Author Topic: Just checked my ML returns - facepunch me please!  (Read 9676 times)

nereo

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Just checked my ML returns - facepunch me please!
« on: March 25, 2014, 09:39:00 AM »
I'm writing this post because I feel that we don't learn from our mistakes unless we write them down.
My hope is that
1) I'll never be so foolish again
2) others will avoid making a similar mistake

Background:  I'll start off by thanking my parents for getting me to invest early and max out my IRA every year when I was a teenager. They even talked to their 'investment guy' from Merrill Lynch and he set up my IRA and managed it for me - I didn't have to do a thing!
For about 8 years as a teenager and early-20-something I blindly gave him my money each year, and he put it into the "long-term, higher risk" investment category of mostly equities.  I got lots of mail saying each month declaring that he sold this and bought that, all of which I tossed in the recycling. In 2011 I started taking more of an interest in my investments and I started my own account with Vanguard, and saved everything I could in their low-cost SP500 fund.  However, I just left the old IRA with Merrill-Lynch on autopilot.

This year I decided to finally get serious and take more control over my own accounts.  I was pretty sure I wanted to consolidate all my IRAs under my Vanguard account, but I needed to see how the ML account preformed.  For all I knew, the ML guy could be one of the ~20% who routinely beats the market after fees! My parents sure liked him.

The realization - I got raped.  I compared yearly balances from 2004-2013 to SP500 returns with dividends reinvested.* It wasn't pretty.  Over the longer time periods, I trailed the SP500 by 2.5-2.9% annualized. More recently, from 2011-2013 I trailed over 5% per year.  For every single one-year period I looked at, he trailed the SP500.  As near as I can figure, I would have over $8,000+ more had I just invested with Vanguard from the beginning.  Ouch.

Thank goodness I've learned my lesson now when I"m in my early 30s, instead of 20+ years down the road.

* for those that care, I used the SP500 calculator found here: http://dqydj.net/sp-500-return-calculator/


eil

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Re: Just checked my ML returns - facepunch me please!
« Reply #1 on: March 25, 2014, 11:01:22 AM »
I heard ya. When my wife was in college, her uncle started selling mutual funds through an outfit called Thrivent and he convinced her parents to roll all of her savings into one of their funds. The company must have been very proud of all the paperwork they generated for their investors because almost every month we'd get a huge envelope stuffed full of portfolio performance info and whatnot in the mail. Lots of glossy pamphlets and at least twice a year a big book or two of prospectuses(?).

It was only in the last couple of years that I got off my butt and started seriously looking into all of our assets and investments. I figured out that way back when, she had invested about $15k into the fund. Fast forward 9 years and what was the current balance on the account? About $16k. Wooowoo, big money!

We cashed it all in as part of a home downpayment two years ago.

beltim

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Re: Just checked my ML returns - facepunch me please!
« Reply #2 on: March 25, 2014, 01:22:09 PM »
Just out of curiosity, how did you handle your yearly contributions in your calculation?

nereo

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Re: Just checked my ML returns - facepunch me please!
« Reply #3 on: March 25, 2014, 03:09:18 PM »
Just out of curiosity, how did you handle your yearly contributions in your calculation?
For the last 5 years it was relatively simple since I made no additional contributions.  I used only the end-of-year values for my comparisons (for example, I used the value of the account in Dec 31, 2009 to Dec 31, 2013.  I then used the aforementioned calculator to determine what the SP return would be over the same time frame.)
Before 2008 it was a bit trickier, since I made contributions of varying amounts each year.  I made a spreadsheet for those years with additions in a new column, and calculated how much those would grow over the time period, and added it to the sum.  probably convoluted, but it gives me an approximate average over the time frame.

beltim

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Re: Just checked my ML returns - facepunch me please!
« Reply #4 on: March 25, 2014, 04:46:18 PM »
Just out of curiosity, how did you handle your yearly contributions in your calculation?
For the last 5 years it was relatively simple since I made no additional contributions.  I used only the end-of-year values for my comparisons (for example, I used the value of the account in Dec 31, 2009 to Dec 31, 2013.  I then used the aforementioned calculator to determine what the SP return would be over the same time frame.)
Before 2008 it was a bit trickier, since I made contributions of varying amounts each year.  I made a spreadsheet for those years with additions in a new column, and calculated how much those would grow over the time period, and added it to the sum.  probably convoluted, but it gives me an approximate average over the time frame.

Got it.  Nicely done.  It's amazing that the advisor trailed in every one-year period.  That's only marginally less difficult than beating the market every year.

Good work getting out of that!  But no face punches here - remember, you started investing early, and you optimized your investments well before most people do.

Willbrewer

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Re: Just checked my ML returns - facepunch me please!
« Reply #5 on: March 25, 2014, 04:58:17 PM »
Was it poor investment choices by your ML advisor, or high fees that screwed you?

nereo

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Re: Just checked my ML returns - facepunch me please!
« Reply #6 on: March 25, 2014, 06:26:39 PM »
Was it poor investment choices by your ML advisor, or high fees that screwed you?
that's what I cannot figure out, and what is so darn frustrating.  I must have looked at over a dozen statements and no where do they list what the fees specifically are.  It's probably buried in a prospectus or something, but since my parents opened it up for me when I was a minor I certainly never read one.
What I have noticed was that a fair bit (5-10%) was in cash every month, and there were more bonds funds than I would recommend to anyone with a 30+ year timeline.  Worse, the majority of what he was buying into and out of were mutual funds.  Yeah! - on one particular month I must have had shares in over a dozen different mutual funds.  A few he bought and sold several times - one of the Janus funds in particular.
he was charging me fees (still don't know what the % was) and he was buying into actively managed mutual funds, which have their own fees, and then there was always, ALWAYS cash on the table.

Flaneur

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Re: Just checked my ML returns - facepunch me please!
« Reply #7 on: March 26, 2014, 12:54:00 AM »
Was it poor investment choices by your ML advisor, or high fees that screwed you?
that's what I cannot figure out, and what is so darn frustrating.  I must have looked at over a dozen statements and no where do they list what the fees specifically are.  It's probably buried in a prospectus or something, but since my parents opened it up for me when I was a minor I certainly never read one.
What I have noticed was that a fair bit (5-10%) was in cash every month, and there were more bonds funds than I would recommend to anyone with a 30+ year timeline.  Worse, the majority of what he was buying into and out of were mutual funds.  Yeah! - on one particular month I must have had shares in over a dozen different mutual funds.  A few he bought and sold several times - one of the Janus funds in particular.
he was charging me fees (still don't know what the % was) and he was buying into actively managed mutual funds, which have their own fees, and then there was always, ALWAYS cash on the table.

He should hold some cash or a similar highly liquid security; if he doesn't then when there is a good buy opportunity he either has to liquidate another position (incurring fees) or skip the spot all together. Buying multiple mutual funds by itself is fine, trading them is LOL. Very few people beat indexes over the long run, not even taking fees into account. The odds that some 20-something at Big Box Brokerage is one of those special snowflakes is pretty slim. By reading a couple of William Bernstein books to learn about asset allocation and then putting your money in an appropriate mix of index funds (or just a target fund if you're lazy) you'll be a favorite to win at investing. Your buddy at ML may find himself walking around an Acura dealership wearing a name tag if he keeps it up.

nereo

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Re: Just checked my ML returns - facepunch me please!
« Reply #8 on: March 26, 2014, 05:41:07 AM »
Quote
He should hold some cash or a similar highly liquid security; if he doesn't then when there is a good buy opportunity he either has to liquidate another position (incurring fees) or skip the spot all together. Buying multiple mutual funds by itself is fine, trading them is LOL. Very few people beat indexes over the long run, not even taking fees into account. The odds that some 20-something at Big Box Brokerage is one of those special snowflakes is pretty slim. By reading a couple of William Bernstein books to learn about asset allocation and then putting your money in an appropriate mix of index funds (or just a target fund if you're lazy) you'll be a favorite to win at investing. Your buddy at ML may find himself walking around an Acura dealership wearing a name tag if he keeps it up.

I agree with all that you've said except the last sentence - this ML guy (certainly not my buddy) seems to be doing quite well for himself, he's a senior partner at an firm just outside DC and has no shortage of clients.  I chalk that up to people just being so fearful of managing their own money and so oblivious to what's going on economically.  I read somewhere that almost half of Americans polled though the stock market went down in both 2012 & 2013.  Get a good looking energetic guy in a suit to mumble stuff about "asset allocation" and "neutral-balanced risk management" and people throw up their hands and sent boatloads of cash because they feel they're too stupid to do it themselves (I certainly did when I started).

regarding the cash component; I understand the theory of wanting a liquid asset to 'buy in' when opportunities present themselves, but I disagree with always keeping about 10% on the sidelines.  If you are effectively utilizing cash for buy in moments, shouldn't there be times when a stock/stocks get cheap and you apply all that you have?  If cash is constant, you're not really using this strategy. 

TomTX

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Re: Just checked my ML returns - facepunch me please!
« Reply #9 on: March 26, 2014, 07:30:03 AM »
The term for what he was doing is "churn" - he was buying and selling crap all the time with your money in order to generate fees for himself.

sly

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Re: Just checked my ML returns - facepunch me please!
« Reply #10 on: March 26, 2014, 09:10:01 AM »
sorry to be the devil's advocate but you said he held bonds so clearly he wasn't benchmark against the S&P500 and your comparison is completely unfair. On a risk adjusted basis he might have actually done well for all you know. If he is churning your account that is very serious.

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Re: Just checked my ML returns - facepunch me please!
« Reply #11 on: March 26, 2014, 10:11:57 AM »
sorry to be the devil's advocate but you said he held bonds so clearly he wasn't benchmark against the S&P500 and your comparison is completely unfair. On a risk adjusted basis he might have actually done well for all you know.

That's a very important point. It's possible that most of the "underperformance" comes from an asset allocation that was more conservative than the OP was retrospectively expecting.

However, starting at the beginning of 2004 and ending at the beginning of 2013, the total bond market total return actually outperformed the S&P 500 total return (as measured by Vanguard's index funds). So in this particular case it actually would have been pretty hard to underperform the S&P 500, even if asset allocation was chosen by a monkey rolling a 10-sided die.

nereo

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Re: Just checked my ML returns - facepunch me please!
« Reply #12 on: March 26, 2014, 10:42:47 AM »
sorry to be the devil's advocate but you said he held bonds so clearly he wasn't benchmark against the S&P500 and your comparison is completely unfair. On a risk adjusted basis he might have actually done well for all you know. If he is churning your account that is very serious.
True - and I chose the SP500 as a comparison partly because that's what I've moved towards holding myself.
However, regarding the asset allocation, I was clearly listed as a "Aggressive - more-return/more risk" (the highest risk category). 
It bounced around a lot but a typical month was something like 10% cash, 15% bonds or bond funds, and 75% mutual funds and equities.  On one statement (2011) 53% of the bonds were 'short term.' Of the equities, most were either "US Large Cap Growth", or "US Large cap value"

"Churn" certainly describes it.  Every month had perhaps a dozen things that I had sold and another dozen that I had bought.  Some appeared two or three times every year (i.e. I sold and then re-bought the same things over and over). 

sly

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Re: Just checked my ML returns - facepunch me please!
« Reply #13 on: March 26, 2014, 11:07:58 AM »

"Churn" certainly describes it.  Every month had perhaps a dozen things that I had sold and another dozen that I had bought.  Some appeared two or three times every year (i.e. I sold and then re-bought the same things over and over).

are you sure he earns commission on each trade and not a fixed % of the assets?

EricL

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Re: Just checked my ML returns - facepunch me please!
« Reply #14 on: March 26, 2014, 03:33:10 PM »
Ouch.  I made a similar mistake.  I invested in Fidelity Mutual Funds and Term Life Insurance through USPA & IRA (they've since changed their name).  My rep was a nice guy but I just didn't understand that 50% of my purchases going to the the company the first year was a bad idea.  A REALLY bad idea.  What was worse was when I checked the Fidelity Funds I bought.  When the S&P went up they went up - a little.  When the S&P went down they went way down.  By the time I'd found this out I'd moved so I went and talked to my new rep about it.  He told me, contrary to the stats I'd read on the internet that morning that the fund was going up and that I should just "let it roll".  I rolled all right.  And I took my money with me.  But by that time I'd already lost several thousand dollars.  Doh!

Alas, I wish I could say that was my only mistake.  There was the time I was addicted to buying electronics, the time I discovered I was NOT an investing genius, and so on.  Stories for a different time.

nereo

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Re: Just checked my ML returns - facepunch me please!
« Reply #15 on: March 26, 2014, 04:42:10 PM »
Quote
Alas, I wish I could say that was my only mistake.  There was the time I was addicted to buying electronics, the time I discovered I was NOT an investing genius, and so on.  Stories for a different time.

EricL:  You were addicted to buying electronics?  Any particular type?
I went through a period (coincided with a long, messy breakup) when I started "collecting" cameras. Mostly vintage and a lot of glass - lied to myself that they were "investments" because they hold up their value fairly well - I chose to ignore the fact that a $500 lens might be worth $450 ten years later, so it was definitely NOT a saavy investment strategy.  Once everyone jumped to digital I bought the film cameras I'd always wanted for a song... only to realize I could no longer afford to shoot and process buckets of film anymore.
Eventually wised up and ebayed most of them.  Never calculated what my ultimate loss was but it was several hundred at least, not counting what good it could have been had I, say, invested the actual money.


hodedofome

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Re: Just checked my ML returns - facepunch me please!
« Reply #16 on: March 28, 2014, 03:29:02 PM »
If you figure that most financial advisors charge 1% each year, and then they turn around and purchase actively management mutual funds which could easily charge 1%+ themselves, there's your underperformance right there. The odds are stacked against actively managed funds because of their high fees along with their investment restrictions. They have to pretty much be in the market at all times. They really can't short. If they actually are successful, then they'll attract a lot of extra money which will push them into large cap only stocks. There's only so many large caps, they'll eventually just mimic an index without trying. They are measured by their quarterly and 1,3 and 5 year performance. Long term returns don't matter to them.

Add up all those factors, and you pretty much have an index fund with high fees. So naturally a mutual fund will underperform. Peter Lynch, if he were starting today, would not be in the mutual fund business. He'd start a hedge fund and make a ton more money for himself and regular investors would not be able to join the party. Hot shot mutual fund managers don't really exist anymore. If you are good you start a hedge fund.

Financial advisors can't expect to match the performance of an index if they are going to charge a 1% of assets fee. Robo advisors like Wealthfront and Betterment are naturally going to perform better on average because they charge very low fees (like .1-.4%) along with investing in index funds. Obviously, you can do better for yourself by cutting out the FA fees and invest in index funds yourself. However, you have to have the discipline to do it otherwise you could easily perform just as bad or worse as the ML guy.

Joel

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Re: Just checked my ML returns - facepunch me please!
« Reply #17 on: March 28, 2014, 06:51:45 PM »
A similar thing happen to me at 18. Luckily I realized it within two years and didn't lose much money. The thief had my parents retirement accounts as well for over ten years. They definitely missed out on some money. Is there anything you can do about a financial advisor churning funds just to turn a profit? I would think that should be reported somewhere!

EricL

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Re: Just checked my ML returns - facepunch me please!
« Reply #18 on: July 05, 2014, 02:49:14 AM »
Nereo,
I liked to buy computers, cameras, and iPod/phone accessories.  I never even considered myself as the type to buy the latest and greatest but that's what I did.  At least old cameras sound like a plausible investment.  I'd have to wait a hundred years to see if my iPhone 1 will amount to anything.

usmarine1975

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Re: Just checked my ML returns - facepunch me please!
« Reply #19 on: July 07, 2014, 01:56:26 PM »
If you feel your Advisor was churning your account you can report him.

http://www.finra.org/Investors/ProtectYourself/p118628

You can also search for your advisor and see if he or she has other negative reports. 
This info is readily available but seemingly not marketed by anyone.

I didn't realize it until I joined the business.

I got away from the commission side and work now on a salary with a company that does Fee only. 

nereo

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Re: Just checked my ML returns - facepunch me please!
« Reply #20 on: July 07, 2014, 02:33:06 PM »
If you feel your Advisor was churning your account you can report him.

http://www.finra.org/Investors/ProtectYourself/p118628

You can also search for your advisor and see if he or she has other negative reports. 
This info is readily available but seemingly not marketed by anyone.

I didn't realize it until I joined the business.

I got away from the commission side and work now on a salary with a company that does Fee only.

THanks for the link - this is the first real time I've seen a well-organized site for tracking, informing and reporting fraud from the investment industry.
It's funny how sometimes you think a thread is dead, only it suddenly jumps back.

In the end my advisor had just two complaints over the last 10 years, both of which were "closed/no action".  I can't say for certain he was intentionally 'pumping', or if he just felt the need to jump into and out of various asset classes.  I would own large-cap growth, and then he'd sell that and buy a bond fund.  Then a few months later he'd sell the bonds and jump back in the large-cap growth.  Maybe he was pumping, maybe he was just trying to time the market.  It wasn't daily action, it was every couple of months.  He's the only one to know for sure, and either scenario was just bad for my investments.



usmarine1975

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Re: Just checked my ML returns - facepunch me please!
« Reply #21 on: July 07, 2014, 02:42:02 PM »
Sadly the industry doesn't publish that you can report their advisors or even check their history.  Probably because some clients do have unrealistic expectations etc.... Or would report for their own bad choices (because that happens too)

If your advisor was or is commission based, chances are he was selling and buying to increase his commissions.  He wouldn't be dumb enough to do it every day as that would clearly flag him by his own firm or should have.  If he was getting really good returns for you then I would take it that he was actually trading for your benefit.  From what you are saying it seems to me that he was generating revenue or churning.  Either way you have to decide what you want to do with it.

I can tell you that the big firms go to bat for their agents.  Often times they will settle without admitting guilt.

I got away from the commission side for this reason.  (the stories I could tell)  I was able to keep myself clean and do feel that I did the best for my clients and did not let my pay or check influence the decisions that were made.

Interestingly I had a situation with my car insurance in which I was told I was covered and then had a claim and was told I was not.  Had I known then what I know now I would have reported the agent to the State Insurance department and his E & O insurance most likely would have covered my loss.  Sadly too many years have passed.  Again this is also not known by many consumers. 

sly

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Re: Just checked my ML returns - facepunch me please!
« Reply #22 on: July 08, 2014, 04:52:15 AM »
Sadly the industry doesn't publish that you can report their advisors or even check their history. 

http://brokercheck.finra.org/Search/Search.aspx

KBecks2

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Re: Just checked my ML returns - facepunch me please!
« Reply #23 on: July 08, 2014, 05:46:57 AM »
Yesterday is history.  Have fun managing your money from here forward!  Keep learning and enjoy the control over your own investments.

rmendpara

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Re: Just checked my ML returns - facepunch me please!
« Reply #24 on: July 08, 2014, 07:38:10 AM »
That's just the problem when we don't set specific goals/methods/targets with our advisors... they'll invest how they see fit. I'm sure he was going for a managed return strategy to reduce volatility... of course as a teenager with a 40+yr horizon, he could have just bought S&P/Dow/Nasdq/International index funds and just let them ride the market up (and eventually down).

That's your real lesson. Even if you have an advisor, make sure you set up allocation/whatever goals together so you know what's going on.

usmarine1975

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Re: Just checked my ML returns - facepunch me please!
« Reply #25 on: July 08, 2014, 08:04:32 AM »
In my opinion what he was buying and selling were long term investments.  If he was getting a commission it's clear to me what his strategy was.  You buy Mutual Fund's to hold.  If you want to trade and speculate on the market you buy stocks, options, etc...

I agree with an above post about just moving forward.  Hindsight is 20/20 if I could change all the mistakes I have made over the years man where would I be.  But I have to remember the journey that I have been on and the things I have done in the process.  It's been a good life.  I wrote that in a book while in Iraq.  If I were to die today I could honestly say that I have lived a fulfilling life and that truly is the meaning of life.  Every day moving forward is a blessing and one I don't take for granted.

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Re: Just checked my ML returns - facepunch me please!
« Reply #26 on: July 09, 2014, 10:22:07 AM »
The good news: In the scheme of your financial lifetime, $8k is barely going to be noticeable.

nereo

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Re: Just checked my ML returns - facepunch me please!
« Reply #27 on: July 09, 2014, 11:04:16 AM »
The good news: In the scheme of your financial lifetime, $8k is barely going to be noticeable.
True, and I've learned lessons about being vigilant and in control of my own money.  I just have to avoid looking at this as "what $8k could have turned into" over the course of several decades.
Certainly as financial mistakes go, this one is not a horrible loss.  I'm certain I will make more mistakes.  c'est la vie.

Gmullz

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Re: Just checked my ML returns - facepunch me please!
« Reply #28 on: July 09, 2014, 11:44:57 AM »
When I started my career 7 years ago, my dad suggested I go to Edward Jones for my retirement planning. So I setup an account there, and started doing the monthly contributions to my RRSP (Canada).

I asked them for online access so I could keep track of my balance and review the self-service options, which were few and far between. They certainly didn't advertise the online access, because they probably figure the less I know, the better.

Anyway, after being enlightened through this blog and elsewhere, I learned low-fee, self-directed investing is the way to go. I didn't even ask for a report on how I did over the years, because I know it must have been abysmal, largely due to the high fees. I just switched to TD Waterhouse and now I've been released from the grip of high-fee investing. No hard feelings towards my old man for the EJ recommendation of course - at least he put me on the right path, and taught me how important saving is.

Speaking of facepunching, my EJ financial adviser drove a massive pickup truck for seemingly no reason. I cringe at the thought that I was helping to fill his huge gas tank.