How to help parents "see the light" with index investing?

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SuperCrunchy
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How to help parents "see the light" with index investing?

Post by SuperCrunchy » Thu Jul 12, 2018 5:59 pm

My parents are both in their 60s (my mother is retired and my father will be in the next couple of years). I haven't asked them much about their own personal finances in the past. However, now that I've been reading this website and gaining a lot of knowledge on the subject, I feel like I need to relay some of this knowledge to them.

It's probably not a great idea for me to get too involved, but right now I know their nest egg (not counting home and vacation home) is north of $1 million and that my father is going to have a pension from the federal government. I also know they just switched financial advisors from one of the big banks to someone recommended by our extended family. I believe he charges 1% commission to manage their funds (I have no idea how this compares to the industry at large). I feel like they're losing out here, but my mom thinks the fee is not so bad and says that she likes this manager because she trusts him.

Where do I draw the line of how involved I should get? I can give them a copy of "The Bogleheads Guide to Investing" (just picked up one from the library for me to read), but I think it would just sit on their shelf. I don't think they get enjoyment from managing their own funds (like I do), but I feel like I would be putting myself at huge personal risk if I decided to step in and do it for them and then the market went south. I know they're at retirement age, so fees reducing the "power of compounding" affect them less than it does me, but they're both in good health, so they should be using this nest egg for quite a while.

Just to make it clear, I'm not worried about them becoming financially insolvent at any point in the future or unable to support themselves; this is more of an optimization issue in my eyes. Plus, properly managing their estate could mean it eventually gets passed down to me someday.


Summary Questions:

- How can I get my parents to see the power of low fee, index investing and how there are several ways for them to easily do it on their own? What lit the lightbulb :idea: for you personally and made it all click?

- What are the limits for giving advice to family members? Is it ever worth it to manage their funds if you know more than they do?

- If my parents insist on having someone else manage their money, what is the most cost effective way to do this?

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Cycle
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Re: How to help parents "see the light" with index investing?

Post by Cycle » Thu Jul 12, 2018 6:11 pm

I've been investing in index funds since I was 22, 11 years before I heard of bogleheads. I just picked the funds with the lowest expense ratio since I'm frugal. Are they frugal?

wolf359
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Re: How to help parents "see the light" with index investing?

Post by wolf359 » Thu Jul 12, 2018 6:14 pm

If they’re doing OK, they’re not in danger fraud or theft or elder abuse, and they’re not asking for any help, there is no action for you to take. With $1 million, a pension, Social Security, and a new start in retirement life, they’re probably feeling good about theirfinancial life at this point, and probably think they’re doing well. (They are) It’s not the best time to intervene and there’s nothing to intervene about.

Maybe you could talk about this new investment strategy you found, just because you’re excited about it. But it should be a topic of conversation due to your own interests, and not something to redirect them to. If they were interested in running their own finances, they wouldn’t have hired an advisor. Your unsolicited advice might not be welcome, either. They’re the ones who just successfully retired, not you.

(Any reason that they might not have that point of view? Do you regularly help them with financial decisions?)
Last edited by wolf359 on Thu Jul 12, 2018 6:21 pm, edited 2 times in total.

MotoTrojan
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Re: How to help parents "see the light" with index investing?

Post by MotoTrojan » Thu Jul 12, 2018 6:19 pm

I wouldn't go beyond giving them the book. With any luck you'll get them into a conservative 3-fund portfolio and the next year the market will tank and you'll be written out of the will.

delamer
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Re: How to help parents "see the light" with index investing?

Post by delamer » Thu Jul 12, 2018 6:30 pm

wolf359 wrote:
Thu Jul 12, 2018 6:14 pm
If they’re doing OK, they’re not in danger fraud or theft or elder abuse, and they’re not asking for any help, there is no action for you to take. With $1 million, a pension, Social Security, and a new start in retirement life, they’re probably feeling good about theirfinancial life at this point, and probably think they’re doing well. (They are) It’s not the best time to intervene and there’s nothing to intervene about.

Maybe you could talk about this new investment strategy you found, just because you’re excited about it. But it should be a topic of conversation due to your own interests, and not something to redirect them to. If they were interested in running their own finances, they wouldn’t have hired an advisor. Your unsolicited advice might not be welcome, either. They’re the ones who just successfully retired, not you.

(Any reason that they might not have that point of view? Do you regularly help them with financial decisions?)
Good advice.

I might buy them a copy of the Bogleheads book and mention that it is the method you are using.

But otherwise, stay out of it. Even if they were willing to let you takeover managing their money, you’d have to take responsibility for the results when the inevitable downturn happens. Believe me that they won’t care that you lost them less then other advisors would have. All they will care about is that they lost money.

kupuna
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Re: How to help parents "see the light" with index investing?

Post by kupuna » Thu Jul 12, 2018 6:51 pm

Controlling their finances is not worth poisoning a relationship so proceed with caution. It sounds like they have made many good decisions along the way and will be financially secure. Express your opinion but don't tell them they are wrong.

I worked with a dear, dear friend who was held captive by an Ameriprise agent. She was their best friend and even sent them a birthday card and occasionally took them to lunch. After a year they shared their portfolio with me and after a few hours I showed them I could improve their total rate of return by $20,000 while holding similar products in Vanguard. The light when on and after two years of patience I helped them move everything to VG. Like your parents, they didn't need to move as they were affluent and had a large nest-egg.

Enjoy the company of your parents and thank them for teaching you how to handle money.

TOM
"I can calculate the motions of the heavenly bodies, but not the madness of people." Sir Isaac Newton

dknightd
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Re: How to help parents "see the light" with index investing?

Post by dknightd » Thu Jul 12, 2018 6:56 pm

SuperCrunchy wrote:
Thu Jul 12, 2018 5:59 pm
My parents are both in their 60s (my mother is retired and my father will be in the next couple of years). I haven't asked them much about their own personal finances in the past. However, now that I've been reading this website and gaining a lot of knowledge on the subject, I feel like I need to relay some of this knowledge to them.

It's probably not a great idea for me to get too involved, but right now I know their nest egg (not counting home and vacation home) is north of $1 million and that my father is going to have a pension from the federal government. I also know they just switched financial advisors from one of the big banks to someone recommended by our extended family. I believe he charges 1% commission to manage their funds (I have no idea how this compares to the industry at large). I feel like they're losing out here, but my mom thinks the fee is not so bad and says that she likes this manager because she trusts him.

Where do I draw the line of how involved I should get? I can give them a copy of "The Bogleheads Guide to Investing" (just picked up one from the library for me to read), but I think it would just sit on their shelf. I don't think they get enjoyment from managing their own funds (like I do), but I feel like I would be putting myself at huge personal risk if I decided to step in and do it for them and then the market went south. I know they're at retirement age, so fees reducing the "power of compounding" affect them less than it does me, but they're both in good health, so they should be using this nest egg for quite a while.

Just to make it clear, I'm not worried about them becoming financially insolvent at any point in the future or unable to support themselves; this is more of an optimization issue in my eyes. Plus, properly managing their estate could mean it eventually gets passed down to me someday.


Summary Questions:

- How can I get my parents to see the power of low fee, index investing and how there are several ways for them to easily do it on their own? What lit the lightbulb :idea: for you personally and made it all click?

- What are the limits for giving advice to family members? Is it ever worth it to manage their funds if you know more than they do?

- If my parents insist on having someone else manage their money, what is the most cost effective way to do this?
Do not give your parents advice. They seem to have figured it out. Instead ask them how they did it. Explain how you are planning to do it. Ask for their advice. By talking about your plans, they may decide to change their plans. But not likely since they have it figured out. Be thankful they seem to have been able to take care of themselves. It sounds to me like you want to maximize your inheritance. I suggest you plan for no inheritance. Let them spend their money anyway they want. Don't make them part of your plan!

Fallible
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Re: How to help parents "see the light" with index investing?

Post by Fallible » Thu Jul 12, 2018 6:58 pm

SuperCrunchy wrote:
Thu Jul 12, 2018 5:59 pm
...
Where dos I draw the line of how involved I should get? ...
At this point let your parents draw the line. If you must, state your case to them, offer the book, then be patient and let it go. The next step is theirs.
Bogleheads® wiki | Investing Advice Inspired by Jack Bogle

Nate79
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Re: How to help parents "see the light" with index investing?

Post by Nate79 » Thu Jul 12, 2018 7:00 pm

They seem to have done pretty well so far. What makes you think you have enough knowledge vs their many years of experience?

staythecourse
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Re: How to help parents "see the light" with index investing?

Post by staythecourse » Thu Jul 12, 2018 7:22 pm

As long as they aren't going to be poor and ask you for money in the future who cares what they do with their money. It only affects any future inheritance and NOT their quality of life so don't see a reason to get involved. Now if they ASK you then that is different.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

dknightd
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Re: How to help parents "see the light" with index investing?

Post by dknightd » Thu Jul 12, 2018 7:26 pm

@SuperCrunchy Figure out you own plan. You are lucky your parents have figured out theirs.

golfCaddy
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Re: How to help parents "see the light" with index investing?

Post by golfCaddy » Thu Jul 12, 2018 7:38 pm

Reading a Random Walk Down Wall Street is what first introduced me to indexing. If they won't read anything you give them, I would leave it alone. It's their money to invest as they choose, even if it leaves you with a lower inheritance.

LMBFlorida
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Re: How to help parents "see the light" with index investing?

Post by LMBFlorida » Thu Jul 12, 2018 7:52 pm

Vanguard changes 0.3% of assets for their personnel advisor services.

DC3509
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Re: How to help parents "see the light" with index investing?

Post by DC3509 » Thu Jul 12, 2018 8:49 pm

I agree with others who replied -- I wouldn't get too involved. I am involved in my parents finances, but that's because they do not understand (or care to learn) many things, and the alternative was not good. I do feel like I have done a lot of "good" since getting involved.

When my parents were deciding between "letting me help more" or hiring the local yokel financial advisor who was going to scam them, I sent them a Freakeconomics podcast that basically discusses everything that we discuss here -- including a great interview with John Bogle. I would highly recommend that podcast.

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Tamarind
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Re: How to help parents "see the light" with index investing?

Post by Tamarind » Thu Jul 12, 2018 9:10 pm

I am actively engaged in helping my parents make retirement and investment plans. I concur that you should not engage. If they haven't asked you for help, and they don't need financial assistance, then you have no basis for weighing in.

The most I would do is mention in passing conversation that you've learned more about investing lately, and maybe gift them a book if they seem curious.

ignition
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Re: How to help parents "see the light" with index investing?

Post by ignition » Fri Jul 13, 2018 4:24 am

I also tried/try to convince my parents to embrace index investing. After reading a lot about investing and seeing they were pretty clueless themselves, I stepped up to them and asked: would it be ok if I gave you some advice about investing? They said yes, and I explained them the concepts of index investing, asset allocation and how important fees are to your returns. They were still a little wary after the explanation but at least decided to ditch the very expensive (2%+ in fees) funds.

I also never forced them and reminded them it's still their money so they can do what they want with it. What I did suggest is that they put a small separate part of their portfolio into index funds and monitor the performance compared to the actively managed funds. So far this is working quite well as the index funds have easily outperformed the active funds over the last years. A few days ago I showed them the numbers and they were pretty shocked with the difference so I think it won't be long before they turn around.

BlackStrat
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Re: How to help parents "see the light" with index investing?

Post by BlackStrat » Fri Jul 13, 2018 7:54 am

If you tell them anything - keep it short and simple:

costs and fees are the only thing we can control when it comes to the market

The safe withdrawal rate (SWR) for a portfolio to survive a 30-year retirement is around 4%. 1%+ in fees means you're immediately removing 25%+ from your yearly SWR and giving it to somebody who cannot regularly beat the market return (after considering fees & tax ramifications from buying/selling).

Par for the course (matching the market) is a really good thing that should allow you to sleep at night.

SuperCrunchy
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Re: How to help parents "see the light" with index investing?

Post by SuperCrunchy » Fri Jul 13, 2018 2:33 pm

Thanks for all the feedback! I would consider my parents somewhat frugal: my father is a "do-it-yourself" type who likes to save money by doing projects himself and my mother lives modestly and has inexpensive hobbies that now take up most of her time in retirement. They definitely understand the power of saving and have told me numerous times that they wish they had started saving for retirement earlier in life.

I think they are less confident about their investing knowledge. From our interactions they seem to know that mutual funds are good for diversification and that Vanguard is good to invest in because fees are lower. I think at this point they just want to have someone else manage everything so they don't need to worry about it and can enjoy doing other things in their retirement. Perhaps I'll let them know that Vanguard offers personal advising services for 0.3% and leave it at that.

Several of you have mentioned bringing up this website and the Boglehead philosophy as something I found and am personally interested in. I think that's a great idea, and if they see things working out well for me then perhaps they will become interested as well. (And if not, it seems they're in a good enough situation as is)

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