0

My father started a small nest egg for me when I was a teenager. He was hoping it would grow to help out with a down payment on a home when I was older. However as I'm now in my 20s I've noticed that my broker has been getting returns of about 5% a year which I'm not really happy with.

My concern is that when I was 18 he signed the fund over to me and I assume he still gets the statements from the broker.

Considering I'm not happy with his broker I'm worried that he could find I switched brokers. Considering it was his money it's not something I want to be an issue.

I hope that by transferring it would be private, but I want to find out first before I proceed.

2
  • 5
    Is this not something you can discuss with him? – jcm Feb 9 '20 at 5:49
  • 1
    Brokers are highly regulated so you should be able to see exactly where your money is invested and what the fees are. You should ask your broker for details. But regarding your question: presumably your father would want better returns for you too. Can't you and your father together agree to make a change? – TTT Feb 9 '20 at 21:20
5
However as I'm now in my 20s I've noticed that my broker has been getting returns of about 5% a year which I'm not really happy with.

Have you found out why are the returns about 5% a year?

I can see four reasons for such poor returns:

  1. Too high fees, i.e. return could be 7-8% but fees are 2-3%
  2. Too little diversification combined with poor luck
  3. Too cautious portfolio, i.e. 50% bonds and 50% stocks instead of 100% stocks
  4. Active management gone wrong. Sometimes actively managed funds yield more than index funds, sometimes less.

If it's (1) don't walk to the next broker; run!

If it's (2) your broker isn't particularly competent. Run to the next broker! Regarding (2), you don't want your portfolio to return by pure luck.

If it's (3) changing a broker won't solve a thing, if the next broker is going to have 50% in bonds too. You need to change the risk of your portfolio. Note that by increasing the risk of your portfolio in the hope of getting better returns, you get larger risk of poor returns, even negative returns, as well (although that should be obvious).

If it's (4) you should note that sometimes a non-index portfolio yields more than the index, sometimes less. So just by waiting the returns could improve. However, in most cases, if you have problem (4) you have problem (1) as well. An exception to this would be naturally Berkshire Hathaway which is the world's cheapest actively managed fund.

I hope that by transferring it would be private, but I want to find out first before I proceed.

If you have find out why the returns are about 5% a year, and why the next broker would have better returns, I'm sure he'll understand. If you haven't found out the reason for poor returns, in my opinion you should do your research first.

I would here like to underline that it's you whose responsibility is to ensure your money is invested with low fees (1) and good diversification (2). So, for example, don't invest in just US stocks. Invest in European, Asian, emerging markets, etc. stocks too. Prefer index funds.

And then, what returns can you expect? Since when I started investing in stocks, my money-weighted annualized rate of return is 11.1% with index return being 10.8%. I never expected this good return; my expectation was 8%. This has been during an extremely good period in global stock markets. Include one poor period, and you'll see the return go low, even negative, temporarily.

1
  • 2
    Not sure 2 would indicate an issue with the performance. Who actually was responsible for the diversification? The father may have decied on that, not the broker. – TomTom Feb 9 '20 at 21:33

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.