Hello everyone,

I just found these forums and am hoping for some suggestions.

A couple of months ago I inherited a 6-figure trust fund set up for me when my parents died. The executor of their estate hired a financial adviser at a huge, corporate, well-known financial services company who has been overseeing the investments for several years now. Nearly everything is in the form of mutual funds, with a mix of small- and large-cap domestic stocks with a small percentage invested in foreign markets.

I expect the bulk of the money to provide for me at retirement in 25 to 30 years, but I would like to use a small portion over the next year or so as living expenses while I do volunteer work.

I should mention that while I have no trading or investment experience myself, I am not very confident in the stock market at the moment and would like to invest in something with a little less risk, sacrificing some potential growth for security. The current financial adviser I use tells me that I should stay the course, since the executor of my trust stayed the course through tough times in 2002/2003 and insists that if he hadn't done so, I might have inherited 35 to 40% of the current portfolio value. Not that I don't believe her... but that being said, my portfolio has lost 18% of its value over the last two months alone.

I would also prefer to not pay a huge conglomerate a percentage of my investment portfolio value each quarter whether they make money for me or not.

What I would like to know is the best way to invest my money so that I can access a small portion of it (around 7 or 8%) over the next 12 months, but also safely increase the net worth of the remainder.

Thanks in advance.

First of all you may want to consider to change the company who manages your portfolio. A 18% loss over the past two months is just ridiculous and even more so given how global equity markets have performed (but since you say that the majority is in mutual funds that does not surprise me). Having said that, you should remain invested in equity markets.

I don't know how much they charge you for that but if you pay anything it is too much, in my opinion. Since you sound like you are not satisfied with them you should start to look at other companies that assist you with your portfolio (since you say that you lack the experience).

If you wish to withdraw a small portion to cover living expenses you may want to put that money in a money market account. They are very safe and liquid and you can access your money at any time. Be aware of any fees that you may be charged to withdraw a portion of your portfolio.

There is no reason for your portfolio to loose that much money. Any smart portfolio manager will deliver consistant returns to their clients. Equity markets themsleves are not risky but the lack of knowledge by the fund manager makes those markets risky to them.

One thing I want to mention as well:

Why do you even pay that company for anything?

All they seem to do is spread your money across mutual funds (which are 'giving' advice to clients for a fee). Mutual funds belong to the worst professional investors in today's markets and you can at the very least cut the middle man and invest directly with the mutual funds that you like to invest in. There is no reason to pay a company a fee that will put your money to work for another fee. My guess is that you pay way too much on fees for lousy returns to begin with. Paying a fee regardless of performance is just a rip-off, in my opinion.

If you wish to stay with mutual funds then look directly at the fund families, open an account there and, even though your returns will not be any better, you will safe on fees and that can add up over time.

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It is not smart to play it safe but it is safe to play it smart.

You could take a look at Compare Mortgage Rates | CD Rates | Home Equity Loans Mortgages Quotes Best Rate Calculator Bankrate.com to shop for and compare different money market accounts and other fixed-income investments.

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It is not smart to play it safe but it is safe to play it smart.

Now I'm going to give you another perspective, but one rooted more in academic and macroeconomic studies.

First off, the money you have in there is the most efficient dollars you have to invest. Taking any of that money "off the table", by spending some down, regardless of whether some is interest and/or principle, is going to cost you a lot more than you believe. And any future dollars you earn are significantly less efficient, and it will cost you more to catch up.

Second, is there any way you can avoid spending money out of your portfolio by volunteering part-time? Or working part-time? If you can avoid spending *any* money out of the portfolio, it will put you in better position.

Now, as far as your advisor goes... obviously your parents trusted him/her, and there could be very good reasons for that. Keep in mind that this advisor does NOT actually invest your money, it is the underlying mutual fund managers that are investing it. The advisor just gave it to them based on a "pie chart" (that is why I call these advisors "pie guys"). You should not be paying an annual fee to the advisor unless he/she is a Registered Investment Advisor, in which case they would have a fiduciary responsibility to act in your best interests. The fees on the mutual funds may or may not be appropriate, and that would require in-depth analysis by another advisor.

Right now, it seems you have a highly diversified mutual fund portfolio, and it seems properly allocated based on your age (years until retirement). The advisor is probably giving you sound advice, to stay the course. There is a study, I don't have it handy, that John Bogle uses to show how individual investors lag professional investors in terms of performance. He goes on to say that this is mainly because of fees/charges. However, he fails to address the fact that individual investors succumb to emotion, and therefore they react emotionally. This induces fear, panic, greed, and sometimes love (people fall in love with certain investments). These emotions are a bigger factor in why they fail. If you panic now, you are acting on emotion and not sound logic.

If you want to change advisors, do your research. Interview many, get full disclosure on all fees/charges. Find someone you can trust, specifically someone who may be an RIA. An RIA can get your money invested without having to pay sales charges again.

Remember, every $1 you have in that trust now, is worth almost $18 for you in retirement. So if you spend $50k to take a year off, that's $900,000 in lost retirement funds, and around $45k PER YEAR of lost retirement income.

You could look for an advisor who does what we do for our clients. Basically, we design portfolios that take advantage of both actively managed mutual funds AND low-cost index funds, ETFs, plus a variety of other investments (commodities, funds of hedge funds, etc). No sales loads and the average portfolio fees run around 1%. I don't have a single, even younger, client with a portfolio down that low over the past few months, so that 18% may be a bit steep. If you can find similar in your area, then I'd take the opportunity to sit down with them and see what they can do for you.

Just whatever you do, DO NOT "Do-it-Yourself". A guy I went to college with has been following John Bogle and does Vanguard index and ETF indexing, which is very low-cost. But his portfolio is more volatile than mine, and his index funds, which capture 100% of the upward trend, also capture 100% of the downward trend. Whereas some of my funds capture 100% of the upward trend, with 40% of the downward trend. Which means I don't lose as much money as him. I like that! He's only beaten me one year, by 2%, and that is REAL rate of return, which is inclusive of fees/charges.

If you lose 18% in the last 2 months, you may want to do some research into what funds you are invested in and figure out why they came down 18%. It sounds like they are in a higher-risk category or an international type fund. Also realize, the entire market is taking some hits now and may continue to do so.

If you do anything, you should find a way to double down to lower your dollar cost average. So when the market rebounds you rebound with 2x the strength / profits.

You do not need that money anytime soon and if you sell after losing 18% then you could be the guy who buys high and sells low because they panic. You still own the same amount of shares or units in that mutual fund; the loss is only on paper, but if you sell it becomes realistic.

I look for people exactly like you in the stock market who are trying to sell me some stock that's on a huge sale after it gets discounted. That's actually how I made 260% return last year; people who panic make it easy, barely even have to research the stock they are selling because the sell off frenzy drops almost any stock to a very good deal; unless of course the company could legitimately go bankrupt.

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