Need help informing my father he is making a mistake

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jackholloway
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Re: Need help informing my father he is making a mistake

Post by jackholloway » Mon Jan 12, 2015 10:37 pm

Instead of saying what could be taken as "ya idjit, ya did it wrong", try only talking about what you have done and experienced. For example, "I was with ML, paid $100 per $10,000, and did not beat my benchmark. The ML guy was laughing all the way to the bank. I am now paying $5 per $10,000 for the benchmark itself."

It is not as fun as being the expert, but it tends to be more convincing to family.

tibbitts
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Re: Need help informing my father he is making a mistake

Post by tibbitts » Tue Jan 13, 2015 12:01 am

leonard wrote:
tibbitts wrote:
leonard wrote:
tibbitts wrote:
caaaad wrote:You should offer an opinion to him. It is your business and shows you care. Your post is poorly written and doesn't clearly reflect your concerns. if you just sit back and he jumps off a bridge you would feel worse. At least you tried.
Why is it the OP's business? People have been investing with ML forever, and if there were a correlation to jumping off bridges, I think we would have heard about it by now. Some of us may feel your father is taking a non-optimal approach, but it's a spectrum. ML might not be VG, but it isn't Madoff either.
Was at ML for a while. It is pretty horrible. An intervention would have been welcome.
I'm familiar with similar firms. In one example I know of, you're looking at a difference of less than 3% annually IF a customer had behaved perfectly on his/her own. But "perfectly" also means not succumbing to this forum's preferred theories of the day: "<=50% equities", "100% equities", "to international or not to international", significant allocations to commodity funds, etc. So I think the reality may be closer to 2% for a typical person. Is that a lot over a 25yr-ish investing lifetime? Yes, absolutely. Enough to make someone jump off a bridge? Probably not.
Calculate the terminal value of a portfolio in 30 years - with that 2% handicap. That will leave some looking for a ledge.
No, it won't, because for generations, people have been investing with ML and similar brokerages, sometimes with even higher fees than today's typical wrap account. These people didn't jump off ledges, bridges, or anything else. What you're suggesting is that because now, in our generation(s), there are lower cost alternatives that weren't available before, the regret from not saving the 2% in fees will be so great that people will suddenly jump off ledges.

The problem is that almost all of us have made bad decisions, all by ourselves, that have cost us as much as those 2% fees. Maybe we bought into the "death of equities" in the 70s. Maybe we panicked during the crash in the 80s. Maybe we were heavily invested in the NASDAQ and bought into the "new economy" in the 90s. Maybe we sold at the bottom of the great recession in the '00s. Or maybe we just did a little of each of those behaviors, and the net result added up to... yup, 2% annually, or more, vs. what might have been. Yet we're not all looking to jump.

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Electron
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Re: Need help informing my father he is making a mistake

Post by Electron » Tue Jan 13, 2015 1:36 pm

Dale Carnegie wrote an excellent book called "How to Win Friends and Influence People". One of the key messages is to never tell a person that they are wrong. That approach is not the correct psychology and the other person will strongly defend their position.

The recommended approach is to lead the other person down a path where they discover the answer or solution for themselves. They may even try to sell you on what they learn.

You might think about ways to accomplish that or perhaps just wait a year or two. If the managed portfolio underperforms the market it should be easier to get the message across.
Electron

leonard
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Re: Need help informing my father he is making a mistake

Post by leonard » Tue Jan 13, 2015 2:31 pm

tibbitts wrote:No, it won't, because for generations, people have been investing with ML and similar brokerages, sometimes with even higher fees than today's typical wrap account. These people didn't jump off ledges, bridges, or anything else. What you're suggesting is that because now, in our generation(s), there are lower cost alternatives that weren't available before, the regret from not saving the 2% in fees will be so great that people will suddenly jump off ledges.

The problem is that almost all of us have made bad decisions, all by ourselves, that have cost us as much as those 2% fees. Maybe we bought into the "death of equities" in the 70s. Maybe we panicked during the crash in the 80s. Maybe we were heavily invested in the NASDAQ and bought into the "new economy" in the 90s. Maybe we sold at the bottom of the great recession in the '00s. Or maybe we just did a little of each of those behaviors, and the net result added up to... yup, 2% annually, or more, vs. what might have been. Yet we're not all looking to jump.
You seem to be in the odd position of arguing that a 2% drag is OK - cause everyone's doing it.

2% is a huge drag on performance. Most people don't quantify the 30% of so they lose. If they did look at the actual number, they'ed figuratively climb out on the ledge. Most folks can't afford to throw away 25-30% of their retirement portfolio.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.

keelerjr12
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Joined: Tue Jan 13, 2015 2:56 am

Re: Need help informing my father he is making a mistake

Post by keelerjr12 » Tue Jan 13, 2015 3:47 pm

leonard wrote:
tibbitts wrote:
leonard wrote:
tibbitts wrote:
caaaad wrote:You should offer an opinion to him. It is your business and shows you care. Your post is poorly written and doesn't clearly reflect your concerns. if you just sit back and he jumps off a bridge you would feel worse. At least you tried.
Why is it the OP's business? People have been investing with ML forever, and if there were a correlation to jumping off bridges, I think we would have heard about it by now. Some of us may feel your father is taking a non-optimal approach, but it's a spectrum. ML might not be VG, but it isn't Madoff either.
Was at ML for a while. It is pretty horrible. An intervention would have been welcome.
I'm familiar with similar firms. In one example I know of, you're looking at a difference of less than 3% annually IF a customer had behaved perfectly on his/her own. But "perfectly" also means not succumbing to this forum's preferred theories of the day: "<=50% equities", "100% equities", "to international or not to international", significant allocations to commodity funds, etc. So I think the reality may be closer to 2% for a typical person. Is that a lot over a 25yr-ish investing lifetime? Yes, absolutely. Enough to make someone jump off a bridge? Probably not.
Calculate the terminal value of a portfolio in 30 years - with that 2% handicap. That will leave some looking for a ledge.
This is perfect.. Actually do the math and work and show him what he can be looking at in 20-30 years. Maybe he can stomach 100% stocks and is able to take those risks. Too many people follow rules of thumb (ie. age in bonds) without actually figuring out if this even works for them.

Additionally I see nothing wrong with 20-30 DIVERSIFIED stocks with zero or even negative correlation... You do realize that most of firm-specific(unique risk) is mitigated after about 20 stocks. Not everyone needs to jump on the index bandwagon. Look at Buffet... But at the same time I don't know how much I'd trust someone to evaluate companies for me if I went this route. I'd want to do the legwork myself and figure out where I want to put things. If your father doesn't have the time or want to do that then by all means a couple index funds is the better way to go.

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Electron
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Re: Need help informing my father he is making a mistake

Post by Electron » Tue Jan 13, 2015 3:55 pm

Here are three additional thoughts.

1. Suggest a friendly contest between your father's portfolio and one or more of your mutual funds over the next year or longer. That could be quite interesting to both sides.

2. Find a way to get your father interested in monitoring this forum and hopefully posting as well.

3. Show how the savings from low costs can add up to a significant dollar amount over ten years or longer. It is also helpful to look at the Tax Cost Ratio provided by Morningstar on the Tax Tab for all mutual funds. A moderate or high turnover fund can lower returns by several percentage points per year after paying taxes. The same concept would apply to a stock portfolio. All you need to do is compare an index fund such as VTSMX to any moderate to high turnover actively managed fund.
Electron

tibbitts
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Joined: Tue Feb 27, 2007 6:50 pm

Re: Need help informing my father he is making a mistake

Post by tibbitts » Tue Jan 13, 2015 7:55 pm

leonard wrote:
tibbitts wrote:No, it won't, because for generations, people have been investing with ML and similar brokerages, sometimes with even higher fees than today's typical wrap account. These people didn't jump off ledges, bridges, or anything else. What you're suggesting is that because now, in our generation(s), there are lower cost alternatives that weren't available before, the regret from not saving the 2% in fees will be so great that people will suddenly jump off ledges.

The problem is that almost all of us have made bad decisions, all by ourselves, that have cost us as much as those 2% fees. Maybe we bought into the "death of equities" in the 70s. Maybe we panicked during the crash in the 80s. Maybe we were heavily invested in the NASDAQ and bought into the "new economy" in the 90s. Maybe we sold at the bottom of the great recession in the '00s. Or maybe we just did a little of each of those behaviors, and the net result added up to... yup, 2% annually, or more, vs. what might have been. Yet we're not all looking to jump.
You seem to be in the odd position of arguing that a 2% drag is OK - cause everyone's doing it.

2% is a huge drag on performance. Most people don't quantify the 30% of so they lose. If they did look at the actual number, they'ed figuratively climb out on the ledge. Most folks can't afford to throw away 25-30% of their retirement portfolio.
No, I'm only arguing that almost all of us can look at a path we might reasonably have taken, and conclude that our choices have created a 25-30% drag. You say that most people can't afford to throw away 25-30% of their retirement portfolio - and yet most of us have, even if we've never lost a cent to ML.

leonard
Posts: 5993
Joined: Wed Feb 21, 2007 11:56 am

Re: Need help informing my father he is making a mistake

Post by leonard » Tue Jan 13, 2015 9:25 pm

tibbitts wrote:
leonard wrote:
tibbitts wrote:No, it won't, because for generations, people have been investing with ML and similar brokerages, sometimes with even higher fees than today's typical wrap account. These people didn't jump off ledges, bridges, or anything else. What you're suggesting is that because now, in our generation(s), there are lower cost alternatives that weren't available before, the regret from not saving the 2% in fees will be so great that people will suddenly jump off ledges.

The problem is that almost all of us have made bad decisions, all by ourselves, that have cost us as much as those 2% fees. Maybe we bought into the "death of equities" in the 70s. Maybe we panicked during the crash in the 80s. Maybe we were heavily invested in the NASDAQ and bought into the "new economy" in the 90s. Maybe we sold at the bottom of the great recession in the '00s. Or maybe we just did a little of each of those behaviors, and the net result added up to... yup, 2% annually, or more, vs. what might have been. Yet we're not all looking to jump.
You seem to be in the odd position of arguing that a 2% drag is OK - cause everyone's doing it.

2% is a huge drag on performance. Most people don't quantify the 30% of so they lose. If they did look at the actual number, they'ed figuratively climb out on the ledge. Most folks can't afford to throw away 25-30% of their retirement portfolio.
No, I'm only arguing that almost all of us can look at a path we might reasonably have taken, and conclude that our choices have created a 25-30% drag. You say that most people can't afford to throw away 25-30% of their retirement portfolio - and yet most of us have, even if we've never lost a cent to ML.
Despite it happening to some - I hope the OP can prevent a little of it from happening to his dad. Done with this sub-topic.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.

anonyvestor
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Re: Need help informing my father he is making a mistake

Post by anonyvestor » Tue Jan 13, 2015 9:47 pm

My 2 cents:

1. Given you age and portrayal of your father's financial position, consider the possibility that this investment is not a hill to die on, but perhaps an opportunity to establish a working financial relationship in the years to come. Imagine (to yourself) what sort of financial relationship/communication you two will have - when and if he really requires your help when he is old or unwell. If he stops sharing his failures with you, then all has been lost.

2. He appears to have shared a great deal of information with you already. Why not ask if your opinions are welcome? (But tread cautiously even if they are)

3. Consider acknowledging how your investing philosophy is different, and invite his perspective on YOUR strategy, rather than offer criticism of his. This might allow you to express your difference of opinion, without challenging him.

4. Whatever you do, I am not in favor of doing nothing at all. You would learn nothing from it. Better to make a small mistake you can grow from, than to remain forever paralyzed with fear about the entire topic.

This game might play out a lot longer than you think. You might need to lose the battle to win the war.

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