Wealth manage can be a full-time job if you have a lot of investments. At some point, you might want to hire a money manager to help you with your finances.
When I sold my rental house, I thought my stress would go down at least 80%. After all, my tenants and the maintenance issues were really bumming me out.
But what I didn’t anticipate was the rise in stress from having to reinvest a sum 4X greater than I had ever invested before. The last thing I wanted to do was turn a strong performing investment since 2005 into a poor one going forward.
I went through many hours of deliberation regarding where to invest the proceeds. I wrote quarterly investment reports to track my progress. I stayed glued to the laptop during market hours for months trying to buy stocks and bonds during pullbacks.
Further, I went out to dinner with the Fundrise team twice to do more due diligence on their investment process before deciding to invest in one of their funds. I really believe real estate crowdfunding is the real estate investment wave of the future given it is passive and seeks higher returns.
As someone who worked in the finance industry, consulted with a couple digital wealth advisors, and who has been investing his own money for over 20 years, I was familiar with the entire process of managing money. However, I’ve finally reached an inflection point.
When To Hire A Money Manage: Too Many Investment Accounts
Because I’m actively working from home and helping take care of my little ones, my time is stretched. When you earn money, the path of least resistance is to simply hoard cash. At least by doing nothing, you won’t lose money. But hoarding cash since 2009 has been a huge mistake.
What happens as you get older is that your finances tend to get more complicated. Job changes create dilemmas for whether you should rollover your 401(k) into an IRA or not. You might start a business and launch your own SEP-IRA or Solo 401(k). Or you might have some nice liquidity windfall after selling your company. The list goes on and on.
If I was just managing one family investment account, staying on top of our investments would be a piece of cake. Having just a 401(k) or an IRA where you max it out and that’s it for one year is like a walk in the park.
But as a middle age parent who feels its important to diversify, I’ve had a lot of investment changes and opportunities since college. I also save and invest the large majority of my cash flow each month, so there’s always something to do. Hence the thought of hiring a mont manager.
I currently manage or keep track of 17 financial accounts at multiple financial institutions. Each financial institution has something different to offer. Further, we spread out risk, partly due to the $500,000 FDIC insurance cap for money market accounts and CDs.
Financial Institution 1 – Sam
- After-tax investment account
- SEP-IRA
- Profit Sharing Keough (Solo 401k)
- Son’s 529 Plan
Financial Institution 1 – Wife
- After-tax investment account
- SEP-IRA
- Rollover IRA
Financial Institution 2 – Sam
- Rollover IRA
- After-tax investment account
Financial Institution 2 – Wife
- After-tax investment account
- Roth IRA
Financial Institution 3 – Sam
- CD (used to have 3 CDs to track)
Financial Institution 4 – Sam
- After-tax investment account
Venture Debt – Sam
- Fund 1
- Fund 2
Real Estate Crowdfunding – Sam
- Real estate crowdfunding eREIT
- Conshy, PA Commercial Property
Every single account requires the following:
- Keeping track of asset allocation
- Keeping track of cash balance
- Researching investments
- Selecting the right investments
- Reducing commission fees
- Meeting capital calls from private investments
- Keeping track of when capital is returned
- Redeploying capital
- Figuring out how each piece fits into a passive income target
- Optimizing for tax efficiency
As you can see, doing everything right for all accounts can take a lot of time. Further, the more money you have to manage, the more time you will naturally spend because there’s simply more at stake to lose and win. As a result, hiring a money manager may make sense.
Here is the perfect example where more money does not bring financial peace of mind. When I had just $100,000 to manage, I couldn’t care less if the market corrected 20%+. I had nobody to support and a job that could easily make up for any losses and then some.
With a sudden $1.8M liquidity event from selling my home on top of managing my existing investments and investing most of my cash flow every month, I was forced to dedicate a lot more brain power to money management.
My Latest Money Management Error
After the market meltdown in early February 2018, I asked my wife to cut three checks: one to my SEP-IRA, one to her SEP-IRA, and one to our son’s 529 account.
As business owners, a business can contribute 25% of our salaries to our individual SEP-IRA accounts, e.g., $120,000 salary = $30,000 contribution. As I had already superfunded my son’s 529 plan in 2017, only my wife and others are eligible to contribute up to $15,000 a year (for 2018).
I invested some of the proceeds based on our agreed upon investment framework in all accounts when I realized about 25% of my wife’s SEP-IRA had been sitting in cash for who knows how long. I was completely surprised because I try to keep all our investment accounts 100% invested. Our cash needs are met separately through various savings accounts.
Due to too much cash in my wife’s SEP-IRA account, her account lost out on potentially thousands of dollars in lost paper profits in 2017. But I’m not sure exactly how much she lost because I don’t remember how long the cash had been sitting there!
Related: Strong Reasons To Hire A Financial Advisor
Refocusing My Efforts On Money Management
From now on, I need to go through each account and not only check the holdings and asset allocation, but also make sure there is no excess cash sitting around doing nothing. I’ve got to put on my money manager hat again more often, especially now that stocks are at frothy levels.
What’s also important is making sure my investments makes sense in each account. For example, I’m more inclined to invest and trade more aggressively in my pre-tax investment accounts because I know I won’t be touching them until age 60 and there are no taxes to file.
For my after-tax investment accounts, they are more conservative as they are accounts that will be first accessed during a liquidity crunch or when I finally buy that Hawaiian dream home. Since I’ve got to pay taxes on any dividends or capital gains, my after-tax investment accounts have lower turnover and house all my tax-free municipal bonds.
Finally, I’ve got to do a top down asset allocation of all my accounts to make sure the overall investment asset allocation fits my risk profile and investment objectives. I used to do this manually, but since 2012 I’ve linked my investment accounts to Personal Capital’s dashboard and can just click their Investment Checkup tab to get a snapshot. Below is an example:
When Is It Worth Paying A Money Manager?
I’m close to paying a money manager to manage our finances, but I am still reluctant to pull the trigger because I’ve always managed my money, dislike paying fees, and realize a wealth manager can only manage some of my accounts, not all.
The only accounts a wealth manager can manage are our four after-tax investment accounts. This means I would still have to manage 13 other investment accounts. As a result, I presently don’t think it’s worth hiring a money manager. Only if the money manager could manage the large majority of my investment accounts would I consider hiring one.
Some considerations for when you should hire a money manager:
1) When they can manage most of your investments.
2) When you have no desire to manage your money.
3) When you have no understanding of investing.
4) When investing stresses you out and keeps you up at night.
5) When your job, business, or family keep you too busy to even review your investments.
6) When you can do a much better job making money elsewhere.
7) When they’ve showed a fantastic long-term track record.
8) When you calculate the estimated annual fee and feel you’d happily pay the amount to not have to manage your own money.
9) When you have a significant amount of assets and would feel better if someone or some team were keeping watch every day.
If I had a hybrid digital money manager like Personal Capital managing my investments, I never would have had a 25% cash weighting in my wife’s SEP-IRA for months.
They would have automatically invested my cash based on a pre-determined investment asset allocation, which I’d agreed upon. I would have had to pay a <0.89% fee, but I wouldn’t have missed out on 20% gains on the cash balance in 2017.
No Longer Enjoy Managing My Money
As I conclude this post, I realize that I no longer enjoy managing our investments. They give me unwanted stress, even in good times. I get bent out of shape when I don’t buy at the low of the day.
When the stock market corrects 32%, like it did in March 2020, it’s hard for me to think of anything else until I see stabilization. When an investment soars 50%, I don’t get pleasure either because I’m not using the profits for anything.
Maybe it’s better to outsource my money management responsibilities and the stress it comes with after all. If I’m not happy with managing money during good times, I definitely won’t be happy managing our family’s money during bad times.
It’s kind of sad the wealthier you get, the sometimes more stressed you will get about money. Your net worth gets more complicated and you simply have more money to lose. Hiring a money manager makes sense so you can stress less and focus your time on better things.
Stay On Top Of Your Money
If you don’t hire a money manager, at least sign up for Personal Capital. It is the web’s #1 free wealth management tool to get a better handle on your finances. In addition to better money oversight, run your investments through their award-winning Investment Checkup tool to see exactly how much you are paying in fees. I was paying $1,700 a year in fees I had no idea I was paying.
After you link all your accounts, use their Retirement Planning calculator that pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms. Your retirement is too important to not get right.
Less Stress Investing In Real Estate
One thing I realize as I’ve gotten wealthier is that the more I invest in real estate, the less stressed I am. Real estate is a core asset class that has proven to build long-term wealth for Americans. Real estate is a tangible asset that provides utility and a steady stream of income if you own rental properties. If you like less volatility, real estate is more attractive than stocks.
To reduce stress and diversify your net worth, take a look at my two favorite real estate crowdfunding platforms that are both free to sign up:
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends.
I’ve personally invested $810,000 in real estate crowdfunding across 18 projects to take advantage of lower valuations in the heartland of America. My real estate investments account for roughly 50% of my current passive income of ~$300,000.
Sam,
I empathize with you as I share your concerns. I manage my own investments and I’ve held quite a bit of cash most recently. I do have my investment accounts (Rollover IRA and Taxable Brokerage) at Charles Schwab and I have a Financial Consultant assigned to me. She would like to meet with me quarterly to review my portfolio to offer advice (even though I manage it myself) but I haven’t the time. I have met with her once in the last six months. The message here is that like you, I can’t give up control of my accounts.
The one thing I have done (though I don’t recommend this high an allocation to anyone!) is place 32% of my liquid net worth in Real Estate Crowdfunding. This way I have a consistent reliable cash flow, growth potential and the investments are NOT marked-to-market each day. I sit on them, forget about them and watch those dividend ACH deposits hit my account each month!
I love your conviction about real estate crowdfunding. Personally, I keep alternative investments to 10% of my networth and 20% my liquid net worth. But I saw you had a nice 40% return after only 11 months. That’s pretty sweet. And I wish you good luck on your investments.
Related: https://www.financialsamurai.com/things-to-do-before-making-any-investment/
We manage our own money and it is getting more and more complex with different types of investments including rental real estate. But I like being hands on to make the investing decisions, because I find that much of the classic financial planning advice does not resonate with me. But what I am interested in – but confused by – is tax planning. What type of professional should we seek out for help in evaluating our portfolio and thinking about passive versus active investments. Is that a CPA? Or a CPA with special expertise? Many CPAs that I have seen seem to do tax preparation, but not as much strategic planning work. This person would need to understand pre-tax and post-tax stock market investing as well as real estate investing. Part of the conversation would also be about wealth preservation and planning for generational transfer of wealth. Any thoughts on the type of professional to seek out for this type of complex help?
Here is one suggestion, simply Google, “CPA specializing in wealth management, tax, and estate planning.” You don’t even have to put in the city you live in because you will get a vast array of descriptions of people who have the tax accounting, wealth management, and estate planning services in your area. At least it is a place to start to get a feel for someone who might fit what you are looking for.
I should probably add that you should put in your city so you do get all the ones in your area and not everywhere else as well.
I have often thought of hiring a money manager but I can never bring myself to it. Sometimes, I would just like to reap the benefits of years of saving, and just have someone else send me a monthly check and not worry about investing. I don’t have my money in as many places as you do, but after 40 years of managing my own money, would be nice to have someone else do it. And, if something happens to me, my wife wouldn’t have to worry, and she knows nothing of about managing money. I only have one problem.
I don’t trust anyone more than I trust myself. And then I also don’t know about paying fees for something I can do myself. So, I end up back to me. I have even interviewed a couple people and then changed my mind. There may come a time when I am ready to but for now, I think I will stay pat.
This is my struggle as well, from both a cost and trust standpoint. I too worry about my wife managing this if I go first which is why I really need to get our affairs in order and make it as simple as I can and without creating any additional risk.
Wow that’s a lot of accounts when you list them all out. That takes a lot of time and management no doubt! Investing can be nerve wracking and a bit of a pita for sure. Your family is really fortunate you’ve been managing all those accounts on your own!
Ha. I did the exact same thing with my wife’s IRA after rolling it over. It sat in cash for a year. I feel so much better now!
It’s interesting, besides our little corner of the internet where folks with mid to high net worths go it on their own… most of the people I know use wealth managers.
With the exception of one guy with a nine-figure NW. Most is in Vanguard! Only keeps the minimum in one of those big bank private client type accounts for the access and benefits.
Hi, Sam: All our accounts are in Vanguard: retirement + non-retirement. You can trade stocks, buy funds/ETF, or even write checks in the same account. Your wife can also have her own Vanguard accounts which you can link to to see the overall picture. This way I only need to login once and can see everything.
Hi Sam, boy did you hit a nerve with me on this one. I am right there with you about trying to figure out the go-no go decision of working with a financial advisor. The only difference is I am about 20 years older than you (60) and managing our money probably 20 years longer. Our breakdown follows:
About 7.5M of investable accounts (4M pre-tax, 3.5M after tax). Combined between wife and me:
– (6) 401Ks
– (4) IRAs
– (2) Deferred Compensation programs
– (2) Lump sum Pensions to invest (just received mine, hers not for another 3 years)
– (6) Brokerage Accounts
– (5) PE Funds
– (6) Angel Investments
– Investment as a co-founder in my own healthcare technology startup
– EE and I savings bonds
– Daughter’s 529 which we have begun to tap, (Freshman in college)
– (3) Health Savings Accounts
– Stock Options/RSUs from (2) previous employers
– Not investable asset but a little over 1M of Home Equity
– Cash surrender of a life insurance policy and various money market/CD accounts
Heck, I’m exhausted just listing it all out, much less having to manage it on a regular basis. I’ve been interviewing potential wealth advisors and frankly, it has been tiring and frustrating. I’ve gone through a multi-step process and analysis with three so far. It is amazing the number of varying opinions and options out there. The going rate to manage our portfolio seems to be between .7% and 1.5%. As you would imagine, they all have sliding scale costs depending on how much you are willing to hand over to them. Very little money gets you at the high range of costs, a lot more gets you closer to the lower range.
My next step is to sit down with my CPA and review these scenarios with him and see if he has anything else to add. I need to deal with the tax ramifications coming up for us as much as I do the overall management of our portfolio. For example, should we begin to move some of my pre-tax investments into Roth IRAs and go ahead and pay the tax on those with some of our after-tax money so in five years all the returns and principal from those accounts could be tapped, tax-free? I know it is a nice problem to have and certainly, no one needs to feel sorry for us but it does stress me out more than it should.
One thing I’m considering is paying a fee-only planner a one time charge to come up with a comprehensive recommendation and then I take that and decide if I just want to continue to soldier on with making the changes myself or turning it over. I’m very grateful to be in this position but really do want to get this phase of our life better organized and behind me, one way or the other.
Divide yours by 2, and you got mine
We’re both blessed. I’m just trying to figure out the best way to make that transition from accumulation to preservation as easy and cost-effective as possible. Who knew keeping it could be just as stressful as making it ;)
Haha me too. I thought this part would be much easier but was I ever wrong. The decumulation phase seems even more stressful.
Yes, I am finding it more complicated to decide on how much to spend. i am mostly withdrawing for travel. I’d like to do renovations but just hate taking money out of the nest egg for that.
Paper Tiger,
I’m very grateful to be in a similar situation as you, although about half as big a “problem” as you have … but still a tax minimization challenge nonetheless. And only 55, so have 15 years to plan and move assets around in a tax minimized way to avoid getting killed by RMDs.
Currently, I am the CPA and the Financial Planner/Advisor, and have been thinking about finding a professional (CPA or CFA or ???) to take over both the tax filings as well as the tax minimization recommendations (such as: should we convert pre-tax to Roth IRA using brokerage assets. Need to also figure out implications of dividend income, LT capital gains, tax free muni bond income, implications of new tax rates (ie: backdoor roth convert more now for next 8-9 years in a higher tax bracket 25% up to ~ $315K, or stay in 22% tax bracket up to ~$150K, etc etc). Trying to read up and become a SME in these areas doesn’t seem worth the opportunity cost of time and stress, but that’s somewhat offset with the stress of finding a tax advisor that I trust and has a long enough track record for tax minimization strategies and also trustworthy references.
What state do you live in?
Please update what you decide to do wrt the fee only planner and adopting the comprehensive recommendation, all or in part.
Hey 555s, nice to meet you ;) I live in Arizona. I will keep you posted on any changes/decisions I make. I’ve been studying annuities a bit but have avoided them up to now due to all the complications around understanding them and the lack of transparency on fees. I recently had someone talk to me about a no-load annuity with a simple fee structure.
You put your money in and 100% goes into your account, no fees pulled out up front. They invest for 12 months and take the first 2.4% of any gains and then reset the following year. You keep everything above 2.4% and that becomes the new starting balance the following year and can never go down from there. Anything less than a 2.4% gain in a given year and your balance remains the same so your downside is covered. You determine when you want to turn on the income stream which covers you for the rest of your life and that of your spouse and even has some LT care benefits for both at no additional cost. If you both die before your annuity balance runs out, anything left is returned to your estate. They are AAA rated.
I kind of like this idea for a portion of our money because it takes market risk out of the equation, gives us a guaranteed income stream that we can’t outlive, and the institution is backed by the state government and reinsurance so any risk of default seemingly has decent downside protection. There are no 100% guarantees anywhere in this world so I don’t consider this to be too risky of a proposition.
This is an example of some of the things I’m looking at right now. I’m interested to sit down with my CPA in a couple of weeks and see what he has to say. My Schwab guy felt we should just hold tight on moving pre-tax dollars until 65 and then start the shift between 65-70 before the RMDs start to come into play. Not quite sure how I feel about that but I’m sure my CPA will have his opinions.
Given all the contradictory advice on these financial blogs from financial experts, I think it’s better to do it all yourself. Regarding when to withdraw, how early to take pensions, etc. I usually conclude the opposite of conventional advice once I run my spreadsheets, and weight the leverage due to certainty and cash flow versus lowering overall taxes and total returns. I am very very reluctant to turn over decisions to advisors given all the bad advice I have had in the past and all the bad advice I read.
I’d stay away from any complicated financial products that you have described.
It took me a while to figure out the annuity piece but it isn’t quite as complicated as it seems if you find one where the fees are straightforward and you can live without the money for say 10 years so you aren’t tempted to pull it out early and get hit with penalties for early withdrawal. Essentially, they take your money and invest it in fixed income instruments earning between 3-4% and then take the interest earned on your money and invest that more aggressively so that the principal is protected and they plan to make their money on the interest that is more aggressively invested. In 10 years, or whatever term you set upfront, they begin to return your money at say roughly 5% of the balance per year. For me, in 10 years I’m 70 so the odds of my wife and I both being gone in 15-20 years are pretty high so chances are the money in the account never runs out unless we really exceed our life expectancy. If it does, they continue to pay our monthly income until we expire. If we pass while there is still money in the account, any remaining balance goes to our heirs.
The benefit to us is we don’t have any downside market risk on the money and we have a guaranteed income stream for life and 5 years worth of payments on LT care if we ever need it. The cost to us is the first 2.4% of gains every 12 months on our money and the rest increases our account balance if it goes above that. And if it goes below that, our balance remains the same as the year before.
This isn’t something you put all your money into but an easy way to create your own pension or passive income without risking it in the market since an insurance company provides the guarantee for your income and the market risk for their returns. My risk is the stability of the insurance company which is also backed by a State Pension Risk pool as well as other reinsurance. I don’t believe any AAA-rated insurance company has ever defaulted on a pension obligation so the risk is negligible.
I’m still not quite convinced to pull the trigger but I like the idea of this type of income protection that places the market risk on someone else’s shoulders and gives me the upside gain without the downside pain.
It is very appealing and I have checked it out many times. Maybe when I am older? Right now, I think my fixed and certain income level is sufficient to balance the risk of my investments. At this time, the annuity cost is very high, and the commitment is permanent for that money. The income is lower for women too as we live longer. At this time, I can easily make more than the annuity would pay with little risk. Certain income provides very valuable leverage with the rest of one’s assets.
As for getting the upside gain, Manulife had similar product it was selling before the 2008 crash and I forget the story but it turned out to be a very bad deal. Also super complicated to understand. I don’t want to have any complex products in my portfolio, just plain old stocks. So I have stayed away.
What you say makes sense. The products have gotten better over the last 10 years to address some of the concerns on complexity and transparency and now there are better and broader offerings. Annuities are definitely not for everyone and are best for those who may not have a pension or other passive income to make up for a gap that some people may have in their retirement plan where they need a different way to create an additional stream of income. I’m not really a classic candidate for it either which is why I’ve yet to pull the trigger. I may wait another 5 years as I have a feeling the offerings will get even better, less restrictive and more transparent over time.
I found an article with warnings about market linked investments in the Globe and Mail, which outlines some of the negatives that concern me. I realize the products discussed are not exactly annuities but it sounds a bit like your description. If you decide an annuity is the way to go, I would stick to conventional products.
If the link does not work just google: “Market-linked products ‘an embarrassment’ to investing industry”
https://www.theglobeandmail.com/globe-investor/market-linked-products-an-embarrassment-to-investing-industry/article30219070/
Sam, I recently hired a wealth manager last quarter. I definitely had some reservations about doing that for awhile, but I finally realized the opportunity cost of me managing my own assets was too great. I’d much rather focus the time on my kids, the blog, side hustles, and having fun.
I also realized there were opportunities I was missing like tax harvesting, rebalancing, etc. I figure I can always manage it later in life if I reclaim time back, but for now it’s worth it. Finally, they are a full-service firm (legal & accounting) and give me personalized advice on my entire asset pool and estate planning docs… they already found a mistake in my living trust I wouldn’t have caught otherwise.
Your solution sounds like a great one. Taxes really can be a pain in the ass, especially for the private investments with K-1s. I’ll contact you to find out who you are using. There must be similar types of services here in the San Francisco Bay area. Doesn’t sound cheap though. How much are they charging?
It’s definitely not cheap, but they’ve been doing a great job so far. They charge 1% for my tier and it’s a sliding scale depending on how much they’re managing. Feel free to email me if you want specifics.
Sam, I can’t disagree more with “3) When you have no understanding of investing.”
If you have no understanding of investing, you have no business in investing. At the very least, a person should understand how a fixed deposit works and learn their way up to the more complicated stuff. If you don’t understand what the manager is talking about, don’t invest unless the manager is willing to sit and explain to your satisfaction how the investment works. The majority of managers are interested in claiming their monthly fees and are generally untrustworthy in my humble opinion.
As for your problem, I was going to suggest simplifying your accounts but Matt beat me to the punch. But let’s face it Sam, no one’s going to manage the money the way you can or the way you want. So highly doubt you’ll employ a manager, never mind that he/she/they will only manage 4 out of 17 accounts.
P.S. Listened to the podcast, great job (love the music!) though I was surprised at your accent, so laid back :D
Great article same–very interesting insights. Given you and many of your readers backgrounds, I think the decision to pay for a money manager/advisor is a question of desire and time. Most of us have the desire since we’re reading the awesome Financial Samurai blog. So that leaves us with time.
In the same way we out-source our lawn care ($38 every two weeks), a cost evaluation helps remove the emotion from the decision. My “leisure time” rate is $42/hour, the work would take me 1.5 hours, and I’d have the capital investment in equipment and the additional items to maintain. So for me, paying a company (for the past decade) to care for my lawn was a no-brainer.
In the same way, I’ve looked at “out-sourcing” the financial management of four investment accounts and decided that it’s just not cost effective. We have had financial advisors in the past that costs us from 0.75-1.0% AUM. Only once did we get any insight that was useful in a way we had not considered–once. None of them (three over three years) could stay ahead of the S&P nor convince us that they at least broke even on the cost of their advice. So for us, here was another case of a “no-brainer.” For us, it just wasn’t cost effective.
Besides, part of me cringes to think of your great advice not being directly applied to managing your own accounts. In the same way, I’m not sure about a chef that I never see touching a knife or pan in the restaurant.
Many thanks for your blog…it’s been a motivator for us as we near retirement (91 days!)
Wow, it’s surprising to see FS contemplating a wealth manager!
I met with one, Bernstein, two years ago, and they prepared a proposal focusing on the basics – risk tolerance, diversification, target retirement income, planned large purchases, etc., and outlined a potential financial plan. They also reviewed my investment allocations and made some generic suggestions, with more to come if I simply turned these investments over for management. I could not get over two hurdles: 1) I like managing my own investments and believe my results indicate reasonable proficiency. (Yes, I make occasional mistakes, too). 2). The 1.2% management fee. I finally summarized, in a spreadsheet, 12 years of my investments and returns, coming up with a total, and did the exercise again, subtracting 1.2% per year. I took the difference and challenged Bernstein to show how their value, research and expertise would close this gap. They could not. Ah, the compounded annual value of 1.2%!
One takeaway from the Bernstein analysis recommended increasing international stock investments, which I did. Nice results over the last two years.
One final takeaway, even the occasional money management error nowhere nears the impact of an annual management fee, at least in my experience.
Money management firms are a probably right for some people, and may become relevant to me later in life. But not now. Others may have a different perspective.
Maybe I’m not grasping the whole tamale here. Let me ask: If the amount of unused cash in your wife’s portfolio was say 15% of her holdings and the fee you will pay if you put the whole account into a professionally managed fund will be on 100% of her holdings. Then if you compare the gain you missed out to the fee you would have paid is it possible that may have been a wash?
Hon stay it comes down to what you choose to invest in. Is it worth paying an advisor in exchange for the variety you seek. I deploy closer to a five fund index strategy. That means most of the time it’s as simple as once a month enter account and place a buy order according to my asset allocation. Dividend reinvest and I’m done. I currently have five accounts for the same counterparts diversification’s you mentioned but I still spend less then thirty mins a month. Then again I don’t own venture debt, reality shares, or other unique things. Just cds, stocks, and bonds.
KISS- keep it simple stupid.. it’s a mantra I live by.
I use Wealthfront. They charge 0.25%. I know they support IRA and Roth IRA. I don’t know about SEP accounts.
I actually love managing money.
Between my wife and I we have around 20 accounts.
I’ve actually closed accounts which won’t aggregate into mint.com as it becomes painful to track.
I love using mint.com for everything, makes it easy.
But I am trying to invest monthly right now, hard to find good opportunities post tax.
Interesting article Sam. Being retired for 6 plus years. (Retired when I was 37) Managing my families portfolio is my job. Frankly I love it. I also think it is pretty simple most of the time. Frankly, there is not a lot to do with the Core investments (Stocks/Bonds) once it is setup. I just keep my asset allocation steady and aim for my 5% return. I hold ~10% cash for reinvestment when the markets drop. I only have 14 separate accounts to manage across my Core holdings and alternative assets. I use Quicken to manage everything and with the automatic downloads I never have any surprises with surplus cash sitting around. I never have a fear of missing out or reinvesting a big cash windfall because it is all pretty automatic with my asset allocation. When I came into a big cash windfall I just deployed it normally into the various assets. Again, I am not trying to make huge returns, I already made my money I am just slowly growing it. I have talked with Money Managers but one thing I realized even if they are a fiduciary. No one cares more about your money then you so it makes sense to make the decisions about it yourself. That’s my experience anyways.
Agree with you on managing own money. I abandoned Quicken, spreadsheets so much easier. I don’t automate investments or allocations. Only have 4 accounts in my brokerage, with CAD and USD under each one. I find it easy to manage the stocks too. A few minutes a day and I easily out perform the TSX and DOW.
Hey Sam, I am assuming that you likely have already checked into this, but Betterment (at least on their website) appears to have some support for SEP-IRAs: betterment.com/resources/retirement/401ks-and-iras/your-guide-to-betterment-sep-iras/
I have had decent luck with Betterment personally for my taxable account, features such as the automated Tax Loss Harvesting make me happy to pay their fee.
I don’t spend a ton of time managing my accounts, as I’ve come to the conclusion that timing the market is a fools errand, and I’m better off staying long and looking at the big picture. I see a lot of parallels to your financial dilemma with how people manage their fitness, which is where I focus most of my energy and writing. A coach can bring expert knowledge and accountability which are two common areas of weakness for many. However, a coach or adviser costs money, where simply joining a like-minded group can often provide many of the same benefits for free.
I wish I could set it and forget it, but I save and invest the majority of my cash flow each month. Therefore, I’ve got to take action at least once a month, but most likely multiple times a month. It would be much easier to just max out my pre-tax retirement accounts and call it a year.
How would you go about reinvesting a large windfall? Do you not have excess cash flow to reinvest each month?
I only own individual stocks in my IRA account, all my other investments I just use index funds with regularly scheduled contributions. As you alluded to the stress of picking stocks all the time was a hassle. Currently, when I add money to my IRA, I almost always just buy more of a stock I already own.
As for investing a large windfall, I hope to have that problem soon as I have a rental property up for sale. If it sells, the funds will be used to pay off our remaining student debt. If we didn’t have that, I’d pay down my primary mortgage, and if that were payed off, I’d look to divide it among my current investments and simply increase their size.
Or I would put a chunk of it into cash to live off of, while I invested 100% of my monthly income, which makes for more decisions, but by spreading them over time, I decrease my chances of buying at the top of the market, which seems like a possibility presently.
Remember – having money to invest is a good problem to have! Good luck!
When I have had to invest a chunk of money from sale of real estate, or from my severance package or my commuted pension, or form liquidating my mutual funds or selling bonds, I did it slowly. Watching for ideas on BNN, making notes, and then doing buying in batches following a strategy. I don’t like taking full positions right away with some stocks, so I buy a quarter or half position, then more later. As for monthly cash flow, it usually goes automatically into mortgage payments or other expenses. I don’t have much dividend income to reinvest. I wait til it accumulates and then maybe buy something. Cash sitting in accounts does not bother me. I wait until I see something I want to own or increase my position in a stock I really like if I don’t already have a full position. Too many buys and sells isn’t productive and does not increase returns, so I do not feel pressured to invest everything at once.
The last few years of my retirement, I have dedicated to doing less — no paid work, no volunteer work, just time to think and enjoy, keep healthy and travel. I wanted to see what would come into my life if I left a lot of space. What I found was a lot more time to think, better ideas and solutions, more enjoyment out of the things I do, more discrimination in people I spend time with, and my self-worth did not have to come from work. At the same time, I have more energy and do not let myself shirk or become too lazy to maintain my home and my investments.
I think getting rid of the problem rental was a great. Good rentals are no problem at all, but that house sounds like a bit too much. Now to simplify the money accounts. With burn out, you have to pull back for awhile, eliminate a few things, stop at 4 pm, take a full day or weekend off, and you will recover. Been there many times.
Indeed. I’m tired and it’s 10:15pm and I’m reviewing comments and preparing for a post tomorrow after publishing a private newsletter this morning. I think I’m a workaholic, or maybe I just have this great desire to stick to my schedule no matter what.
1Q is tough for me b/c I’m coaching high school tennis. Once that’s over in May, it’ll feel like I’m back in retirement mode.
Well, all this work has a very positive side. The Longevity Project — long term tracking of people who live a long life — it’s not the people who take it easy and “balance” their life, it’s the people who have a purpose and a lot of self-discipline through out life. Something to comtemplate. When I stopped paid and volunteer work as an exercise to see if I could have self-worth without proving myself all the time, I just got busier than ever with projects. But still, even very small breaks are helpful. And make sure you love every moment of what you do.
My wife and I have been using a money manager (live person, not robot) for a couple of years now. This, after many years of me doing the work (like you). The decision to change was not easy but it was also, in a way, freeing. I don’t stress over the management now and I have a team that is paying closer attention to the market and financial situations than I ever did when I did my own management.
Does it cost us? Yes. At the same time, I no longer need to spend the time to research and select the investments. Okay, I know I can go with just a couple of index funds and then do the rebalance. Still, across the number of accounts, that still takes time. Especially if you are trying to minimize tax exposure in your non-retirement accounts but maintain your target returns/growth.
It is a balancing act like Church at mymattressmoney states.
Can you share the annual cost of your money manager and also how many types of accounts they manage? Can they manage your pre-tax retirement accounts like a SEP-IRA etc?
Managing financial accounts can be challenging, but still easy compared to managing a rental. So glad I sold one in 2017!
I have no direct experience with rental property but know that a lot of folks use that vehicle. My only exposure is through my father-in-law and he has some wild stories to tell.
We currently pay around .75% for our manager to manage two taxable accounts, two traditional IRA accounts, two ROTH accounts, and a rollover IRA account. These accounts are all through a single brokerage company. Unfortunately, they can’t manage my current 401k directly (not through same brokerage) but I do discuss planning with them so they are sort-of managing it.
If the 401k was at my primary brokerage, then they would be able to manage it. Prior to this 401k, the company where I work had a SEP-IRA and that was also through a different brokerage. I think if it was through my primary brokerage, they would have been able to manage it as well.
Got it. So the pretax retirement account has to be at the firm. Makes sense.
I am wary of putting all my financial accounts at one institution because of what I witnessed during the financial crisis. So many institutions went down left and right that it just makes me feel more comfortable having money with three of the largest financial institutions.
Sam,
For your SEP-IRA, have you heard of Honest Dollar? It’s a digital wealth manager born here out of Austin, TX and acquired by Goldman Sachs – and they support SEP-IRAs. Might be a good fit worth checking out!
I work with Personal Capital’s Wealth Management/Financial Advisor services and always question whether it is worth the management fee of .89%! I love the company and think about when their advise could be the most valuable 10+ years down the road. I always see folks comparing the features of Betterment, Personal Capital and others – what I don’t see as much of that would be super valuable is a thorough analysis of how the portfolios differ for better or worse. This could help with determining whether the .25% vs .89% is better value. I use both and see that PC allocates 10% to Alternatives.
One frustration that I have had recently is with trying to take advantage of the dips – when i deploy capital into these services it can take 2 days for the trades to settle. I can’t take advantage of real time trades through the service.
Thanks for the post!
Thanks for mentioning the delay in mobilizing capital. I have the same frustration when I mail a check for my son’s 529 plan. Even if I go to Fidelity’s office to deposit the check in the morning, the money won’t buy the 529 plan that day. So I just tell myself it won’t make much of a difference 18 years from now.
I’ve never heard of Honest Dollar. Will check it out. I just use Personal Capital’s tools to help keep track of everything. Their Investment Checkup is excellent.
The value of the 0.25% – 0.89%, depending on which robo to use, is now becoming more about piece of mind someone is looking out for your money so you can MENTALLY LET GO more = less stress. I’m going to delve more into this.
Paying $10,000 on $1M is a lot, but when you can lose $100,000 in a correction, maybe it’s worth it.
Wow Sam, so many of your issues are what I have had to deal with in my accounts. I prefer to update my accounts with a spreadsheet manually since we do not have Personal Capital in Canada yet. But this forces me to review each account and perform any balancing as required.
I lost interest in handling all those accounts when the kids were young as well. I find it easier to do that now since my youngest is almost out of high school. Meaning you might have renewed interest in doing it again when your son is older.
No money manager for me thanks.
I’m probably going to be the same way – see a recovery in interest in managing money once the kids go to school full-time. Right now, it is amazing how little I enjoy managing money versus spending time with my son. It’s like 1 vs 100.
Money has almost become an annoyance. But I have to remind myself that money has what bought both my wife and I freedom to stay home and play with him this Friday morning. Must show gratitude.
Canadian comment: I believe my bank-affiliated brokerage is about to make it possible for my stock prices to be automatically loaded onto my Excel spreadsheet, which will save a bunch of time. I don’t try to keep the spreadsheet up day to day, but it is helpful for checking asset allocation among classes. I have a sneaking suspicion that I might have figured out how to have that happen anyway, but … now I won’t have to.
These certainly seem like the right kind of problems to have! I certainly don’t fully understand the issue, but is there any way automation would be able to alleviate your stress? Like having a macro run on your computer that would log into your accounts, make notes of what amounts are in each area, and then putting them onto one screen on your behalf? That would certainly achieve tasks 1 and 2 for you across multiple accounts in the time it would take to make your coffee.
Also, how has your back been lately? I never checked back to see if any Yoga moves were helping your back pain at all.
Let me see if I can do some programming to invent a macro to automate everything. I’ll get back to you as it might take a while. But maybe the result would be I could create a new startup! But that would then plunge me into 80 hours of work a week.
Back is doing about 50% better! Still sore and painful sometimes w/ all the crawling on the crowd w/ my son, and also playing tennis too. But better. thx for asking.
Glad to hear you’re improving!
Interesting post Sam. I’m only 21 and don’t have any dependents so like you mentioned above, there isn’t much stress where I currently am at. At this time I have only a taxable and Roth Ira account – although I will be starting a 401k and HSA this year as well.
I’m not familiar with all of those account types – but I presume you cannot consolidate them further?
What about a simpler approach to investing such as the Bogleheads 3 fund portfolio?
bogleheads.org/wiki/Three-fund_portfolio
You may get a lower return but what is the percentage difference you would be willing to make for peace of mind?
Can’t consolidate pre-tax accounts, but can consolidate after-tax accounts. But there’s also institutional risk e.g. what if one goes under, what if one pulls a Wells Fargo and rips you off etc. There’s also tax implications for selling.
I had no trouble consolidating everything at one institution but each account type (RRSP, TFSA, taxable) have to be separate subaccount within the main account number.
Stocks can be transferred, do not have to be sold, so should not be tax issue.
I don’t think your stocks are in danger if your bank or brokerage goes under —- stocks are held in trust with a trustee, etc. Stocks are not insured anyway like deposits in banks. Diversifying financial institutions is no protection.
Wells Fargo was opening extra accounts and charging fees or selling you products you didn’t request, which would be very easy to detect if you check your statements every month and just cancel the ones you don’t want or did not request. Not a worry.
Just go to the institution you want to consolidate at, and get them to do the paperwork to bring the funds from the other institutions. Some of your investments could be more complex, but once you are out of all the odd, complex ones, it will be so much easier. You don’t need a money manager.
I still manage our investment. It’s not too bad for us. I consolidated almost everything to Vanguard. I know it’s not good to put a lot in one institution, but I trust Vanguard. Vanguard can manage your account for a fee too. I haven’t looked into it much because we’re mostly invested in passive index funds. It’s not stressful for me.
I might hire a manager if he shows very good long term record and is transparent. I don’t want to run into someone like Bernie Sanders.
As for your wife’s SEP IRA, shouldn’t you see the cash in the Personal Capital dashboard? I guess it just got lost there because it’s a small fraction of the $100,000 cash.
Do you mean Bernie Madoff, Joe? Or are you worried he Is going to invest your money in socialized health care and tuition free education?
I can see it if I linked up her accounts to my PC dashboard and clicked her account. Which is a good reminder to do so. I was just manually looking into her accounts.
I don’t want to run into Bernie sanders either! He’ll take it all and distribute it to college students for beer money. Also would worry about Bernie madoff!
As we try to balance our work-life, our financial-life cuts into the quality time that we truly want. Early on, I went through a process to slow introduce the ‘right’ advisor into my life.
It’s not that we don’t have the financial competency to manage, it is just that we value time with friends and family and other interests over what our money is doing.
To me, the fees must be fairly represent your time away from your money. Here is my take on why I use an advisor: mymattressmoney.com/your-financial-life-balance/
I think there is a reasonable balance of advisor managed money and money that you manage on your own.
Love to see some numbers: 1) number of accounts you have, 2) number of accounts they manage, 3) cost, etc.
Ooh I did the near exact thing Sam! There was $7k (I had $11k in my IRA in total last year) that was uninvested. My husband forgot about it and I assumed it was put into something. He assumed I did it. We find out a year later that it was just sitting there! So somewhere between 2016 to almost 2018. Ugh so dumb!! And we don’t have that much money so imagine a portfolio bigger than that. Messy.
Sam,
Wouldn’t another option be to simplify your investments? I’m sure your background makes you comfortable with all the interesting investment choices; not to mention, it gives you fodder for your blog. But if you have “enough,” could you also just simply get into a handful of index funds and let them sit? You could have some account with your “fun money,” and still explore and report on the more exotic animals without feeling that your livelihood depends on them. But it seems from this post that you believe you need to be in them–is that really true?
I recognize the fact that this would mean moving on from your profession, but in the back of my mind I’ve always wondered about that: have you truly quit your job, when you are essentially doing the same thing for yourself? And was that really the goal? When you talk about the old job, you talk about the hours you worked as being a big reason for leaving. You haven’t quantified that here, but it sounds like you are coming to the same conclusion now.
This doesn’t get you around the need for so many accounts. That’s a problem I have honestly pondered myself, when thinking about retirement. If I set up a CD ladder or something (big assumption: more “normal” interest rates) I wonder if going through Schwab or some other marketplace would be a way to stay within FDIC insurance but still simplify not just reporting, but management of money. But for the things a money manager would do for you, it seems that you are taking the complicated nature of your investments for granted; I don’t think that’s the case.
Matt has a great point. The complexity of my investments often go through waves, depending on how much energy I need to keep up with all of my accounts. I’m in an “expansionary” period right now, as I opened a 529 account for my newborn son, and moved my emergency fund to a bank with a higher interest rate. But I am also coming off a “contractionary” period, where I consolidated savings accounts, paid off student loans (Yay for saving money, but also one less account to track), and consolidated different 401k’s into 1 IRA.
It looks like you have 4 after-tax investment accounts between you and your wife. Could you consolidate those into 1 account (or 2 if you want to keep your finances separate)? Employ the 80/20 rule. Find out what you spend most of your time worrying about or tracking, and try to simplify that first.
Probably the best step when in a hole is to stop digging e.g. don’t make any more new investments and open new accounts. Gradually, I will look to reduce. So for example, no more venture debt once the fund returns all capital. I’ll probably close my P2P lending account and close a small brokerage account this year. Chip away!
I am amazed that you have time to do everything you do. Blogging alone would seem like a 24 hour job.
I agree with reducing the accounts — way too much stress and admin. I don’t think returns are better or risks are lower having so many different accounts. I find with having more time to think, and less time spent on “administration”, I make more money, have more ideas, more solutions. Details not important as always making money.
I have one discount brokerage account for all my investments, with sub acounts within it. I am in 100% stocks with some cash. I keep a Yahoo Finance portfolio with all the stocks I own listed so I can monitor daily performance of the whole thing. I also like Globe&Mail portfolio and TMX Money for different reasons, but my main one is Yahoo. Other than a chequing account, that’s all the accounts I have.
I transfer totals in each Brokerage subaccount to a spreadsheet once a day and calculate gains and losses YTD. I also record my high for a stock, so I can sell if it comes off that price too much. Once a month, I calculate my returns compared to DOW and TSX (I always beat). 5-10 minutes maximum for recording.
If I am travelling, and not near WIFI, I can leave it all alone for days or even a couple weeks. If I am home, I keep BNN (Canadian Business News channel) on in case of something interesting (mostly on mute). That’s all the research I do.
I don’t find any of my money management tasks to be stressful or onerous. I actually quite enjoy it, but I am also not addicted to it or obsessed with it. Keeping it very simple is important.
Keeping track of asset allocation — I don’t worry about that — all in stocks with some cash sitting in the accounts.
Keeping track of cash balances — quick glance at the summary page for all the accounts at the brokerage. I don’t find cash balances affect returns, it’s more important to monitor the stock performance and sell when declining depending on reason.
Researching investments — listen to BNN for ideas, make a list in a notebook, check a few key numbers and charts just before buying or selling. No heavy research. I don’t wait for dips or the lowest or highest price. I might watch a stock and sell on an up day, buy on a down day but really it’s impossible to buy at the lowest and sell at the highest. Important thing is to always make money.
Selecting the right investments — try to make moves all at once a few times a year as part of a strategy. Sector rotation is important and takes concentration on financial news. The best way to learn is to buy a stock if the recommendation seems to make sense and then watch it carefully and keep ears open for any kind of news about it. Always sell on bad news (learn what is bad news).
Reducing commission fees — not significant
Meeting capital calls from private investments – na
Keeping track of when capital is returned – na
Redeploying capital – don’t sell very often so not required often. Cash balances don’t bother me.
Figuring out how each piece fits into a passive income target – not concerned about passive income. Total return is important to me.
Optimizing for tax efficiency — this is very important, but I have reorganized that properly, so just have to maintain.
Watch your fees. If you expect your investments to achieve a 5-6% rate of return and inflation is at 2.5%, that’s a 2.5-3.5% REAL rate of return. If you pay a professional 1%, that erodes your REAL rate of return.
Depending on how much you have managed, it becomes a time/cost evaluation – don’t just worry about the %. If you pay a professional 1% on $1 million ($10K), you must determine where your time is better spent, managing the funds to save $10K or doing something else (making money if you run business, relaxing if retired, etc). Each person’s situation is different. Also, the fees I pay continue to decrease as the amount of money I have managed increases. This is important to negotiate upfront before you wire a wealth manager.
I would not pay management fee or advisor fees. I did that for many years and really regret it. I got very little for my money if anything. It is so easy to do it myself and I make substantially more than the money managers ever did. I travel a lot and still find it easy to manage when on the road — just a few minutes a day. I actually enjoy it.
I have had an acquaintance hounding me for the last three weeks to use him as a financial manager. He quit an unrelated career to become join this profession a few years back.
I am positive he cannot beat the returns of the market, so why would I bother? I pay a tiny fraction of a percent in fees in vanguard funds and similar.
Hey Sam.
Thanks for sharing! I think the personal psychology of investing is not discussed enough.
I have found that less is more when it comes to investing and am I happy with owning broad based index funds. Whenever I try to purchase an individual stock or get to fancy down the road I find myself questioning my decision.
Over the years I have invested in individual stocks an realistically done average. Some were clear winners, some clear LOSERS! So I asked myself why?
Why take the time to stress about my investments. The whole goal for me in investing is to create less stress and more time. It is hard enough to earn the money.
This is why I have stayed away from P2P lending, Reality Shares, direct real estate investment in multi families (very close to diving into this multiple times.) With each year that passes I am glad I have kept it simple.
Educating myself on the market has been key to ride the waves but overall I believe I will be happy with my results.
This has kept things simple even with multiple accounts from rollovers, IRA, after tax etc. I just check in on the accounts update a spreadsheet for allocation and am on my way.
This will save me the high fees that I do not want to ever pay for investment management.
Sam – I sometimes feel a little stress in managing our money, but I’m gradually looking for ways to simplify and reduce the number of accounts and financial institutions so that management gets easier. As the saying goes – I try not to let perfect become the enemy of good.