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(Thanks for reading. I need your opinions on what to tell my friend.)
My "friend" has always managed his own money......no-load funds with a company that's at the 'vanguard' of the mutual fund industry. My friend sees hiring a financial planner as paying someone to manage his money.
Well, good friends of this person for 35 years have for a decade now, been highly recommending their own financial planner. They are the kind of people who do NOT want to do their own research or manage their own funds. They see their situation as hiring this advisor for their expertise to build wealth.
So.....they have different outlooks and philosophies:
-- hiring a financial planner as paying someone to manage your money....vs.....
-- paying someone for their expertise to build wealth.
My friend likes being at the 'vanguard' of the industry.....and has been happy with what he knows. But true, he's not a financial EXPERT, can't know ALL the BEST funds, but is just a person who manages his own money.
The friend has had only one initial meeting -- a couple of hours -- with the planner. But the financial planner has said the friend has done well with what he's had to work with -- at 57 -- but is too married to one company and too heavy in stocks (not enough bonds and income) -- and that she -- the advisor -- can bet her better return/growth and especially income -- for less risk. The manager basically wants to change almost all of the friend's funds.
One fund this advisor is recommending in Franklin Templeton Income Fund. That's the only recommendation so far.
My friend is in the Index 500, Windsor II, and some Target Retirement Funds for 2035 and 2050.
At this point the friend isn't comfortable with load funds...never has been -- believing that the fund has to make up for the front load that's taken off the top.
All together my friend has about 550K.
Is the friend naive? Ignorant of how real wealth is grown and achieved? Missing out on better funds?
Sometimes one's comfort level can hinder financial growth.....like a person who could be more aggressive but keeps everything in a Monday market...
Perhaps this financial planner COULD make my friend more money.....
Your thoughts on this situation.....and load vs. no-load funds, and managing one's own money vs having a financial planner make suggestions.
This planner said she can draw up a plan and just give it to the person but that costs hundreds of dollars, if not more than 1,000. (because once you get the plan, you could just do all the execution yourself)
Thanks so much. My friend really doesn't know what to do.
i would probably walk away from that meeting angry about the recommendation with no intention to use the planner's services. 4.25% load? it doesnt seem very wise to me.
Bonds have been recommended by planners for years (and it was a good recommendation) but for the last few years I would not say long term bonds are good investments and will lose you money. I would also avoid load funds. Vanguard is a good company. Read their educational material on retirement and asset allocations.
i would probably walk away from that meeting angry about the recommendation with no intention to use the planner's services. 4.25% load? it doesnt seem very wise to me.
do you want income from your investments?
Hoorah for paying 4.25% load for a mediocre fund. I'd walk and never come back. You're too married to one company. Put your stuff in fund at one company that charges 4x as much in fees (as Vanguard Target Retirement Funds) and pay me me my 4.25% load for the illusory promise of it out performing. Oh yes, that sounds like great advise, at least for the financial adviser making a quick $20 grand.
He is probably right about the asset allocation though. At 57, it's probably time to start looking more conservative. Unless he's very heavily weighted in Vanguard Target 2035, probably something like 90%+ stock, which is pretty damn aggressive at 57. I mean, I'm essentially 100% stock but I'm aggressive and 33. That's kind of the point of the target date funds, they automatically adjust asset allocation as you get closer to retirement. The fees are higher, but still less than Templeton Income, but it's set it and forget it.
My friend talked with the planner today.....who said.....
...the friend is too close to retirement age to be so heavy in the Index 500 and so heavy in stocks and wouldn't have time to recover if there was a bad downturn between now and my friend's hoped for retirement in 8 years, at 65.
This is the most money my friend will have, because his best earning years are behind him.
He took a BIG pay cut, and now won't have much money on the side to invest -- other than 5% into a 401k (and his 5% company match) -- which will also likely be in the same funds he's already in -- he likes them -- what can I say.
This same financial planner said my friend should NOT top off his lower tax bracket to convert money into his Roth over the next 8 years -- says it wouldn't be that much money now anyway -- and the friend can't afford the tax hit and needs all his money to grow, now.
Again, the planner is NOT pressuring my friend. My friend's just hesitant to trust people with his money research and decisions (even if they are an expert). My friend has been -- I'll used the work brainwashed (indoctrinated) against loads....so the change would be a big one for him. That's all.
Your friend is smarter than that idiot of a financial planner. Why should he buy actively-managed funds with a load? Most of them lag the index; very few can consistently beat it. All he'd be doing is lining the financial planner's pockets at his own expense.
If he wants to decrease the percentage of stock he owns (which he might want to do if he has more than 60% of his money invested in the stock market), he can easily invest in bonds funds through Vanguard (and buy individual bonds through Vanguard as well as well, as long as his account on the new brokerage platform and not the old mutual fund platform).
The planner wants my friend to move toward dividends and income.....
Will a fee for service planner just take a look at your finances, where your money is etc, and just give you advice and IF you ARE going well with your own choices -- honestly tell you that, and/or make suggestions that you can implement o your own -- or NOT.
My friend thought he was doing OK (not that OK is bad), now his confidence is shaken, that's all.
His friends which he trusts completely, just have raved about this person. But again they see their case as paying someone whose expertise in building wealth. And their not the type to do their own investing. They think the expert could and would do a better job than they would -- because that person is an expert and it's that person's job.
The planner said....again NOT as a hard sell.....that people pay experts in their field all the time plumbers, mechanics, cleaning ladies....and paying a financial planner for their expertise at wealth building would be no different. You're paying for her expertise at growing money. That the friend makes the money and it's her (the planner's) job to grow it.
The planner wants my friend to move toward dividends and income.....
Which he can do easily on his own, with Vanguard. It's trivially simple to do. He just has to figure out what asset allocation he wants first. (I'd suggest 60/40 or 50/50 stocks:bonds and cash.)
My friend talked with the planner today.....who said.....
...the friend is too close to retirement age to be so heavy in the Index 500 and so heavy in stocks and wouldn't have time to recover if there was a bad downturn between now and my friend's hoped for retirement in 8 years, at 65.
This is the most money my friend will have, because his best earning years are behind him.
He took a BIG pay cut, and now won't have much money on the side to invest -- other than 5% into a 401k (and his 5% company match) -- which will also likely be in the same funds he's already in -- he likes them -- what can I say.
This same financial planner said my friend should NOT top off his lower tax bracket to convert money into his Roth over the next 8 years -- says it wouldn't be that much money now anyway -- and the friend can't afford the tax hit and needs all his money to grow, now.
Again, the planner is NOT pressuring my friend. My friend's just hesitant to trust people with his money research and decisions (even if they are an expert). My friend has been -- I'll used the work brainwashed (indoctrinated) against loads....so the change would be a big one for him. That's all.
The market will crash. We just do not know when. Thus he needs a couple of years of "cash" to cover expenses so he does not have to sell in a down market.
If the investment portfolio gives off 4% in income (this is high) and the advisor charges 1% of assets he is paying the advisor 25% of his annual income for management services.
I personally would never purchase a fund with a load, or go with any financial advisor who would ever do such a thing. There's really no need. It's easy enough to determine an appropriate allocation of equities to bonds and other based on age/time horizon and ability to withstand risk. None of this needs to be done by a financial advisor because there are lots of tools available online for free. Your "friend" doesn't need to pay for someone to manage his investments.
Someone 8 years from retirement can still take some risk, but I wouldn't suggest much over 60% to 65% equity allocation. Some may disagree and say this is too conservative, but I think it's an allocation that makes sense.
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