fund/ index fund question. To me, it all boils down to a critical analysis of whether you’re getting value consistently from the fees you’re paying. If you are, then why not pay the fees? For an extreme example, take a look at the returns on the Renaissance fund back in the day. They were charging a crazy fee. And you would be a fool NOT to pay it! The returns were that good.

There are examples of funds that can beat the US market. They’re just vanishingly rare.

In answer to the OPs question, I’m a big believer in the adage “if it’s stupid and it works, it’s not stupid.”
« Last Edit: February 23, 2020, 07:23:25 PM by Buffaloski Boris »

Rob_bob

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Re: Convincing people about managed funds?
« Reply #9 on: February 23, 2020, 05:48:02 PM »
I wonder if anyone, especially a 34 year old, could convince Warren Buffett to stop investing in individual stocks and go with index funds?  :)

Telecaster

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Re: Convincing people about managed funds?
« Reply #10 on: February 23, 2020, 06:08:18 PM »
I wonder if anyone, especially a 34 year old, could convince Warren Buffett to stop investing in individual stocks and go with index funds?  :)

Heh.  After a life of successful investing the father isn't going to change. 

FWIW, Buffett does recommend buying index funds, including for members of his own family. 

Mrs. D.

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Re: Convincing people about managed funds?
« Reply #11 on: February 23, 2020, 06:54:12 PM »
The average managed fund underperforms indexing.   Even well-above average managed funds underperform indexing.

But some managed funds overperform.

It is hard and a lot of work to pick funds that will beat the indices, and most people aren't in a position to do so, and so for most of us going with indexing is the smart choice.    But some funds do overperform, some quite substantially, and some people do the research and have the skill to pick them.

Your dad has been doing this for a while, and sounds like he's doing pretty well for himself financially.   Maybe he could have done better with indexing, but it doesn't sound like you know that to be the case.  If you want to convince him he's wrong, the first step would be making sure that you're right.

I don't mean this unkindly, but you sound pretty darn arrogant, being so sure that you know better than him, and judging him for giving others "polluted advice."  The evidence you presented didn't sway him?  Why not?  You might want to come at that conversation from a humbler starting point, maybe even considering the possibility that your financially successful father who so many other people turn to for financial advice might know a thing or two.

All right, ockhamist, easy there. My dad and I have a great relationship and we talk openly about all sorts of things, one of which is our personal finances. He's put me on a great path to financial freedom and I've learned a lot form him. He does, in fact, know a thing or two. To counter your point, he did select managed funds for my IRA and they did not outperform the market. Some of them performed quite poorly. I don't know if he could have done better with indexing, but I know I could have.

Gronnie

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Re: Convincing people about managed funds?
« Reply #12 on: February 23, 2020, 07:00:53 PM »
The average managed fund underperforms indexing.   Even well-above average managed funds underperform indexing.

But some managed funds overperform.

It is hard and a lot of work to pick funds that will beat the indices, and most people aren't in a position to do so, and so for most of us going with indexing is the smart choice.    But some funds do overperform, some quite substantially, and some people do the research and have the skill to pick them.

Your dad has been doing this for a while, and sounds like he's doing pretty well for himself financially.   Maybe he could have done better with indexing, but it doesn't sound like you know that to be the case.  If you want to convince him he's wrong, the first step would be making sure that you're right.

I don't mean this unkindly, but you sound pretty darn arrogant, being so sure that you know better than him, and judging him for giving others "polluted advice."  The evidence you presented didn't sway him?  Why not?  You might want to come at that conversation from a humbler starting point, maybe even considering the possibility that your financially successful father who so many other people turn to for financial advice might know a thing or two.

If everyone picks funds, and at least a few people have selected every single fund, then by definition some people will have picked some of the over performing funds. It doesn't mean they were more skilled, it means they got lucky. Study after study shows looking backward at how they did doesn't in any way predict how they will do going forward.

Gronnie

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Re: Convincing people about managed funds?
« Reply #13 on: February 23, 2020, 07:02:29 PM »
If your Dad is 40 years into his investing career, and is succeeding (i.e. has millions) then why worry about this?  He is doing fine, so return the favor and let him do his thing.

It would be different if your Dad was a firm indexer, but as he hit 70 he went to a free lunch, and came out switching over to 100% variable annuities.  Or if he was a close friend, just starting out, and sure he found a way to get rich quick.  Those would be things demanding intervention.

Are the fees costing your Dad?  Yes.  Has he managed to invest through significant market downturns without blowing the whole thing?  Yes.  Then, even if fees are costing him more than the minimum, he is still succeeding by any metric.

OP will likely never convince his father (powdered butt syndrome among other things) here is why it's concerning in a general sense:

If the SWD is 4% and someone is paying 1% in fees, that means 25% of their potential income is going to fees instead.

Mrs. D.

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Re: Convincing people about managed funds?
« Reply #14 on: February 23, 2020, 07:17:20 PM »
I wonder if anyone, especially a 34 year old, could convince Warren Buffett to stop investing in individual stocks and go with index funds?  :)

If I'm not mistaken, Mr. Money Mustache was in his early 30's when he appointed himself a financial guru and started a blog so he could give others financial advice.  And I think that's why we're all here.....

Mrs. D.

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Re: Convincing people about managed funds?
« Reply #15 on: February 23, 2020, 07:20:06 PM »
OP will likely never convince his father (powdered butt syndrome among other things) here is why it's concerning in a general sense:

If the SWD is 4% and someone is paying 1% in fees, that means 25% of their potential income is going to fees instead.
[/quote]

Exactly. And many of the people that he is offering financial advice to are lower- to middle- income people who will need every dollar of that income. 

I will need you to clarify the term "powdered butt syndrome." That is a new one for me.

Villanelle

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Re: Convincing people about managed funds?
« Reply #16 on: February 23, 2020, 07:30:15 PM »
Why would you try to convince someone who is clearly financially stable on his own, of anything?  When he hasn't sought out advice and doesn't seem interested in hearing about a different way?

I don't try to convince anyone of anything.  If they ask questions, I answer.  I may mention that I have knowledge of a certain subject. If they don't take the bait, I drop it because continuing to push unsolicited advice is, IMO, rude, even if I love the person.  And that's especially true if they aren't fucking up their lives, they are just making sub-optimal decisions. 

MustacheAndaHalf

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Re: Convincing people about managed funds?
« Reply #17 on: February 23, 2020, 07:42:17 PM »
For perspective, the worst case isn't managed funds - it's cash.  Sitting on the sidelines earns none of the market return, which is even worse than shaving off -1% of the market's return.

Instead of convincing your dad, why not have a friendly wager?  You each bet one fund will beat the other, and see who wins.  Note there's only a 2:1 edge for annual performance, so if you can push him to use 3 year performance you'll get a 4:1 edge.  The goal isn't to change his mind, just to impress him a bit.

Here's the statistics tracked by S&P.
https://www.ifa.com/articles/spiva_-year_2019_active_passive_scorecard/


Mrs. D.

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Re: Convincing people about managed funds?
« Reply #18 on: February 23, 2020, 08:11:30 PM »

Instead of convincing your dad, why not have a friendly wager?  You each bet one fund will beat the other, and see who wins.  Note there's only a 2:1 edge for annual performance, so if you can push him to use 3 year performance you'll get a 4:1 edge.  The goal isn't to change his mind, just to impress him a bit.

Here's the statistics tracked by S&P.
https://www.ifa.com/articles/spiva_-year_2019_active_passive_scorecard/

I like that idea! I wonder if he'd bite...

marty998

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Re: Convincing people about managed funds?
« Reply #19 on: February 24, 2020, 12:46:14 AM »
If the SWD is 4% and someone is paying 1% in fees, that means 25% of their potential income is going to fees instead.

This is only true if the investment grows by 4%. If the investment grows by 8% a year, then you are paying away 12.5% of the return in fees. Still a huge chunk, but not 25%.


I will need you to clarify the term "powdered butt syndrome." That is a new one for me.

If you (the parent) have experience in wiping someone's ass (your baby child), chances are you are not going to take too kindly to being asked to learn lessons from said ass.


reeshau

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Re: Convincing people about managed funds?
« Reply #20 on: February 24, 2020, 07:00:16 AM »
If your Dad is 40 years into his investing career, and is succeeding (i.e. has millions) then why worry about this?  He is doing fine, so return the favor and let him do his thing.

It would be different if your Dad was a firm indexer, but as he hit 70 he went to a free lunch, and came out switching over to 100% variable annuities.  Or if he was a close friend, just starting out, and sure he found a way to get rich quick.  Those would be things demanding intervention.

Are the fees costing your Dad?  Yes.  Has he managed to invest through significant market downturns without blowing the whole thing?  Yes.  Then, even if fees are costing him more than the minimum, he is still succeeding by any metric.

OP will likely never convince his father (powdered butt syndrome among other things) here is why it's concerning in a general sense:

If the SWD is 4% and someone is paying 1% in fees, that means 25% of their potential income is going to fees instead.

I know the math, but 3% of millions is probably sufficient for comfortable living.  It is another thing if he is actively spreading his ideas as optimal.

Spitfire

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Re: Convincing people about managed funds?
« Reply #21 on: February 24, 2020, 07:55:54 AM »
Agree that with his success he is unlikely to change his mind, but Bogle's "little book of common sense investing" has a lot of good data to show that managed funds are often a waste. From the book:

"Only three out of the 355 equity funds that started the race in 1970—only 8/10 of 1 percent—have both survived and mounted a record of sustained excellence."

This was a study done from 1970-2005. Most underperformed the index, period. Some matched the index (+/- 1%), and only 9 of them beat the index by 2%+ for the long run. 6 of those 9 hadn't beaten the index since 1993 (after being recognized by more people and having more funds put under management).

Even if you ignore the decade+ slide at the end and count all 9 "winners," the odds are incredibly poor of getting into the right one.

Sanitary Engineer

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Re: Convincing people about managed funds?
« Reply #22 on: February 24, 2020, 08:41:15 AM »
I have been referring a lot of people to the Frontline program The Retirement Gamble lately. It's getting a bit dated, but is still impactful to everybody I know who has watched it. It doesn't seem that investment companies or employers have changed the game significantly in the 17 years since it came out.

https://www.pbs.org/video/frontline-retirement-gamble/

Here is a nice expense ratio comparison calculator I've also been sharing.
https://www.begintoinvest.com/expense-ratio-calculator/


I use those links too!  The Retirement Gamble is only 7 years old.

I also mention Burton Malkiel's "A Random Walk Down Wall Street" and Bogle's "Common Sense on Mutual Funds".  Malkiel's book is pretty exhaustive on the "methods" a fund manager or stock picker is going to use to roll the dice. 


Gronnie

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Re: Convincing people about managed funds?
« Reply #23 on: February 24, 2020, 03:23:15 PM »

I will need you to clarify the term "powdered butt syndrome." That is a new one for me.

Once someone has powdered your butt (changed your diapers, whatever you want to call it) they aren't likely to want your opinion  about topics like sex, money, etc

jrbrokerrr

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Re: Convincing people about managed funds?
« Reply #24 on: February 25, 2020, 09:57:15 AM »
For my whole life I've thought of my dad of as "a savvy investor." He's made millions in the stock market and advises lots of family and friends on how to manage their investments. He handles other people's estates and taxes. In a non-official capacity, he wields control over a large sum of money. His training is in law, not finances.

When I was 14 and got my first job as a camp counselor, he encouraged me to save some of my income by offering to dollar-match anything I put into a Roth IRA. I bit, so he opened the account and selected a few mutual funds. I've been contributing and watching my money grow ever since. Recently, I've been taking control over my finances more (I'm 34 now) and analyzed my holdings to find that they were all managed funds with pretty high fees. One fund was .89%. I sold them all off and bought low-fee index funds.

I brought this up with my dad and his response was, "It's your money, you can do what you want. But I'd be worried that those funds can't keep up with the actively managed ones." Citing stats about the long-term performance of managed funds, even telling him about Orlando the investing cat didn't seem to have any effect. A fee calculator showing him what .89% could do to my portfolio over the long haul also didn't sway him.

My assets are still pretty small (we have about 220K invested) so the effects of the fees haven't been deleterious. But my dad has been growing his money for 40 years. It's hard for me to imagine how many hundreds of thousands (or millions) he's given up in his PNW.

Has anyone succeeded in convincing people (in real life, not here on mmm) to change strategies? Do you have an article or lit review that can speak with authority? I'm not worried about my dad. He's set for life. But it does irk me that he's advising so many other people and giving them polluted advice IMO.



If it is working and not broken, why try to fix it ???