Time Frame to Prove Worth

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Sep 28, 2006 1:03 pm

What is fair time frame to allow broker to "prove" worth.


Invested with broker in May (near market highs) and results have pretty much tracked with the S&P 500. Broker has diversified the portfolio; and we appreciate the fact that he is conservative.Is tracking / matching the S&P these past 6 months a good result ?


Sep 28, 2006 1:35 pm

Depends on what you want to accomplish with your investments. Maybe yes, maybe no.


Is tracking the S&P a good result. Is it even a good goal?   Is tracking the S&P your only goal?  I tracking the S&P 500 from 2000 through the end of 2001 might not have been such a good result even if tracking the S&P was your goal.  You accomplished your goal, but at what cost?


There is no way we can answer this question for you.  We don't know you: your investment needs, goals, risk tolerance, location, age, income, net worth, other investments or anything else.  You are asking a question in a vacuum.  There is also no way we can give you advice on this board. 


Although 6 months is a very short time to decide about the Representative and to peg his/her performance strictly on tracking to an index, only you will be able to decide how long you want to do business with your own broker.   Proving "worth"  to you as an advisor is should be more than just investing your dollars to mimic an index.   


Wouldn't you rather beat the index?

Sep 28, 2006 1:36 pm

Apparently you don't have a sincere up front trusting relationship with your broker.  Otherwise you wouldnt be on here asking.  Odds are you are a small client who doesnt know how to work with a professional in my opinion.  Probably because you are fairly young and unexperienced.   


Why in the world would you come on here to ask that?  Call your broker up and ask him or her.  It's been six months.  Not exactly a long time. 


Do you appreciate the fact that he is conservative because that is what you asked for?  So does that mean you have 40 or 50% in bonds?  If so, youre saying you are tracking the S&P with  this conservative portfolio?  You shouldnt be benchmarking against the S&P if you have a conservative portfolio.  Oh I know. You must beat the S&P but you want to be conservative.  If youre account drops you will call to bitch.  But you need to beat the S&P.  And you have 20k to invest.   Ehh gads


So you are saying  you are invested conservatively, yet on track with the S&P so in other words what ever your benchmark is, "it's not the S&P," your beating it.


I love it when clients are just up front and open with me.  I hate when they sneak around double checking what I say and do for them. Just be open whether you are not sure, angry, happy, what ever.  Once you make your decision, be loyal and keep the lines of communication open. 


My rant for the day.

Sep 28, 2006 2:02 pm

berger- One other thing.  If you had invested with your advisor in December of 1998 and since then got a average annual return that was 30% higher in relative terms than the S&P would you be happy?


Wouldnt that be great.  What a great manager you would have right?  Well that great return would get you an average annual rate of return of 3% because the S&P has averaged 2.36% since then. 


So much for measuring your success against indexes. Look up absolute v's relative returns.  Sometimes clients love benchmarking against the indexes as long as the indexes are doing well.  But if that index drops 30% and you drop 15% suddenly you don't love benchmarking even though by your standard, you did great. 

Sep 28, 2006 2:14 pm
beramberger:

What is fair time frame to allow broker to "prove" worth.


Invested with broker in May (near market highs) and results have pretty much tracked with the S&P 500. Broker has diversified the portfolio; and we appreciate the fact that he is conservative.Is tracking / matching the S&P these past 6 months a good result ?



Since you have obviously been watching alot of TV, maybe you should hire Suze Orman or maybe Kramer.

Sep 28, 2006 2:14 pm

Thanks: Actually I'm very pleased with my broker; I was just wondering if beating the S&P was a fair , objective criteria for measuring success given the turbulent times of last 6 months. We're conservative because we're nering retirement and only have 850k to supplement retirement and SSec.


Good point about when index falls. Our "goal" is that we make more than the next guy, or lose less than the next guy who doesn't avail himself of professional advice


Sep 28, 2006 2:25 pm

Since you have obviously been watching alot of TV, maybe you should hire Suze Orman or maybe Kramer.


[/quote]


Do you mean Jim Cramer or Cosmo Kramer? 

Sep 28, 2006 2:40 pm

I meant Jim, but Cosmo would be just about as good.

Sep 28, 2006 2:56 pm
beramberger:

Thanks: Actually I'm very pleased with my broker; I was just wondering if beating the S&P was a fair , objective criteria for measuring success given the turbulent times of last 6 months. We're conservative because we're nering retirement and only have 850k to supplement retirement and SSec.


Good point about when index falls. Our "goal" is that we make more than the next guy, or lose less than the next guy who doesn't avail himself of professional advice




Over what period of time?  Would you be satisfied if someone else was doing better than you for 6 months, a year, two years?  What if you end up doing better then the 'other guy' did after 5 years but not for the next 2 years because your broker took a longer term perspective.  How great is +60% returns in one year if you give most of it back the next?


You hire a Financial Advisor because you trust them and are prepared to sit steady for longer than 6 months.  Otherwise you shouldn't waste his or her time because they will be of little good for you if you are constantly questioning their 'performance' or other issues.


You see, you are not the only client like this.....there are plenty of them out there and most of them really get on the nerves of of professional advisors because they have expectations that have been forged in the mass hysteria and hype of what is known as 'The Financial Media".  They LOVE rollercoasters even though they seem like they don't, they keep on reaching for the remote or magazine stand like the addict they are. 


You are probably getting a hard time around here because 6 months is a VERY short period of time to evaluate an advisor.  Also, beating the S&P 500 as an 'expectation' is a fools game at best.  Yes, there are managers that beat the index, but there are so many variables to determine what produced the outperformance.  Plus the question to ask is; "is the S&P a good proxy to compare that managers investment approach to"?  If you are invested 'conservatively' then the answer is NO, end of story.  You should not expect to outperform the S&P with a 'conservative' portfolio.  You might outperform, but I certainly wouldn't expect a conservative portfortfolio to beat the index over a 10 year period.


Risk and reward are symbiotic, you don't get the latter with out the former.


Sep 28, 2006 2:59 pm

I should clarify that I wouldn't expect a conservative portfolio to outperform on an ABSOLUTE basis, maybe a risk adjusted basis....if you know what that means.

Sep 28, 2006 3:19 pm

Thank you for your articulate, reasoned response.

Sep 28, 2006 3:34 pm
dude:
beramberger:

Thanks: Actually I'm very pleased with my broker; I was just wondering if beating the S&P was a fair , objective criteria for measuring success given the turbulent times of last 6 months. We're conservative because we're nering retirement and only have 850k to supplement retirement and SSec.


Good point about when index falls. Our "goal" is that we make more than the next guy, or lose less than the next guy who doesn't avail himself of professional advice




Over what period of time?  Would you be satisfied if someone else was doing better than you for 6 months, a year, two years?  What if you end up doing better then the 'other guy' did after 5 years but not for the next 2 years because your broker took a longer term perspective.  How great is +60% returns in one year if you give most of it back the next?


You hire a Financial Advisor because you trust them and are prepared to sit steady for longer than 6 months.  Otherwise you shouldn't waste his or her time because they will be of little good for you if you are constantly questioning their 'performance' or other issues.


You see, you are not the only client like this.....there are plenty of them out there and most of them really get on the nerves of of professional advisors because they have expectations that have been forged in the mass hysteria and hype of what is known as 'The Financial Media".  They LOVE rollercoasters even though they seem like they don't, they keep on reaching for the remote or magazine stand like the addict they are. 


You are probably getting a hard time around here because 6 months is a VERY short period of time to evaluate an advisor.  Also, beating the S&P 500 as an 'expectation' is a fools game at best.  Yes, there are managers that beat the index, but there are so many variables to determine what produced the outperformance.  Plus the question to ask is; "is the S&P a good proxy to compare that managers investment approach to"?  If you are invested 'conservatively' then the answer is NO, end of story.  You should not expect to outperform the S&P with a 'conservative' portfolio.  You might outperform, but I certainly wouldn't expect a conservative portfortfolio to beat the index over a 10 year period.


Risk and reward are symbiotic, you don't get the latter with out the former.




Good post!

Sep 28, 2006 4:57 pm

Dude, you should have stayed in the industry...there's too much intelligence in your head to be wasting on a career in insurance...

Sep 29, 2006 3:01 pm
Indyone:

Dude, you should have stayed in the industry...there's too much intelligence in your head to be wasting on a career in insurance...


Thank you for the simultaneous compliment/bash.........