Retain Full Control of Your Money AND Get the Guidance You Need

Retain Full Control of Your Money AND Get the Guidance You Need

Retain Full Control of Your Money AND Get the Guidance You Need

Remember that you will always care more about your money than anyone else, so you need to retain full control of your money and choose your advisor and investment plan wisely. You can’t “set-it and forget-it” and hope to make a livable retirement income. You don’t necessarily have to monitor your account every day, but you do need to keep tabs on what the money manager is doing.

Because you can see every trade in your account, you will be able to see periods when there is more activity and when there is less. Ask yourself, “Based on what is going on in the economy and the markets, does this activity make sense to me?” If it doesn’t, then you should ask questions about why your advisor is doing what she or he is doing.

Many managers seem to follow the same playbook. Does your manager do the same as everyone else or is she or he taking a different path?

Frankly, you don’t need a manager that thinks the same way everyone else does because you can accomplish the same result on your own with an index fund!

As a money manager, the hardest thing to do is often the best thing to do.

Everyone talks about buying low and selling high, but few have the guts to actually do it, and studies have shown that individual investors have a habit of doing just the opposite! Even though the S&P 500 has gone up substantially in the past few weeks or months, it doesn’t mean that it is a “safe” time to invest.

Recall the charts shown earlier in this report that compared the return of select bond funds with the S&P 500 in 2010, 2011 and 2012. The S&P did well, but the annual return numbers didn’t accurately reflect the incredible volatility that had to be endured to achieve that return. Don’t forget that in today’s global markets, a single piece of news anywhere in the world can cause the markets to change course. This is why having robust risk management processes in place is vital.

Risk is inherent whether the market is bullish or bearish. The nature of a Bear Market rally (an up-trend in a generally down-trending market) is that it is actually stronger than Bull Market rallies. I think of the market in early 2013, for example. Everyone was piling into the same stocks.

Hedge funds had not performed well and those fund managers were under tremendous pressure to get returns, so they were chasing the same stocks. At some point there was going to be a rush for the exits and the markets were going to see a very sharp correction, which is precisely what occurred in May and June. We saw the market drop 5-7% just several weeks after this rush to the same stocks.

A great example of the persistent inconsistency of the market today is Apple stock. It was the darling of mutual fund and hedge fund managers through 2012. At one point, more than 240 managers had significant holdings of AAPL, and its price surged. Investors were lured by this increase, even after it had risen 50%.

However, it crashed even more quickly than it skyrocketed, because once it started declining, those 250 performance-chasing managers (many of whom had purchased stock with borrowed money) were forced to sell to cover margin calls. Individual and even many professional investors took a bath (see below):


2014 12 01 Saldana Protecting and Maintaining Retirement-ebook

These days, everyone is suddenly becoming bullish. They’re jumping back into the market because the Federal Reserve has signaled that it may do further quantitative easing, but historically, quantitative easing hasn’t ever worked (see: Japan). Interest rates are still superlow, our country’s deficits continue to soar Yet, even after all of this stimulus our economy fails to gain traction. Wall Street may be surging ahead but Main Street is still struggling to survive.

Consequently, my clients’ current exposure to equities is very small. Generally speaking, for most of this year I have had a large portion of each account allocated to bonds. Bonds have provided very healthy returns with a small fraction of the volatility associated with stocks. There’s simply no reason to unnecessarily expose my clients.

I do have a small percentage of the accounts allocated to equities, but that has mostly been moved to cash. In early 2013 I began to allocate more money into U.S. equities, utilizing strategies to quickly exit in the event the market turned down.

The reason that I went into such detail about what I am doing with my clients’ accounts is so you can get a feel for the way that a private money manager might approach the markets and the attitude s/he might take with the money they manage on your behalf.

Each private money manager is different. Some will be more aggressive than others. Some might react quickly to changes in the markets while others will react slowly.

Whether you use my services or those of another manager, you need to feel comfortable with your manager’s actions and reasoning. You need to take the time to get to know your prospective private money manager and understand his/her philosophy and temperament. You also need to understand who they are and what drives them personally, because that will impact their investment decisions and approach.

Character matters, as do values. Do you share the same values as your prospective manager? Then your relationship will go much better.

Finally, you need to be clear on how your prospective manager will communicate with you and how often s/he will do that. I try to keep my clients updated on what I am doing and why through regular briefings, conference calls, emails and personal conversations.

You will want to be more involved and watch the value of your accounts more closely during the early stages of working with a new private moneymanager. The manager needs to earn your trust through his or her actions. You probably have experienced advisors that did nothing while your account lost money—do the actions of the current manager indicate that s/he will be different? If not, you probably have the wrong manager. Over time, once trust is established, you don’t have to check the accounts as often, but you still need to stay engaged.

Keep in mind that each money manager has a system. Unless you have enough money to be his or her only client, then you will have to fit into the system. That means that you have to find the system that comes closest to what you would do if you were handling the investments yourself. Find out what your prospective manager bases his/her buy and sell decisions on, what determines the amount allocated to different types of investments and the overall philosophy s/he has about how markets work. If you are an experienced investor, you need to ask yourself what the manager does that you can’t do yourself—and it if is worth what she or he charges to free up your time!

You know what your comfort level is better than anyone. So think about past market declines when you lost money. What would you have liked an advisor to do? Find out what actions were taken by the private moneymanager you are considering and see if she or he would have achieved a better result and if you would have been able to sleep at night in the midst of it. You want to focus on the actions taken by the manager to see how they line up with your pain tolerance.

A manager may have taken actions that resulted in a tremendous gain but put the portfolio at increased risk in doing so. Just because the result was a gain doesn’t mean it was suitable for your portfolio.

I would also avoid “one-trick-pony” money managers who have a single investment approach. For instance, some money managers only do value investing, others just for growth. Some may just do trading and nothing long-term. The problem is that there isn’t a single method that is going to work all the time. That’s why I use multiple approaches in the typical account. More importantly, if the approach I’m taking doesn’t seem to be working, then I try to find something that is. Not all private money managers do that, but I think it is critical.

Ways To Make Sure Your Money Is Safe


We’ve all heard of Bernie Madoff and how unsuspecting investors lost billions of dollars because of fraud. There are steps that you can take to make sure something similar doesn’t happen to you. You need to:

1) Make sure the manager does NOT have access to your money.


Your account shouldn’t be with the money manager. Instead, the account should be at a well-recognized, established national custodian such as Fidelity, Charles Schwab, TDAmeritrade or RaymondJames, etc. The account should be in your name, not the name of the advisor, and you should have access to account statements directly from the custodian. You can then compare the statements from the custodian to the information provided by the advisor to verify that they reconcile.

There are some advisors that take custody of your assets. Don’t allow that! You open yourself up to a much greater level of risk. One exception to that rule is a hedge fund. It’s normal for a hedge fund to have custody because your money is pooled with that of everyone else’s. Most people reading this report won’t ever work with a hedge fund because it entails a much greater level of risk than the typical investor will tolerate.

The manager should not be able to transfer money between your accounts. If she or he can, it’s a sign that she or he has access to your funds and can transfer it to an account that is not yours. You want the custodian to require your signature in order for funds to be moved out of your account.

For instance, I use two custodians, and there are times that I need a client to move money from the account at one custodian to their account at the other custodian. I can’t do that for them. They can either login to the custodian website and initiate the transfer or they have to sign a form and transfer it.

2) Do not give anyone your log-in information.


That raises another point: don’t let the advisor or money manager have access to the log-in information you use to access the custodian website.

First, they shouldn’t need it because they should already have access to the same information. Second, most custodian websites give you the ability to initiate money or account transfers electronically. If you give the manager access to your password, you are giving them the ability to transfer your money anywhere they want!

A private money manager will require trading discretion in the account. That allows the manager to place trades, i.e., to buy and sell securities in your account without having to contact you before each trade. That is normal when working with a money manager, because that’s what you are paying them to do. It’s NOT normal when working with a traditional advisor, especially if the traditional advisor gets paid on commission.

You can limit the discretionary authority the money manager has by only allowing him or her to trade certain types of securities. For instance, if the money manager doesn’t use futures, Forex or options, then she or he doesn’t need discretion granted for them.

3) Beware of returns that are too good to be true.


It is extremely rare for ANY manager to provide market-bettering returns every year.

Bernie Madoff had 10+% returns year in and year out, yet rather than questioning how that could be possible, his clients just gave him more money!

Unless you are primarily invested in fixed-income products that pay a set rate of interest, you should expect variability of returns: they shouldn’t be the same each quarter or each year. Interest rates and stock markets go up and down due to their cycles. Even if you are invested in individual bonds that pay a fixed rate of interest, the market value of those bonds is going to fluctuate. If you aren’t seeing that fluctuation in your statements, ask questions.

4) Finally, you should be concerned if there AREN’T periods in which the value of your account goes down.


If the manager is investing in stocks, bonds or real estate, there will be times that losses will occur. The manager, hopefully, will be taking steps to try to minimize those losses, but no one is always right. Learn more in my book Protecting and Maintaining Retirement Income Throughout The Looming Financial Crisis (The Retired Investor’s Survival Guide). 


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1 Comment

  • W.E. Roberson January 15, 2015 at 8:00 pm

    Very good information. Thanks

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