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Best financial advice you've received? why?

Posted by chelone (My Page) on
Fri, Feb 22, 08 at 19:39

I was counselled to save some of every paycheck. I was also counselled to "learn a trade". I was told to pay attention to "compounding" interest and how it can cost you money (if you have a loan) or work to your benefit... with respect to investing for the long term.

I've followed the first two tips assiduously. Over the years I've come to fully understand and appreciate BOTH. I always "pay to principle" when I have an installment loan. When investments return "discretionary" income; I've UNERRINGLY "sent my nickels out to play" on "playgrounds" I've researched... they've brought their little friends home, too! and those dimes and quarters have been summarily reinvested, too... . Once you understand compounding and how to make it work FOR you, you're well on your way.

Best tip YOU'VE ever received?


Follow-Up Postings:

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RE: Best financial advice you've received? why?

Benjamin Franklin is often credited for promoting the power of compound interest.

Ben

That's probably the most profitable information I've ever received. I learned about the power of compound interst when studying the stock market in high school. The concept was reinforced in college when I studied for my degree in Finance. It was reinforced again when I studied for my MBA.

The next best piece of advice that I received was to live below my means and invest the money that I didn't spend. I was told that if I invested too much, there would be many worthwhile charities that would gladly accept any excess funds. 8^)


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RE: Best financial advice you've received? why?

Finds ways to borrow low, and receive high.
Lather, rinse, repeat as often as able.

"Control everything, own nothing."
John D. Rockefeller

"Everybody gets what they want out of the market."
Ed Seykota, interviewed in Market Wizards, by Jack Schwager.

"I have never seen pessimists make anything work, or contribute anything of lasting value."
Harry Truman

"Money is always there but the pockets change; it is not in the same pockets after a change, and that is all there is to say about money."
Gertrude Stein

"If you don't have enemies, you don't have character."
Paul Newman

"A bank is a place that will lend you money if you can prove that you don't need it."
Bob Hope

"There can be no real freedom without the freedom to fail."
Erich Fromm

"Yes! Live! Life's a banquet and most poor suckers are starving to death!"
Auntie Mame

"Work like a slave; Play like an outlaw!" (My quote!)


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RE: Best financial advice you've received? why?

Pay yourself first!


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RE: Best financial advice you've received? why?

In addition to pay yourself first and live below your means, the best advice I've received is to never loan large sums of money to a friend. Save the friendship and keep money out of the equation.


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RE: Best financial advice you've received? why?

1.Costs matter.

http://www.retireearlyhomepage.com/advise.html

2.Buy index funds.

"..the best way to own common stocks is through an index fund..." - Warren Buffett

3.Stay the course.

"Design a portfolio you are not likely to trade... akin to premarital counseling advice; try to build a portfolio that you can live with for a long, long time." --Robert D. Arnott, President, First Quadrant Corp.

4.Diversify.

"The essence of effective portfolio construction is the use of a large number of poorly correlated assets"-- William Bernstein

5.Do not use brokers parading as financial advisors.

"The road to financial perdition begins with a call to your broker who claims to be able to 'beat the markets.'"
-- Daniel R. Solin

"Wall Street, with its army of brokers, analysts, and advisers funneling trillions of dollars into mutual funds, hedge funds, and private equity funds, is an elaborate fraud."- Michael Lewis

6.Do not carry credit card debt.

7.Don't spend a lot of money on things that are worth much less after you get them home.

8.Don't time the market.

"Q. So investors shouldn't delude themselves about beating the market? A. "They're just not going to do it. It's just not going to happen." - Daniel Kahneman, Nobel Laureate in Economics, 2002

9. Have appropriate term insurance.

10.Stay away from financial advisors. (worth 2 mentions)

"the BCT study found that the raw returns of equally weighted mutual funds
(net of all expenses) for 1996 to 2002 were 6.626% for the investors working on their
own and were 2.924% for funds provided by advisors.
In other words, the public working on its own did more than 100% better than financial
advisors when it came to selecting equity mutual funds. After factoring in inflation and
taxes, clients of financial advisors lost money and lost purchasing power."

http://trendfollowing.com/whitepaper/The Study of the Decade.pdf


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RE: Best financial advice you've received? why?

"If you don't boss your money ... it'll boss you", said my Dad - and I haven't been around him much since I was 18. Sheesh - 60 years ago ... he was killed in a car smash over 21 years ago (as was brother, 30 years ago).

Pay yourself first. I'm uncertain of the source; saving and turning some of one's income into capital was part of our farming ethic when I grew up. Need a cushion to provide both necessary capital plus income to see you through rough times, e.g., almost no crop, lousy prices, tractor dies, etc.

Always have a financial cushion and add to it whenever you can, important on the farm, as mentioned earlier. Farmers' income is often uncertain, and seasonal, not regular in terms of both amount and frequency of receipt, as for many in the city.

Build your capital, when you can, in a disciplined fashion: more of Dad's training. Farmers are much more involved with capital management than most city folks: repair tractor this year? upgrade combine? replace roof on barn? buy more land? put tiling for better drainage into field where water sometimes lies for a while, killing crop?, etc.

Learn how money works - it's an interesting hobby ... *that pays well*! I figure that I dug that one up on my own, probably 10 - 20 years ago, maybe earlier, though I hadn't spoken of it in that fashion. It came as a result of my own experience. Throughout my years of working as a personal financial advisor, I've encouraged my clients to learn more about managing their own money: no one cares as much about it as they ... except someone who'd like to shift some of it from their pocket into his/her own.

Had I pushed sales more when I sold mutual funds perhaps I'd have sold enough to suit my manager ... but I prefer to treat folks as I'd like to be treated. Farmers learn to put seed into the ground and be patient for the harvest: my manager wasn't patient enough, I guess.

The value of compound interest ... I heard that many years ago, but quite a few years ago amended it to appreciating the value of compound growth.

I don't like earning interest, for some reasons that are true generally, but some relate to the Canadian situation specifically ... especially since last year, when the low tax rate on Canadian dividends earned was reduced even more.

If you came to my place to buy a cow and I asked the same price for a cow that could have calves plus give milk and for one that couldn't have viable calves any more, could only give milk, which would you choose? (If I said couldn't have calves any more, she wouldn't give milk for more than another year or so, either, and the issue is that she'll go on providing milk ... but no other source of income). I like two sources of income from the same cow, in preference to one. That's why I don't like money in the bank - would rather buy a few bricks of the bank.

I like owning rather than loaning ... I learned that from Dad, too, for he, who'd had his own farm in Ontario, sharecropped for a time in Saskatchewan. I was going to University and seminary for 6 years at the time, and though Dad had said that he would pay the costs, I knew that Dad was saving hard to buy his own farm as soon as possible, and pay down the mortgage as soon as he could, after that, so had some money-earning projects (including sellng blood) at that time and asked for no more dollars from home than was absolutely necessary. We kids had worked hard on Dad's (rather large) farm, when World War II was going and hired hands all went to war.

Looks like I've always been frugal, huh?

I prefer an asset that not only produces some income now, but which has the possibility of some growth inherent in it, as well.

Learn the effects of taxation: avoid it where possible, defer it when you can, and reduce it where possible. Learned more strongly from the mutual fund brokerage that I worked for, though I knew it before.

"I like to buy a Dollar for 60 cents," said Peter Cundill, a tall, spare, bald marathon runner who has managed a mutual fund for quite a few years: I bought some, and still like them, just calculated the compound growth rate, which I haven't done in some time, and find that he turned 2 into 23 in 23 years, or 11.2%, as of last summer, now it's just over 20, for 10.36% compounded.

Finally, to evaluate financial assets through taking the Canadian Securities Course, that stockbrokers take (much more complex than the training that mutual funds' sales people require). And took all six courses leading to Chartered Financial Planner designation ... passed five. Courses revamped, to produce Certified Financial Planner, I would need to start over ... at age 70 or so? I think not! The course materials are in my head.

Is that enough?

Oh - one more - we should teach kids more about how to manage money, both in school and in the home. I developed a story a couple of years ago that I tell to kids ... every one of us, kids included, has a home-based business. If Mom and Dad go to work ... but don't get paid ... they quit (or, if they operate a business and don't pay employees, they don't stick around). The kid has employees in his/her business ... but doesn't have to pay them! In fact, most of the time, their employees pay them! I pull a Dollar out of my pocket and show it to the kd, saying that's one of my employees. One little girl in the library was about to take my dollar, and I said, no, that was my employee - she had employees of her own ... and it was her job to make them work hard. Send them out to buy ice cream ... the ice cream tastes great ... but your employee stays in the ice cream shop. Hang on to it, and it'll work for you as long as you keep it ... with one exception.

Put it into the mattress ... and it goes to sleep.

(Put it into the bank, darn near the same result!).

I hope that you have a memorable weekend, with friends and lovers ... sorry, "loved ones".

ole joyful


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RE: Best financial advice you've received? why? how?

Annie bird,

Warren Buffett doesn't own index funds ... unless he owns the company(ies) that manage 'em.

He believes in owning stocks directly. His company's shares doubled in value 13.5 times in 43 years.

If that's good enough for him ... why not for us?

ole joyful


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RE: Best financial advice you've received? why?

"If that's good enough for him ... why not for us? "

Because we don't have an army of researchers nor do we have his brains, nor do we have his money.

I believe he once said never to buy stock in a company unless you can write a book about that company. With that in mind, how long would it take to build a diversified portfolio and then manage it ongoing?

People try to follow Warren Buffett's 'method' all the time. I don't hear of any provable successes.

Study after study proves that we're no Wareren Buffett.

I get infuriated when I see 'financial advisors' gamble away their client's nest eggs - and charge them dearly for doing it! It breaks my heart to have to tell those clients the truth about what has been done to them.

Further reading:

http://www.bloggingstocks.com/2007/05/07/buffett-buy-index-funds/

http://money.cnn.com/2006/03/05/news/newsmakers/buffett_fortune/index.htm

Anniebird
www.saveyournestegg.com


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RE: Best financial advice you've received? why?

Old Joyful asks why owning individual stocks isn't good enough for us when it's good enough for Warren Buffett.

The answer is that Buffett doesn't own stocks -- he owns companies. Ans when he buys a company, he changes how the company is managed and financed.

So he is not buying a company's stock in the hope that it will become more valuable -- he is buying an entire company and working actively to make it more valuable.


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RE: Best financial advice you've received? why?

One of the best pieces of financial advice I got was from our CFP (yes, we use a planner - and for us, it's the right decision). In preparing for retirement, he advised us to deal with our housing situation before, rather than after, retiring. We followed his advice (also a number of other suggestions) and now are so glad we did.

My sister turned up her nose at using a financial planner (a real CFP, not a broker passing as an fp) - said she could do much better on her own. She did fine; BUT failed totally to plan for dealing with finances DURING retirement. The result is that they have been pulling funds out of their principle just to live on. She still refuses to talk to a CFP and their nest egg is diminishing each year.


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RE: Best financial advice you've received? why?

Zone 8 Grandma,

Maybe you'd like to suggest to your sister that she go to work now, to build up her retirement fund.

It's a lot simpler to go at 70 than at 80, for most of us.

It sounds as though quite a large segment of the mature population, though they'd like to retire comfortably, and think that they'll be able to do that, haven't been planning ahead for the necessary funding to bring it off.

It looks as though many may well have some unpleasant surprises in store, down the road.

Some years ago a professional person asked whether he could retire eary and was rather distressed when I told him that not only could he not retire early, it would keep him hopping to retire at the normal time.

He thought that he had all of the bases covered...

... but he'd neglected to factor in the ravages that inflation inflicts on our nest-egg, every year.

An old guy just came in to ask about some wood that had been taken from an old barn, and took home some rather decrepit boards that the landlord was about to burn ... he's going to build birdhouses with them. How much did I want for them? Nothing.

I hope that you have a lovely weekend.

ole joyful


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RE: Best financial advice you've received? why?

Hi joyful,
Maybe you'd like to suggest to your sister that she go to work now, to build up her retirement fund.

In a pretty frank discussion with her, I came out and said "Both you and your husband need to go back to work"... She didn't argue, just said that he'd retired and that with age discrimination jobs weren't that plentiful. And that she couldn't make all that much anyway. She said "something will work out". They've always enjoyed a pretty high standard of living (he made very good money when he was working. They just assumed that they'd continue the same standard of living. They put their kids through college by refinancing their home. Then they helped the kids with down payments, paying off cc debt, etc, etc. I think the kids are clueless about their parents' financial situation...

The truth is I seem to worry about their financial future more than they do... There's a little irony in that after all these years, my husband and I actually have a larger net worth even though we earned much less over the years.

I just started back part time yesterday. I've decided that I want to fund a 529 college plan for my two grandsons - since it's not in the budget, I'm going to work 15 hrs/week to fund it.


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RE: Best financial advice you've received? why?

When I worked for an independent CFP, less than half of the people who came for their first free consultation ended up becoming clients. Many times it was him making the decision that their financial goals were not aligned with his more conservative philosophy and holistic approach to estate planning.

One couple got extremely offended when our firm presented a plan that took four weeks' work by our senior planner, that outlined why they needed to make some hard choices about spending their money - because despite their high-paying jobs, they just didn't have enough to do everything they wanted.

Which was: spending in the lavish amounts they currently did to enjoy an upscale lifestyle, save for their 4 kids's college educations and graduate schools, and finance sufficient retirement savings so they could maintain their current standard of living while still having paid off their mortgage (something my boss firmly believed in).

So under protest they paid the estate planning fee - no small sum, we charged from $4-9K for such a customized, in depth look at a couple's finances - and walked out to find a planner who would tell them something they wanted to hear, rather than the truth.


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RE: Financial advisor

That pretty much describes my sis and BIL. He is very, very smart (has an MBA), but he hated dealing with finances and she handled them. She's impulsive and not realistic. Keeping up appearances has been very important to both.

We first started seeing our CFP about 5 years ago when DH was seriously thinking about retiring. We thought we were on track, but weren't really sure. He (CFP) clearly took a conservative, long term point of view. He cautioned us about some of the hazzards of early retirement (DH is now 59) and gave us some excellent advice along with a plan. The last time we saw him, he told us that he was very comfortable with our situation. We plan to draw no more than 2% for the next few years and then reevaluate. He said that actually we could withdraw 4%, but if we don't neet to then that's even better. He said that he has clients who earn more, but are completely unrealistic. He also says that due to our, relatively, young age, inflation will be the biggest challenge.

When we started going to him, my sis said "I can save that 1% fee and do just as well". It hasn't worked out that way...


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RE: Best financial advice you've received? why?

Zone 8, objective studies show that people usually do better if they do NOT use a financial advisor, so you have an unusual situation.

"the BCT study found that the raw returns of equally weighted mutual funds
(net of all expenses) for 1996 to 2002 were 6.626% for the investors working on their
own and were 2.924% for funds provided by advisors.....After factoring in inflation and
taxes, clients of financial advisors lost money and lost purchasing power."

Hopefully you realize that the vast majority of CFPs ARE brokers and hold sales licenses. Most work for brokerage firms. A 'CFP' is not a degree (is not even close to a Bachelors degree) and is designed to provide the MINIMUM ability in financial planning.

To consider: Do you know exactly how much are you paying in fees, all told, including turnover within your funds?

http://www.zeroalphagroup.com/news/mufucost012404.cfm

How have your funds performed over the last 15 - 20 years as compared to their PROPER benchmark?

Of the hundreds of advised clients that I have met, not one of them could have answered these questions. (They can now, because of me.)

Those same people all insisted they were doing great because of their advisor. (They know differently now, because of me.)

Hopefuly, you do not fall into this category.

What a 'financial advisor' tells people can easily be found online, for free.

http://www.realestatejournal.com/buysell/mortgages/20041012-clements.html

There are many excellent investing tools online that you can use, also. For free.

Please be careful. Especially if you are paying more than .5% of assets overall in fees. Hopefully you have paid a one time flat fee and are not paying loads or a wrap fee and you are in index funds.

Financial advisors have a huge financial interest in forming close relationships and convincing clients that they can be trusted. Sadly, most shouldn't.

Anniebird
www.saveyournestegg.com


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RE: Best financial advice you've received? why?

Annie,
I wasn't born yesterday.

objective studies show that people usually do better if they do NOT use a financial advisor
Well, that has not been the case with my sis and BIL. My sis said "I can handle the investment decisions and save that 1%". They are now retired and dipping heavily into their principle.

Do you know exactly how much are you paying in fees, all told, including turnover within your funds?

Yes I do. The fee is stated clearly on our statements (and is tax deductible subject to the 2% AGI).

Our guy is a Certified Financial Planner - he's not a broker. We interviewed several and were most impressed with him. He has done a number of things that I could not accomplish on my own. Hubby had several old IRA's started here and there over the years in addition to several after tax plans. I had been trying to get him to consolidate them all into one IRA and one taxable account, but he resisted. Our CFP was able to get him to do that. In addition, I had been urging DH to increase his 401K contribution - CFP guy was successful.

If I were the only one involved, I could probably do a competent job, but there are two of us. The CFP often acts as a financial referee...

I read and do research. I study every fund the CFP has suggested. I do my homework. Yes, there's lots of free information out there. And most of it is worth what it costs.

The decision whether or not to use a Certified Financial Planner is not a "One size fits all" situation and it's dishonest (or ignorant) to suggest otherwise. My sis and BIL badly need to talk to someone like our guy. He would bluntly lay it out for them. But they won't. They'd rather continue as they are - kidding themselves.


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RE: Zero alpha Group and free advice

About Zero Alpha Group in your post
http://www.zeroalphagroup.com/news/mufucost012404.cfm

This is a group of fee based investment advisors. The fees start at 1% and go down if the portfolio is over 2 million. At 4 million, the fee goes down to.5%.

What a 'financial advisor' tells people can easily be found online, for free.
http://www.realestatejournal.com/buysell/mortgages/20041012-clements.html

That link (a real estate website) says to pay off your mortgage before retiring. Our CFP said it depends: On the interest rate of the mortgage, the amount of the payment, the balance, your budget, and the rate of return of your portfolio. And last, but not least, your own comfort zone.
In our case our mortgage is 5.13%, at the current rate, it will be paid off in 12 years, and we are comfortable with the payments. Our portfolio has been doing considerable better than 5.13%. So, for us, the smart thing is NOT to pay it off. So much for that "free advice".


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Your website

Annie I just went to your website - it's pretty clear that you are unfamiliar with what a Certified Financial Planner is. Anyone can call themselves a "Financial Planner". Your bad experiences were clearly with "Financial Planners" and you are not making a distinction between a broker or insurance salesman masquerading as a "Financial Planner" and a genuine Certified Financial Planner.

To be certified, a financial planner has to meet certain criteria including licensing.
Disclosure of compensation and costs is an important part of CFP Boards ethical standards for CFP professionals, regardless of the type of compensation a CFP professional receives or the type of services offered to clients.

Here is a link that might be useful: Standards of Conduct


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RE: Best financial advice you've received? why?

And in fact, the SEC has recently cracked down on brokers who are NOT licensed CFPs but were doing financial planning for company customers. Passing the CFP exam is no cinch - in an average year less than 50% of planners pass it. Even after you pass it, you'll need at least 3 yrs experience before you can actually advertise yourself as a CFP (previous relevant experience counts, BTW). A CFP also must complete continuing education annually (I think it's 20 hours, but don't quote me) to keep their license. If they are licensed for specific insurance products, and many are, they also have to complete continuing education for each line of business.

I don't think using a CFP is for everyone. Many interested amateurs who enjoy researching stocks and funds on their own have done perfectly well for themselves - I'm one of them, in fact! But there's some big holes in my education/interest, and when I needed to reallocate our portfolio for today's market - uncertain performance plus our high comfort level with risk and foreign funds - I 'piggybacked' on my MIL's CFP to get advice on recommendations. Family advice is free, even though we don't keep any of our own funds with them. This has resulted in a portfolio allocation that delivers good results with much less volatility than my previous personal efforts.

The best financial advice I can give is that old saw about "a little knowledge is a dangerous thing." You have to know what your limits are, which means everyone does need to know the basics of investing. But if investing is not your job, you are handicapped in trying to personally handle every aspect of it. It takes time and energy to do a consistently good job, and you need a great deal of luck in your timing. You can work it so that it takes LESS time and energy under certain circumstances, but it will still require some effort.

The most dangerous situation is people coming into large amounts of money and opening discretionary accounts with a broker, without any understanding of basic investing principles or securities laws.

Not understanding the difference between fiduciary responsibility and advisory responsibility can literally break you. And honestly, I haven't seen too many people posting here who seem to understand that difference, which is one of the reasons I keep harping on it. There are literally dozens of "flavors" of financial advisor titles, but the licensing for the CFP designation is the strictest. A CFP is required to have a fiduciary duty to his/her clients: no ifs, ands, or buts. Very few other advisor/planner titles can say the same.


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RE: Best financial advice you've received? why?

"Annie I just went to your website - it's pretty clear that you are unfamiliar with what a Certified Financial Planner is. Anyone can call themselves a "Financial Planner". "

I'm very familiar!! And I'm familiar with the fiduciary issue, too. Look, CFPs are all over the place and their ability is all over the place, too. And their training is medioocre. And the organization is not all that great at policing their brokers, per Kathryn McGrath, the former head of the SEC's Division of Investment Management.

The bad experiences people have with 'financial advisors' certainly include bad experiences with Certified Financial Planners. And, as I have said, a large majority of CFPs are brokers - product salesmen. As of a year ago there were 52,000 CFP-holders, an increasing number of which are brokers at the big wire houses.

As an example, Ameriprise claims: "Ameriprise Financial has the largest number of these professionals (CFPs) among any retail advisory force". Ameriprise brokers have terrible conflicts of interest with their clients including many regulatory actions against them (take a look on BrokerCheck), revenue sharing (take a look on the Ameriprise website), high fees (per Consumer Reports) and a nasty history of pushing prop funds and (gasp) high cost and confusing VULs and VAs (per the SEC).

Please check ALL your costs - including turnover costs within the funds you own. Then, take a look at this chart, which FINRA uses to educate investors:

http://www.retireearlyhomepage.com/advise.html

"The fee is stated clearly on our statements "

Fund turnover cost, as one example, is not.

"This is a group of fee based investment advisors. The fees start at 1% and go down if the portfolio is over 2 million. At 4 million, the fee goes down to.5%"

Ad Hominem is not an informed argument against the study. But try this:
http://www.lansingbusinessmonthly.com/article_read.asp?articleID=4234

"The fee is stated clearly on our statements (and is tax deductible subject to the 2% AGI)."

Depends. For example: "Investment advisory fees related to tax-exempt incomeyou generally need to prorate these fees based on the portion of tax-exempt investment income vs. total taxable investment income."

How much ARE you paying in fees??!!

Assuming you have found a good broker, one that is putting you in all index funds and charging you a very low fee....how would another ignorant investor find an equally good broker?

You are saying many of the things that advised clients (and financial advisors!!) have said to me before. Please check ALL your costs and returns. That's all I can say.

Anniebird
www.saveyournestegg.com


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RE: Best financial advice you've received? why?

lease check ALL your costs and returns. That's all I can say.

At the end of each year I evaluate our net return. Net (after all fees and costs). I compare it to the S&P500. If it can't beat the S&P500, I'd fire our CFP.

As I've posted before, our CFP does more than dispense investment advice. Last summer I was studying the pension options DH had to choose from. The choice is permanent. Even if one's situation changes, the pension option is set for life. There were nine nine different ways for him to take his pension. The options ranged from a single lump sum, to a single life annuity, to a 50% and and 100% joint and survivor annuity. Also an "immediate increasing" 50% and 100% joint annuity, plus a "immediate life annuity with 10 years certain", and a "deferred single life annuity payable at 65.

Without knowing us, our financial situation, our risk tolerance, or our health, would you care to tell me which option we should have taken? Our CFP laid out for me what each option was, advantages/disadvantages of each and he made a recommendation based on our situation.


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RE: Best financial advice you've received? why?

"A CFP is required to have a fiduciary duty to his/her clients: no ifs, ands, or buts. "

CFP Boards revised Standards of Professional Conduct becomes effective July 1, 2008. They fought against it for a long time.

This question remains: "Is the CFP certificant a fiduciary in a financial planning engagement, and is he or she also a fiduciary when acting in the capacity of an insurance or securities agent?"

Here's an idea of how subjective it is:

"However, Dimitroff suggested that making the determination of when a CFP has a fiduciary duty "will be defined through case study, through determinations by the disciplinary and ethics commission over time," guided by the CFP Board itself. "

http://www.investmentadvisor.com/article.php?article=7804

Also, 'fiduciary' pretty much means nothing!

Consider: "Rule 1.4 of the new Rules of Conduct requires that a CFP professional "shall AT ALL TIMES place the interest of the client ahead of his or her own." That same rule requires CFP professionals who provide financial planning services or material elements of the financial planning process to do so with the "duty of care of a fiduciary," defined as "one who acts in utmost good faith, in a manner he or she reasonably (??) believes to be in the best interest of the client."

There's some wiggle room there, but it does state THE BEST INTEREST OF THE CLIENT and AT ALL TIMES. (This begs the question of the CPA actually KNOWING what is in the best interest of the client.)

However, CFPs do NOT usually act in the best interest of the client. They sell high priced actively managed funds...not index funds, for example. And, they have 'quotas' that they have to meet for the firms they work for. They use wraps. They sell funds with 12b-1 fees and so on.

So, that needed to be covered: "Rather, CFP Board expects any financial planning services provided to be the best services and recommendations available, (get ready for it!!) given the CFP professionals reasonable professional judgment and any limitations placed on the CFP professional by BUSINESS (!!) or regulatory requirements. A CFP professional may work in a setting where business or regulatory requirements limit the services or investments that can be made available to clients."

So, although the CPA supposedly must do 'what is in the best interest of the client', he really doesn't. He can still sell those VULs and prop funds and rake in those 12b-1 fees...none of which are good for the client.

http://www.cfp.net/certificants/updates.asp

The same thing applies to RIAs, with a slightly different twist.

I used to really be confused by the whole 'fiduciary' business, thinking that it really DID mean that the 'advisor' had to do, without exception, what was in the client's best interest. Only they never did and I couldn't figure it out. Then I started thinking that 'fiduciary' was one more scam.

Then I found this:

"In essence, the talk about ethics, fiduciary responsibility, integrity, etc. is primarily a marketing gimmick designed to lull the unsuspecting client into the perception of trust." - EF Moody, PhD, MSFP, LLB, MBA, BSCE, CFP

It was the last piece of the puzzle for me.


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RE: proper benchmarks

"I compare it to the S&P500. "

Bad idea. You need to compare apples to apples.

http://www.investopedia.com/ask/answers/06/smallcapbenchmark.asp

http://genxfinance.com/2007/10/10/use-the-right-benchmark-to-accurately-measure-investment-performance/

My site helps you do this.

"Without knowing us, our financial situation, our risk tolerance, or our health, would you care to tell me which option we should have taken?"

Of course not, that's silly. But try this. Post your information/question on www.diehards.org and see what they say. For free.

Just curious: Is your CFP a broker? How do you pay him? Wrap or commission?

Anniebird
www.saveyournestegg.com


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RE: Best financial advice you've received? why?

WOW....

Anniebird, you are a breath of FRESH AIR!!!!

WELCOME ABOARD!!!!

Finally... another voice against the fallacies and assumptions!

I'm looking forward to more!
Dave Donhoff
Strategic Equity & Leverage Planner


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RE: Best financial advice you've received? why?

>>CFPs do NOT usually act in the best interest of the client. They sell high priced actively managed funds...not index funds, for example. And, they have 'quotas' that they have to meet for the firms they work for. They use wraps. They sell funds with 12b-1 fees and so on.<<

I don't argue with your premise that many CFPs are not worth the money. I do not believe, however, that you should tar all of them with the same brush. There are lousy politicians and good ones - should we throw out the Shirley Chisholms with the Dan Quayles?

When I had to settle my sister's estate, I went through three probate attorneys before I found a good one. She made a world of difference, and her competence made the others both laughable and pathetic. If I had believed all attorneys were the same, I would still be waiting to finish settling that estate, LOL.

There are people here who have had excellent long-term relationships with their stockbrokers, who have ITHO done an excellent job for their customers. I don't argue with that, but I know that for my situation and my MIL's (which has been outlined elsewhere so it's not worth repeating), a broker was not going to be able to offer the services we need. Therefore, I looked for, and found, a good independent CFP. We are very satisfied with them, and do not grudge them their fees, any more than I grudge paying our mechanic to keep our cars running trouble-free.

Could we fix our cars ourselves? Certainly. Do we want to? Nope, been there, done that. Have better things to do nowadays. Same thing goes for using the CFP for my MIL. We oversee what they recommend, but in the end, how we handle the money in my MIL's two trusts is our decision, not theirs - the CFP and his staff just handle the details. We approve of how her portfolio is being handled. It's a firm that is ethical and well managed, and is not afraid to allow prospective clients to talk to their long-term clients to make sure of a good "fit".

And my apologies to the OP, I think we've gotten way OT here. If some of us want to continue this discussion sideangle, perhaps we should take it to another thread.


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RE: Best financial advice you've received? why?

"WELCOME ABOARD!!!!"

Thank you very much!

Next! :)

"I do not believe, however, that you should tar all of them with the same brush."

The trouble is that 95% of them hurt their clients. Some of them may have the best intentions in the world and some of them may simply be ignorant and not realize the damage they do. And as I have said, it is very unlikely that an ignorant investor finds one of the remaining 5%. So get me that brush....

"There are people here who have had excellent long-term relationships with their stockbrokers, who have ITHO done an excellent job for their customers."

They just haven't met me yet! Without exception, every one of the hundreds of people that I have helped learn what was happening to their investments ended up dumping their trusted advisor. Full disclosure: I have not helped people that use fee-only (flat fee or hourly fee). Just people using brokers. And I'm not counting the financial advisors posing as clients. lol - there have been many.

The investment advice industry is a sham. The way the investment industry is set up pretty much insures that 'financial advisors' will hurt their clients. I say this with full certainty. It's taken me six years to reach full certainty. I kept an active mind and listened to all sides. I read financial planner forums and magazines and articles, I spoke with many ex-advisors, I looked at hundreds of client portfolios, I read books and studies, looked at business models, learned to use Morningstar to get at hard numbers, read through SEC filings, investment books/websites/articles, interviewed dozens of financial advisors, and I used all the ruthless logic at my command to come to my conclusion. More and more people are reaching the same conclusion I have. Some are 'insiders' that are exposing the truth:

http://www.bkconnection.com/ProdDetails.asp?ID=9781576754078

I have no financial dog in this fight, like the 'financial advisors' do. I'm someone that retired early and had hoped to find a financial advisor that would 'take care of me'. The problem was...I could think.

Because I have seen, first hand, what damage these 'financial advisors' have done to their clients and because I can, I'm set on exposing the truth.

But that's all I can do. I can't think for others and I can't act for others. People can close their ears and minds to what I have to say. I hope they don't. But I know it's scary to think that you might find out you are being ripped off ... and worse, have to act on that knowledge.

"Could we fix our cars ourselves?"

sigh. Hopefully you do not give your car mechanic free rein to go into your investment account and take out money without giving you a full accounting. Hopefully you do not pay your auto mechanic a percent of assets every year, no matter what work he does on your car. Hopefully his fees do not end up taking years off your retirement. Hopefully you know that this was a terrible anaolgy.

But let me say this: The financial advice industry is the one service field where failure is clearly demonstrated. Clients pay a terrible and vast array of fees out of their nest egg ... to get poor returns. No other service field takes these huge payments ... and certainly not out of investment accounts.

I think there is one way to clean this industry up - charge people directly. Have the client pay by check monthly for ALL of their investing fees. Think about it - someone with a $500,000 investment account that is paying a 1% wrap fee and 1.5% in fund fees will be writing a check for.... $1,041,66 a month. One Ameriprise salesman was talking about their clients paying over 4%.

I suggest you read the above-mentioned book with a very active mind. Know this: I spend less than 8 hours a year on my investments.


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RE: Best financial advice you've received? why?

I can honestly say that I received no good financial advice at home and new absolutely nothing about money when I got married at 18 but since then, there have been a few things keeping us from being complete disasters:

1. When DH ws finishing school and our 3rd baby was on the way, a good friend who had retired from Hughes Aircraft told Dh not to discount government work due to the retirement benefits including health care with retirement. Dh does work for our state now and that has been very good for us. The health insurance has been especially welcome as that 3rd baby has special needs now. In just 2 more years, dh will be fully vested.

2. I am not even sure how it happened but at some point someone had pointed me in the direction of the Tightwad Gazette which definitely helped me to look at many things in ways never considered in my family growing up. While not all information has proved useful for us and I am not a hardcore tightwad, I am much more frugal now than my parents.

3. Somehow I also came across Dave Ramsey on the radio and I have learned a lot, although Dh and I still are working on the application, but we are getting better. Dh is considering grad school and as a result of listening to Dave Ramsey, I made it known that it would be great but I absolutely did not want any more debt from it, so grad school will be on a cash basis.

4. At some point dh had considered law school and when attending an orientation a professor said "Live like a student when you are in law school so that you don't have to live like a student when you're a lawyer." I thought that incredibly wise and wish DH would have applied to his situation at the time of "live like you're unemployed when you are unemployed so that you don't have to live that way when you have a job."

Like I said, we are still working on application!


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RE: Best financial advice you've received? why?

Wow, you guys, I'm shocked to find so many posts here. Clearly, there are a lot of like-minded individuals out there; even when words "get in the way".

Now I have to read 'em all, lol.

I will add that controlling expenses is a huge part of our household regimen. The more you DON'T have to spend to get by, the more you can direct to investments or addressing debt. I am teased relentlessly about my "brown bag lunches", our seeming unwillingness to wrap our arms about the newest technologies (that we don't really understand), etc.. Sometimes I chafe under it all, but we've remained true to "basics" and we've really begun to watch "compounding" take off. In our favor.


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RE: Best financial advice you've received? why?

>>Hopefully you do not give your car mechanic free rein to go into your investment account and take out money without giving you a full accounting. <<

I should hope that no one in this day and age would open discretionary accounts instead of non-discretionary accounts, but sadly, there are still people who do.

And yes, we are well aware of what using an advisor is costing us. However, since it is highly likely that my MIL will outlive us, and it is a total waste of time to expect her to learn to handle her money wisely, she NEEDS an advisor. She is, as I have outlined before, a poster child for the elderly widow whose husband did all her thinking for her, just waiting to be scammed by the first friendly face who gets introduced. Like many people of her generation, she believes that friendly, smiling people are trustworthy and anyone introduced by a friend is certain to be trustworthy.

That you clearly do not need an advisor is a wonderful thing. However, such advice does not apply to everyone, despite what you would like to think. I'm sure you have helped many people, simply because most people are not taught enough to be able to judge whether an advisor (or lawyer, general contractor, or mechanic) is competent or not. It isn't easy, but it can be done, and many people have a satisfactory relationship with their brokers or advisors. For that matter, I think Dave Donhoff seems to have shown himself to be an ethical person - so you're dissing him too, BTW, since he's "in the business."


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RE: Best financial advice you've received? why?

While I agree that there are plenty of people out there ready to get between you and your money, I also believe that there are plenty of professionals who are not only honest but qualified to assist those who seek advice with respect to putting their money to work for them.

We're confident in "our man". In pushin' 20 yrs. we've worked with him and we've done OK. Some downs, some ups, and now... ;) . He's been very helpful with respect to HOW to use our money for our benefit; when our instinct has been to simply PAY for something he's said, "hold on, how about doing it this way and taking a deduction on your taxes?".

The "basics" were in place by the time I was 18, but working with someone who asks more exacting questions has been greatly beneficial, too. And it's made me think about how one may use one's money while it's STILL working for you. That subtlety was something I never really understood until relatively recently. And it's an important thing to understand!

I'm skilled and expert in my trade. I'm smart enough to wrap my brain around a host of other things, too. But I have NO desire to spend my "leisure hours" toiling away over "financials" that involve buying and selling of equities. I'm happy to pay someone to take care of our tax return while I mow our lawn/work on the perennial beds/clean the house. I equally fine with maximizing contributions to retirement accounts and following a plan that reflects the sensibilities of our household...


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RE: Best financial advice you've received? why?

"I should hope that no one in this day and age would open discretionary accounts instead of non-discretionary accounts, but sadly, there are still people who do. "

Fund costs, loads, usually wrap fees...all come directly out of the investment account.

"And yes, we are well aware of what using an advisor is costing us."

How much is fund turnover costing you? Even I have a tough time figuring that one out and it can be higher than the expense ratio and is not disclosed in the prospectus.

" However, since it is highly likely that my MIL will outlive us, and it is a total waste of time to expect her to learn to handle her money wisely, she NEEDS an advisor."

She may be able to use a Vanguard planner for free depending on how much she has. Have you looked at target retirement funds (they have them for people in retirement)?

" She is, as I have outlined before, a poster child for the elderly widow whose husband did all her thinking for her, just waiting to be scammed by the first friendly face who gets introduced. Like many people of her generation, she believes that friendly, smiling people are trustworthy and anyone introduced by a friend is certain to be trustworthy."

Yes, that is what financial advisors dream of.

"That you clearly do not need an advisor is a wonderful thing."

It is! Doing my own investing (it's simple and takes less than 8 hours a YEAR) is saving me literally hundreds of thousands of dollars over time. Then there is the self-confidence, the great people I have met and helped, being able to sleep at night because I know what is happening to my money.....

"However, such advice does not apply to everyone, despite what you would like to think."

Why not? I know there are life events that might happen rarely, but usually a financial advisor is not equipped to deal with that. Hire someone that has that expertise when you need them.

"It isn't easy, but it can be done, and many people have a satisfactory relationship with their brokers or advisors. "

Yes, until they meet me.

I'm sure that there are ethical financial advisors. That does not mean that they are worth the fees they are paid or that they know what to do.

A simple, low-cost, diversified portfiolio of index funds will, over time, beat the vast majority of portfolios set up by brokers selling actively managed funds. (I do know that there are brokers that will do this for a 1.5% wrap fee.) Five funds will do it. Three will do it. One Vanguard target date fund will do it.

http://www.fool.com/school/basics/basics04.htm

Does your broker sell you index funds? Read this:

http://www.zeroalphagroup.com/news/113006_release.cfm

If people are willing to pay huge amounts of fees that sets back their retirement by years and greatly diminishes what they can safely withdraw in retirement I can't do a thing about it.

All I can do, and am trying to do, is to help people learn what is happening to their nest egg. Financial advisors are not telling them and are charging huge fees to do a poor job of handling the nest egg.

http://www.bankrate.com/brm/news/boomerbucks/20061206_investment_advice_a1.asp

I've done my homework. The financial advice industry is a scam. I wish it weren't true.

Annie
www.saveyournestegg.com


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RE: Best financial advice you've received? why?

"I also believe that there are plenty of professionals who are not only honest but qualified to assist those who seek advice with respect to putting their money to work for them."

Not so.

If that were the case, THIS wouldn't be the case:

http://trendfollowing.com/whitepaper/The Study of the Decade.pdf

"We're confident in "our man". In pushin' 20 yrs. we've worked with him and we've done OK."

I hear this from evey single person I help and it never turns out that way. Please, use my website and Morningstar to find out your costs and returns as compared to the proper benchmark.

I spend less than 8 hours a YEAR on my investments. I think that's worth literally hundreds of thousands of dollars.

Be aware that 401ks have dreadful fees...
http://www.dallasnews.com/sharedcontent/dws/bus/stories/081307dnbusperfi.35ad380.html

Annie
www.saveyournestegg.com


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RE: Best financial advice you've received? why?

I have enough money to last me the rest of my life, unless I buy something. Jackie Mason

Best advice you ask? Pay yourself first.

Sue


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RE: Best financial advice you've received? why?

The best advice I ever got was, "Get your name on as many real estate deeds as you can." I did and still do:-)


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RE: Best financial advice you've received? why?

dave_donhoff wrote:
"Anniebird, you are a breath of FRESH AIR!!!!
WELCOME ABOARD!!!!
Finally... another voice against the fallacies and assumptions!
I'm looking forward to more!

So am I.

Annie, I agree with pretty much everything you've said. Very few people are aware of ALL the costs they pay to invest. Even MBA students. Read what a longtime veteran in the Financial planning field has to say about fees.

Chapter 4�"17. Hidden Fees

You know that all mutual funds charge fees, right? I mean, none of them works for free, right?

I ask because I've occasionally found myself arguing with people over this question. They adamantly claim that they do not pay any fees for their retail mutual funds because they own no-load funds. But as explained above, load means "sales charge"; by buying no-load funds, you avoid sales charges.

However, avoiding loads does not mean that you avoid fees. All mutual funds charge a fee, Actually, they charge two. The first is the Annual Expense Ratio. This pays for the fund's recurring operating costs, from the fund manager's salary to the toll-free phone number investors call to talk to customer service representatives. The average expense ratio of retail mutual funds is 1.33% per year, according to Morningstar, although many are more than 2%. The highest in the industry is a staggering 15%!

Although the expense ratio is expressed as an annual figure, it's actually debited on a daily basis. But you never notice it, because the charge does not appear on your monthly statement. (It's hidden.) To find it, you must look in the fund's prospectus. There the expense ratio is expressed as a percentage. (The fund further hides the amount you're paying by showing the figure as a percentage instead of dollars.)

Many investors�"and, astonishingly, even many investment advisors�"think the annual expense ratio covers all of the fund's expenses. But it doesn't. The expense ratio covers only the perennial costs: salaries, marketing, overhead, and the like. There are many variable costs for operating a fund, and these are excluded from the expense ratio. Indeed, a study by Wake Forest University, the University of Florida, and the Zero Alpha Group found that 44% of mutual fund fees are not disclosed in the prospectus.

The biggest of these omitted costs is trading expenses. Whenever the retail mutual fund manager buys or sells a security, he pays brokerage commissions (just like you would if you bought or sold a stock or bond). Considering that retail mutual funds trade millions of shares representing billions of dollars, their trading costs are huge�"and the more the fund trades, the more it spends on brokerage commissions. According to Greenwich Associates, the average retail mutual fund spends $16 million in trading costs per year.

But to find them, you must look in the fund's Statement of Additional Information, an arcane document that's even bigger, denser, and harder to read than the prospectus�"and which fund companies, stockbrokers, and brokerage firms are not required to give you. To get a copy, you must ask for it; something few investors do, since few have ever heard of the document.

These additional costs represent an average of 1.25% in annual expenses. When you add that to the expenses listed in the prospectus, you find that the average retail mutual fund charges its investors 2.58% per year, according to Morningstar. Compare that to 1945, when the average fund charged on 0.76% per year.

Instead of showing the fee you pay in dollars right on your statement, you must look for the fee in the prospectus. Then you must convert the percentage in to real numbers. And because almost half of the fund's expenses are not included in the prospectus, you must also turn to the Statement of Additional Information. There you must compute the expenses, determine the ratio of expenses to fund assets, and convert this figure into dollars based on the amount you have invested. In this way, you are able to determine how much you are paying to own your mutual fund. The retail mutual fund industry will tell you that it provides full disclosure about its fees. No, they say, nothing is hidden at all.

The fund industry is so good at hiding fees that even MBA students can't figure it out. As part of a test of mutual fund disclosure practices, MBA students at Harvard University, the University of Pennsylvania, and Yale University were given a list of retail mutual funds. Every fund on the list was an S&P 500 STock Index fund. Researchers asked the students just two questions:

1. What is the most important factor in selecting the best fund from this list?

The correct answer is "the fee"�" and every MBA student got it right.

2. Which fund is best?

Obviously, the correct answer is "the cheapest fund." After all, every fund on the list owns identical investments. The students had already agreed that the only difference was cost, so they went about determining which fund was cheapest. Yet, to the astonishment of the faculty, even after being given prospectuses on each fund so they could evaluate the costs, only 20% of the MBA students picked the cheapest one. Eighty percent were incapable of correctly reading the prospectus to determine the correct answer.

And these were MBA students at prestigious universities! What hope is there for ordinary investors?

Ric Edelman-"The lies about money-Achieving Financial Security and True Wealth by Avoiding the Lies Others Tell Us�"and the Lies We tell Ourselves"


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RE: Best financial advice you've received? why?

Fees are a consideration but net return is what is most important. Compare any S&P 500 Index Fund to Fidelity Contra over the past ten years or so. I own both (but 10 times more Contra).

Contra (fcntx) five year net annualized return: 16.53%
S&P 500 Index (fusex) five year net annualized return: 11.73%

Contra Expense Ratio: .89%
Index 500 Expense Ratio .09%

Even though Contra's expense ratio is much higher than the S&P 500 Index fund, I made nearly 50% more with Contra!


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RE: Best financial advice you've received? why?

There have been some interesting psychology studies recently on how people react to fear (and needless to say, the fear of losing one's money in the stock market runs rampant these days).

One reason I don't hold with most individual investing is that the majority of people I talk to, meet, or correspond with casually (e.g., Net forums) have very little financial acumen and even less interest in acquiring it. Like my MIL, who really is a delightful lady, they're ignorant and just want the world to be a kinder, simpler place where the multiplicity of choices isn't so overwhelming and downright frightening.

I have been to many investing classes run by CalPERS, the largest pension fund in the US, who really tries to educate their constituents with an extremely comprehensive array of classes, seminars, and advice - all of which are free.

Back in the headier market days of early 2006, we were at one of the five-week workshops listening to a presentation on the basics of investing. The speaker mentioned a return of 6-8% per year as a good average when looking over a 20-year period.

A number of employees shook their heads and said they hadn't even gotten close to such returns over that period. Why? Because they're the ones that panicked during the bear market of 2000-2001, fleeing the S&P 500 fund (amongst other equity funds) to hide in the "safe" bond funds. So not only did they lose 25%+ of their portfolio, but they completely missed the bull market running back up through 2006.

There's a reason why PERS, despite their efforts at educating employees, can't get total investment allocations to change from the average of 80% bonds/20% equity - yes, that's right, the exact reverse mix they should have, especially since they can retire at age 55 with a full pension.

Most amateurs make lousy investors who buy high and sell low. You can have the lowest broker expenses around, the best available stock funds to pick from - but if you lack good investing instincts, or even the elementary knowledge that dollar-cost averaging will help overcome your own stumbling blocks, you've got the deck stacked against you all the way.

There is help all around. Some of it's free, some of it isn't. But if you're a typical amateur investor, you need to go find help if you're going to get even average results, let alone better-than-average ones. Because in the end, the fact is, most people don't correctly apply even the most basic principles of investing.

Expecting the majority of amateurs to make the leap into understanding how to reduce risk while maximizing ROI, is a fantasy that isn't going to happen. Some of us do actually understand that looking at 5 year results on a fund was more meaningful in 2007 than it is in 2008 - and it was even more meaningful in 2006.

But although everyone **should** know this, the reality is, most people don't, and don't care...even though yes, they should. But they should eat more vegetables and fruit, too; which for many is easier advice to take than to go to anybody's website and start educating themselves about their own money and how to make it work successfully for them.


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RE: Best financial advice you've received? why?

Good points. Most successful investors spend a significant amount of time studying the field while many newcomers think that they can go to a luncheon seminar and learn the secrets of successful investing! Usually the newcomers get fleeced by the "Finacial Advisor" that bought them lunch. It's still true -- there ain't no free lunch!


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RE: Best financial advice you've received? why?

I agree, deerslayer. Too many beginners do get fleeced because they aren't able to evaluate which advisors are good and which are not.

One of the things my ex-boss, an independent CFP, liked to emphasize is that most of his job was in listening to people. They wanted to get from Point A to Point B, and part of doing a comprehensive financial plan was to show these people an actual roadmap to achieving their goals. It was different for every person/couple who came in. There was no "plug in the numbers and spit the results out" software to do this.

EVERYONE has different financial aims, risk tolerance, and life situation. The amount of money in your portfolio is only a part of what makes up your total financial situation. To oversimplify this issue is a disservice to others.

Lets take an example of clients that came to my boss office, in fact. The couple was both in their early 40s. They had one son, and a lot of very valuable stock options from the two high-tech companies they worked for.

They had a lovely home with a decent amount of equity, and high-paying, upper management jobs that were solid. Good 401ks to which they were contributing the max; healthy brokerage accounts with regular additions made at a discount brokerage.

In this case, the couples assets had grown relatively quickly over a five-year time. They had gone from being hard-working and living comfortably, to the prospect of being able to take early retirement in their 50s yet still living very well.

They also had no wills, no trusts, no insurance, no healthcare directives, no power of attorneys. Zip. Nothing.

They received a financial plan, part of which an entire page of to-dos for them. We gave them referrals to 3 estate attorneys to choose from (no comps to my boss, ever, BTW).

It wasnt easy for them in their busy lives, but we (the staff) kept gently reminding them. Five months later, they finally sent us the copies of the last legal docs they needed.

One of the trusts was an ILIT Irrevocable Life Insurance Trust. Its used in situations where estate taxes are a certainty. Since there is only one heir, the son, he stands to inherit a considerable amount of money someday. The ILIT assists with the tax planning issues.

The discount broker was not going to, and CANNOT, do this for customers. Yes, the couple could have taken the financial plan and run. They could have done it all themselves. But they hadnt gotten around to it yet and might never have many people dont. And in their case, no amount of savings on discount brokers was going to pay for those estate taxes if something happened to the parents.

One of the comments my ex-boss likes to make is that of his retired clients, half of them he has to encourage to spend money on themselves, and the other half have to be dissuaded from emptying the piggybank immediately. He has second and now even third-generation families as clients. Each client has different goals and attitudes, and is handled on a customized basis. No discount brokerage in existence could give them the kind of extensive and personal service his clients receive.

He is also one of the leading expert witnesses in the state for the defense in NASD brokerage fraud cases. And yes, some of those transcripts I read were just heart-rending. Many times it was just plain ignorance on the part of the brokerage clients just like my MIL would behave.

Perhaps I was fortunate that my first securities job was working for someone ethical and conservative. But Ive met a number of CFPs in the last few years. Like the folks Ive worked with over the years in banking and insurance, the great majority of them are honest and hard-working people. If someone wants to paint them all as evil and dishonest, thats their opinion and theyre entitled to it.

For me, however, those people have faces and names. Id say Ive met more incompetent lawyers and contractors, myself.


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RE: Best financial advice you've received? why?

dreamgarden, that is a great article! It is amazing how many people have no idea that they pay fees at all, let alone what they pay. And the 'financial advice' industry is intent on them not finding out. Especially in 401ks where it's so bad there are now Congesssional hearings on the lack of disclosure.

Deerslayer says: "Fees are a consideration but net return is what is most important."

The trouble is, no one knows what a fund will return in the future and none of us can go back and invest in the past. Fees are something we can control. Returns are not.

Your fund has done really well IN THE PAST but you don't know what will happen going forward. Remember Magellan?

Financial advisors are always going back in time and cherry picking funds that did well to prove that active management and those high fees are worth it. Never do they predict the future, just the past. lol

jkom, you say: " Most amateurs make lousy investors who buy high and sell low."

That may be the case, but when we look at investors that use professionals, their returns are far worse! Consider: "the BCT study found that the raw returns of equally weighted mutual funds (net of all expenses) for 1996 to 2002 were 6.626% for the investors working on their
own and were 2.924% for funds provided by advisors.

In other words, the public working on its own did more than 100% better than financial advisors when it came to selecting equity mutual funds."

http://trendfollowing.com/whitepaper/The Study of the Decade.pdf

As bad as DIY-ers might do on their own, those using 'advisors' do far, far worse. And don't you think financial advisors would be shocked by these results and start doing some serious soul searching? I would iof this kind of information came out about my industry. Yet every single 'advisor' I have discussed this study with went into complete denial and almost every one started calling me filthy names.

"Because in the end, the fact is, most people don't correctly apply even the most basic principles of investing."

Nor do financial advisors and then you pay those huge fees on top of the bad advice. Remember that many 'advisors' work for firms that tell them to sell prop funds, funds that pay revenue sharing kickbacks and even VULs...or be fired.

"Expecting the majority of amateurs to make the leap into understanding how to reduce risk while maximizing ROI, is a fantasy that isn't going to happen."

I agree. The financial industry has done an excellent job of scaring people into thinking investing is a huge, comples mess when in fact they would beat the vast majorty of advised clients if they simply held a low-cost target retirement date fund from Vanguard.

I do my own investing. I am retired so risk certainly matteres to me. It's a piece of cake to do my own investing. I have a well-diversified portfolio of mostly (a girl has to have a bit of fun!) index funds and I spend less than 8 hours a year on my portfolio.

The people I have helped learn to DIY were amazed at how simple it can be. And, the simpler the better. Really, 3 index funds will do the trick. Or a target retirement fund.

"But Ive met a number of CFPs in the last few years. Like the folks Ive worked with over the years in banking and insurance, the great majority of them are honest and hard-working people."

Hopefully they charge by the hour and are fee ONLY (not fee based and/or charging a percent of assets. I'm sure many brokers have good intentions yet their fees have caused this:

"Despite all of our training in areas such as modern portfolio theory, diversification, asset allocation, rebalancing, etc., the BCT study found that most advisors (the BCT study looked at virtually all types of FAs who sell mutual funds) deliver poor investment returns.

The BCT study found that the raw returns of equally weighted equity mutual funds (net of all expenses) for 1996 to 2002 were 6.626% for investors working on their own and were 2.924% for funds provided by advisors.

.....

The problem is much too big to ignore. The advisors delivering these returns are negatively impacting the financial dreams and the retirement plans of tens of millions of Americans. Their poor performance could harm the reputation and the esteem of the entire financial planning profession for years to come."

I've spent years listening to advisors telling wonderful stories and clients insisting that their returns are fantastic - yet hard numbers prove otherwise.

I am sure that there are honest financial advisors out there that mean well, but you know the old saying about the road to hell....

With VERY few exceptions the financial advice industry is a scam. If financial advisors want to do the right thing it really is quite simple. Quit selling products. Only sell advice. Charge an hourly fee and have the client pay by check. Do not take a penny in commissions. Learn to do proper asset allocation. Use all or mostly low-cost index funds. Explain to the client why he must stay the course.

As it stands now we have conflicts of interest, 12b-1 fees, soft dollars, revenue sharing, ongoing % of assets charged, money taken directly from investment accounts with no full accounting, hidden fees, actively managed funds, high fund turnover, churning, inappropriate products sold all over the place (like VULs), the BS marketing tool of 'fiduciary' duty, RIAs, lack of education, the fund scandals, putting stockholders ahead of client interests, surrender fees to get out of horrible products, the 'fake it till you make it' philosophy, 'professionals' underperforming DIY-ers and charging a huge amount to do so, the mess of fees charged in 401ks and the consequences, the hard selling of products, hedge funds, terrible asset allocations, market timing, chasing past returns, manipulating clients, scripts, firms hiring kids with no experience to get to their natural market, 'advisors' that are really salesmen that sell what they are told to sell and never think of comparing products, and on and on and on.

Anniebird
www.saveyournestegg.com


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RE: Best financial advice you've received? why?

Anniebird,

Just a bit of friendly advice (from someone who lobbied for Dave's reinstatement)... you are perilously close to violating the ban on advertising (in violation of it, frankly!) included in your registration to THS.

Be careful. And reconsider the address that follows your sign off... . I may not agree with all you've offered, but I certainly don't want to see you banished simply because you weren't paying attention to the clearly stated rules...

;)


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RE: Best financial advice you've received? why?

I'm honestly curious about this. I am selling nothing - no product or service. My site is informational and in no way commercial.

I looked through the terms and I found this:
"Commercial uses of the GardenWeb Network are strictly prohibited unless prior written consent from iVillage has been granted."

Doesn't apply.

I found:
"Why can't I mention my products in the forums?

If we allow vendors to post ads to the forums, their value as a place for users will deteriorate. Business people using the forums must be careful not to advertise or solicit business in any way. "

I am not selling anything. I have no business.

I found:

"No advertising is allowed in any of the forums."

But I don't think I'm advertising since I'm not selling a product or service. However, I could be wrong so I have sent an email to 'the powers that be' to find out.

I guess I think that explaining to people how to look up fund costs and returns and find out their investing fees is educational. And VERY important. I'm proud of myself for doing this, for free, to help people. Knowledge is always valuable, but this knowledge translates into college for the kids, early retirement, a better retirement, a bigger legacy......

But I don't want to violate any rules that I agreed to follow!

Anniebird


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RE: Best financial advice you've received? why?

As I've said in other postings, any advisor that won't give you the names of at least 3 long-time clients to call and talk to, isn't worth considering. That's IF you need an advisor; I don't think everyone does.

But some people do. That seems to set you off in a very strident manner. Nonetheless, I'm as entitled to my opinion, as you are to yours.

Yes, I've seen the BCT study as well. It's one of the reasons one does need to be careful using an advisor of ANY kind. But any good CFP who has been in business for 10+ years should be able to show a track record of at least 6-8% after expenses. Yes, it is hard to track all expenses (whether you use an advisor or not), but a rough total can be managed by diligent clients and figuring out the ROI is easy after that.

People also need to consider that many CFPs offer their clients purchases at NAV and reduced management fees on funds. Many also rebate any direct commissions back to the client; my ex-boss did. He changed all his clients over to a fee basis and chose to limit his client base. For all the custom services and hand-holding he provides his clients, it's impossible for him to do so on transaction-basis. As one of the back-office staff doing the paperwork on that hand-holding, I fully understand his reasoning.

That does limit his services to people who can afford him, which means people with sufficient liquid assets. I would barely make his minimum, if I were to be a client.

We have little need for an advisor ourselves. I enjoy investing and corporate business, and have achieved above-average results on our retirement portfolio after expenses and contributions are subtracted. We have the advantage of being part of CalPERS, one of the best-managed pension funds in the US, and believe me, I take every advantage of it I can. Our expenses are low, we trade for free, and buy at NAV no matter how small an amount we allocate to any fund.

But I don't make the mistake of thinking that everyone enjoys doing this type of thing; nor the assumption that someone is automatically wrong, only because they choose to achieve their goals a different way than I do.

In the end, all we are doing here is trading opinions. Success stories come in all shapes and flavors, some of which are not going to fit in with your beliefs.


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RE: Best financial advice you've received? why?

"As I've said in other postings, any advisor that won't give you the names of at least 3 long-time clients to call and talk to, isn't worth considering."

The problems are 1) he cherry picks clients and 2) clients have no clue what they are paying or how they are really doing. They just know they 'like' they advisor and he 'seems' to be doing great. The people I have helped all thought initially that their advisor was their dear friend that was doing wonderful things with their money. They would have given glowing recommendations.

I think EF Moody said it well: "And that's the same critical problem with referrals as well- and the reason that they are so effectively used in the business. Literally every salesperson is told/taught to get referrals to friends, neighbors, relatives, co-workers, Martians, whoever, since that is a great lead in. Unfortunately, the person getting the referral believes- or wants to believe- that the agent has already been critically and thoroughly analyzed and must be of the highest caliber and competency. Invariably they do NOTHING themselves to check out whether such knowledge or ability exists- and nothing was done before. Then this happens to the next person and the next, ad infinitum, as the referrals continue. It ends up that no one did any checking on anyone at all and then they later wonder how it all went wrong. They end up buying the wrong product at the wrong risk level at the wrong time- and certainly from the wrong person. They get little or ineffectual service, etc. Now referrals may work with physicians and certain other professionals (sometimes with CPA's or attorneys- but not all the time) since they at least have a degree and other background and training. Even here, people are finally recognizing there are problems. But referrals to agents who have essentially nil background (read further) is illogical. It is for these many reasons that I feel that referrals to brokers, insurance agents, financial planners, attorneys and most other entities is a waste of time unless a comprehensive review of the individual is commenced before any product is purchased or any fee paid. And such review is NOT calling the SEC/NASD or your State offices to see if any formal arbitrations or law suits have been instituted. Only an infinitesimal number of agents have ever been sued. That still says NOTHING about competency. You need to do a LOT more to assure yourself of some reasonable competency."

"That seems to set you off in a very strident manner."

Because I know what a scam these people are probably in for. Unless they find an honest, knowledgable, hourly fee-ONLY planner. I would totally love to see ignorant investors finding good, honest, low-cost advice. I could then turn my attentions to all my hobbies. The fact is, these people need advisors because they are ignorant and have no confidence. Salesmen will snap them up and manipulate them and hurt them. I see this over and over and over.

"But any good CFP who has been in business for 10+ years should be able to show a track record of at least 6-8% after expenses."

Should, but they don't. Numbers don't lie.

"Yes, it is hard to track all expenses (whether you use an advisor or not), but a rough total can be managed by diligent clients and figuring out the ROI is easy after that."

First, why should a client have to hunt down elusive fees? Shouldn't a financial ADVISOR (!!!!) be telling the clients all about the fees? This alone is very telling. And I can't even track down all the fees! Fund turnover is not in the prospectus let alone the expense ratio. Take a look at this: "Mercer Bullard, president, Fund Democracy and assistant professor of law at the University of Mississippi, added: "This study demonstrates conclusively what consumer groups have argued for years: fund expense ratios are misleading. Expense ratios exclude portfolio transaction costs that on average equal 43 percent of the total expense ratio. In some cases, hidden portfolio transaction costs are five or six times the total expense ratio. Congress should act promptly to ensure that America's investors are provided with full disclosure about funds' portfolio transaction costs."

Even if you find the turnover, figuring out the cost from there is a bear. Can't you see what a problem this is?

"People also need to consider that many CFPs offer their clients purchases at NAV and reduced management fees on funds."

From the BCT study: "Do advisors help clients find funds that are lower cost (excluding distribution costs)?
After analyzing several trillion dollars worth of transactions, the answer is no."

"He changed all his clients over to a fee basis "

Yes, the new and improved way to get big fees from clients. This is usually more expensive than loads for the client in the long run. Fee basis means he can get commissions (probably from 12b-1 fees) and a percent of the client's assets. That percent of assets gets subtracted from the client's investments year after year after year after year. Never to compound. And for what?

"But I don't make the mistake of thinking that everyone enjoys doing this type of thing;"

They don't have to. They can buy a target retirement date fund (very low expense ratio, no load, no percent of asset fee, no 12b-1 fee, index funds, automatically rebalanced) or have a salaried Vanguard planner do it (often at no cost) or hire a fee-ONLY planner by the hour to set up a simple portfolio.

I am saving amazing amounts of money and spend less that 8 hours a year on my investments. Had I been better able to dig through the industry BS when I first started, I would have been able to set up a great portfolio in a weekend.

"In the end, all we are doing here is trading opinions. "

Hard numbers are not opinions. This is not an opinion:
"the BCT study found that the raw returns of equally weighted mutual funds (net of all expenses) for 1996 to 2002 were 6.626% for the investors working on their
own and were 2.924% for funds provided by advisors."

I know that I'm passionate about this. It's because I have looked at enough evidence over the years to reach certainty. And, I have seen so many people that have lost years of retirement to fees they were never told about by their trusted financial ADVISOR. Maybe it's just my opinion, but I think that if someone pays for a service he should get a value from that service - not badly hurt. And the worst is that all those clients initially defended their broker like crazy. It was only after I took them out to Morningstar and showed them reality that they started realizing what was being done to them.


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RE: Best financial advice you've received? why?

"Watch the 'little' expenses and think in terms of percentage." and "Cost and price are not the same."
For example, I can buy a package of light bulbs for $3.29 at the local hardware store (2 miles away) or for $1.97 at a larger store (6 miles away.)
As a dollar amount, it is easy to say that the difference ($1.32) looks insignificant. As a percentage, the hardware store's price is 67% higher!
In this example, the price may be less, but the COST of driving to the larger store is likely prohibitive.
So, shame on me for running out of light bulbs and having to waste tims and gas to go buy some!
I keep a list of ALL household items and groceries I buy regularly in a Word file. Before I go shopping, I print the list, then see what I need and cross off the items I do not need.
This example may sound petty, but consider the hundreds of items a household uses...


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RE: Best financial advice you've received? why?

When you live 13 - 18 miles from the city, you don't want to make too many special trips for stuff that you run out of.

Farmers have to do such, frequently.

My chief problem is ... milk! I thought that I could freeze it. That the thick bags would protect it ... and I could handle it getting a bit chunky on thawing.

Trouble is ... when it thaws, often there's a hole or two, that lets the more or less clear liquid escape, leaving the thick stuff behind. I'm working on what kind of protection it needs to avoid those pinholes!

Some people buy millk in 2-litre cartons, and the 1.33-litre bags will fit inside, so I think that I'll try that - but those 2-litre things are much higher that half of the price of the 4-litre bags, so I dislike buying them ... but sometimes they're on special, so I've bought some, and have kept the boxes .. so we'll see.
__________________________________

After I took the stockbroker's course over 25 years ago, but found it hard to find work in a recession, I found a position after while with a mutual fund broker, selling a variety of mutual funds, compensation entirely on commissions on my sales.

At that time another recent recruit had been working as a fee-only advisor in a nearby city.

His evaluation of his fee-only business was that that was a good way to starve - this was back in 1984.

I worked there for a year ... it couldn't be done part-time: one worker who had been driving a school bus and continued was told that he had to stop - or leave.

I didn't sell enough to suit my second immediate supervisor (my direct supervisor recommended that I stay), so left.

I enjoyed that field and continued, offering advice only, a fee-only personal financial advisor, sellling no financial products (and refusing the offers of some in the field to split commissions for referrals, for mutual funds, insurance, etc.).

And continued my training toward becoming a Chartered Financial Planner. Unfortunately, failed the last course.

They'd revamped it - toward graduates becoming a Certified Financial Planner ... I'd have had to take the whole six courses over. As I was 70, and in receipt of a pension adequate for my needs, I chose not to do that.

I've tried advertising and using a variety of methods to advertise my services ... but found it hard to recruit clients.

My evaluation with regard to my own situation was similar to that of the guy who left that work to sell mutual funds, those many years ago - as far as I'm concerned, it's a good way to starve.

Many say that they'd like unbiased advice, advice not contaminated by self-interest.

But then they decide that they'd rather use the planner whose services are "free".

My suggestions that the recommendations would quite likely be somewhat different ...

... more or less fell on deaf ears.

I would charge by the hour, at a modest rate, or the project, on a negotiable basis. One doctor, nearing retirement, often wrote me a cheque for more than I asked!

I told potential clients of my biases, and that there were areas where my knowledge was somewhat lacking, and in such cases, unless I had developed linkages with professionals, whom the clients were free to choose or not, as they wished, I would let them know of my limited knowledge.

In the investment group (local subscribers to the magazine mentioned below) that I've attended for half a dozen years, I've increased my knowlewdge somewhat.

I prefer to buy Canadian and U.S. stocks directly, though I've suffered losses in recent yers as the exchange rate changed. I've bought some stocks farther afield directly, but when one uses ADR's, they tend to follow the U.S. market too closely. And some global ones using, earlier, mutual funds and more recently, ETFs.

One contributor to what I believe to be Canada's best personal financial management magazine, that carries no ads, so is totally subscriber-driven, has run an investment project (following a certain U.S.-based pattern) for over ten years, that he'd back-tested for another ten years, that uses 10 stocks per year, with some carry-overs, he invested in a total of 23 stocks over those 10 years. He has developed a growth rate over that time of 14%.

But, in the light of Annie's time used managing her money ...

... he manages his system in about 2 hours per year, he says.

By the way, Annie, with regard to your website, I imagine that you'd like to have it look professional. I found three composition or spelling errors in it, including those big ice-things that wander around in the ocean as an "iceburg".

I understand that we Canadians spell funny ... but I don't think that U.S. people spell those things as you did.

Thank you for your project of encouraging people to investigate financial advisors and their activities, and manage their money more carefully ... but perhaps you could be a little less combative, or know-it-all, about it?

Good wishes, folks, for learning more about how to manage your income (plus outgo) and assets, more effectively.

ole joyful


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RE: Best financial advice you've received? why?

DH and I were being interviewed by a TV reporter about the need for adooption reforms. As he was packing up, the cameraman asked me a couple of questions that cut to the heart of the matter -- much better than the emotionally loaded questions proposed by the interviewer. He started with, "Let me see if I understand. Let's follow the money."

"Follow the money," has become one of my favorites. I also like, "Take what you want and pay for it." (You WILL PAY for your choices, so choose carefully. This applies to more than money, BTW.)


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