Dear Quentin,
When my father died nine years ago, he left a large inheritance to my two children, and I am the caretaker. My children were young adults at the time, and I suggested that they let me invest money for them to save the money they would pay an investment advisor. I’ve been managing my own investments for almost 20 years and I’ve done a pretty good job, especially considering I’ve learned.
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My daughter agreed to let me invest her entire inheritance and my son said he wanted to split his money between me and a financial advisor at a large investment management company (which he found it through a friend of a friend). He expressed concern about my lack of portfolio management training and experience navigating bull and bear markets. I understood his concerns and agreed to split the funds into two separate accounts.
Nine years later and my son is looking to buy his first home. He wants to make a large payment and has indicated that he will fund it with equal shares from two investment accounts. While this may sound obvious, here’s the thing: The work I manage has performed better than the one the brokerage house manages. Over the past nine years, my portfolio has an annualized return of 13.5%; the other is underperforming the S&P 500 SPX.
As his mother and guardian, I plan to propose to him all money from another account and invest it with me as his advisor instead, but I don’t know how hard I should push the issue if he doesn’t agree. Am I letting my ego get in the way here, or is leaving the money in a high performing portfolio the smart thing to do? At the end of the day, it’s his money, but as a trustee, how sure should I be?
Troubleshooter
Related: I earn $120,000 a year and save $165,000. How do I invest in this high profit environment?
Dear Problems,
I will ask your son a slightly different question.
Instead of asking, “Would you let me manage the other 50% of your investment portfolio instead of this investment company?” I was asking, “Why is the S&P 500 underperforming when my structured portfolio is up 13.5%?” The second question is a fact-finding mission that will help your son learn from different investment methods, the value (or lack of) of diversification in your options and how old-fashioned luck can be. how much part (or not) he had a part. .
What are the terms, duration and purpose of the trust? Now your son is grown up, so I expect that the time will come when you will hand over the responsibility to him. Plus, you won’t be around forever. As you probably know, the trustee has a fiduciary duty to the beneficiaries and must act honestly, be careful, act with prudence and good faith and generally avoid risky investments, and act according to the rules of the trust.
Have you invested in tech stocks like Amazon AMZN, Apple AAPL, Meta, Google parent Alphabet and Microsoft? Was there one area that skewed the results? For example, have you ever chosen Nvidia NVDA, which has become famous due to the rise, and development of artificial intelligence? Or have you included another stock that has outperformed the market over the past 10 years? Have you ever joined a 2021 meme-stock game and got out before you lost your shirt? (I don’t think so.)
This can be a more enlightening discussion to have with your son, especially if you want him to eventually make his own decisions about his own investments. For example, if you had invested in one of the following tech stocks over the past decade, you would obviously be ahead of the S&P 500 right now: Advanced Micro Devices AMD, Super Micro Computer SMCI, Green Brick Partners GRBK.PRA, Broadcom. AVGO, Fair Isaac Corp. FICO and/or Monolithic Power Systems MPWR.
There is no guarantee that the economic downturn or the political situation – from Ukraine and the Middle East to the US presidential election – will not hurt your son, but it will benefit your son (or , vice versa). Although not a popular term, even the so-called Magnificent Seven – Apple, Microsoft MSFT, Alphabet GOOGL, Amazon, Nvidia, Meta META and Tesla TSLA – have had collective fortunes this year.
No one expects you to be the next Catherine Wood or Abigail Johnson – even though you’re doing a great job – but if you’re talking strategy instead of price points, you can talk to your son about where you’re going. I can learn from each other. . For that matter, how often does your son talk to a financial advisor who manages the other half of his investments about his investments, tax implications, volatility and investment performance? It should be at least once a year.
You want to pull instead of push. As Bill Mauldin, a two-time Pulitzer Prize-winning artist, wrote in “The Brass Ring,” his 1971 memoir: “If you’re a leader, you don’t push the wet spaghetti, you pull it.” The US military still needs to learn that. The British understand it. Patton understood. I always admired Patton. …
There is a fine, but important, line between being firm and being pushy. Unless you have reason to distrust the investment company that controls the other half of your son’s assets, or see serious flaws in their strategy, any discussion you have with your son Yours should have one long-term goal in mind: handing over his keys. financial future and help him eventually manage his money if/when the time comes.
If that is your goal, it is clear that your love comes before your self-respect.
.
Previous columns by Quentin Fottrell:
‘My siblings try to sneak in to get help’: How do I get my parents to leave their home to me?
My elderly parents are rich. I see them once a year. They say cleaning their ‘holes’ will be my problem after they die. What can I do?
‘I’ve been supporting him for 15 years’: My 35-year-old nephew has bad money. How can I help him be financially responsible?
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