Four Investing Links -- January 21, 2024

Locator: 46600INV.

The links:

• AMD is a superstar stock, Yahoo!Finance. 
• history suggests the NASDAQ will surge in 2024: one "Magnificent Seven" stock to buy before it does, The Motley Fool.

And then this:

• Warren Buffett is set to make $2 billion in dividend income in 2024 from just three stocks, The Motley Fool.

After having a chance to think about "this" over the past few weeks / months, it's my firm belief that Jerry Jones and Warren Buffett think alike. It's all about cash. And bragging rights. Winning rings and trophies are nice, but not all that important. 

And then this, the fourth link:

• Wealth management vs financial advisor, apmoneywise via Yahoo!Finance: this is one of the most poorly written articles I've read on this subject, and believe me, I've read lot. 

The author is correct, but, wow, what a lousy way to explain it.

This is my elevator speech:

• wealth management: many, many services in addition to financial advice, but incredibly expensive (see below); there's a reason Fisher Investments want you to invest with them, and why they can afford all those slick television commercials; often, the hook: "tax loss harvesting."
  
• financial advisor: limited services, but incredibly less expensive than a "wealth manager."

When I was first introduced to a wealth manager at Schwab, I was delighted. I finally found "what" I was looking for. But about six months ago I started doing the math. Holy mackerel. I was so wrong.

If you plan to meet with a wealth manager before signing on the dotted line, ask these questions in this order:

• how much of my portfolio will be managed by your company? [That's how your fee is assessed.]
  
• how much does my portfolio currently pay me annually in dividends and capital gains? [Dollar amount. Percents are good for comparison; but "dollars" is what really matters.]
  
• how much will your company charge me (not percent but in real dollars) for your services?
• what is the percent of your company's take of my total annual dividends / capital gains? [Just for grins; it's the dollars that matter but the percent will surprise you.]
  

Now, go back to the article:

• a very, very high-earning couple have $500,000 in their investment portfolio that would be managed by the wealth manager
• the portfolio is currently throwing off about 3% dividends and capital gains (the 3% could vary from 0.00% to 10% depending on the type of portfolio one holds)
• 0.03 x 500,000 = $15,000
• the wealth manager's fee is 1.24% of the couple's $500,000 portfolio under management
• 0.0124 x 500,000 = $6,200
• now, the zinger (and watch the face of the wealth manager when he does the math)
• 6,200 / 15,000 = 0.41
• your wealth manager will take 41% of your dividends ($6,200)
• in addition, the government will take a minimum of 15% of your dividends ($2,250)
• 2250 + 6200 = 8450
• if you live in a state where income is taxed, add a bit more, but leaving that out for now:
• $8,450 / $15,000 = 56% to taxes and the wealth manager (the latter getting the vast majority of that)
• bottom line, without adding in taxes: $6,200 (wealth manager's fee) is a lot of cash that could have gone toward additional investments, 
• especially when it represents 41% of your portfolio's income

So, "boss," you tell me you are charging me 1.24% to manage my portfolio -- wow, what a deal but in fact, you're taking 41% of my "take home pay" from that portfolio.

Years ago, discount brokers led the way in trading / commission reform. I remember paying upwards of $500 for relatively small trade with Merrill Lynch before Schwab stepped in. Then I paid $4.95 / trade and now trades are commission-free.

Wealth managers have a lot of problems with "annuities." I can see why: the two are in direct competition.

When I first started investing (39 years ago), I had a devil of a time) figuring out how to plan for retirement. Commissions, fees, and taxes were so incredibly high on investments.

But since then the US government has authorized so many ways to fund a retirement program at almost no cost and so generous, I doubt anyone earning less than $350,000 really needs a wealth manager or financial advisor, assuming those individuals:

• have completed high school;
• continue to educate themselves (best advice: take an online beginner's finance course or buy a book for $16.00.)
  
• establish a relationship with a discount broker. 

First step:

• max out company pension plans, 401(k)
• max out IRAs (traditional and IRA), including spousal IRA for a non-income earning spouse
• max out health savings accounts (very, very optional depending on one's circmstances)
• max out 529s (it is "almost" impossible for couple earning $350,000 / year to max out a 529)

Second step:

• after all the above, if one has any more money to invest, and I would find that almost impossible on a $350,000 salary,
• invest in your discount brokers ETFs (or similar vehicles); there will be several from which to choose

Third step:

• pay attention to taxes but that's way, way down the list

Disclaimer: this is not an investment site. Do not make any investment, financial, job, career, travel, or relationship decisions based on what you read here or think you may have read here. 

All my posts are done quickly: there will be content and typographical errors. If anything on any of my posts is important to you, go to the source. If/when I find typographical / content errors, I will correct them. 

Again, all my posts are done quickly. There will be typographical and content errors in all my posts. If any of my posts are important to you, go to the source.