When to switch brokers?

[Founder]

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HI all, first post in a long time.

Okay... I really like the guy who handles my money. He does my parent's money and that is the only way I can use his services, since I don't have enough to "qualify" on my own for brokerage services from Bank of America.

I have a a good deal of money for my age, I've maxed out a Roth for 3 years and after a couple tens of thousands in other investments. But the Roth hasn't grown at all in 3 years and has shrunk. Same with the other investment, which is down about 15% over 3 years. Initially it had increased about 15% but for quite a while it has been down.

I also have a Navy bonus of about 16,000 after taxes which has been sitting in my checking account. I'm HPSP and not even 25 yet so I know I am sitting well for my current age and status.

But no one likes to loose money (I got probably 80% of the stuff I listed from an inheritance) and even at my young age I know I have a lot of time to wait. I've invested very aggressively, all stocks. I know that that opens one up to more risk. But it just seems like all I've had is the risk and none of the payback in 3+ years.

3+ years and the stocks are down. I don't want to panic but I have had this sinking feeling in the back of my mind to get my money out and either do this myself or find another brokerage house to handle it.

So when is it time to call it and take my money and let someone else manage it?

What about do it yourself online brokerages?

 

[Futuredoctr]

Scottrade. I've toyed with the idea of stocks for several years, and last week I took the plunge, made 5.3% this week! I'm not saying go and put it all out there, but do it yourself go with scottrade.

I have my IRA in Vangaurd's international funds, and it took a big hit this past year, but most growth is supposed to come from the emerging markets and european markets for the next few years. I'd look at Vangaurd to put your IRA money. Good luck

 

[etf]

when to switch brokers? when you're not with fidelity. although if you strictly a mutual fund investor (which you probably should be), vanguard is the way to go.

 

[Sol Rosenberg]

I'll second the recommendation for Scottrade.

 

[mgdsh]

Right now we're in a bear market, and aside from maybe possibly putting the money into a commodity type fund or an inverse fund, I'd stay away and just read up and learn what you can in the mean time.

When someone takes the time to research several mutual funds (or stocks for that matter), and they finally find the one they like, a lot of people fail to take into account timing (which is a crucial predictor of outcome IMO).

I think if you do dive into the market right now, I'd only allocate a fraction of the funds you plan on investing.

Think about all those that allocated 100% of their funds in the market between 99-00, 7 to 8 years later they barely had their heads above water. I wouldn't doubt that most are still below water.

To those who think a bear market resolves over night, or that when the bear market resolves, the same sectors will be the ones fueling the bull market, I'd just like to say its the opposite that occurs.

If you think about the bull market of the 90s, the major driving forces (where you should be 'market overweight' as they call it) were tech, telecom etc. This time around the market has done much better in energy, industrials, materials, etc.

Back to the reading up/learning portion: The average bear market lasts ~18 months. I think the best thing to do would be to read up on whatever investment style suits you best, and as a result pick a broker and funds that best suit what you are looking for, what your risk tolerance is, and fit your goals as an investor.

 

[Futuredoctr]

Right now we're in a bear market, and aside from maybe possibly putting the money into a commodity type fund or an inverse fund, I'd stay away and just read up and learn what you can in the mean time.

When someone takes the time to research several mutual funds (or stocks for that matter), and they finally find the one they like, a lot of people fail to take into account timing (which is a crucial predictor of outcome IMO).

I think if you do dive into the market right now, I'd only allocate a fraction of the funds you plan on investing.

Think about all those that allocated 100% of their funds in the market between 99-00, 7 to 8 years later they barely had their heads above water. I wouldn't doubt that most are still below water.

To those who think a bear market resolves over night, or that when the bear market resolves, the same sectors will be the ones fueling the bull market, I'd just like to say its the opposite that occurs.

If you think about the bull market of the 90s, the major driving forces (where you should be 'market overweight' as they call it) were tech, telecom etc. This time around the market has done much better in energy, industrials, materials, etc.

Back to the reading up/learning portion: The average bear market lasts ~18 months. I think the best thing to do would be to read up on whatever investment style suits you best, and as a result pick a broker and funds that best suit what you are looking for, what your risk tolerance is, and fit your goals as an investor.

While I agree with your philosophy, some of the biggest potential fortunes are made during these times...everything is on sale!

 

[mgdsh]

While I agree with your philosophy, some of the biggest potential fortunes are made during these times...everything is on sale!

I've said it before on these forums and I'll say it again. Saying everything is on sale here is like saying everything was on sale in 99-00. How'd that work out?

 

[Sol Rosenberg]

I've said it before on these forums and I'll say it again. Saying everything is on sale here is like saying everything was on sale in 99-00. How'd that work out?

You mean '01? (The stock market was flying high in '99-00) Yes, things were on sale in '01. Especially in late September. I poured every bit of my liquid cash (and then some -- I discovered trading on margin) into the market the day or two after it reopened after Sept. 11. It has worked out pretty well for me:

http://finance.yahoo.com/echarts?s=%5EGSPC#chart2:symbol=^gspc;range=20010911,20080211;charttype=line;crosshair=on;logscale=on;source=undefined

We are in a local minima now. The market WILL go up. However, no one can tell you how long this local minima will last, and/or if it will get any deeper. However, the long-term investor doesn't care. The market WILL go up long term (Here's another chart):

http://finance.yahoo.com/echarts?s=...ine;crosshair=on;logscale=on;source=undefined

 

[mgdsh]

You mean '01? (The stock market was flying high in '99-00) Yes, things were on sale in '01. Especially in late September. I poured every bit of my liquid cash (and then some -- I discovered trading on margin) into the market the day or two after it reopened after Sept. 11. It has worked out pretty well for me:

http://finance.yahoo.com/echarts?s=%5EGSPC#chart2:symbol=^gspc;range=20010911,20080211;charttype=line;crosshair=on;logscale=on;source=undefined

We are in a local minima now. The market WILL go up. However, no one can tell you how long this local minima will last, and/or if it will get any deeper. However, the long-term investor doesn't care. The market WILL go up long term (Here's another chart):

http://finance.yahoo.com/echarts?s=%5EGSPC#chart3:symbol=^gspc;range=my;charttype=line;crosshair=on;logscale=on;source=undefined

Yep, I meant 00-01. The last bear market started in October/November of 00 and didn't truly bottom until August/Sept of 02 to March of 03.

While buying after a panic filled event like 9/11 worked out well for you, it looks like you were probably up ~20% at one point, but also down ~20% another point not far after as the S&P hovered around the 800 range. That's pretty risky, especially on margin IMO.

To put things in perspective this current bear market started about 1 1/2 months to 2 months ago and that's giving it a very favorable time line.

So sure, we can say things are relatively on sale now, but bigger sales are coming 🙂 I mean hey, do what ya want... doesn't impact me either way. I'm just trying to save you some coin.

IMO it doesn't really matter what investment style you use as long as it suits you and risk management is under utmost consideration, especially at a time like this.

 

[Founder]

I have that ~16,000 to invest, so I would think during a Bear Market it'd be one of the best times to invest excess/saved money. All that money is doing is sitting in a low yield savings account. A high yield CD would lock me in for too long, as I want to get it into the market within a few months.

But I figured if I go in when the stocks are down, they will inevitably go up. Obviously the stocks which are too good to be true, are, and I'd have to look at P/E and future potential.

One idea I had was Dick's Sporting Good. Fitness is in, and people are willing to spend on fitness and leisure apparel that Dick's sells. Plus mom and dad are not going to say no to little Jimmy if he needs new soccer cleats or a baseball bat. They're also looking to expand by a few hundred stores over the next few years. And since they are a relatively "new" national chain, they have the potential to take away from other stores.

Where I lived there was a Dick's and a Sports Authority. The Dick's always has people in it. The Sport's Authority has almost no one. It used to be the only place to get athletic equipment, then Dick's came in and no one foes to SA anymore. Yes, anecdotal, but the point does stand that Dick's has no where to go really but up and expand, IMO. Plus their stores are just so much nicer than any other sports stores I have ever been in. They keep them clean, well lit and organized.

 

[etf]

One idea I had was Dick's Sporting Good. Fitness is in, and people are willing to spend on fitness and leisure apparel that Dick's sells. Plus mom and dad are not going to say no to little Jimmy if he needs new soccer cleats or a baseball bat. They're also looking to expand by a few hundred stores over the next few years. And since they are a relatively "new" national chain, they have the potential to take away from other stores.

Where I lived there was a Dick's and a Sports Authority. The Dick's always has people in it. The Sport's Authority has almost no one. It used to be the only place to get athletic equipment, then Dick's came in and no one foes to SA anymore. Yes, anecdotal, but the point does stand that Dick's has no where to go really but up and expand, IMO. Plus their stores are just so much nicer than any other sports stores I have ever been in. They keep them clean, well lit and organized.

great analysis. except there are folks who do this kind of stuff for a living, and have previously disseminated this information, meaning it's more than likely priced into the stock. if you buy dick's (or any other stock) and it goes up, it's mostly due to luck, not because of the rigor of your analysis. i've learned this the hard way, which is why i'm pretty much sticking with index funds now.

 

[Sol Rosenberg]

great analysis. except there are folks who do this kind of stuff for a living, and have previously disseminated this information, meaning it's more than likely priced into the stock. if you buy dick's (or any other stock) and it goes up, it's mostly due to luck, not because of the rigor of your analysis. i've learned this the hard way, which is why i'm pretty much sticking with index funds now.

Yup. The S&P 500 outperforms something like 90+% of actively managed multual funds (of which your portfolio of indiviual stocks is one.) I mostly gave up on individual stocks too (still have a few "for fun" and some, like MO, that have just been SO good to me over the years.)

 

[Founder]

My terminology may be off so I apologize:

So you you all recommend the funds going into like the S&P, into a fund which buys every stock equally or one that focuses on specific sectors in the S&P?

 

[Stroganoff]

My terminology may be off so I apologize:

So you you all recommend the funds going into like the S&P, into a fund which buys every stock equally or one that focuses on specific sectors in the S&P?

Well, index funds don't purchase "equal" shares in the index they are trying to mirror, but rather "proportional" shares relative to each stock's market capitalization.

 

[Twitch]

My terminology may be off so I apologize:

So you you all recommend the funds going into like the S&P, into a fund which buys every stock equally or one that focuses on specific sectors in the S&P?

Sorta depends on how you want to build your asset allocation. IMHO, in the end, this is what matters more than what specific fund you choose for that asset class. Having said, that you'd want to pick a low cost fund (with low expense ratio) in each asset class.

So decide on how much %age of your asset allocation will goto various asset classes (Large Cap / Small Cap / Domestic / International / Specialty markets) then just pick the low cost funds among them.

 

[edmadison]

Founder, you've asked some great questions. One way to evaluate your broker is to compare him or her with index fund investments. Is your guy beating them even in the down market (not losing as much?). The plain truth is that almost all brokers and money managers (even the big ones running mutual funds) cannot beat the market over time. Factor in their fees and you can really take it in the shorts. Investing in stocks can really be fun, especially if you get a couple of big wins (I had Pfizer options right when Viagra came out -- It when Up Up Up 😀. But you need to educate yourself. I thought I knew quite a bit about the markets and then, for the fun of it, I bought Cramer's first book. I learned quite a bit. You can agree or disagree with the guy's investing strategies, but he's solid on teaching the basics. There are other ways to learn this too, I just found his book fun.

The other thing regarding individual stock investing is diversification. Index funds do this for you as a matter of course, but if you are investing most of your money in stocks, you need to spread it around in different sectors. A seemingly solid company can have it's price plummet due to unforeseen circumstances -- accounting trouble, lawsuit, product defect.

Invest in your knowledge base before you start investing in individual stocks.

Ed

 

[Bobblehead]

I have a a good deal of money for my age, I've maxed out a Roth for 3 years and after a couple tens of thousands in other investments. But the Roth hasn't grown at all in 3 years and has shrunk. Same with the other investment, which is down about 15% over 3 years. Initially it had increased about 15% but for quite a while it has been down.

...

But no one likes to loose money (I got probably 80% of the stuff I listed from an inheritance) and even at my young age I know I have a lot of time to wait. I've invested very aggressively, all stocks. I know that that opens one up to more risk. But it just seems like all I've had is the risk and none of the payback in 3+ years.

3+ years and the stocks are down. I don't want to panic but I have had this sinking feeling in the back of my mind to get my money out and either do this myself or find another brokerage house to handle it.

So when is it time to call it and take my money and let someone else manage it?

What about do it yourself online brokerages?

I think your first post in this thread is quite telling, particularly the parts I underlined. You say you know you're young and have time. And as a result you're 100% in equities. But in the next breath you state that after 3 years you've seen all of the risks (loss of capital) but none of the rewards.

I think this speaks to the fact that your risk tolerance is not as high as you think it is. Three years is not enough time in the market for equities and a 100% equity portfolio will have large swings. If you're willing to tolerate those swings you will historically earn a higher return for your rewards, but this is over decades.

In the meantime you will have to suffer through periods like the one we're in presently where things are going down and down. If you're not willing to tolerate this, and it seems you're not as you're ready to pull up your positions and sell into this market, you may be better off finding asset classes that do not track as closely with the domestic stock market. That's traditionally been bonds but could also be international holdings of some kind.

The more important question about your 100% equity position is, how has it tracked compared to the benchmarks it is attempting to compete against. If your holdings track against the S&P 500 for example, have the under or outperformed the S&P 500 in the last 3 years? What has been the impact of fees in terms of your return? Can you do better in some type of passively indexed investment? Should you establish a bond position to offset some of the volatility of a 100% equity holding, which even with your young age, you do not seem entirely comfortable with?

You mention that you have a decent cash position. Is this in addition to an emergency fund for hard times and whatever money you will need in the next 5 years or is this all of your liquid assets? If it is all you have in a liquid form it may be best for you to take some of that money and leave it in a high-yield savings or money market account.

 

[Thewonderer]

Spend some money and buy The Intelligent Investor by Benjamin Graham. If you want, also subscribe to morningstar.com

After that, buy Dodge & Cox mutual funds (Stock, International Stock and Balanced).

If you are hesitant, you can put 1/3 of the money in right now, 1/3 six months later and 1/3 a year later.

Index funds are great. But I firmly believe that some money managers can consistently beat the market over long periods of time (and charge very little fee).

Dodge & Cox just recently re-opened to investors and charges only 0.52 to 0.66% annually for expenses.

 

[Yourmother]

You ask when is it time to hand over the money to a broker?

Having spent over a decade pondering the question, please allow a lengthly response. In the beginning there were stockbrokers who sold you stocks, bonds, mutual funds, etc. As you are aware, they were essentially salesmen with little regard for product performance. These guys sucked!

In the past 10 years, there has been a big transition to the "fee" business. Somehow retail brokers are now called and regarded to as "financial advisors" who are "planning". They use words like "comprehensive", "financial plan" and "asset allocation" which is all just a bogus method to sell you a mutual fund. Sometimes there are exceptions but for the most part they are in sales.

Even a fee based CFP is extremely overpriced. I've seen many charge between 1%-2% on an annual basis to manage investments. Does $7,500 a year for a $500,000 portfolio earning net 7% sound good to you? Our family CPA spent weeks preparing a estate tax for the family trust and made the same amount. I promise that the CFP's hardest job was filling out some application and punching in a few numbers into a template. The trust documents and will for the entire family was under $5,000.

The time to hand over the reins to a financial professional is when you trigger a tax issue. You really don't need a financial professional in the accumulation phase of your life, but rather the retirement and wealth transition phase of your life that involves taxation and wealth transition(estate planning). Get to know a CPA who can get involved in every aspect of you money. If your in private practice as a partner, that aspect should be considered.

Our family just went through the entire process of the estate plan. We had a family business and continue to manage industrial real estate that remains.

I have been amazed by the value our CPA has brought to the table. He has been there to help evaluate and coordinate the lawyers, appraisers, auctioneers, bankers and all the other clowns that have been part of the picture. It has always pissed me off that the broker who sold us some municipal bond made as much as the CPA. Yet the CPA provided far more valuable of a service. Anyhow...I learned that once you accumulate your retirement money, be it you share of the practice or IRA, it is all about preservation not really performance.

What you need is to self-educate yourself with a few weekends of reading. Vanguard and Fidelty is all you need for now.

 

[Founder]

Thanks for the advice.

I've been reading a bit of Motley Fool and trying to figure out if I should get their stock adviser. I've also been looking into Vanguard, their Diversified Equity of Total International funds.

I'm also on an Health Professions Scholarship and I was considering, when eligible, to begin investing in the Thrift Investment.

 

[etf]

Thanks for the advice.

I've been reading a bit of Motley Fool and trying to figure out if I should get their stock adviser. I've also been looking into Vanguard, their Diversified Equity of Total International funds.

I'm also on an Health Professions Scholarship and I was considering, when eligible, to begin investing in the Thrift Investment.

no need for motley fool stock advisor, when you can get charmin on sale.

spend some time and peruse diehards.org

 

[Founder]

I've already posted on Diehards. 🙂 And reading their forums. I'm probably going to pick up the Boglehead book.