The Lies About Money - The Finance Forums: Financial planning, debt help, loans, mortgages, retirement and 401k, investment, and general finance discussion forums

ameneses54 · #1 (**permalink**) 05-11-2008, 01:12 PM

I just finished reading Ric Edelmans book : The Lies About Money"which as a prospective investor found very interesting.
There are some thing that don't make sense to me and I'd appreciate the forum readers to opine.
After reading the book you get these clear messages:
-Hire a financial advisor, on your own your screwd.
-If you want to, HIRE ME "Ric Edelman"
-SAVE SAVE AND SAVE
-Even though you SAVE SAVE AND SAVE, your screwd on retirement, you'll never have enough money.
-Diversify and diversify (index funds?)
-ALL is well after more or less 10 years ( ups and downs)
-Doesn't really investing mean to throw your money into INDEX FUNDS and weather it out for 10 years or more?

Now a question:
If hiring a finantial advisor costs you about 2.5% ( Edelman, 500K investment) yearly of your portfolio, and your average return is 8.56% aren't you really getting a 6.06% return?
Also, if you put your money in a NO LOAD mutual fund (no cost for buying) you still pay an average of 2.5% per year in expenses ( although they never disclose the hidden ones). So basically you go back to the other question.

This sounds like a atch 22, YOU NEVER EARN THE DISCLOSED PROBABLE RATE
OF RETURN.

GarySpicuzza · #2 (**permalink**) 05-12-2008, 11:47 AM

You've pretty much hit the nail on the head. Whether it be a bank, an investment firm or an insurance company that you invest your money with there is a cost associated with them managing those funds and they make their money on the spread and/or annual fees and/or transaction fees.

We have a client who has been buying stock direct for years. Sounds good, just sent the money to the company, no broker involvement and they send you stock certificates.

No transactions fees?
Well not until you want to sell.
Then it's a 3% fee to the brokers.

Regarding your question:

Quote:

If hiring a financial advisor costs you about 2.5% ( Edelman, 500K investment) yearly of your portfolio, and your average return is 8.56% aren't you really getting a 6.06% return?

Yes, but it's generally not expressed that way.

They will usually show you the total return expressed as a dollar amount $42,800 and fees shown as a small percentage .025% and it's up to you to do the math.

Now .025% doesn't look like much but if you multiply it by $500,000 you get $12,500 in fees that is paid per year each and every year.

Oh, by the way, when you're at your calculator to get the correct number multiple $500,000 by .025 and hit = key. NOT $500,000 X .025 and hit the % key, your result then would be $125. The % key converts the whole number to the decimal equivalent.

Do you see how this works?.....

People focus on the $42,800 not the .025%

jrs87sch · #3 (**permalink**) 05-13-2008, 04:43 AM

If your financial advisor simply believes being so diversified (i.e. index funds, mutual funds), then you should open an online brokerage account and do it yourself.

Research some ETFs and mutual funds on a site like Morningstar or CNBC, and buy them yourself. Stick to them, and you will make decent returns.

However, some financial advisors actually know what they're doing and can generate larger returns by actively managing your money.

GarySpicuzza · #4 (**permalink**) 05-14-2008, 09:58 PM

jrs87sch wrote:

Quote:

However, some financial advisors actually know what they're doing and can generate larger returns by actively managing your money.

Yes, that's very true.

Personally, I like the high water mark/performance fee structure.

No gain, no fee.

Lose money, then you don't get another fee until you make back what you lost and EXCEEDED the past high mark.

If I invested $100,000 with "the guy" and at the end of year one my account was worth say $115,000, I'd have no problem paying "the guy" 2% on the principal investment ($2,000) and 20% on the gain ($3,000).

He'd make $5,000 but I'd be up 10%.

I'm okay with that!

However, if the guy wants 2% or $2,000 off the top and then at the end of year one my principle is $90,000 and now this clown wants another $1,800 for year two, I would have been $3,800 dollars ahead by simply keeping my money in the cookie jar!

A 10% loss of principle in year one would require a 22.5% gain the following year to just break even with a safe investment that's just limping along at 5% per year.

stockmarketreviews · #5 (**permalink**) 05-22-2008, 07:21 AM

hmm here in india you get fixed interest rate of appx. 10% a year . and mutual funds gave return of over 60% .. but now recent stock market crash stole money of everyone .

GarySpicuzza · #6 (**permalink**) 05-22-2008, 11:30 AM

stockmarketreviews wrote:

Quote:

...and mutual funds gave return of over 60% .. but now recent stock market crash stole money of everyone.

I'm sorry to hear about that over in India but that's a classic example of violations of the Laws of Money #4 and #5.

The Truth About Money

Quote:

#4) Money slips away from the person who invests it in businesses or purposes with which he is not familar or which are not appoved by those skilled in its keep.

#5) Money flees from the person who would force it to impossible earnings or who follows the alluring advice of tricksters and schemers or who trusts it to their own inexperience and romantic desires for investments.

spencer24 · #7 (**permalink**) 05-22-2008, 09:20 PM

Quote:

Originally Posted by ameneses54

... -Hire a financial advisor, on your own your screwd....

Most of the time lately this has been "Hire a financial advisor, and your screwed"

. Finding good financial advisor is hard, and if you find one make sure you stick with it.