Five conversations about investing.
I want to learn more about smart investing.
I reached out to five people today who are smarter and richer than me.
These are notes from my conversations.
Why am I doing this?
So I can get a better understanding of the markets to form my own opinion about how I should invest my savings.
Also because in a review of my portfolio yesterday, I was surprised to see only a 4% return on a large chunk of my investments for 2016. This seemed low to me. But after today’s discussions, I believe it was fair and not bad.
All names have been changed because I don’t think my friends signed up to be blogged about. One of my friends, “Thurston,” picked his own name for this post.
Thurston, 36/m, software company
Thurston thinks that fund managers and wealth advisors are shit.
“They are going to take you out to nice steak dinners and try to get you to give them your money. Don’t fall for it.”
Until recently, he had a lot of his money in a Betterment account. Now he’s moved it out and is managing it himself in Vanguard with index funds.
Thurston thinks that financial advisors are a waste of money and the only incentive that they have is to themselves and to make money from you as a client. He doesn’t think they can outperform the S&P 500, and it can be harmful to blindly trust someone.
Thurston spends his own time and focus managing his investments. He is a very smart person with a great capacity for research and learning new things.
“Personally managing your finances when you are young gives you that ability to understand everything going on. As you get older, sure, you can pay for someone to manage your estate. But you are armed with the ability to know what they are doing, because you did it yourself. Don’t sign up for anything you don’t understand.”
Can you beat the market?
“No. You can’t beat the market. Everyone knows that.”
Elenore, 61/f, wealthy long-time investor
Elenore supports the managed investment or financial advisor world, but with a strong caveat that she is well informed and has acted as a money manager for 30 years both professionally and for her family.
“I’m interested in estate planning and capital preservation.”
She has accounts for her family with private banks and family offices. She is considering a consolidation for a few of them, including a Betterment or Wealthfront account.
“My experience with Wealthfront and Betterment was good. But not significantly better, or didn’t outperform others. So in an effort of consolidation, I’m going to close it.”
Elenore believes that having a dedicated professional who is focused on your investment relieves her from a lot of the details of the day to day management.
“I don’t mind paying a percentage point for the peace of mind and security,” she says. “I like working with a family office because they’ve encompassed other areas that impact my investments, such as an insurance review.”
Vice President at J.P. Morgan Private Bank
On referral from two friends who are current clients, I spoke with a representative of J.P. Morgan Private Bank. My goal was to learn more about their services and maybe become a client.
We talked on the phone after lunch and before I went swimming. I love swimming.
This person, whose title is Vice President, spoke to me about a lot of things. I don’t remember them all. It felt like a lot of details and I tried to keep up.
One topic was about a mix of a suggested portfolio between stocks and bonds.
He said that most of his clients could or should expect annual returns between 5-9% in 2017, depending on risk tolerance.
His group at J.P. Morgan works with clients ranging from single digit millionaires to multi-digit billionaires. It was interesting to me that the call started with several solid minutes of relationship building talk before we discussed money management. And it was me who started to speak about money and numbers. This reinforces my theory that many people pick their money managers based on trust and relationships.
I spoke with this person on the phone for about 30 minutes and I am going to continue the conversation by sending him a list of all of my stock holdings in the portfolio that I want help with. He followed-up and sent me a “Private Bank 2017 Outlook Report” and another strategy document that their firm wrote. I want to read them.
One of his questions was about how much money I expect to withdraw on a yearly basis from my savings, and how that would impact the needs of my stock portfolio. Also: whether I plan to buy a house or another large purchase where I would need a lot of cash.
This conversation was largely an introductory call and we didn’t dive into a lot of details, but I did learn a bit about what a private bank may offer.
One of his pieces of advice is that I should talk to more companies than just his. I hope to make those connections at similar companies. (Email me if you think I should talk to a great financial advisor!)
Steve, early 30s/m, tech millionaire
At 3pm, I met with another friend who is a multi-millionaire as a result of selling his startup to a big company a few years ago. One reason I especially wanted to meet with him is because in addition to his investments, he has several real estate holdings.
First, about his stock holdings.
Steve works with a broker or investment manager that he likes and trusts.
“I get an extremely high level of service from them. It’s not as much as a family office, but they do so much for me. I couldn’t imagine not having them and doing it myself.”
The reason he works with this person is because of a very deep trust. They give him full service concierge-level support, including paying assorted bills for real estate properties, assisting with legal negotiations, reviewing contracts, etc.
The annual fee for someone like this is generally about 1% of all assets under management. I’m not sure if this is how much he pays. But under the 1% rule: if your advisor is managing $1,000,000, you would pay them $10,000 in fees, regardless of how well the money performs in the market.
He made an email introduction for me to his private wealth manager so I can learn more.
Next we talked about his real estate holdings. This was very interesting to me. Real estate in New York City is exorbitantly expensive. Everyone spends a lot on it, myself included.
I want to learn more about real estate in NYC. A lot of people make a lot of money on it. And a lot of people lose a lot, too.
Steve has purchased several properties. He rents them out and uses them for his personal use. He is very optimistic about real estate in New York City. The way he explained it, with the help of a great broker, it is easy.
“You should rent a bigger apartment before you try to buy something bigger. You can get more bang for your buck, a bigger quality of life improvement, by renting first. That’s what I did before buying one of my largest properties.”
My major takeaway was to consider renting a larger apartment before I think about buying something.
The name of the brokerage firm that Steve liked the most in New York City is Compass. I got an email introduction to a broker that he likes. He uses this company to find apartments to buy and then fill them with renters.
Jesse, mid-30s/m, very smart + very successful
Finally, around 7pm, I had dinner with one of my smartest and wealthiest friends.
He keeps a very large, very significant portion of his money in cash.
Not like a suitcase full of cash under his bed: it is money held in the bank, not in stocks or bonds or mutual funds. Just cash.
I asked if he was worried about inflation and losing out on market gains. He said a lot of smart things that made me think that inflation was not something to immediately worry about.
“Don’t take money or investing advice from me. I think money is really a renewable resource and I don’t think a lot about it.”
(Yes, I know this sounds privileged. All I can say is that he is extremely smart and savvy and is doing great work and definitely lives within his means.)
So why doesn’t he at least put his money into an S&P 500 index fund? He explained that he would rather not worry about the markets, or any risk- like a big drop or catastrophe- and prefers to lock it up in cash and focus on making money in other parts of his life.
“I think that the best return on investment is through yourself and things that you can control, not through the stock market.”
This was my first day in seriously learning and asking questions about investments. I plan to continue to research and take meetings for a few more months.
If you’re interested to talk about investing, or if you have some advice for me, send me a message or leave a comment on my Facebook page.
I hesitated to post this: would anyone care? Would people think I’m bragging, or would my friends be mad that I shared our conversations in confidence?
Or share it with someone you know who is smart and rich. Maybe they would give me some advice.
It is always nice to hear from people who see the stuff I share here. Thanks for reading!
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