Do I Need a Financial Adviser Anymore?

Money and butter: both are lubricants.

When my wife and I started our full-time jobs several years ago, my wife was interested in getting a financial adviser that would keep track of her/my/our money (we weren't yet married) and suggest investments. We found a very nice, qualified person who has more or less done well for us. As we were young and didn't start out with a lot extra to invest beyond our 401(k) plans, our financial adviser exclusively invested our money in a couple of mutual funds.

In the last year, as I've grown more interested in money topics, I've started to do a lot more research on investing and what my wife and I will need to do to retire. I've taken what I've learned, and I started a Roth IRA for myself last year, and I put money into it and chose investments for it. While I don't want to go into the details of it, suffice it to say that I have not (knock on wood) lost any money in that account, and I'm even a few hundy in the black.

The problem is that I, like a good number of other adults, have come to realize and understand that mutual funds (while coming with the positive of being diversified) are not without the negative of annual fees. When you take into account that my wife and I pay an additional fee each time we make a purchase from our financial adviser (it is how she gets paid, which is fair enough), I'm not convinced that I need a financial adviser any longer to recommend which mutual funds I should invest in, particularly since Sharebuilder (my online brokerage) offers certain mutual funds for which I don't need to pay any fee to purchase.*

I guess I'm just saying that if I weren't so interested in learning about saving and investing right now, I would be a lot happier spending the money on a financial adviser to take care of my money. However, since I do spend a good amount of time each week researching money and investing, the work of a financial adviser (at least in the capacity that ours has thus far helped us) seems a little bit unnecessary.

I'm bring this up now because my wife and I met with our adviser last week, and we mentioned that we both had old 401(k) accounts (the company we work for has had three different owners since we started working for it, and with each new owner comes a new benefits program), and our adviser suggested that she facilitate rolling them over with the other accounts that we have with her. While this might be a good idea if we were especially concerned about having all of our accounts in one centralized location (which isn't necessarily a bad idea), I'm a little concerned about the fees we'll be charged to roll the money over (both from the banks as well as the chunk that will go to our adviser). When I reviewed my investments in the 401(k) last month, I verified that my money is already in low-cost mutual funds; why should I pay a chunk of money to move them to another set of mutual funds?

On the one hand, I think that I might just be being cheap. As I mentioned above, our adviser has done well enough by us, so I shouldn't be nonplussed by the fees that she gets to do her job (do I begrudge a waitress a tip for doing her job? Well, sometimes [at least on take out]). On the other hand, with my own burgeoning competence at investing, the money we pay her just seems like extra money out.

What do you think? Am I just being a jackwagon? Have you used a financial adviser, and, if so, have you had positive experiences? Let me know in the comments.

*To be fair, we're meeting with her next week, and, now that we have a bit more money to invest, it's possible that she'll advise us to invest in other avenues. We'll see.

Photo by emdot.

Lending Club Update

As I mentioned and advocated for last month, I've cautiously dipped my toes into the Lending Club pool, and I wanted to give an update on how I'm doing.

Returns

The graphic above shows the percentage of return that I have received.  As you can see, I presently have a net annualized return of 8.29%.

Analysis


While I'm pleased with the return, I expect the percentage to go down significantly in the next few months as one of the loans that I purchased a note on is currently in talks with a collections agency.  I only hold seven notes, so any defaults significantly lower my returns.  While I suppose that it is possible that I will recoup some of my money, I'm not holding my breath.

Money Traps: The Unexpected Inevitability of Human Error

If you watched the playoff games over the weekend, you'll agree with me on one thing:  errors ended up deciding the loser in each game.  In the Giants/49ers game, a key fumble in overtime by a member of the 49ers set up the Giants to kick the winning field goal.  In the Ravens/Patriots game, with time running out in the 4th quarter, the Ravens' field goal kicker missed a 32 yard field goal (read: very short distance field goal) which would have tied the game.

While it's a bit reductive to assign these players all of the blame in the losses, it's human nature to assign the most blame to what (in retrospect) were the most obvious causes for the losses.  Even though these guys were out on the field trying to help their respective teams, they each made a key mistake at the worst possible time.

But what does this have to do with personal finance you ask?

Investing: P2P Lending vs. Bank CDs

I'm going to start this post by stating something that is stupidly obvious: there are a huge number of different ways to invest your money.  From stocks and bonds, to investing in new companies, to burying your cash in the backyard, if you can imagine it, you can probably invest in it (dream a little dream, you dreamers!).  For the purposes of this article though, I'm only going to focus on two that I think have a good deal in common: peer to peer (P2P) lending and certificates of deposit (CDs).

How P2P Lending and CDs Are Similar

The key similarity both investments share is that both require you to tie up your money for a certain, specified amount of time.  As such, both are essentially illiquid investments.*  However, this length of time is fairly short-term, particularly when compared to 30 year bonds, for instance. 

For CDs, your money can be tied up anywhere between three months and five years, depending on how long you choose to invest.  For P2P, (which I'm basing on my experience with Lending Club, as I am unfamiliar with Prosper and others), your money is invested for either three years or five years.**

With the above similarity stated, let's look at the pros and cons of each investment.

July 2011 Retirement Status

Well, it's a few days late, but here are my latest retirement figures.*

Overall, I'm not very pleased, and I am fairly confident that nearly anybody is probably not pleased with how their accounts have gone in the last month. I haven't added to either my old 401k or my Roth IRA, and they both have made precipitous drops in the last month (I lost about $2800 in my old 401k, and you know what? It didn't even call me in the morning).

Still, I am happy and blessed to be this far along towards retirement, but I guess one never really loves to get taken along on the whims of the market (at least not when it goes down).

My plan for August is to get another three to four hundred smackers in my Roth while the market is down. I am fairly confident in the mutual funds that I've chosen, so (allegedly) it's just a matter of waiting this dark period out. We'll see if I'm doing any better come next month.

*I thought I'd wait for S&P to downgrade the U.S.'s debt before I posted. It seemed the most equitable.

Value Stock Idea -- Uranium

With the recent nuclear disaster in Japan, the nuclear industry has been hit hard, and uranium companies have been hit particularly hard. What is interesting to note is that representatives for major world powers (the U.S. and China) have both stated that they still see nuclear power as being central to their countries' national power interests in the future. With this in mind, it stands to reason that, particularly in the long term, those businesses that have significant portions of their daily operations dependent upon uranium stand to see gains. With prices being low right now, uranium companies could stand to be a huge value play.

In particular, consider the following three investments.

CCJ: Cameco Corporation - Prior to the meltdown in mid-March, this stock was trading at right around $38 per share. There was a sudden, severe drop off, and the stock now trades close to $28. Have the fundamentals of the company changed in that time period? Certainly not, but the market appears to be sketched out concerning nuclear power, and this uranium producer feels the sudden pinch.

URA: Global X Uranium ETF - This exchange traded fund had the misfortune to be founded in mid-January, so it had a couple months at an average price around $21 before falling and now hovering just under $15. If you think that Cameco has the opportunity to grow, this fund helps to take away some of your risk while providing you exposure to an industry that could stand to make quick growth (21.76% of the fund is invested in Cameco stocks).

EXC: Exelon Corporation - If investing directly in a company that focuses exclusively on uranium production seems too focused, this utility that derives a good portion of its power from nuclear plants might be a good option. This stock is approximately 10 % off the price it held prior to the radiation leaks at Fukushima Daiichi, and if uranium prices have gone down as a response to the disaster, it stands to profit. Its current price to earnings (P/E) ratio is a very attractive 10.5, and the future P/E is also quite attractive at 13.37.

Disclaimer: I am not a financial professional by any stretch of the imagination. I also do not own any of these stocks, though I may make an investment within the next 72 hours.

Pawn Stars

This show on A&E simply baffles me. That isn't to say that I don't find it interesting and even compelling, but I'm continually baffled by it. For the life of me, I can't figure out why people would go and sell their items for less than the item is worth, especially when there are so many opportunities to obtain a better return. Have these people never heard of Ebay?

It would be one thing if the owner were taking advantage of people, and the customers were selling their belongings with no idea of the worth. But every show, the pawn shop owner calls in an expert who gives a quote on what the item's value is, and then the owner lowballs the customer to, generally, somewhere around a 50% reduction in price. If memory serves, I believe I even saw him lowball a guy on a big chunk of gold that had likely been recovered from a shipwreck (pirates!), an item that many people would have paid much closer to its face value for.

But these baffling items I can take. What I couldn't take was on last night's show where a guy was trying to sell his 1986 Buick Regal that he had pimped out. The commentary suggested that the man had probably spent the better part of $10,000 on the paint job for the car and various other improvements. Nevertheless, the man was only hoping to get $2,000-$2,500 for it! While the car was certainly not meant to be an investment, and while there is certainly something to be said about spending money on things that you like and enjoy, what a huge cash drain! And for the man to simply acknowledge that it wasn't worth the money he had put into it was fascinating. That is a 75-80% loss on investment money (if not more; it wasn't clear if the original vehicle price was factored into that ten grand)!

As a comparison, particularly in the last year, many sound mutual funds have had amazing gains into the double digits as the economy slowly trudges out of the Great Recession. Some of the more modest gains I've been seeing in my research on mutual funds lately have had a 9% gain in the last year. If the car seller had put that ten grand into a mutual fund a year ago, he would now have $10,900 sitting the bank. When you consider that he only ended up selling the car for two grand, that's $8,900 that simply evaporated into thin air. Of course the flip side is that he could have invested in Citigroup before the crash, and now be left with pennies on the dollar (though I believe it's making progress towards improving its stock price in specific ways).

I suppose it just comes down to what you value. Me, I don't want to work forever, so I'm trying to get my retirement accounts squared away. How about you?

Disclaimer: I currently own shares of C, and I plan on owning more in the near future.