Paying someone to invest my money (a "learn me")

Here goes:

My grandparents sold their house back in 2003-ish and invested the money through an investment manager we'll call "Todd". (I think the account is around $200k? ish) since then they tell me they've withdrawn $1000 a month and still have their original balance. This may be exaggerated a bit, I dunno since I know nothing about the potential returns of investments.

They also say this guy is great, is always in close communication, and they recommend him to anyone looking to invest their cash, etc.

BUT, he works for a place Mrs. Hungary can not stand (because of this company's track record of backing projects my Mrs. Hungary takes a moral stance against). Personally I agree with her BUT I'm incredibly nervous when it comes to investing what equates to nearly a years income, and this guy seems like a sure thing (or damn close, since you're really just gambling professionally).

The question is: Are there other guys who are "sure things" when it comes to managing investments? How do I find one? How does all of this even work?

If I understand right, this guy is just good at buying and selling stocks so he makes people money and somehow makes a living from a commission based of that?

Our bank (NFCU) of course has a guy we could go through. Would he be "good enough"?

The reason I ask is:
Mrs. Hungary and I are expecting to get a decent amount of equity from the sale of our house, and we were hoping to build that nest egg a bit. Over the next 5 years we wouldn't be withdrawing anything but might want to someday withdraw from it as sort of a supplemental spending account (so not an IRA or similar).

TLDR? Learn me investing money through an investment manager

Thanks everyone!

You are only one phone call away from a Ponzi scheme. Do your due diligence.

The money managers and financial advisors and investor guys are all just middle men. The money they make for handling your money comes at the cost of your investments. Over time, what seem like small fees can make a huge impact on the value of your investments.

Getting yourself a Vanguard account, and investing in a handful of ETFs that track the market will leave you plenty diverse, and they have the lowest fees around. You can be as hands off or hands on as you want after the initial investment. This way, you know that your money is gaining as much as it can vs paying for a money manager's luxury car or home addition.

Couple of things...

First of all, one of the recommendations that everyone gets- avoid anyone who gets a commission on the investments they make for you. There's a natural conflict of interest there- are they making choices on your behalf (good rates of return) or their behalf (high commissions).

Second- one must interview who they want to work for them to make money. You'll get a feeling if they are going to look out for you or them. We did it a long time ago before knowing what we know, and it still would have played out the same as it did- it's a personal thing you'll see.

But lastly- look into very low fee index funds. This comes up a lot here- over a long period of time, they do quite well- while their return is lower than the best, their fees make up for that, and they do better over the long run. You can diversify using different index funds.

I think this may turn into a "teach me to invest safely"...

I already don't trust other people to do things for me, and the Ponzi scheme (I had to google it) / commission conflict of interest didnt help

So low fee index funds, and ETF's. Time to hit the googles.

Thanks

I'd put it all in an index fund through Vanguard. Look at the fees. ETF works as well. Set it and forget strategy, you'll do better.

Open an account at Vanguard. Put money in a target retirement fund. Ignore.

OK, there is a little more thought involved, but most of that is what the money is for. Do you want it to buy another house when you get back? Is it for your retirement? Do you want to generate income with it now?
You shouldn't be paying anyone fees for advisement. You're young and smart enough to learn to do it properly yourself.

mazdeuce wrote: You shouldn't be paying anyone fees for advisement. You're young and smart enough to learn to do it properly yourself.

In theory, that's correct. Just like in theory, everyone can do their own home improvement, car maintenance, etc.

There's a point where one just does not wish to learn something, and it does pay to invest in someone else.

I'd rather spend my free time doing things I like to do than things I don't like.

Just want to point that out.

We already have a target 401k through my work (that matches a portion of the contributions), and a target IRA through our bank.

We were looking for investment income to eventually supplement our own income (like we pump money into it now while we have a little excess, so we can draw from it later when we're running a deficit).

Mazdeuce said: You're young and smart enough to learn to do it properly yourself.

in the 5-minutes (see dilbert) i've looked into this, I'm really leaning toward doing this myself. Vanguard came pretty highly recommended and their page allows me to track the performance of their funds. I'm really thinking this might happen I just need to pick which fund(s) I want to put it in to. Exciting and scary!

Right now I'm liking Vanguards high dividend yield fund because of its consistent (but a bit slow) gains.

Should I spread the cash across several vanguard funds, or is it "less is more"?

Couple of things that one should keep in mind:

• There are two kinds of investment advisors (read "sales people"), commission based and fee-only. There are a couple of grey area ones like "fee based" where they get both. If you need one, I'd stick with a fee-only fiduciary. The latter is rather important, too. Unless you hire a fiduciary, it's perfectly OK for them to recommend you investments whose sole purpose is to bolster their retirement income.
• Credit Unions and Banks are usually not a good place for investment advice and management. That's not their primary business and what they sell you is usually expensive.
• There is no such thing as a "sure thing" investment. That's called a savings account and at the moment that doesn't even keep up with inflation. The reason you usually get better returns with investing is called the 'risk premium', namely that you get paid more because the investment is riskier than a savings account. There are ways to mitigate the risk, mostly by proper diversification and asset selection. That's where an investment advisor can come in, but if you want to spend a little time, there are plenty of resources out there. Personally I like Paul Merriman's site as an educational resource, plus there is of course the Motley Fool and others.
• There are funds out there that are designed to protect your principal no matter what. The way they work is that in exchange for not being exposed to the downside, you only get a relatively small, capped part of the upside. Anything exceeding that cap and any dividends end up in the manager's pocket and are (partially) used to cover down years. From an investment return perspective that usually makes it a pretty crummy product, plus the fees are usually pretty high, too. High fees are pretty destructive to your long-term returns so that's a double whammy. The only use I can personally see for these products is if you are trying to eek out a bit more than you can get in a savings account for a fixed amount of time (ie, a few years) but for long term investing, I'd look somewhere else. The long term effect of not getting the full stock market returns and dividends is pretty devastating.
• Re "Todd" - a really well diversified portfolio tends to average around 7-8% cumulative return annually. Cumulative ones are the ones that matter, BTW, not the average annual returns. Your grandparents are withdrawing about 6%, so at least in theory it should preserve their principal. That said, given the way you phrased things and your wife's reaction I suspect "Todd" is either with a high commission full service brokerage or an insurance company. In that he'd have to get at least 9%-ish cumulative to cover the fees and other expenses, which would suggest that the money is in fairly risky investments.
• I do think you should consider putting part of your money into a Roth IRA if you really intend to leave it somewhere for 5+ years. With a Roth - as opposed to a regular IRA - you can still withdraw your contributions without penalties, you just have to leave any gains in the account. The big advantage is that you don't have to pay income and other taxes on the gains when you withdraw them in retirement. I actually park the part of the emergency fund I hope I never have to use in a Roth for that exact reason.
• You can do much worse than investing with Vanguard. I like them a lot and we have a fair amount of our nest egg invested with them. Schwab and Fidelity are other good, low cost choices (it's the fees again - make sure that you read the fine print re fees for every fund you invest in).
• Honestly, if you spend a few hours doing some basic research at the sites I mentioned above you don't need to hire an investment advisor to get decent returns. A good advisor might be able to eke out a bit more (hopefully enough to cover their fees and then some) but the difference usually isn't that great.
• Unless you want a second full time job, stay away from the risky stuff - even single stock investments - and stick to basic, low cost mutual funds. Investing is for the long term, you'll waste more money and time if you're chasing the latest hotness in the hope of making some short term money.

Note: I'm not an investment advisor, so what you do with the information above is your own problem .

If it helps, here is where I ask money-type questions: www.bogleheads.org

Be aware that most of the people on that site are pretty intense when it comes to saving for retirement - not quite Mr Money Mustache status, but still serious. However, they're proponents of the DIY approach to investing and keeping fees low.

Full disclosure, I have worked in the financial securities industry starting in 1990. As an advisor I am running into this exact situation, the next generation is on the cusp of inheriting sums of money that are beyond there comfort zone or expertise to manage. Yet.

I have to admit that always enjoy reading comments that paying someone to provide a service that is out side your daily skill set is a bad thing. My wife is a RN case manager in a NICU, I cannot function in her world and I would never try. But it's different. My world is only about managing risk.

If you fell that you are nothing more than a transaction, interview another advisor. If you are taken back by the office remember that the overhead of keeping his/her office open is paid for by his clients. If you go for the world of "one 800 help me" you might not be able to get back to that last voice that took you order to buy that what ever you decided you should have in your portfolio.

So, buy the four things you do every day: Turn on the lights, Use the telephone, Buy gasoline and Put food on the table.

Hungary Bill wrote: Right now I'm liking Vanguards high dividend yield fund because of its consistent (but a bit slow) gains.

That is a pretty conservative fund. Unless you're lose to retirement, that's a little too conservative for my liking as an only fund. Plus, it's a large cap only fund. I like that it's large cap value, but I would want some small cap value as well. Historically 'value' funds/shares tendt to produce better returns than 'growth' (growth has the growth expectation priced in already). Buffett basically got rich as a value investor.

Hungary Bill wrote: Should I spread the cash across several vanguard funds, or is it "less is more"?

Definitely multiple diverse funds so you end up balancing out the different investment returns in different market scenarios.

Look at the Merriman site I linked to - he's got a whole bunch of educational material plus some decent suggested portfolios. If you want the really easy button, stick the money into one of Vanguard's target retirement funds.

Thanks! I'll check out the links in a minute.

Boxhead: Right on a lot of accounts. Todd does work for a bank (a large one). We do have an IRA but I cant remember if we set up a traditional or a Roth IRA (I need to call the bank on that one. Me knowing me it's probably a Roth). I had no idea you could pull money out of it though. We've always had our emergency funds in a money market savings account that grew at the rate of... well, it basically didn't grow worth beans (aside from what we put in it)

BoxheadTim wrote: Look at the Merriman site I linked to - he's got a whole bunch of educational material plus some decent suggested portfolios. If you want the really easy button, stick the money into one of Vanguard's target retirement funds.

Got it open now

This is the best primer I've found for investing in stocks:

http://jlcollinsnh.com/stock-series/

You don't need or want to pay someone to manage your money. It's the single most important thing you can do to make yourself secure so handing it off to a stranger based on a couple reviews is a terrible idea. I don't even trust an oil change place with my cheapo cars there's no way I'm handing over every penny I have to someone looking to make money off of it for themselves.

Anyway, that's my opinion. Vanguard funds are great. I'm a ways from retirement and have it all my liquid investments in VTSAX except for a few "play" money buys.

Dividends are fun but they aren't any more effective than selling shares. So a high dividend fund will have a similar or even lower total return compared to a lower dividend fund. If a stock pays out 5% in dividends then their share price automatically goes down 5% so it's not like "free money" it's more like automatic share sales.

In reply to jr02518:

I agree with you but I have one argument. The buying and holding of stocks, even the management of risk at the consumer level, does not require the same sort of expertise as NICU nursing.
Not everyone wants to learn, and in the past the main advantage of an advisor was the asymmetry of information, so they really were valuable for more people. That's fading.

I'm just curious as to what you guys think a "good" rate of return is. Keeping in mind the rule of 72, what's a realistic number that I can expect to see from one of the plans that have been tossed about and how soon could I expect my money to double?

dculberson wrote: If a stock pays out 5% in dividends then their share price automatically goes down 5% so it's not like "free money" it's more like automatic share sales.

I had no idea, thanks!

jimbob_racing wrote: I'm just curious as to what you guys think a "good" rate of return is. Keeping in mind the rule of 72, what's a realistic number that I can expect to see from one of the plans that have been tossed about and how soon could I expect my money to double?

Whatever the market is doing. At the consumer level you're not going to to better than that over the long run without extraordinary luck. The guys like Buffett that do aren't working at the consumer level. They have the ability to buy large chunks of companies and influence their direction. We're just along for the ride for the most part. The primary tool for risk management is asset allocation. Lowering risk lowers returns over time but smooths out the bumps.

In reply to dculberson:

I think you underestimate the impact dividends have on your long term returns. Wel, for those stocks that still pay them. For the rest, you're stuck with price appreciation.

Also, I'm curious where the equivalence of dividends and selling part of a fund comes into play? Usually those are considered to be about as different as comparing a Miata to a lifted brodozer.

Edit: Dividends are usually priced in unless they're a surprise dividend. There may be a small price dip around the ex-dividend date (when you buy a stock shortly before the dividend date and don't get the upcoming dividend payment). But we're talking short term movements here that are pretty much irrelevant to long term returns.

jimbob_racing wrote: I'm just curious as to what you guys think a "good" rate of return is. Keeping in mind the rule of 72, what's a realistic number that I can expect to see from one of the plans that have been tossed about and how soon could I expect my money to double?

7% after inflation is what the index returns on average. If I cherry pick start and end dates I can get that to whatever figure high or low I want, but on average if you put your money in on a regular basis (i.e. make a deposit into an index fund once a month every month for 20 years) you will earn around 7% on average. And on average, an actively managed fund will not beat it after fees.

In reply to mtn:

I think that partially depends on "which index". The figure I have seen most often is 7%ish cumulative, but that's before inflation. So on average you'll get 3-4% after inflation.

Some of this you can tweak by tweaking the asset allocation a bit.

On these lines, what about an Etrade account? My buddy swears by it and claims he's always making a few hundred extra dollars here and there buying and selling based on trends.

The older generations are using "a guy" and younger ones are trying to cut out that guy. My inlaws claim their guy advised some kind of investment in marijuana since several states have passed either medical or recreational bills, and FIL claims to be making money hand over fist in weed stocks.

I have 5 figures in a savings account getting a humongous .25% and it seems I could do better

In reply to patgizz:

Do you want to invest or trade? There's a big difference between the two and what your buddy does sounds like trading.

The equivalent of the savings account would be investing in low cost mutual funds and maybe rebalancing once a year.