Ep # 69: Managing Investments By Myself. Should I or Shouldn't I?

Benjamin Haas |
  • Importance of having a plan for your investments - 1:28
  • The size of your portfolio should be a consideration - 4:57
  • Managing your investments when you retire - 6:54
  • Managing your investments as a hobby - 9:40
  • Recreating paychecks in retirement - 10:45
  • RMD requirements - 13:37
  • Proper titling and beneficiary details - 15:44
  • Importance of following your process and think about where service matters - 18:02



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Full Transcript:

Benjamin Haas  00:03
Hi everyone and welcome to A/B Conversations, where we will help you CFP your way out of it. A podcast where you get into the minds of a couple Certified Financial Planners on how we think and feel about everyday financial planning questions and what should really matter most to you. A healthier financial life starts....now!

Adam Werner  00:26
Hey Ben, happy podcast day.  

Benjamin Haas  00:31
For us it is. Happy podcast day to you too, my friend. 

Adam Werner  00:36
I thought you were going to say, happy podcast day to the listeners. 

Benjamin Haas  00:41
And hopefully this will be the last of sweater weather for a while.

Adam Werner  00:45
Yeah, I'm looking forward to wearing a polo. 

Benjamin Haas  00:48
Yeah, there we go. For those watching the podcast on YouTube. So we are clearly a financial planning podcast, I know, we try to stay in that lane but it is not uncommon for certain people to come to us, even if they're looking for financial planning and then ask the question - do you handle investments? Or is that something I can do with my own? We really thought it would be a good topic today to go through just that question. Can I or should I manage my own investments and maybe give some insight into the things that we would think about.

Adam Werner  01:28
We certainly approach that, as you said, planners first. We certainly work with clients that want to outsource or kind of delegate the investment process to us and that's great. But that is not necessarily a requirement for us helping somebody through the financial planning process so just want to throw that right out there off the bat. For those that do feel comfortable or want to manage their investments themselves, we want to start with just the foundational building blocks of if that's something you're interested in, then what philosophy do you have to follow. Really foundationally, how are you going to make investment decisions moving forward? How are you going to make the decision between am I going to use active management, am I going to be more passive? Mutual funds versus ETFs, individual stocks, individual bonds. All of the now micro details that go into managing your investments that I think the majority of the time, it's through the lens of I like being caught up on the news. I like to see what my investments are doing maybe when I was working, I checked the 401k account on a daily basis to see how things are going, that’s interesting for some people and that's fine. I think the other side, a lot of times, it just comes down to well, I think I can do this on my own if that means I'm going to save whatever fee that I would pay somebody else to help me manage this, then that's money in my pocket and I'm okay just being able to attempt doing it myself. But again, I think, yeah, that's where that leads into part of our conversation of, well, here's all the other things that go along with that.

Benjamin Haas  03:13
Yeah, so what I heard you saying in just fewer words, is we definitely want somebody to have a plan for those investments and part of that, just like when we're writing financial plans is to try to think of the pivot points. That is to say, not just alright, well, look, I can punch some numbers into a model and it's going to tell me, this is how much in stocks, this is how much in bonds. But then it becomes what are the decision points for rebalancing that portfolio? What are those decision points for when I need to withdraw some money? What are the decision points for when the world feels a little crazy as it does maybe on a day like today, when am I going to then be making changes and that is having some sort of blueprint for that. We call it in the industry an investment policy statement, but it's pretty much giving those guidelines to say, even if I'm doing this on my own, I'm doing it within certain parameters that I'm going to follow because I think doing it on your own and not having that means you're being reactive, not proactive. And reactive is where people can make mistakes that we would hope if we're doing it or we're guiding the process, that we're keeping people from doing those types of things. 

Adam Werner  04:28
Yes, and clearly that is our bias as planners. Not wanting to go into a scenario or down a path of a process without those steps clearly laid out a guideline, a workflow, whatever that looks like, keep you on the straight now the thought of going through that process, just by the seat of your pants, it's completely foreign to me.

Benjamin Haas  04:57
But let's not create a complete bias to hey, pay somebody else to do this. I would say magnitude matters. The management of a $10,000 portfolio or $100,000 portfolio, the magnitude of some sort of mistake is very different than I've got a Million Dollar Portfolio or let's not even put numbers to it, I'm in retirement, this is now my finite pool of money to support me. If I make a mistake or I feel like I got emotional about this, you may not have the time to recoup it anymore. So that is to say, if you have a plan on the front end and maybe you're a little bit younger, just getting started. There are absolutely, totally agree that there are Do It Yourself models out there that work.

Adam Werner  05:43
Yeah, that's a good point. I'm glad you said that and even, yes, the magnitude, the size of the account and the potential downside impact matters but I'm glad you said that, too. It's phase of life certainly impacts that as well, to your point. If somebody younger saving for retirement, that theoretically makes that investment decision making process a little bit easier, you can kind of set it and forget it, be aggressive and just let the market do the heavy lifting. Come retirement or if you're already retired, the margin of error is just a little bit smaller where those mistakes can have more profound impacts beyond just the investment account. If that starts to affect the withdrawals that you can take the cash flow that you can pull from your portfolio to meet your living expenses, that can have catastrophic impacts, depending on how the situation, depending on if it's a loss in an account. Overreacting to market news, making changes within your portfolio, all of those potentially negative outcomes.

Benjamin Haas  06:54
So, I like that you went there because I think we can't have this conversation without thinking about the most common kind of pivot point for somebody and that's usually around retirement, right? Where maybe you've been investing in, you would deem that you've been investing yourself because it's really just you on a 401k platform. Company provided, but let's explain that. There are usually more limited options and for a reason because that needs to be monitored because we need to protect the investor, things of that nature. But then when you have the ability in retirement, to think about an individual retirement account, this may be the time when we're really asked that question - do I just leave it in a 401k? Do I move it to an IRA? If I move it to an IRA, am I doing that myself? Can you guys handle that for me? I don't know, maybe we should go through those pros and cons and maybe some of the service things that would go along with that.

Adam Werner  07:49
Yeah, that is one of the bigger questions and you said that when somebody retires, you have the ability to roll your retirement account (401k, 403b, anything like that) to an IRA and there are a whole host of positives and negatives that can impact that decision. So right off the bat, the pros are, if you have and this is not uncommon anymore, right? If you've worked for multiple employers over time and you have multiple 401K's, different investment providers, being able to consolidate that into one spot, right? If you're moving that into one IRA, it makes the ease of not only, maybe it's the cash flow, right withdrawal management, but it also should make the investment management side of things a little bit simpler too. Again, if you're looking at one account, managing one account versus trying to manage three or more, it's just ease of use and oversight, ongoing. Same thing, you kind of touched on it earlier too within a retirement plan for work, those investment options are probably limited and some of that is on purpose, right. But going to an IRA, depending on the provider, your options may be virtually limitless and we would call that a pro in these pros and cons column. If you're going out there and doing yourself, maybe seeing that the world is your oyster and being inundated with maybe too much choice. I could see how that could be both a positive and a negative. But I guess the biggest upside in moving to an IRA is you then do have that ability to hire a professional to help you manage that, where within the 401k usually do not have that as an option to you.

Benjamin Haas  09:40
Yeah, so my mind immediately goes to sometimes the question that I think people are trying to answer is not should I do this on my own or not? I think you said it earlier. Some people may see this as like, I think I would enjoy it. I would like it as a hobby. I think sometimes people make that decision to base on some sort of prior experience. Maybe you paid for an advisor and it wasn't good service or it wasn't a good feeling of experience or maybe there wasn't good communication. Draw it up whichever way you want. Where now, the idea of I'm going to move it to an IRA and I either pay somebody or I don't? Can I do it all by myself? The answer probably is yes, to a degree but it goes back to, can you check these boxes of being able to follow some sort of roadmap? Keep yourself from making emotional decisions and can you handle all the decision points? And maybe we should talk about those of, especially in retirement, when I need to get to my money? How do I go about doing it? 

Adam Werner  10:45
Yeah, and I mean, we talk about it a lot just within financial planning when it comes time to turn your investments now into that income stream to help meet your needs. Your paychecks have now stopped, how do I recreate that from my different accounts? If you just have a retirement account, then the decision is, if I need money, I'm going to take it from that account. But if you have different accounts - you have an IRA, you have a Roth IRA, you have a non-retirement investment account - making the decisions on, okay, well, if I need X amount of dollars a month, where am I sourcing that from in the most efficient manner? Thinking from a tax perspective, thinking from an investment perspective, thinking in the future projection, what do I want to have later in life? What's the most advantageous? Just all of those little details that maybe we take for granted because that is part of our planning process but that's a that's a huge one. If and when I need money, where am I going to pull it from and then if you need to generate cash, if it's fully invested, what am I selling at this point in time to generate that cash. And certainly, as we've seen here to start the year, it may feel like not a great time to be selling from your stock market investments when the S&P is down 10-12% year to date, maybe it makes sense to pull from your bonds in the short-term because they're not down as much.

Benjamin Haas  12:14
And these are all, to us, these are like critical decision points. I'm glad you brought that up because I do think we probably take that for granted because it's something we do every day. But to the individual that may be doing it by themselves, there may be many unintended consequences to the way that you're going about it and maybe you don't find that out until tax time. Maybe you'll never know about it for investment purposes but there truly is, I think of the touch points that you and I have throughout the day that are not unplanned. It's usually, oh, we need to create some cash for this person. We need to do this for this person. What do you think? Because it's not robotic. There are inputs into that decision that should be talked through and you are weighing, if I do this, then there's this but if I do this, then there's this and you have to make a decision. 

Adam Werner  13:08
Yeah, and that's I think the difficult part in that there's usually not a clear black and white. Yes, this is good. No, this is bad. It's very often somewhere in between and it is to your point, it's weighing the potential tradeoffs where one feels maybe slightly better than another. But yeah, there's definitely a lot of factors that can go into just a simple decision as okay, what am I going to sell right now to take my withdrawal?

Benjamin Haas  13:37
Yeah, so then let me pivot a little bit. If you're doing this on your own, then we would encourage you to also pay attention to some other I don't know, checklist items. I'm thinking RMDs if you're of that age. There's a decision point then to not only making sure that you're taking the appropriate amount of withdrawals, but yeah, especially, I'm going to go one step further. If you have multiple accounts in multiple different places. You need to get this right. I don't know. I'm anxious to hear what you have to say.

Adam Werner  14:16
Well, yeah. So let me pick that up because that's one of the rules that changed. Not that long ago, right? The age for RMDs used to be 70 and a half and now that’s 72. And actually, I don't know that we had this conversation but at the end of last year, beginning of this year, the IRS updated their actuarial tables for the RMD the life expectancy tables for RMDs. So there came a time here at the very beginning of the year, where if your financial institution automatically calculates your RMD for you, that may not have been accurate at the very beginning of this year because they're still using the old actuarial tables. I know that because we are tied into these updates, we pay attention to these things because it is our job to know. But if you're just a passive, you know, I can manage my investments, but all of the tax changes, the legislation changes, those little details that often get overlooked. We've been in the business for 15 plus years each now. I think you're on 16 and we've seen those changes happen so many times over the course of our careers, that it's very easy to miss little details that do matter when it comes time to managing your investments or withdrawals or RMDs, things like that, that again, if it's not something that you're living and breathing day in and day out, it's very easy to miss some of those smaller changes.

Benjamin Haas  15:44
Yeah, and we talked about qualified charitable donations from RMDs. Do you take your RMD at the beginning of the year at the end of the year? These are decision points that matter. Another checkpoint, I'm going down our list now. So sorry, I'm taking all the good ones. If you're going to do it yourself, don't overlook the titling of the account and the beneficiary designations of the account because while it's fun to think about, I'm going to manage investments this way and I'm going to make money and I got all this taken care of, the impact of having improper titling or getting a beneficiary wrong or not updating it, man, those are the horror stories that we hear.

Adam Werner  16:29
And one of the simplest ones and it just comes up from time to time. We see it if I'm sure it's going to affect me, right, I have daughters. But if there's just a simple as a name change, right, one of your daughters get married, then their last names updated, it adds additional hoops for them to jump through if something were to happen to you and you have them listed as the beneficiary with their maiden name or maybe they get married, you're updating it, they get divorced. It just creates additional issues on the back end, that were not intended. You said it earlier, it's the unintended consequences of not updating things regularly where again, we build that into our process, we review the beneficiary designations on a regular basis, we do that through the planning process but oftentimes, it's the set it and forget it mentality, right? If I know what my beneficiaries are, I'll set them on day one and we're good in perpetuity when that may not necessarily be the case, especially if you think you retire at 65 and you live till 95, a lot can change in those 30 years that I want to make sure is reflected in account titling and beneficiary designations.

Benjamin Haas  17:54
Well said. I don't know, what else is on your list of things to really think about if you're trying to answer that question - should I do it myself or not?

Adam Werner  18:02
Yeah, I don't think there's anything new. I think it can be overwhelming once you start to throw out and all these little details, all the little things that often get overlooked. I could see why we have jobs and that other financial advisors exist to help relieve some of that weight of all of those little decisions but ultimately, I think you said it earlier. As long as you have a process to follow, I think that is a key ingredient in that decision. If you can execute on a process and you have the checklist to make sure you're not missing those little items, then yes, I think clearly, we believe investing is fairly fundamental, at least the way that we invest for clients is pretty fundamental but discipline and a process goes a long way.

Benjamin Haas  19:02
Yeah, I'm glad you put it that way because I was going to say something similar. We believe that it is a very fundamental process but at the same point, service matters and I think this still is a service-based industry. If a lot of those things feel like they would be too much for somebody or I feel like I don't have the time to manage that effectively or I feel like I don't have the education or I'm not plugged in, like you said to certain rule changes. So, the point is, it's a really important decision. We're here to coach people through either way but yeah, there is a reason I think why many of our clients look at us as planners, but then go, help me then execute on that plan and we're here to do that. But yeah, that's not to say that's for everyone. So, hopefully that was helpful.

Adam Werner  19:49

Benjamin Haas  19:50
Appreciate your input.

Adam Werner  19:53

Benjamin Haas  19:55
Catch you next time around.

Adam Werner  19:57
All right. Bye.

Benjamin Haas  19:58
Hey everyone, Adam and I really appreciate you tuning in. Please note that the opinions we voiced in the show are for general information only, and are not intended to provide specific recommendations for any individual. To determine which strategies or investments may be most appropriate for you, consult with your attorney, your accountant and financial advisor or tax advisor prior to making any decisions or investing.  Thanks for listening! Investment Advice offered through Great Valley Advisor Group, a Registered Investment Advisor. 


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