Financial Well-Being: Managing Expectations

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By Nancy McKeon

MONEY’S ON MY MIND again. Mostly it’s because I’m on the prowl for a new tax preparer, my last two having decided there were other things they’d rather do with their lives (imagine!). But the unhappy financial markets are spreading their gloom around. And that reminded me of a piece I posted half a dozen years ago. The advice I got was good then and remains good now. Being older and less patient now, I’ve trimmed it back a bit:

WHEN YOU GET to a stage in life where you’ve managed to amass a bit of money—and it doesn’t have to be all that much—you suddenly find that all sorts of people and companies are eager to help you with all that cash.

They call it “wealth management,” a term that flatters more than describes (Wow, me wealthy!?). What these people and these companies basically want, of course, is to get their hands on your money. They want to arrange and rearrange it for you, allocate and reallocate it; they want to play with it, their version of Play-Doh (get it?).

Even mutual-fund companies that come through with really low expenses get a little grabby when you start asking questions. Every question seems to turn into an offer to manage your money for you. That could mean as low as .3% of your assets by a rock-bottom outfit like Vanguard or TIAA-CREF*. But many financial advisers/managers charge 1.5% of your total portfolio amount.

Tack 1.5% on to  the rate of inflation and all of a sudden you’ve built a little hurdle that your portfolio has to jump over before you’re actually ahead. And so I stick to no-load mutual funds.

But there’s always that little doubt in the back of my mind: What if I’m missing out on something that these smart financial folks know about. Finally, a conversation with my TIAA adviser was quick to allay those fears. He said his job was to educate participants, not to sell them services. And educate me he did.

If you’re fearful of “missing out” on some stock that’s going to skyrocket, having a financial manager guide your portfolio is not going to ensure that you catch that puppy. Portfolio management, in TIAA’s view, is about management, period:

managing for risk,

managing for income, and

managing for incapacity.

Let me take that last goal first. Managing for incapacity means that when I drop into a final coma at age 137, my younger sister and brother won’t have to worry about my various financial bits and pieces while they’re still trying to figure out where to toss my ashes. TIAA, or your portfolio manager of choice, would keep on keeping on until given official word to stop.

Managing for income seems pretty straightforward, but maybe not so simple in execution. It basically means that my  manager will arrange and rearrange my assets to make sure that income from them is enough to pay for my needs and maybe even some of my wants.

Managing for risk means that someone who knows how to read a balance sheet will figure out how to keep my various investments on the safe side of risky.

I’m grateful to TIAA for this perspective. I’m also grateful to John Bogle for starting The Vanguard Group and pioneering those low-expense index funds. And I’m even more grateful to billionaire investor Warren Buffett (the “Oracle of Omaha”—he’s fun to read about!) for investing in The Washington Post and guiding my erstwhile employers, the Graham family, to set up the journalists’ 401(k) plan at Vanguard.

All in all, I remain undecided about professional portfolio management, but if I do take the plunge it will be with realistic expectations. And if you’re drawn to such management, be aware of the new fiduciary rules and be sure that your potential manager says they are indeed a fiduciary. (What, you didn’t know your adviser was supposed to have your best interests at heart?? Pay attention! And perhaps read this piece in Investopedia.)

* It’s a mouthful and stands for Teachers Investment Annuity Association and College Equity Retirement Fund. TIAA is the “leading provider of financial services in the academic, research, medical, cultural and government fields,” according to its self-description.