High Net Worth? Get Thee To An Advisor!

[pmj]

The recent direction of this thread is about alternative methods of helping one's spouse, after one's death, to manage their investments - and thus a chunk of their income. At least half of us will likely pre-decease our spouses. It's unrealistic to suggest that someone without much interest, and without much experience, probably in their 80's, is likely to jump at the opportunity to learn those new skills.

[OT, sexist, etc] I'm astonished at how few women here drive standard transmission vehicles. 99% of women in the UK can drive standards. Why are North American women incapable of driving standards? Can't they just get a few helpful lessons from their (undoubtedly-competent) husbands, and develop this basic life-skill? [/OT, sexist, etc]

This is a real problem, not a theoretical one - and this has been a valuable discussion. There's no right answer - so each option is valuable - and equally no suggestion is wrong. A pure auto-pilot method is a little nerve-racking - I think some monitoring is required - and that represents, to a greater or lesser degree, how many of us currently manage our portfolios. Dan added an interesting "new" concept that seems to be an effective method of providing continuity - and providing assurance to the not-yet-departed.

[Descartes]

Do you seriously think that someone who's not particularly interested in investing, who's never been through something like this before, and who now has to make do with that portfolio since there may no longer be regular job income, etc. is going to have the same intestinal fortitude that you did?

Well, yes. My family has lived through the ups and downs in my investments and seen how I reacted and how well we've fared.
As I said, in this special case, there is the following characteristic:

- the students have proof of the success and (hopefully) have trust and faith in the teacher

For the couple of unhappy examples cited by those above, I don't want to presume, but perhaps this characteristic was/is currently lacking.
Yet.. can't that be addressed? And why are you waiting until you're dead to start training your "successor"?

[couponstrip]

My hubby might be game to take it on. The biggest problem I see is that he is quite a successful guy in most areas of his life (particularly in his choice of women) which has given him a lot of confidence over the years. Without question, he would be prone to market timing and picking stocks. In fact, he always asks me why I don't time the market and pick stocks more with all the knowledge I have learned.

Our family genetics tell us that he is more likely to predecease me, though.

[OT, sexist, etc] I'm astonished at how few women here drive standard transmission vehicles. 99% of women in the UK can drive standards. Why are North American women incapable of driving standards? Can't they just get a few helpful lessons from their (undoubtedly-competent) husbands, and develop this basic life-skill? [/OT, sexist, etc]

Hey, some of us can handle stick just fine, and prefer it.

[Nemo2]

[OT, sexist, etc] I'm astonished at how few women here drive standard transmission vehicles. 99% of women in the UK can drive standards. Why are North American women incapable of driving standards? Can't they just get a few helpful lessons from their (undoubtedly-competent) husbands, and develop this basic life-skill? [/OT, sexist, etc]

Hey, some of us can handle stick just fine, and prefer it.

So too does my wife, and, IIRC Bylo's also.


(I'm pretending not to have picked up on the double entendre. )

[Bylo Selhi]

Well, yes. My family has lived through the ups and downs in my investments and seen how I reacted and how well we've fared.

WADR, good luck with that. Just because they've seen you do it doesn't mean that they can do it when the full responsibility rests in their hands. There's ample evidence that suggests the odds aren't in their favour, including Bernstein's piece as linked upthread. Maybe your family members are "special cases" but even so, most peoples' families simply are not.

So too does my wife, and, IIRC Bylo's also.

Yup. Actually it was moi who persuaded her to get an automatic on her new Civic. My argument was convenience in heavy traffic and that it will more than pay for itself in resale value. If left to her own devices she'd have got a stick shift.

If only persuading her to pay more attention to financial planning and investing were even a tenth as easy...

[Flights of Fancy]

I wonder how many of the women here also drive stick? Count me in (although we drive very little and I mostly pilot a bicycle around town!)

[gouthro]

Sure, here are a few things you will need to teach them.

Your hyperbole erodes your argument significantly, in my humble opinion.

5. Are you saying my wife and kids are stupid?!

Descartes,
I don't think Mike Bayer is saying that your wife and kids are stupid. He is really raising the very legitimate question as to whether they have the interest and abilities to do this work. He especially underlines the emotional ability to stay while everyone else is heading for the doors. He makes very good points--and I think his hyperbole is mostly humorous. One of the reasons things are humorous often, though, is because they are true. So, maybe its a double edged sword. But, I think Mike did a pretty good job of putting things in perspective
Joe

[mike.bayer]

Sure, here are a few things you will need to teach them.

Your hyperbole erodes your argument significantly, in my humble opinion.

5. Are you saying my wife and kids are stupid?!

Descartes,
I don't think Mike Bayer is saying that your wife and kids are stupid. He is really raising the very legitimate question as to whether they have the interest and abilities to do this work. He especially underlines the emotional ability to stay while everyone else is heading for the doors. He makes very good points--and I think his hyperbole is mostly humorous. One of the reasons things are humorous often, though, is because they are true. So, maybe its a double edged sword. But, I think Mike did a pretty good job of putting things in perspective
Joe

Thanks Joe,

I am definitely not saying that his wife and kids are stupid and I really do hope he can teach them to be successful investors. My experience has been that very few people have what it takes to be serious long term successful investors. It seems that the human brain is simply not wired that way (in most cases).

The Dalbar studies show the facts pretty clearly. I'm not sure how different the numbers are for DIY investors but it showed a 9.14% S&P 500 20-Year Annualized Return(time weighted) vs a 3.83% “Average”Equity Fund Investor 20-Year Annualized Return (dollar weighted)

Source: DALBAR Quantitative Analysis of Investor Behavior (QAIB), 2011. Comparing time-weighted index returns to dollar-weighted fund returns suggests that the “average”equity fund investor buys high and sells low while owning a given fund for less than five years.

[kodiak]

I wonder how many of the women here also drive stick? Count me in (although we drive very little and I mostly pilot a bicycle around town!)

I have driven a standard for many years. I don't think it is unusual for a woman to drive a stick shift.

But I find I am not that 'average'. I am what some would consider high net worth. Well over the million. Never used an advisor...just this forum. Single mom, retired small business woman, no secondary education, just the desire to be independent and secure.

[Descartes]

Sure, here are a few things you will need to teach them.

Your hyperbole erodes your argument significantly, in my humble opinion.

5. Are you saying my wife and kids are stupid?!

Descartes,
I don't think Mike Bayer is saying that your wife and kids are stupid. He is really raising the very legitimate question as to whether they have the interest and abilities to do this work. He especially underlines the emotional ability to stay while everyone else is heading for the doors. He makes very good points--and I think his hyperbole is mostly humorous. One of the reasons things are humorous often, though, is because they are true. So, maybe its a double edged sword. But, I think Mike did a pretty good job of putting things in perspective
Joe

The problem with writing is that one can't always discern a joke. My "accusation" is a joke; hence the smiley face.

Hyperbole means to exaggerate to an obviously ridiculous extent. In this case, Mike is exaggerating the complexity of the task under discussion to a ridiculous extent to dissuade the DIY investor from this course. Certainly he has a less than altruistic intent here given his livelihood (but I do not fault him on this - you've got to make a living).

I missed the humour in his hyperbole but I guess that's to my initial point (maybe he needs to add more smileys) .

If you have not already, then please read over Mr. Bernstein's article from which, it appears, Mike cribbed and exaggerated (1 in 10,000? That would mean, for example, only 50 people in Hamilton Ontario are equipped to be DIY investors!). Then read the rebuttal I had to Shakespeare's mention of this article since we are not, in my opinion, talking about the same case as Mr.Bernstein.

If you've done all this then: thank-you and I guess that's all I can say on the matter. If we still disagree then so be it.

[mike.bayer]

I don't think it needs to be complex at all but it does seem to be very difficult for most people. The Dalbar facts speak for themselves.

FYI - I'm happy to provide anyone with a no cost consultation and simple asset allocation plan.

[DanH]

[OT]

Source: DALBAR Quantitative Analysis of Investor Behavior (QAIB), 2011. Comparing time-weighted index returns to dollar-weighted fund returns suggests that the “average”equity fund investor buys high and sells low while owning a given fund for less than five years.

While DALBAR is probably correct directionally relative to index returns I would not put much faith in the specific numbers. See Does DALBAR really calculate investor returns.
[/OT]

[mike.bayer]

[OT]

Source: DALBAR Quantitative Analysis of Investor Behavior (QAIB), 2011. Comparing time-weighted index returns to dollar-weighted fund returns suggests that the “average”equity fund investor buys high and sells low while owning a given fund for less than five years.

While DALBAR is probably correct directionally relative to index returns I would not put much faith in the specific numbers. See Does DALBAR really calculate investor returns.
[/OT]

Hi Dan,

Interesting post with good arguments. What is your estimate of average investor returns for the 20 year period?

It seems the task is made more difficult as only about 63% of actively managed Canadian equity funds survived over five years through Q42010 and only 2.5% of them beat the index.

Ok - I will concede that the number will be more likely to be 1 in 100 to 1 in 1000.

Standard & Poor’s Indices Versus Active Funds Scorecard, December 31, 2010. Index used for comparison: S&P/TSX Composite Index Total Return. There has been no deduction of fund expenses from index returns.

[DanH]

Interesting post with good arguments. What is your estimate of average investor returns for the 20 year period?

Thanks. I haven't done a 20 year calculation. Some of the data changes by IFIC over the past few years has challenged the continuity of the work I started many years ago since I used their monthly category figures. For the nearly-15 years from late 1993 through July 2008 (prior to worst of financial crisis), equity fund investors earned an estimated 4.5% annually - about the same as GICs over the same period.

It seems the task is made more difficult as only about 63% of actively managed Canadian equity funds survived over five years through Q42010 and only 2.5% of them beat the index.

The reason I used broad category IFIC data is because it included all IFIC-reporting funds during each month during the period. Data for those funds didn't subsequently get pulled out as each fund 'died'. so my data - while dated at this point - controls for suvivorship bias by virtue of IFIC's method. But what it doesn't include is any fund that didn't report to IFIC. And in recent years, some big firms pulled out of IFIC, a situation that has worsened.

[DanH]

Back on topic...

Canadian Couch Potato's new post may be relevant here:

A Spreadsheet to Manage Multiple Accounts

You’ve got an RRSP with your employer, another with a discount brokerage, and your spouse has a couple of his or her own. You both have TFSAs, too, plus an online savings account where you park your cash. If all of these accounts are intended for the same purpose (such as to fund your retirement), you should think of them as one large portfolio. But how can you keep track of them all?

The ever-industrious Justin Bender, portfolio manager at PWL Capital in Toronto, has come to the rescue again. He’s created a custom spreadsheet to help Couch Potatoes keep track of their asset allocation across multiple accounts. Download the spreadsheet here, fire it up in Excel, and follow these instructions:

[CathyF]

I am definitely not saying that his wife and kids are stupid and I really do hope he can teach them to be successful investors. My experience has been that very few people have what it takes to be serious long term successful investors. It seems that the human brain is simply not wired that way (in most cases).

I think that a little less interest in investing is better than too much. In my own case, I know I have become a better investor over the years, as my interest in investing has waned. I do much less "stock picking" now, and am much less prone to watching the market and reacting to it on a weekly or monthly basis. Buy and hold, along with diversification, has been much more successful for me than trying to beat the market.

I'm okay with lagging the stock market a bit because of expenses, and lagging the bond market a bit because of the (ridiculously high) fees to purchase bonds. It's still much better than what I got from mutual funds and financial advisors.

If your spouse and kids aren't as interested in investing as you, that's probably a good thing. I agree that not everyone has the desire or ability to do it, but the number of people that do is WAY more than 0.01%. It's probably well over 50%. Maybe not so much by the time you're in your 80's, but by then hopefully you've annuitized, or at least got out of equities.

[broke]

And she's still not sure how they filmed Jurassic Park if they're all dead.

It's been a mind numbing day and this line is the funniest thing I read in a long time.
Thank You

[DavidR]

I agree that not everyone has the desire or ability to do it, but the number of people that do is WAY more than 0.01%. It's probably well over 50%. Maybe not so much by the time you're in your 80's, but by then hopefully you've annuitized, or at least got out of equities.

WAY more than 0.01%
OK, sure. I'll buy that.

probably well over 50%
What kind of people to you hang out with? Leona Helmsley? You need to get out with the little people more often.. It's certainly not 50% of my neighbours.

[mike.bayer]

Hmmm

In my case the more interested I became in investing, I stopped stock picking all together and the only market timing I do is value averaging and rebalancing. I'm not sure what your idea of proper diversification is but the best global equity fund I have seen holds almost 8000 securities.

My mom is in her eighties and has half her portfolio in equities. She barely spends her pension & cpp and has no interest in annuities. She is not interested in earning a negative real returns and understands the trade off between capital preservation and maintaining purchasing power.

I think 50% is a pipe dream based on the data I have seen but I'm not sure what your definition of a successful investor is.

I guess if you are happy with the 4.5% equity returns that Dan estimates. That is certainlly not what I would consider to be a successful investment experience.

[CathyF]

I think 50% is a pipe dream based on the data I have seen but I'm not sure what your definition of a successful investor is.

I said 50% of people are capable of doing it, not that 50% are doing it. It's not rocket science, despite what advisors try to make us believe.

I guess if you are happy with the 4.5% equity returns that Dan estimates. That is certainlly not what I would consider to be a successful investment experience.

You're putting words in my mouth. I'm happy with a market-return for a balanced portfolio. I know I can't consistently outperform the markets, so I don't try. I don't think you can either. I understand you're pumping your own company here.

[gouthro]

[quote="Descartes"][
If you have not already, then please read over Mr. Bernstein's article from which, it appears, Mike cribbed and exaggerated (1 in 10,000? That would mean, for example, only 50 people in Hamilton Ontario are equipped to be DIY investors!). Then read the rebuttal I had to Shakespeare's mention of this article since we are not, in my opinion, talking about the same case as Mr.Bernstein.


Hello again Descartes,
I know that Mike Bayer is exaggerating. Although, I think his point is that you have to be interested in this stuff and if you are interested you will read a lot. I certainly haven"t read everything that he mentions and I have done alright. But, I do know a lot more about it than my wife does, and in my opinion, ever will know. And I already mentionned that my wife is more intelligent than me. ( But, perhaps she is not as crafty ). I know people are giving all kinds of arguments here about why some people can't or won't run their own portfolio and thus may need an advisor. For me, though, it seems so obvious that it is hardly worth arguing.
joe

[kcowan]

Wife: Well, if you're going to be like that, I'm not talking to you any more.

At least something good came out of it all!

[CathyF]

Wife: Well, if you're going to be like that, I'm not talking to you any more.

At least something good came out of it all!

I really hope that story was made up!

[BRIAN5000]

Wife: Well, if you're going to be like that, I'm not talking to you any more.

At least something good came out of it all!

I really hope that story was made up!

I really Hope Kcowan goes with her next time.

[kcowan]

Wife: Well, if you're going to be like that, I'm not talking to you any more.

At least something good came out of it all!

I really hope that story was made up!

I really Hope Kcowan goes with her next time.

I am game to go but I think George (ghariton) will have something to say about it!