7 Lessons I Learned from Managing My Mother's Money

Portrait of mature man and his wife making financial revision at home
After my father passed away eight years ago, I took the lead role in helping my mother manage her finances. During my first meeting with our (former) money manager, three things amazed me.
  1. Retail brokers really do try to sell you speculative, high-commission products.
  2. Good luck getting a decent yield on the cash component of your savings.
  3. Challenging your broker with the wisdom of John Bogle can only lead to trouble.
Before taking on this task, I had very limited investment experience. I worked for a bank, but my experience was focused largely on lending. I'd been a risk manager for mortgage, credit card and personal loan portfolios across the U.S. and Europe.

To prepare for our first meeting, I did a lot of reading. And it wasn't easy. The loss of my father was unexpected and extremely emotional. And I felt a tremendous sense of responsibility, because my mother was depending upon me. She had been married to my father for more than 40 years. They were high school sweethearts. And he had always managed the investment portfolio.

Buying Into Bogle

The first book I read was "Bogle on Mutual Funds." As someone who was analytical by nature, I found that the data he presented made his conclusions clear and obvious. Beating the market consistently over time was impossible. Management fees were too high. Mutual fund managers could live comfortably off their 2 percent (or more) management fees, regardless of their performance. And the interests of brokers are not aligned with your long-term interests. They want you to trade and trade often, with a nice commission being taken along the way. Often, the more speculative the investment product, the higher the commission.

After reading the book, I was convinced that my mother should have roughly her age in bonds, as a percentage of her portfolio. And her entire portfolio should be in low-cost index funds, preferably from Vanguard. (I loved that book.)

Then I looked at the cash component of her portfolio, and I was shocked by the extremely low interest rate that she was receiving. Brokerages are keen to have you invest. So, it is very difficult to get the best certificate of deposit and savings account interest rates. And the differences were dramatic between what I found online and what the brokerage would offer.

In today's market, it's difficult to find good yield on cash. However, online banks can offer much higher interest rates. For example, you can find online savings accounts that pay 0.95 percent. I just recently spoke with a Morgan Stanley (MS) broker, and the best savings option he had to offer paid 0.5 percent. This makes sense: Brokers want you to invest, so they aren't motivated to find you great rates for FDIC deposits. At least, that has been my experience.

Speculative, High-Commission Products

With my homework done, I went to my first meeting with mom's broker. It didn't go well. Within the first five minutes, I could tell we were getting the standard "pitch." The investment he was offering was a hot new pick, destined for success.

I calmly told him that I wanted to talk about our asset allocation (time to de-risk, now that my mother was a widow), our fund choices (time to reduce costs) and our cash allocation (time to increase the interest rate). I was basically told that I could not expect the service of a broker if I made those selections.

I asked if we could just pay him a flat fee for his time, so that he wouldn't have any conflicts of interest. He became angry at my insinuation that he was conflicted.

Sharing Bogle's Wisdom (Mine, Too)

I realized that I was being foolish. Bogle's conclusions and advice constitute an attack on the entire money management establishment. Too much money has been spent by people for too long, chasing speculative returns that end up lagging the general market returns. It was absurd of me to think I could go into the office of a broker getting paid on commission (even if he would call himself a "financial planner"), challenge him to be something completely different, and expect a good result.

We ended up leaving our broker and working with someone we trust to put our interests first. My mother's portfolio was de-risked. (And not a moment too soon: My father passed away in 2006, and we all know what happened to the markets not long after that.) The expense ratio came down. And I've learned a lot along the way.

Eight years into this adventure in money management, I have acquired seven bits of hard-earned wisdom that I am happy to share:
  1. Don't be afraid to challenge, and to ask seemingly stupid questions. And if you don't like the answer (or don't understand it), ask again. Or find someone new who can answer your question.
  2. Don't ever feel rushed into a decision. I have frequently said, "Let me think about it." That gives me time to think, talk to others and not rush into any decision.
  3. Don't stop reading. The more you become familiar with the language used in the financial planner's office, the more comfortable you become with the process. I was petrified the first time I went into the office (despite my college degree and job in banking). Over time, it gets easier.
  4. If you don't understand something, don't do it.
  5. Bogle's advice has been working. Keeping roughly my mother's age in bonds, while keeping costs low, has been a winning formula during one of the most difficult investment horizons. At a minimum, compare your approach to that of John Bogle.
  6. Don't check the value of your portfolio every day. I did that in the early years, and it drove me crazy. And it didn't make much of a difference in what decisions we made, because we weren't chasing returns.
  7. If you have elderly parents, don't be afraid to talk about money with them. You will have to deal with their financial situation sooner or later, and it is better to talk about it in advance.
Now, if only I could manage my own money with the skill that I have managed my mother's. But that is a topic for another day.

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Why do C.D.'s or bonds which pay under 1% when you can buy and hold dividend paying blue chippers at 4-5+%? What is going to happen to that 69% of the portfoloio in bonds when interest rates go up? I'm a geezer who can't afford a sub 1% return on 69% bonds in my portfolio

August 24 2014 at 10:42 AM Report abuse +1 rate up rate down Reply
1 reply to RICH's comment

I too am a geezer but do not act like one. I have invested in the stock market since 1980 and did not know anything about the market at that time. I have done very well and I had a 401k as did my wife and we had a separate stock account that we invest in. We were patient and did not panic when the market dipped.

August 24 2014 at 5:46 PM Report abuse +1 rate up rate down Reply

Anything you buy is a purchase, not an investment. What about super inverstors like Warren Buffett ? Buffett made it all by selling insurance to GEICO suckers, not by investing.
Few people ever get rich buying stocks, in buying gold, in buying rental income properties, etc.
A few get lucky, only a few.

August 24 2014 at 5:32 AM Report abuse rate up rate down Reply
1 reply to alfredschrader's comment

You can get very rich when investing. I started with $1000 in 1980 and am very financial stable at 70 years old.

August 24 2014 at 5:47 PM Report abuse rate up rate down Reply

Know why people come here to talk politics ?

Because they can't stand their own kind in the political forums and think we care about their BS..

August 24 2014 at 5:26 AM Report abuse rate up rate down Reply
Alex Denton

Great article. Index funds are the enemy of these so called "expert financial planners." They are a joke. If you have the discipline to not pull out your money at the first sign of trouble, you are guaranteed to make money with an index fund. In fact, anyone who has left money in an S&P 500 index fund for a minimum of 25 years has NEVER lost any money. These financial planners are basically modern day thieves who steal from you legally.

They would have you put your money into a fund that charges anywhere from 1-2% fee from your total investment AND take a percentage of any gains that your fund makes. So when stocks are down they still make the 2% and when they are up they make the 2% and then some. Its basically an expert version of "heads I win, tails you lose." In contrast here is what you can expect from a S&P 500 index fun:

1. Only a .17% expense ratio (vanguard). Its almost like getting someone to manage your money for free.
2. Absolutely no effort/investing knowledge required on your part and you get better returns then most mutual funds.
3. Based on historical returns the worst return you can expect is 5.90% and 7.49%. Basically in the entire history of the S&P 500 there were only two years you could have invested where you got this sort of return. And those two years were for the people who invested at the height of the stock market before the great depression!
4. Besides those two years EVERY other year that anyone has invested money has made anywhere from 8%-17%!

Let me put it to you this way: If you invest in a S&P index you have:
A. 0% chance to lose any money if you invest for 25 years or more.
B. A 1.5 % chance to make 5.90% and 1.5% chance to make 7.49%
C. And a 97% chance to make anywhere from 8-17%!!

I bet no financial planner will ever tell you these things!

August 24 2014 at 2:51 AM Report abuse +1 rate up rate down Reply
1 reply to Alex Denton's comment

screw index funds... you are still paying for someone to manage it...

If you want to talk about not losing money in the last 25 years.... putting your money into GE would have resulted in a profit in the last 25 years... putting your money into Coke, Mcdonald's, Berkshire Hathaway, Caterpillar, Ford, Yum, IBM, Microsoft, or any large cap or blue chip stock would have resulted in a profit in the last 25 years...

don't be a schmuck that needs people to pick their stocks for them... pick your own stocks and invest for yourself.

read the book "The Intelligent Investor, a guide to value investing" by Ben Graham and quit being a fool that walks into a bank asking for help... That is like walking into a used car dealership and asking the salesman to give you an honest opinion on whether or not you need a different car.

Let me put it to you this way..

A. 0% chance anyone will charge the fund you invest in fees for managing it

B. you will make well beyond 5.90% interest

C. you won't be an idiot that makes up phony stats and odds to sell your opinion on a financial website to other uneducated fools.

August 24 2014 at 5:23 AM Report abuse rate up rate down Reply
2 replies to standfordgrays's comment

Hindsight is 20-20. Anyone can say IF you had invested in X stock in the Year ____ you would have had __% return. It's not that simple. Portfolio diversification is key. And prepare for the bear markets as well as the bulls. Everyone has different investment goals depending on age, responsibilities, need for fixed income, years until retirement, etc. I would never pay a bank to manage my $ either. IMO we should all know the basics of investing. iI's fine to manage your own $ (I did so for years) but a good $ manager can be worth his/her weight in gold.

August 24 2014 at 10:53 PM Report abuse rate up rate down
Alex Denton

Anyone who uses "that one stock" as an example of how to invest demonstrates their ineptitude in investing better then someone pointing it out. Your idea of investing that you posted is the equivalent of trying to predict the future. It just can't be done and really shows what a moron you are. I seriously hope no one has taken your advice to heart for their sake.

A. Paying someone .17% to track S&P is practically them doing it for free. And your idea of investing is like going to the casino and betting on black. There is a 50% chance of making money, 50% chance of losing it all and 100% chance of being called a foolish investor when anyone with even a rudimentary knowledge of investing hear’s your “strategy.”

B. I love how you used the ONE YEAR (also the worst year) IN THE HISTORY of the S&P 500 to point out that people will make "well beyond 5.90%." Did you forget about the other decades and decades of stellar GURANTEED returns I mentioned? Or is your reading comprehension so low that you missed all that?

C. Yeah.....everything I posted is 100% accurate. I don't need to make up anything. Go look up the S&P 500 historical averages. What I posted was data from 1926-2012. Using basic math you can easily verify the percentage’s I gave. Though based on the rest of your post I doubt you have the ability to calculate basic math.

August 25 2014 at 11:14 AM Report abuse rate up rate down

Dems say:

Vote for us 'cause we're your friends.
We'll try that Social-ism again.
We'll spend until you're out of debt.
Then we'll spend some more, you bet.
We are all just spending fools.
Vote for us 'cause idiots rule.
That Obamacare fiasco, now it was just a lie.
When libs find our we're going,
They'll hang their heads and cry.

August 23 2014 at 9:26 PM Report abuse -3 rate up rate down Reply
2 replies to beth_brock's comment

Democrats are fiscally irresponsible and Republicans are socially irresponsible.... Thank God for a two party system to keep extremists from taking over.

August 24 2014 at 5:25 AM Report abuse -2 rate up rate down Reply

Fortunately for America Beth and Dick are not holding public office as they pretend they've forgotten the Great Correction their Oil RIch leaders left us recovering from? Hmmm, why would anyone wish Deregulation and Exploitation on our Nation and World again w just a joke publicly of how Wallstreet had a party and got drunk? Yes they did at the expense of the middle and working class Americans but who was our Chaperone and how much did he profit selling his Texas Tea as our country was fleecing the world and Americas working class?

Vote D for forward W/Out the predatory Gimics of Wolves watching the chicken coupe just licking their lips in wait of the next time were caught sleeping and they give us something else Great to talk about and Recover from? Great??

August 24 2014 at 7:41 AM Report abuse -1 rate up rate down Reply

ovomits approval rating is tanking by the day as its now at 31 piss poor % n he will be removed from our white house in handcuffs n 2014 n deported like all his illegal immigrants he let "BREAK" into America. !!!!!

August 23 2014 at 9:13 PM Report abuse rate up rate down Reply
1 reply to korrectionelecshun's comment

America as proof of the last two elections won't soon forget what loosing 8 Million jobs a month feels like after exploiting several of our greatest job creating industries along w our National confidence, leaving us an $11.7 trillion dollar debt including $$$$$$$$$$$$Trillions more from two unfunded wars and millions of Americans caught in the Great Deception homeless and penniless who believed a home is a great investment With Out Regulators Protecting us from the Wolves? We are not worried about "approval ratings" when Americans are to busy recovering from Reagan/Bushanomics to vote but won't as Pre Roosevelt soon forget Exploiting a Nation for the Benefit of the Few at the Expense of the Whole is a Dangerous Game for the World… You better hope Your Koch Brothers, Tea Party money and Shutting down the government is enough in November to deceive forgetful voters in November ?

August 24 2014 at 7:57 AM Report abuse rate up rate down Reply

Although I agree that cash bear "no interests" it probably is the safest way. Keep it out if
the greedy improvisers that pass themselves as "financial advisors" is the best way.

August 23 2014 at 5:52 PM Report abuse rate up rate down Reply

Investing isn't rocket science if you are willing to put in a little time. So many people waste so much time on nonsense and other BS in their lives. You'd think when it comes to making the most of their money, including savings and investments they'd pay more attention or learn something about this subject. Individual stock picking is not for the average investor. IMO you are much better off investingt with ETFs (electronically traded funds). Unlike mutual funds, you generally don't have the fees and expenses associated with mutual funs. You mostly don't have to pay anyone like mutual fund managers, especially if the ETFs you pick mimic big indexes like the S&P. Also ETFs trade like stocks which makes getting in and out of them very easy.. Just pick half a dozen well diversified ETFs that invest in the stocks of some major indexes like the S&P 500, add to this some Mid Cap and Small Cap index ETFs for diversification and perhaps some bond ETFs if you must. You can allocate these according to your tolerance for risk. There are plenty of guidelines out there you can look up depending on your personal level of risk tolerence. If you want to take on more risk or less risk review the ETF's stated objectives Start investing early and take advantage of dollar cost averaging and company 401K and Thrift Plans. Especially take advantage of any matching by your employer if you have one of these. It is amazing how money compounds over time. Banks and CDs are for emergency funds only. They are for suckers and people who don't know sh*t about investing. What good is making less that 1% taxable interest when the interest that CD or bank account earns is subject to income tax and inflation has historically been about 3%. You are losing your money parking it in a bank. Also, using your mother's age (lets say 70) to determine how much she should have in bonds vs. stocks (in this case 70% vs. 30% in stocks) is just a dumb rule of thumb that someone invented at one time when bond's had a decent rate of interest and return.. If people don't want to outlive their investments and income, more money should be alloted to equities (stocks) not bonds. This is especially the case in a low interest environment like today's market. Interest rates are so low the only place they can go is up. Bond prices and bond investments vehicles go the opposite way of interest rates. If interest rates rise, bond prices go down. You think interest rates are going down further? I wouldn't think so. Now is not a good time to be loaded up with bonds.

August 23 2014 at 5:36 PM Report abuse +1 rate up rate down Reply

Another article by corporate grifters showing old white people. Yes, some do manage their mother's money for they have none themselves and are simply ghouls

August 23 2014 at 12:24 PM Report abuse -1 rate up rate down Reply
1 reply to weilunion's comment

So now you're bashing the models?

August 24 2014 at 12:32 AM Report abuse rate up rate down Reply

Bogle's assertion is true, but very misleading. While the broad market will most likely outperform a single MF in more years than it does not, that doesn't mean overall performance will be better. Consider this example: Index Fund A outperforms Mutual Fund B in four of five years by 1%-2% each year, however, in year five, MF B outperforms by 20%. Although Index Fund A did better in more years, MF B had the higher overall return.

August 23 2014 at 11:48 AM Report abuse +1 rate up rate down Reply