OT-Institutional Money Management

[SamIAm]

So, I sold my business recently and find myself with a pretty fair size amount of money. Not buy a yacht and never work again kind of money, but enough.

I have been advised by some to just invest it in ETF's or index type mutual funds. But I have also been advised to give it to professional money managers. These money managers get 1.5 to 2% of invested money annually. This seems like a pretty steep fee to pay, but the returns net of fees seem to outperform the simple, but free ETF's and mutual funds.

I know a good bit about business, but not so much about investment. I have a feeling someone here could help me out. Let's see.

[J.Greene]

So, I sold my business recently and find myself with a pretty fair size amount of money. Not buy a yacht and never work again kind of money, but enough.

I have been advised by some to just invest it in ETF's or index type mutual funds. But I have also been advised to give it to professional money managers. These money managers get 1.5 to 2% of invested money annually. This seems like a pretty steep fee to pay, but the returns net of fees seem to outperform the simple, but free ETF's and mutual funds.

I know a good bit about business, but not so much about investment. I have a feeling someone here could help me out. Let's see.

For a porfolio the size your alluding to, 2% is steep. I work on the retail side of the industry and use pro managers for my clients. The best advice I can give is find an advisor who is more educator than sales.

BTW, when you see the words.."past performance is not a guarantee of future results" It actually means just that.

JG

[Dave B]

I would imagine that making a diverse plan makes the most sense. I do not know investing at all, but do you have to put your eggs in one basket?

If not then maybe there are loads of options.

Good luck, and enjoy future success.

[SamIAm]

For a porfolio the size your alluding to, 2% is steep. I work on the retail side of the industry and use pro managers for my clients. The best advice I can give is find an advisor who is more educator than sales.

BTW, when you see the words.."past performance is not a guarantee of future results" It actually means just that.

JG
Could you refer such an advisor. I really have no idea where to start looking.

[Archibald]

Put it into gold and prepare for when the coming class warfare spills into the streets.

Or, you could always give to me to hold for you. Plus, you know, banks are always knocked off and no one knocks off old Arch. Besides, in a bank there's always tons of forms to be filled and all that, but with Arch, nothing to read, nothing to write...

[chuckred]

It's a huge chunk of your annual appreciation or income. And, remember that the agenda of the manager is to make money for him or herself, not you.

Mutual funds are risky in their own way... tend to underperform the market.

Depending on how much $$$ you're talking, a self service broker like Schwab also offers advice and comprehensive educational/research tools on-line.

Their money market funds let you park cash at 4.7% (add in the 2-3% a planner would take from you and you're already ahead of the game with almost no risk while you decide how you want to invest).

Some popular guides to investing, entertaining, but with good advice for the lay investor are the Motley Fool and James Cramer ("Mad Money"). A bit schlockey, but lots of good basic info and I've been able to find some good stocks based on the information.

Some basic rules (and I'm not all the good at following them):

Spend at least the same amount of time you would spend researching a new frame before you buy a stock.

Diversify your holdings - not just companies, but also industries or "sectors".

When you decide to buy a stock, don't do it all at once (eg. if you're going to put $10,000 in to XYZ corp, buy a little at a time).

When the market is going down, a good time to buy! Like the last few weeks...

You don't have a profit until you sell...

Etc.

But, in general, my belief is that stocks are the way to go.

[cdimattio]

So, I sold my business recently and find myself with a pretty fair size amount of money. Not buy a yacht and never work again kind of money, but enough.

I have been advised by some to just invest it in ETF's or index type mutual funds. But I have also been advised to give it to professional money managers. These money managers get 1.5 to 2% of invested money annually. This seems like a pretty steep fee to pay, but the returns net of fees seem to outperform the simple, but free ETF's and mutual funds.

I know a good bit about business, but not so much about investment. I have a feeling someone here could help me out. Let's see.

I think you have already gotten good advice with regard to index fund investing. Index funds have on average, in a wide variety of markets, over very long periods of time, with great consistency, generally outperformed three quarters of all active managers after fees.

Part of the classic debate of active vs. passive management coupled with a bit of efficient market theory.

Lots of propaganda available if you do a search for "John Bogel."

[Bruce K]

Sam;

What part of the US are you in?

I am currently working with 2 different guys. The first an old family freind and long time financial advisor who's goal is to ensure long term stability and modest growth with minimal risk. This plan to to provide for my wife and I well into our 90's barring some major disaster.

The second is a riding pal who is a "wealth manager" for Morgan Stanley. He has a much smaller chunk of my money but is much more aggresive (by mutual agreement). He doesn't have to be, but that is the program we have agreed on.

Both guys are doing well by me so far and seem to be hitting the goals we set out.

I would recommend either one as they are always accessible and will explain any decision thoroughly prior to making changes.

Neither is getting 2-3%.

BK

[J.Greene]

The second is a riding pal who is a "wealth manager" for Morgan Stanley. BK
"wealth manager"???

I love how our firms change our titles to fit the conclusions of the latest focus group research. I used to be called a "global advisor". I'm still not sure what that means.

Sam,

I'd like to give you great advice or refer someone awesome. But doing so on a bike forum is not a wise thing. I don't give out advice to people who are not clients because what I offer my clients is a process. What you get here is just advice that is delivered based on this point in time. No one who gives you advice on this medium will be with you in the times when your gut and brain are telling you different things. They won't be asking you the important questions, and following up as your life changes. This medium hurts more than it helps.

If you can handle the investment process by yourself-go for it. There are many products to facilitate that. If you want a partner in that process start by asking your cpa, or friends you trust. Find someone local who can articulate how they will take you from learning about your needs to implementing a plan and the eventual followup. I understand the fear most people have about this. Knowing what I know I'd only use about 10% of the people I have ever met who do what I do.

JG

[Bruce K]

JG;

Actually there is some validity to his title.

Unless there is a personal connection, he is not allowed to take on new clients with investable assets under $2M. :eek: :crap:

Fortunately, he is a personal friend. :D

BK

[J.Greene]

JG;

Actually there is some validity to his title.

Unless there is a personal connection, he is not allowed to take on new clients with investable assets under $2M. :eek: :crap:

Fortunately, he is a personal friend. :D

BK

I'm sure there is. There was a point to the title he had before that too, and the one before that. We all have been through it. 2 mil is a stupid thresh hold. Nothing happens at 2 mil anymore.

JG

[keno]

http://www.efficientfrontier.com/. There are many links and sources here, but the basic idea is intelligent asset allocation based upon etfs and index funds. With a little expenditure of time and a touch of brain power, this you can do yourself without much difficulty and very little in the way of fees if you use Vanguard products, for example, which are very low fees.

If you are intent on choosing a manager, and the better ones have significant entry level requirements in terms of the amount of assets, you might want to read this:

"Winning the Loser's Game", by Charles Ellis.

BTW, I wouldn't touch an actively managed mutual fund. One of the aspects of mutual funds critical to understanding them is how you can invest in a promising mutual fund, have it go down in value to you, yet be responsible for significant taxable income for that year. Another aspect is fund turnover and possibilities of ordinary income.

keno

[thejen12]

There's a really great radio show on ABC stations called Money Talk. It's on Saturdays and Sundays, 10 am - 1pm Eastern time. It's been on the air for over 20 years. You can learn a lot about what to do with your money by listening to that show, it contains a lot of basic education about investing that every one should know. It also covers the specific questions of callers, while trying to turn each one into a learning session for the audience. You can also subscribe for something like $5 a month and download it to your ipod or whatever, so you don't have to listen at those exact times. Here's a list of the stations that carry it: http://www.bobbrinker.com/radio.asp

I highly recommend learning how to manager your investments yourself, and I've found that show to be a very convenient way of doing so.

Jenn

[1centaur]

As an institutional money manager who got the investing bug in my teens, I guess I'll offer that it's not difficult to get in the right ballpark on your own if you're willing to spend a modest amount of time educating yourself, and it's not too expensive to get typical asset-class performance from mutual funds (index and otherwise) if you pick with decent diligence, but it's fairly difficult to find managers to handle your money personally who will be consistently good through investment cycles (there aren't many of those period and those that have been identified are handling bigger sums most of the time). You have to be lucky or well connected or both.

Two things to keep in mind in the near term: Odds of a recession next year are close to 50% per one website (intrade.com) which does not seem too far off to me. The stock market is not indicating that risk fully, IMO. It's very difficult for aggressive managers who do not short to have really great performance in markets that move broadly down. Being in something safe for a few months might not be the worst idea in the world (that said I'm seeing some very interesting stock values for the first time in years).

Second, buying mutual funds just before their year end (often a calendar year) is what can nail you with capital gains taxes built up during the period you did not own. If nothing else, you should avoid that trap by missing the fiscal year end.

The Web and the bookstore are filled with books on the subject. If you just don't connect with the material, think about a fee-only financial planner to help you get generic advice about bonds vs. stocks, US vs. international, for someone of your age and family status.

[BURCH]

But this post somehow brings me to one of my gripes with higher education. I have a bunch of college friends who claim to know nothing about investing and have stayed away. I have a 30 year old friend who has not yet invested in their 401K plan at all. I grew up in a very market savvy family so when I was in college, I inquired about taking a fundamental investing elective (I studied in the sciences). I knew this informaton was important but there was no such thing (at least not at my University) and it appears to be a common deficiancy at other instutions.

In a time when most people coming out of school are on their own in terms of securing their own retirement nest egg, don't you think that universities could add a basic investing class? Stocks, Bonds, Funds, 401K, insurance...some general tax law...

I think one day all heck is going to break loose because I don't have any friends my age that are anywhere near maxing out their 401K's let alone investing in mutual funds. These are people in their late 20's and early 30's with college degrees and good jobs.

I did find a good basic investing class thru a local community college. It was taught by a financial planner from Edward Jones. She did a great job with the course.

[thejen12]

But this post somehow brings me to one of my gripes with higher education. I have a bunch of college friends who claim to know nothing about investing and have stayed away. I have a 30 year old friend who has not yet invested in their 401K plan at all. I grew up in a very market savvy family so when I was in college, I inquired about taking a fundamental investing elective (I studied in the sciences). I knew this informaton was important but there was no such thing (at least not at my University) and it appears to be a common deficiancy at other instutions.

In a time when most people coming out of school are on their own in terms of securing their own retirement nest egg, don't you think that universities could add a basic investing class?

I think one day all heck is going to break loose because I don't have any friends my age that are anywhere near maxing out their 401K's let alone investing in mutual funds. These are people in their late 20's and early 30's with college degrees and good jobs.
+1, except I think they should teach it in high school!

Jenn

[1centaur]

I agree with high school if the kids are mature enough, but I think they are not these days- they just won't focus enough in the aggregate.

In any event, lack of this type of knowledge is one reason the social security debate could be so easily demagogued.

[stevep]

congratulations on selling the business.
that is a terrific accomplishment.

now worry about the money.

[z. beeblebrox]

Congrats on selling your business.

The 1-2% does seem a little high based on my investing experience (not very much) however I have found that the best portfolio managers I know (i know quite a few) have a confidential process, but usually at the core is the idea that any stock they buy (at least for their equity holdings) they will hold for at least 6 mos to a year. This means no easy money, all stocks have to have sound fundamentals.

Looking at the issue on a portfolio level (not single stocks) make sure you, (or your advisor) understand that diversification will help protect you from sector/stock specific risk, but there is no well diversified portfolio that will protect you from market risk. Do not be afraid of fixed income or alternative investment tools, they be less "sexy" than hitting jackpot with that winner stock, but there is something to be said for (almost) guaranteed returns.

My advice: find an advisor who doesn't try to sell you a fund the minute they start talking. Find one who asks more questions about your goals. Also, keep in mind that if I recall my readings correctly, the majority of financial advisors do not beat the market.

last piece of advice: take any advice you read online with a grain of salt. it's your money ultimately, we're just investing it for you.

helpful link on stock trading (unaffiliated, but thought his page was helpful)
http://www.evansonasset.com/index.cfm/Page/9.htm

Disclaimer: I'm not a financial advisor (I just help build the software for them)

[Ken Robb]

Quote: "Mutual funds are risky in their own way... tend to underperform the market."

Whaaaaaaaaaaat?? A fund comprised of the S+P or other similar index duplicates the market. And since there is no extensive research required of management the fees are quite low.

[keno]

you might check this out for information on money managers.

http://www.managerreview.com/

keno

[C5 Snowboarder]

Place equal amounts of $$ in these 4 funds and in a couple of years you will thanks me for this free advice. These are no load funds.

Fidelity Funds

FNORX
FNARX
FLATX
FSEAX

[Len J]

"wealth manager"???

I love how our firms change our titles to fit the conclusions of the latest focus group research. I used to be called a "global advisor". I'm still not sure what that means.

Sam,

I'd like to give you great advice or refer someone awesome. But doing so on a bike forum is not a wise thing. I don't give out advice to people who are not clients because what I offer my clients is a process. What you get here is just advice that is delivered based on this point in time. No one who gives you advice on this medium will be with you in the times when your gut and brain are telling you different things. They won't be asking you the important questions, and following up as your life changes. This medium hurts more than it helps.

If you can handle the investment process by yourself-go for it. There are many products to facilitate that. If you want a partner in that process start by asking your cpa, or friends you trust. Find someone local who can articulate how they will take you from learning about your needs to implementing a plan and the eventual followup. I understand the fear most people have about this. Knowing what I know I'd only use about 10% of the people I have ever met who do what I do.

JG

J. Greene:

I don;t know how good you are at the technical side of your job, but you continue to impress me with the integrity you display with posts like this.

Thanks

len

[SamIAm]

Thanks guys you have given me a lot to think about. This really makes this board special.

I do feel gratified to have sold my business after putting in 25 years building it through very good times and very bad times.

Thanks again.

[chuckred]

Quote: "Mutual funds are risky in their own way... tend to underperform the market."

Whaaaaaaaaaaat?? A fund comprised of the S+P or other similar index duplicates the market. And since there is no extensive research required of management the fees are quite low.

Only if they are properly managed... and I don't disagree with that premise, except that most mutual funds aren't index funds, and most do underperform the market.

And, the ultimate goal is to out perform the market, if possible. Of course everyone thinks they're above average...

[J.Greene]

J. Greene:

I don;t know how good you are at the technical side of your job, but you continue to impress me with the integrity you display with posts like this.

Thanks

len

Thanks Len,

That was an unusual moment of clarity.

JG

[J.Greene]

Place equal amounts of $$ in these 4 funds and in a couple of years you will thanks me for this free advice. These are no load funds.

Fidelity Funds

FNORX
FNARX
FLATX
FSEAX

I really hope your joking.

JG

[rounder]

Hi,

I took a class in investment management years ago and the instructor had a phd from Harvard. This was a long time ago, so take it for what it's worth. He was no egotist, he just tried to explains things to us. But basically, he said -

First you need to know what your objectives are. Are you old and want to preserve what you have, or do you want to go for it. If you want to conserve what you have, then invest conservatively and expect a minimal rate of return (i.e. U.S. securities). If you are younger (typically) and want to go for it, but are prepared to take on additional risk, then invest in stocks ranging from blue chip to high flying companies of today. A lot of people want some type of blend of conservative and agressive so that they are getting more than a minimal rate of return, while not risking the ranch.

Then he explained to us that there are always geniuses of the day, but that no one outperforms the market over the long haul (i.e. S&P 500). I took that to mean that an investment firm/manager can rightfully claim that he had astounding results during the past year (two years, etc.), but that does not not mean that he will perform the same way next year, and odds are that he won't.

Then we got into discussions of beta. Beta is the esoteric concept that you can measure how an investment performs in relation to others during stock market rises and falls. A low beta indicates that the price of a company's stock rises and falls pretty much accordingly with the rest of the stock market companies (relatively low risk and low reward). A high beta indicates that your stock will out perform the market during good times, but crash in flames during bad times (think dot.com industry).

Then we talked about investment advisors/managers - There are a lot of good ones out there and you need to find one that you trust and understands what your objectives are. Not only that, but some of the funds charge more fees than others so that, even if your investments are doing fine, the fees can eat up all of your return.

Anyway...hope this is helpful. I wasn't even going to respond to the post but the more I read what everyone said, realized that I need to think more about this stuff too for retirement purposes.

[C5 Snowboarder]

I really hope your joking.

JG

Dead serious -- I'd be willing to bet if we could meet at this same place 2 years from now the total combined increase in these 4 funds will outperform anything you do or recommend by a min of 5 %

[keno]

a few questions.

1. Among the universe of mutual funds (like 8,000 US and 55,000 worldwide), how did you choose these four, that is, what is the underlying principle you used for the selections? (Nordic, natural resources, Latin America, Asia) What is your exit strategy principle?

2. If you have investment assets, what percentage of those assets are in these four Fidelity funds? What percentage of your net worth does the aggregate investment represent?

3. If you have investsments in them, on what date or dates did you invest?

Just curious. Always eager to learn.

Myself, if I were to own one actively managed investment vehicle, it would be Berkshire Hathaway B. I like the idea of having my money next to Warren Buffett's. BTW, Brk B represents about 7% of our net worth. BTW, there is some great reading and understanding of one of the best investors in the world over a long period of time here. http://www.berkshirehathaway.com/letters/letters.html

Here is something from his 2002 letter, which is terrific advice:

"Finally, be suspicious of companies that trumpet earnings projections and growth expectations.
Businesses seldom operate in a tranquil, no-surprise environment, and earnings simply don’t advance
smoothly (except, of course, in the offering books of investment bankers).
Charlie and I not only don’t know today what our businesses will earn next year – we don’t even
know what they will earn next quarter. We are suspicious of those CEOs who regularly claim they do know
the future – and we become downright incredulous if they consistently reach their declared targets. Managers
that always promise to “make the numbers” will at some point be tempted to make up the numbers."

keno

[C5 Snowboarder]

a few questions.

1. Among the universe of mutual funds (like 8,000 US and 55,000 worldwide), how did you choose these four, that is, what is the underlying principle you used for the selections? (Nordic, natural resources, Latin America, Asia) What is your exit strategy principle?

2. If you have investment assets, what percentage of those assets are in these four Fidelity funds? What percentage of your net worth does the aggregate investment represent?

3. If you have investsments in them, on what date or dates did you invest?

Just curious. Always eager to learn.

keno

BIG questions Keno--

I will try to answer some of them.. Exit strategy first . I do not have that since I think there is many $$$ left to harvest in those areas these funds invest. This is at least 2 years out and so much can change in that time period I don't know at this time where to transfer those funds. The world is constantly getting smaller and changing. Iraq needs to stop for one, Olympics in China need to finish on a positive note. Housing problem/Credit problem needs to get out of the First Inning.

I am about 60% invested internationally. Several reasons this is high. My gut tells me the US dollar will continue its downward slide and areas like Asia and Latin America will continue to rise. Natural Resource will always be needed and will stay in line with supply and demand which is going up and up. China is adding 30000 cars a month and they cannot make cell phones fast enough to meet the supply. The price of oil is up and will continue this trend but this will stabilize once the measuring is changed from the US dollar to the Euro. Most of the increase of oil is not due to it costing more it is the sliding US dollar. - not all but most of it. Over the next 2-3 months I may increase my international piece of the pie, I wish I had had more Canada.

Dates invested this is not possible to state since over the past many years I have constantly changed and invested in these and many other areas including individual stocks. some of my favorite stocks are BYI and other casino gaming stocks. Look at the growth of Macau - this will continue at unbelievable rates. Other favorites have been HC and KR – and one I buy and sell quite often is EK – one of the best cyclic stocks out there.

Back to the 4 funds I mentioned,.. look at the recent returns over the past 12 months.
FNORX – 32%
FNARX – 43%
FSEAX – 70%
FLATX – 58%

Those are returns for the past 1 year.. averages out to about 50% annually. Those are factual real info you can find on most financial web sites or just go to Fidelity.com.
Just think no huge fees to pay to some analyst that makes commissions on selling you his recommendations and then sell you again some new product 6 months later and you are already 6% or so behind.

You are right 8000 funds out there. There are many that have done better – you just have to pick one and go forward. Trust your gut.