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ONE OF THE PERILS of being a HumbleDollar contributor is that you sometimes get hit up for advice that you aren’t necessarily qualified to give.
Such was the case recently when I was having breakfast with an old buddy. The topic turned to money and investments. Joe and I have been good friends since the days when we played on the high school basketball team. We try to get together every month or so to catch up and reminisce about old times.
These days, our conversations tend to revolve around aging joints, Medicare and, of course, retirement. Both of us turned age 65 last year. While I’m now semi-retired after leaving the corporate world three years ago, Joe is still gainfully employed as a minister for a local church. His goal, if he can make it happen financially, is to step back from the work world in the next four or five years.
Now, Joe is one of the kindest, most caring people I know—traits that have served him well in his career as a pastor and spiritual counselor. He’s the first to admit, though, that investments are not his strong suit, and it doesn’t help that the ministry isn’t exactly a highly paid profession.
Joe’s wife doesn’t make big bucks either as a hairdresser and yet, despite their limited means, they have managed to raise four kids, who are all now out of the nest and married. Joe and his wife own their house, which is mortgage-free, and they have been careful to steer clear of carrying credit card balances and other high-interest debt.
As for retirement assets, they have two buckets of funds: a 403(b) plan sponsored by the church, which matches 50% of the contributions that Joe makes to it, and a rollover IRA where Joe has consolidated retirement funds from previous employers.
This is where the problem comes in.
About five years ago, as Joe explained to me over eggs and toast, he handed over management of his IRA to an advisor friend from church who works at Edward Jones. It was a big move for Joe and his wife, since the majority of their retirement assets are in that IRA.
Unfortunately, the portfolio has not performed well. Over the past five years, the account is up only 4% net of fees. This is despite the portfolio climbing 26% over the past year, buoyed by the overall market’s rising tide.
While Joe and his wife are happy about the recovery in their balance over the past year, they aren’t at all pleased with the fact that their seven-figure IRA is barely larger today than it was when they handed it over to their friend five years ago.
Joe’s wife is pressing him to move the account from Edward Jones to Vanguard Group, which manages their 403(b) plan. While Joe sees the sense of this, he’s concerned about the impact on the relationship with their friend at church.
“Do you have any suggestions?” Joe asked me.
My first thought was that we were in dangerous territory. I learned long ago that money and friendships don’t mix, and I’ve been careful over the years to avoid financial entanglements that involve friends or family members. It’s a surefire way to either ruin a relationship or end up with subpar results, and sometimes both.
I told Joe that, while I have an MBA and possess a basic understanding of finance and investments, I’m not a financial advisor and don’t consider myself qualified to give financial advice. It was for this reason, I told him, that I have my own retirement portfolio being managed by an independent advisor at Vanguard.
Joe said he understood, but would still welcome any thoughts I might have. So, I gave him a Boglehead’s perspective on the basics of investing: the difference between active and passive funds; the power of indexing and dollar-cost averaging; the advantages of trying to track the long-term performance of the overall market rather than attempting to beat it; the importance of minimizing management expenses and fees in delivering results.
I asked Joe what his portfolio at Edward Jones was invested in. Sure enough, when Joe showed me the account, it was loaded up with active funds that charged commissions and high fees. This likely explained why Joe’s one-year performance of 26% was below the S&P 500’s 32%.
The gut punch for Joe came when I told him what my own fund performance at Vanguard has been over the past five years: 90% vs. his 4%.
That was it, he said. He was going to talk to his friend at church and inform him he was moving his rollover IRA to Vanguard. If it damaged their relationship, so be it. This money was too important to his and his wife’s future security.
I reminded Joe that past performance is no guarantee of future results, and that it was possible his portfolio, when rolled over to Vanguard, could underperform his Edward Jones portfolio in the short term. Joe acknowledged this, but said the risk was worth it.
He thanked me profusely for my help and we left the restaurant. I admit that I gave a sigh of relief, feeling confident that I’d stayed within the bounds of providing factual information without giving financial advice. As I drove home that morning, it struck me that the test of a good friendship—just like that of a good investment portfolio—is how it fares over the long term.
Author and blogger James Kerr is a former corporate public relations and investor relations officer who now runs his own agency, Boy Blue Communications. His debut book, “The Long Walk Home: How I Lost My Job as a Corporate Remora Fish and Rediscovered My Life’s Purpose,” was published in 2022 by Blydyn Square Books. Jim blogs at PeaceableMan.com. Follow him on Twitter @JamesBKerr and check out his previous articles.
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you gave him your best ‘mirror’ of reality, not the funhouse mirror that commissioned brokers and financial advice that works best for the ‘advisor’.
you did it without judgement and having no agenda other than to advantage your friend…
that’s what friend are for.
Had someone with Edward Jones who had her IRA in 90 (not 89 or 91) funds that were underperforming the market. Has to be poor corporate supervision. Her and I talk each quarter for an hour with less than 20 investments. Makes you wonder if we are only seeing the tip of the iceberg.
I was in the financial advisor and money management world for ov