Manage Your Own Money

My house has lost some of its value over the past couple years. I called a real estate agent the other day with questions about selling my house and moving to a more desirable neighborhood. He recommended that I wait till April. His advice is that the worst time to sell is between June and December, and the best time is between January and June.

The agent said my neighborhood had been hit pretty hard with the mortgage fallout for two reasons: It attracts people who have been sub-prime borrowers and are now having a hard time getting approved for loans. It also houses many sub-prime borrowers who are having a hard time making their payments, and being forced to sell their houses. He thinks my house would have sold for more in the first half of 2005, because that was the last time demand was so high with respect to supply, in my neighborhood.

The good news for me, is that other parts of San Francisco are keeping the value from sinking as low as it would have, had I bought in, say one of the outlying suburbs. Is that what they mean by "A rising tide lifts all ships"? I've decided to check back with the real estate agent in April.

Oh, if you happen to get a call from a representative from a financial services firm - someone who wants to plan your retirement for you - and you're just an ordinary person, like me. My advice is to be skeptical. I say that because that's exactly what happened to me a couple weeks ago. In a nutshell, here's how it went:

Step 1: They sent me a questionaire to fill out.

Step 2: A data entry person entered the information into a spreadsheet, and ran some standard application that generates a pie chart that breaks down how they think your assets should be allocated.

Step 3: The company has a relationship with several mutual funds, and mapped a mutual fund to each of the quadrants from the pie chart.

Step 4: If I would have enrolled, the company would collect 1.5% of the assets that are being managed through the mutual funds.

My question is "How does that little bit of work entitle these people to 1.5% of the money I put into their account for as long as it's there?"

So, say I tell them to manage $50000. They invest the money in their choice of mutual funds. Then each quarter, if each of the mutual funds maintains about the same value, I pay a managment fee of about (50,000 * .015) / 4 = $187.5, regardless. What's important to keep in mind, is that for each of the mutual funds, I'm already paying a management fee. So, I'm paying to have my money managed by people who are already managing it. That doesn't sit well with me. Do people actually go along with such a plan? I don't understand it at all. It just doesn't compute.

The kicker is that the mutual funds that were chosen by my "financial advisor" were these 'safe' mutual funds. 25% were fixed income (bonds) that returned about 2 to 3% per year for the past couple years. I don't know if that's enough to even keep up with inflation. So, what incentive do these financial service firms actually have? They protect themselves with all this legal jargon on the application you have to fill out when you enroll. They have no obligation to make you any money, or even do any work, and they get paid no matter what.

Are they really gonna work their asses off to double my $50000 so they can make $1500 a year? Seems much easier to just sit and do nothing for $750.

Now, my advice: You can log into any number of sites that provide information about mutual funds, including fees, performance, risks, ratings, etc. and within minutes, pick a handful that are likely to serve your purpose. The ones you pick don't have to be the ones the financial advisor has a relationship with. Once you decide to buy one, you don't even need to pay a management fee.