In Search of New Money Management

A reader, Bill in Albuquerque, asks the following question (lightly edited):

I have $1 million in a retirement account that I can’t get at yet (and don't need for another 10 years or so—I'm 59).

The equity firm that has this IRA account now (not my employer—I retired 5 years ago) has been doing a lousy job, IMHO, for their 1%/year expense.

Do you have any suggestions as to what other options might be available to me as a place to invest that money?

I've thought of Max Advisor and have talked with the manager. I have also thought of managing an ETF portfolio based on Kiplinger recommendations.

Thoughts?

My starting point for financial matters is always personal education. You are unhappy with your current money manager, but why? Perhaps you have good reasons. To assess a money manager, you should make sure you understand your current investments. What is the breakdown of stocks, bonds, real estate and other asset categories? Are the percentages appropriate for you?

Does your portfolio have undue concentration in one asset class or sector or country that unduly raises its riskiness? Is the expense you pay really just 1% per year or are there other hidden expenses? How has your portfolio fared against an appropriate blend of indexes?

If you have learned enough about investing, you should be able to answer these questions and be in a good position to judge whether your current money manager is doing a good job.

As for a new money manager, even the option that costs 0.5% to 0.75% represents $5000 to $7500 of your money each year. You are entitled to know what approach a new money manager would take with your money. If you have learned enough about investing, you should be able to understand the new money manager’s answer. If not, run—I wouldn’t work with someone who sets out to baffle me.

In the end it makes sense to learn investing basics whether you are a do-it-yourself investor or intend to hire a professional. You don’t have to be able to analyze a company’s financial filings, but you should know the difference between stocks and bonds, how to figure out your total expenses, and understand the relationship between risk and reward. With this information you’ll be in a better position to judge whether the pros are doing a good job for you.

Another good thing to understand is that nobody can predict major market moves accurately. If you can’t live with a major stock-price correction, don’t bother trying to find a money manager who can time the market for you because they don’t exist.