> You will be encouraged to hire an investment manager. Considerable pressure will be applied. Don't.
> Investment managers charge fees, usually a percentage of assets. Consider this: If they charge 1% (which is low, I doubt you could find this deal, actually) they have to beat the market by 1% every year just to break even with a general market index fund. It is not worth it, and you don't need the extra return or the extra risk. Go for the index fund instead if you must invest in stocks. This is a hard rule to follow. They will come recommended by friends. They will come recommended by family. They will be your second cousin on your mother's side. Investment managers will sound smart. They will have lots of cool acronyms. They will have nice PowerPoint presentations. They might (MIGHT) pay for your shrimp cocktail lunch at TGI Friday's while reminding you how poor their side of the family is. They live for this stuff.
> You should smile, thank them for their time, and then tell them you will get back to them next week. Don't sign ANYTHING. Don't write it on a cocktail napkin (lottery lawsuit cases have been won and lost over drunkenly scrawled cocktail napkin addition and subtraction figures with lots of zeros on them). Never call them back. Trust me. You will thank me later. This tactic, smiling, thanking people for their time, and promising to get back to people, is going to have to become familiar. You will have to learn to say no gently, without saying the word "no." It sounds underhanded. Sneaky. It is. And its part of your new survival strategy. I mean the word "survival" quite literally.
>>...they have to beat the market by 1% every year just to break even...
It's even worse than that.
1% ON TOP of inflation, which is reported as 1.9% but many financial experts say the actual figure is closer to 4% once goods such as energy and food are factored in.
So the hypothetical investor must make ~5% just to break even. Anything less is a loss of spending power. Add 4% to realized losses and the figures can be especially gloomy.
Financial experts most certainly do not say anything like 4% inflation in the US.
Energy is extremely volatile, so it’s annual rate spikes up and down by as much as +/- 25% in any given 12 month period, but over longer time spans it’s close to flat, with US consumer prices driven down by fracking.
Food prices, similarly, are volatile, but have trended flat over long timespans.
Food and energy are going to be a tiny, tiny fraction of consumption for someone living off float from an $8 million windfall; core inflation (removing the volatile food and energy categories) is the right number to pay attention to.
I have a personal friend who is a wealth manager who basically gets his clients to put their money in index funds.
I wouldn't paint the whole industry this way. Some people are simply not good at handling money and paying someone to keep your hands off of it is wise.
For the record, my buddy works with sports/entertainment stars (and including tech founders who exit) that categorically have the worst discipline when it comes to money.
This is a recommendation for early management of a large windfall (large inheritance, exit or lottery winnings).
If in the long run you believe/understand that a wealth manager could do a better job than the basics and you want less safety, you can always hire one: wealth managers will still be there next year or decade. However if you get a wealth manager right now your funds may not be.
The cocktail napkin stories are one-off anecdotes that all law school students go through in their first semester to learn about what actually makes a contract. They are great example to show how a formal document with signatures is not the critical piece of a contract. They do not mean that you should never scrawl notes on a napkin because napkins have some special legal power. And any quote that implies such should be taken with a fairly large grain of salt.
Also, wealth managers don't simply try to beat the market over a short term. They try to help you diversify so that in the case of a market change or complete meltdown, you don't lose everything. You pay that percentage not to maximize every penny, but to make a reasonable return while minimizing your losses in odd scenarios, so that you can live on the returns while never even touching the principal assets. Again, anyone who boils it down to "just invest in index funds" is missing the big picture. (And that includes bad financial planners. If they give simple advice, call someone else.)
Agree. And some people will just sleep better knowing a professional is helping with their investments, and that's worth something.
One hint is to talk to a couple of local estate planning attorneys and see who they recommend for financial planning/wealth management. They will have seen who does a good job and who doesn't. It probably isn't the guy working at the local Charles Schwab or Edward Jones office in a strip mall.
Most of them are simply salesmen, selling high-load products. Incentives are not aligned, but if you can find one is who independent of any particular set of funds and who only earns from a percentage of your earnings, and not from brokerage fees or commissions, then it might be worthwhile but you should still learn about this stuff yourself.
There are different types of advisers. People often get burned because broker dealers, stockbrokers, and insurance agents do not have fiduciary responsibility (they do not need to act in your best interest). A fee only adviser (with fiduciary responsibility, which will only charge you a fixed fee is a solid choice and worthwhile to keep you out of trouble.
Yup, this is why if you really want to be hands-off with your wealth and put it in the hands of an independent professional, look for FEE BASED financial advisors/wealth planners. Finding one via NAPFA is one's best bet.
This is not nearly enough money to justify a wealth manager. People always think they're special when they aren't, and salespeople are always willing to encourage their delusions.
