Should Lanny & Maggie Pay $233,000 For Investment Advice?

It’s Been A While Hasn’t It?

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Well, I’ve been busy as a Bee in a Bonnet!  My financial planning business didn’t fall off hardly at all, first and foremost.  Which, frankly, was/is shocking to me.  (Makes me wonder if the numbers we’ve been told about 40 million jobs lost are actually correct.)

The pain in my knee has also gone away and as such I’ve been out walking Pablo (aka King of All Scandlen’s) a lot, meaning I’ve done a ton of videos too. 

Lastly, I’ve been working on my forthcoming book, “Retire on The Wellington Fund”. 

I’m going to share with you a sneak preview of what that book will consist of, lots of graphs, with various commentaries, looking at past numbers. 

For instance the below shows what would have happened if you had $100k when you retired in 1930. You put 4 years of expenditures ($24k) in a non-interest bearing cash account and the rest, $74k, in the Wellington Fund and had 6% initial withdraws adjusted for inflation each year. 









You would have run out of money in 22 years. 

Yet if you would have done the EXACT same thing except started one year later, in 1931, the results would have been remarkably different:











Now check this out:











Here we’re doing the Barbell approach starting in 1930 but using only 5% initial distributions and adjusting for inflation.  See the difference???

We survived 30 years of retirement – and this was starting during the GREAT DEPRESSION WITH NO INTEREST ON THE CASH BUCKET EITHER!!!

So, while everyone is focusing on 4% they are leaving a lot of money to their estate when, in fact, they could have spent that money themselves partying like it’s 1999.

Oh, I hear ya,  BUT???  Yes, indeed, we’ll dive DEEP into the chaos that was the US high inflation years of the mid 60’s through the early 80’s.

It gets ugly then. No two ways around it.

BUTTTTT, is that likely to happen again?

Let’s look at the data. What countries signify what the US may be looking at in the future? (In my best Richard Dawson voice)”Survey Says… JAPAN!”

Japan right now has an inflation rate of .1%, not 1% mind you, but POINT 1%, with an annual GDP Growth rate of NEGATIVE 2.2%.  An unemployment rate of 2.6%, a Debt to GPD of 238% and a 10 year Government bond paying all of .02%.

Are we more like Japan or say Turkey which is kinda, sorta part of the EU and the “West”. Turkey has annualized GDP growth of 4.5%, 10 year government bond at 11.75%, inflation at 11.39%, unemployment at 13.2%,  but a government debt to GDP only at 33%.

Who does the Good Ole USofA align closer to, may I ask?  (Actually, can I still even call it the “Good” Ole USofA anymore? Seems a lot of people today are proudly saying America was never good. For the record, if this is your viewpoint, please unsubscribe now. I don’t want you here.

“Josh, why do you have to get political? ” I hear this on occasion.  Because America is the best country the world has ever seen and I’m tired of it being dragged through the mud by people who proudly align with evil that is Communists.  Someone, ANYONE needs to stick up for the country, scars and all!)

Soooo, if you think Turkey is more likely to be our fate, well, my book probably will frighten you because it’s gonna get ugly.

If you think we’re closer to the Japan model, well, seems to me living off a 4% rule is living wayyyy too frugally.  Don’t do that!

Much, much more to come with the book.

Worth $233,000?

Look at this image:

What jumps out at you there?

Hopefully, you can see the two numbers in the blue box. The one on the left is $1,070,000. The one on the right is $837,000.

In  running a financial plan for a couple, Lanny and Maggie, I am showing them the TRUE cost of paying a 1% per year investment management fee on their $487,000 portfolio.  NOTHING else in the plan changed, mind you. I simply clicked on 1 button and added a 1% management fee.

And, as you can see, the cost is $233,000. This is $233,000 they will NOT have in which to leave to their heirs, their church, or even better yet, to enjoy in their retirement together.

Ultimately, this is what the REAL cost of paying someone to manage your money comes to; YOU have less.

Now, some will argue you are actually receiving MORE of a benefit from the professional advice than the cost you’re paying. They’ll try to quantify this with such studies as from Vanguard, “Advisor’s Alpha.”

According to Vanguard, paying that 1% fee may be worth it if an advisor can help you by “focusing on behavioral coaching”. i.e., keeping your emotions in check during bear markets.

I ALWAYS chuckle at this idea that the average investor is ready to throw in the towel at the first evidence of a bear market.  I’m sure some are.  But in my experience it’s the PROS, not the clients themselves, who are nervous Nellies.  See my video here on a recent example of this exact thing.

Now, to Vanguard’s credit, they don’t make an argument that superior investment selection is something advisors can do in order to earn their 1% fee.  The days of that even being debated are LONG gone thanks to folks like the founder of Vanguard himself, John Bogle, and others such as Burton Malkiel.

“A Random Walk Down Wall Street” by Malkiel remains a classic to this day.

Of course, I’d be remiss not to mention my all time classic favorite investment book from John Bogle, “Common Sense on Mutual Funds.”

So, if superior investment performance is not to be obtained by hiring a professional and you aren’t jumping off a bridge when the Dow drops 100 points, tell me again the reason for paying someone an annual investment management fee?

Oh, right, tax, estate planning, diversification and asset LOCATION. Those are ALSO benefits a professional advisor brings to the table for which he/she needs to be compensated for. Indeed, indeed.

Then why don’t they simply charge for those services as opposed to the 1% management fee which costs $233.000 in total?   Seems a steep price to pay, no?

Of course it is!  And EVERYONE knows this.

In fact, in late March a VERY prominent guy in my business posted on LinkedIN that he’d never seen as many advisors reach out to him to discuss pay-for-service fees instead of the typical 1%.

The reason?

The 35% drop in assets were killing the advisors income stream!  The advisors wanted to find a better way to bill clients to avoid such a dramatic hit.

Notice though, these purported “fiduciaries” weren’t reaching out to this guy when the money was flowing in.  And they certainly weren’t asking how they could reduce the expense to their CLIENTS during these trying times….

NO!  They were reaching out to inquire how they could bill a higher fee!  (Side note: That’s why I could care less about a “fiduciary” standard.  It’s a meaningless sales pitch.)

Ultimately, advisor’s compensation should be disclosed similar to when you go close on a home for a mortgage.  You see very clearly your amortization schedule and thus the amount of interest you’ll pay over the course of that loan.  YIKES!!!

I guarantee you, if advisors and had to say to the Lanny’s and Maggie’s of the world, “my services are going to cost you $233,000 over the course of our relationship”, there’d be a heck of a lot less fees paid out to advisors.  And THAT, my friend, IS a fiduciary standard I could live with.

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