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August 05, 1998

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Subject: Re: A conundrum
Author: CassWoman

Laura-

Congratulations. You are now a complete, total, and utter Fool. Your financial planner is being wildly conservative IMO, too, and you should invest in whatever you feel comfortable with. Your stocks are invested in what you want them to be in (I would think!) and are not as risky as she might have you believe. I think bonds can be just as risky -- if the company goes belly up chances are you're still outta luck, and what if the company 'calls' the bond? Then your income stream is cut off and you have to find something else to invest in. Also, you limit your potential earnings with bonds. If the economy is growing at 30% a year as it has for the last 3 years, your bond is still only going to earn the same amount every year, which if you're LUCKY might be 10%.

"We've just now passed into their "early accumulation" phase - where your net worth is 1-3x your salary. And here's where I hit the brakes: their suggestion is that we hold 50% of our investments in stocks, 50% in bonds. She gave me a list of bond funds and wants me to move about half our holdings into them. Whoa.

Is it just me, or is this wildly conservative?"

  "This is your planner trying to make sure she has a job tomorrow by following her boss's recommendations."

This is your planner trying to make sure she has a job tomorrow by following her boss's recommendations. Don't worry about it. The 'model' is not going to be appropriate for everyone.

"I read the MF book as part of my New Year's resolution to learn more about stocks. So now I've had six+ months to read the boards, read more books, etc. I've opened up a discount brokerage account, and made some investments. I feel pretty "empowered" by the knowledge I've gained here."

You SHOULD feel empowered! In 6 months you've probably learned a lot about investing. Just because she is a 'professional' doesn't mean that she will be interested in helping you maximize the return on your investments. And 32 and 34 is WAY to young to be that conservative....

"But now this person, who up until this time, I've trusted implicitly, is telling me I'm being way too risky. What do you think? Is she right? I know what I want to hear (that my allocation choices are sound) but I'm not paying her to tell me what I want to hear.
I'll tell you what you want to hear, but NOT because you want to hear it. YOUR ALLOCATION CHOICES ARE SOUND!! And the more you learn, the more you will KNOW that that is true. :)
"Loathing a confrontation with her today, I only asked a few measly questions about why we should put so much in bonds. Her general answer was essentially a) diversification, b) risk reduction, c) capital preservation (in case of dire emergency so we could liquidate). Does this sound like good advice to a family as young as we are? Aside from a), I just don't see it."
Standard party line, don'tcha think? Assuming you have enough in cash reserves to handle 3-6 months worth of living expenses, you should be able to handle about anything life can dish out. If you need more than that, chances are you will have TIME to figure out what to liquidate and what not to, and you can use that to your advantage. Besides, why wouldn't stocks be just as liquid as bonds?

  "However, that begs a larger question: if we're going to ignore her advice, why have a financial planner at all?"

"One of my thoughts (esp. given the information posted here that on average, people don't have a positive net worth til age 43) is that this "model" expects us to be older and closer to retirement than we are. Do you think that would explain the suggested 50/50 split? Not that that should excuse our planner from adjusting the model if we don't fit it correctly, mind you."

It could explain the 50/50 split. It could also be that she read the chart wrong when she was reviewing your stuff and she read the 'early 50s' line instead of the 'early 30s' line.

"Obviously, it's our money, and we will do what we want with it. She has no control over our funds. However, that begs a larger question: if we're going to ignore her advice, why have a financial planner at all? I can get an accountant to do the taxes ... I'm just feeling so confused."
The point of the Fool is that you DON'T need a financial planner.

If you've invested in stocks like the FF, you ARE diversified, and will be getting more so as you add stocks to your portfolio. Remember that you only need 10-12 good stocks to be 'diversified'.

So relax, go with your gut, and (I'm going to repeat myself here!) remember that the Fool teaches you that you don't NEED a financial planner (unless you want one!).

Cassandra


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