Early Retirement

[Gaybutton]

I dislike President Obama, I really do, but if I lost my job during his presidency and had the feeling that I didn't get paid well enough before, I wouldn't blame him.

Am I missing something? Where did thaiworthy say he wasn't paid well enough? He said he lost his job. He said the reason for that was because of Bush, although he didn't say how Bush caused his job loss.

[a447]

It's sad to read how people lost so much money through the stock market crash. They are at an age where it is impossible to claw it all back.

I think being able to manage money is a skill. I realised long ago that I was no good with money. My company provided us with a financial advisor once we reached a certain stage in our careers. On retiring I decided to keep an advisor working for me and it was well worth the cost. He organises the payment of all my bills, does my tax for me, chooses where to invest my money,etc, etc. I just sign bits of paper. I haven't got a clue what he's doing and I don't care. I just want a stress-free retirement. And paying someone to look after your finances is a cheap way of achieving that, IMHO.

[neddy3]

I just sign bits of paper. I haven't got a clue what he's doing and I don't care.

Very unwise, IMHO.

[mahjongguy]

I have a friend here who is very sharp, quite good with money, but he leaves it all to a financial manager back home. He understands that the fees add up to 4% or 5% a year, even in years of big drops in the portfolio, but he can afford it and that's the way he wants it. He makes up for it by being careful with his spending.

I have another friend who tends to sell off every time the economy gets gloomy. That hasn't worked well for him.

Another friend retired the same day as me, gave all his money to a manager who put it all in the biggest tech fund. It got wiped out by the dotcom crash. He ended up having to go back to work for another 12 years. After retiring a second time, he died of a heart attack.

So I conclude that there's no right answer that suits everyone. Managing your own assets has its perils and rewards. Handing over your life to someone who doesn't care about you also has its rewards but plenty of risk too.

[Jun]

4 or 5% in fees ?
That is one of the basic rules of investment broken then. If he does that for 30 years at 4%, then the financial manager has 70% of his money and he has 30%. The target should be less than 1% in fees.

As for the other example.......
Well I am amazed at the way people are prepared to spend 40 hours a week working, then save maybe 10 or 20% of their money for retirement, yet not spend even 0.5% of their time reading about how to take care of their money. People will get a payback for that time.

Also, sticking all your money in 1 sector, particularly one which is fashionable & trading on obscene PE ratios is very risky.

[mahjongguy]

"The target should be less than 1% in fees."

I realize that 4% to 5% seems unlikely, but: many managers charge 1.5% or more per year to manage your portfolio. Then, because they are too lazy or ignorant to actually manage it, they just fill it with mutual funds on which they get a kickback. The funds themselves charge 1.5% or more, also in good years and bad. Then, if you also pay the guy to pay your bills and do your taxes...

[a447]

neddy3, in normal circumstances I'd agree with you. But I did leave some information out.

My financial advisor gets a percentage of the profits he's makes for me, so it's in his interests not to take any risks. Thanks to him I came out of the global financial crisis totally unscathed. I'm not saying he predicted it - he didn't -but he knew something wasn't quite right and acted accordingly.

I've bought real estate on his advice. It's something I know nothing about and have no interest in at all. When I decide I don't want a property anymore I leave it up to him to sell. He has always chosen the best time and we have both done well out of every single deal.

I think you need to put quite a bit of time and effort into managing your money yourself. I'm far to lazy to bother with that - I like to have things done for me so I can concentrate on other things, namely enjoying myself.

[Jun]

Lets say someone had a $1million portfolio.
If you pay 4~5%, that's $40,000 to $50,000 to someone for just selecting a few mutual funds.

With about 1 days work, anyone could make a reasonable diverse selection of funds. Boring and diverse. Then just add to it for years. If they actually concentrate for that day, they could probably find some funds with less than 1% in fees, decent management and a low cost platform on which to run this operation.
That will outperform any portfolio where someone is creaming off 4~5%, as there is a 99.5% certainty that your portfolio manager is not the next Warren Buffet, so is likely, on average to market perform. Before he subtracts the fees.

Or to put it another way, if you retire early with a large pot of money, it is generally considered safe to withdraw 4% from that stock portfolio each year. ie the "Safe Withdrawal Rate"= 4% (although that itself is questionable based on current high US equity valuations).
I would rather keep the 4% for myself than give it away.

a447: Your advisor gets a percentage of the profits. Does he also get to pay a percentage of any losses & is that enforceable ? If not, well he has a financial incentive to take more risk, which is actually how a lot of these financial bubbles and crashes arise -ie when people are incentivised by getting all of the profits and none of the losses when it blows up. Anyhow, if he is incentivised like that, you kind of need to trust him.

[a447]

Does he also get to pay a percentage of any losses & is that enforceable ?

Yes.

Basically, he gets to use my money to make money for both of us, not just for me. It's a win win situation.

[mahjongguy]

That's a very fortunate relationship, but in that role he's not an advisor or manager, he's a partner.