Move to cash?

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pjgallo's picture
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I've been asking my Edward Jones man for a few weeks whether I should change my IRA to all cash rather than watch it sink in value.   He tells me "That would be an absolutely stupid thing to do"
My question is;  Does he make more money off of me by keeping me in mutual funds rather than cash?
Yes, I'm in the American funds & Lord Abbett funds that paid him the bigger kickback a few years ago.
When times are bad he says "You better put more money in your IRA.  It's a great buying opportunity"
When times are good he says "You better put more money in your IRA.  You're missing the big runup"
I'm starting to question whether or not he knows what he's doing or if he's just a salesman looking out for himself
I'd like opinions on what are the safest investments at this time
Thanks for your time.
PJG

bondo's picture
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If you are not comfortable with your advisor I suggest you go talk to another one as opposed to asking investment advice on an internet board.

HymanRoth's picture
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Joined: 2008-08-25

Getting out of the equity markets and into 'safe' investments at times like these is a good recipe for making a small fortune.........as long as you start with a large one.As for your Jones guy always being bullish, that's a whole different ball of wax.

BSinger82's picture
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I agree with bondo

snaggletooth's picture
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Don't you wish Bobby was here to set this guy straight?
 
Ice, you'll just have to tell him we don't work for free.

buyandhold's picture
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Advisory Solutions.

breaking news's picture
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Joined: 2008-09-29

Your advisor does make a small % to keep you invested. It is such a small amount it wouldn't be enough to make a big difference. If the advisor has you in good diversified investments then he is right in advising you to stay invested and add money. Most clients want to bail in a down market and it is the best time to buy. If the market is going down your dollars buy more. It sounds like you don't trust him. If he is truly trying to help you achieve your goals and you don't trust him then don't waste his time.    

unsure_at_HRBFA's picture
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For US equities since WW2:
 
Average bear market lasts 14 months with 33% loss 
Average bull market lasts 70 months with 185% gain
 
There is an insane amount of cash waiting on the sidelines.  Much of it is money that's supposed to be long-term money; there's no way that investors will sit earning 1% on long-term monies forever.
 
As a very general rule of thumb, I suggest keeping minimum 5 years' expenses in cash/bonds - then you don't need to risk selling stocks while they're down.
 
 
 
 

troll's picture
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Joined: 2004-11-29

Why is anyone on this board giving any kind of investment information to someone who is clearly not in our industry?

Anonymous's picture
Anonymous

snaggletooth wrote:Don't you wish Bobby was here to set this guy straight?
 
Ice, you'll just have to tell him we don't work for free.
 
Looks like you already did Snags!  But of course, I"ll be happy to reinforce that!    By the way Ominous, good point.
 
OK PJ - Apparently, someone needs to set you straight...and I guess that will be me.  So here are a few points to remember:
 
1.  Your EDJ broker didn't get "kickbacks" for your trades, he got paid a commission.  It's one of the primary ways we make money. 
 
2.  As Snags noted, we make our living by ADVISING CLIENTS.  In case that lightbulb in your skull isn't blinking at the moment, it's a pretty safe bet that we DONT DO OUR ADVISING ON THIS FORUM FOR FREE.  Think about it this way?  If you are a janitor for a living...do you come home from work and help strangers clean their houses for no charge?  I'd rather doubt it.  If you are unsure of your advisor's recommendations, INTERVIEW A NEW ONE (OR TWO).
 
3.  Here's a freebie just for you, since you obviously can't think this through on your own, we'll just back into the answer for you...
 
-How much are you down so far since last year?  15%?  20%?  Maybe 25%?  If you sell out now and buy CDs/Money Market/Savings account...what will your return be?  Maybe 3% a year?  How long will it take you to just get back to where you were last year?  I'll let you insert the math here.
 
Now, does that 3% a year get you to your financial goals? 
 
Now wait a second here sharpshooter, I know what you are about to say...
 
"But Ice, what happens if my mutual funds go down to zero?  That would be worse than getting ass raped by a sideways telephone pole!"
 
True.  But in order for your mutual funds to go to zero, pretty much every corporation in the world has to go bankrupt.  Now, if that happens, do you think that your CDs will matter?  Oh wait, there are no more corporations, so your bank no longer exists, so your CDs are gone too. 
 
So lets recap your options:
 
a)  Sell to cash.  Best result:  get 3% a year, and do not achieve your financial goals.  Worst case:  Financial apocalypse occurs, the world economy is destroyed, we are now hunters and gatherers again.  Your CDs didn't matter.
 
b)  Stay invested.  Best result:  after some volatile days/months/years, the market recovers, as it has EVERY TIME IN HISTORY, and in the rebound year your account skyrockets 30% (or more) and you are back on track to meet your financial goals.  Worst case:  Financial apocalypse occurs, the world economy is destroyed, you know the rest of the story. 
 
Now seriously - stop asking people that bust their asses day in, and day out, to make a living in a professional career, to do your freaking work for free.  Have a nice day.

gvf's picture
gvf
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Joined: 2008-07-01

Bravo!

pjgallo's picture
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Joined: 2008-09-29

I didn't even consider that I would be asking for free advice from the professionals.
I realize this is how you make your living and I sincerely apologize.
 
I appreciate your time and I thank you.
 
PJG

ytrewq's picture
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Joined: 2008-08-02

Ice.  I want to marry you.  Wait, that isn't legal in my state (we are both male?).  Yet.  When I retire (20-30 years?), I am moving my account to you.

liquid's picture
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...(instructing my oldest son to name his first-born male "ICECUBE" in tribute)
           Spoken like a true professional advisor!
 

Anonymous's picture
Anonymous

Aww shucks guys! 
 
PJ - Apology accepted, we forgive you.  Best of luck. 

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SayNo2KoolAid's picture
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Ice:
 Great post .. but where did those numbers come from?  The "bear" figures sound right, but 185% average gain in 70 months in a bull market?  Sounds a little high to me.  Thank you, though, for the wonderful post.

Spaceman Spiff's picture
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Joined: 2006-08-08

To be completely fair on the kickback issue, I would guess he's referring to revenue sharing, not commission. 

snaggletooth's picture
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Ice, good post man, but the Bengals still suck.

SayNo2KoolAid's picture
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Sorry .. my question should have been directed to Unsure ,.. still am curious on the answer, though.  Any ideas?

pjgallo's picture
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I didn't really mean to post here again, but I'd like to clear something up if I may
I became a little suspicious of Edward Jones when I heard that certain companies were giving bigger commissions to reps that promoted their funds.  I checked my portfolio and all the funds I held in my Roth (seven of them) were on the "preferred" list.   It led me to question whether my "friend" actually had my best interest at heart.
I'm not a youngster and my Roth holds about $50,000 - small potatoes to many, but it's mine and I'm anxious about protecting it.
Thanks for allowing me to intrude - I'll read the replies, but probably not post again.
Thank you very much for your time. JPG

norway401's picture
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Joined: 2007-10-16

Discuss this CONFIDENTIAL matter with your Edward Jones Advisor. If you have issues with the Advisor and the Company this is something you should address privately and not via this Forum. I say this respectfully.

ezmoney's picture
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Joined: 2004-11-30

I was an EJ rep, and those preferred funds are alright funds.

Anonymous's picture
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snaggletooth wrote:Ice, good post man, but the Bengals still suck.
 
Can't argue that one! 

breaking news's picture
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Your Edward Jones advisor knows more about those funds than any others because he speaks to the fund reps on a regular basis. Would you prefer he offer advice on funds he knows nothing about?

Spaceman Spiff's picture
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pjgallo wrote:I didn't really mean to post here again, but I'd like to clear something up if I may
I became a little suspicious of Edward Jones when I heard that certain companies were giving bigger commissions to reps that promoted their funds.  I checked my portfolio and all the funds I held in my Roth (seven of them) were on the "preferred" list.   It led me to question whether my "friend" actually had my best interest at heart.
I'm not a youngster and my Roth holds about $50,000 - small potatoes to many, but it's mine and I'm anxious about protecting it.
Thanks for allowing me to intrude - I'll read the replies, but probably not post again.
Thank you very much for your time. JPG
 
You are not interpreting the info you heard correctly.   I'll explain, then you need to go talk with your friend about the investments you own.  You need to ask him specifically how he gets paid or got paid to give you advice. 
 
Broker sold mutual funds have two costs associated with them.  They are commissions and service fees.  With an A share, which I will assume you purchased and will therefore use for discussion purposes, you pay an up front commission.  Commissions are spelled out in the prospectus, a legal document akin to a contract that you would have received when you bought the fund, and are set by the mutual fund company.  They don't change from firm to firm.  So, your EDJ friend will charge you the same thing on an A share as you would pay at any other brokerage firm out there.  We don't get extra commission for selling you funds on our preferred list.  Commissions on A shares typically start at 5.75% and go down with the more money you put into a company.   
 
Service fees are also set by the fund company.  They too are a prospectus item and not negotiable from firm to firm.  Average service fee is somewhere in the neighborhood of 1.25% per year.  Those charges are taken out of your holdings throughout the year and any returns you see reported are net of those fees. 
 
Now, what you undoubtedly read about was revenue sharing.  I don't know where it started, but the basic concept is companies like EDJ (and just about every other brokerage firm out there) receive payments from mutual fund companies in exchange for offering their funds more predominantly than others.  At EDJ we have 7 preferred fund families, which include American Funds and Lord Abbett.  We also have preferred annuity vendors.  We hear from those vendors more often than any other vendor in the business. 
 
What those revenue sharing payments mean to your account is pretty minimal.  American Funds pays $2 per every $10,000 invested with EDJ and Lord Abbett is $10 per every $10,000.  So if your $50,000 is split evenly between the two, the revenue sharing EDJ gets from your assets amounts to $30 a year.  If your advisor had really been looking out for himself instead of you he would have put you with one of the other vendors who pay EDJ more in revenue sharing. 
 
You can be suspicious of your advisor if you like.  But if you thought that your advisor was getting paid a ton more in commissions for buying you American Funds and Lord Abbett funds, you need to change your thinking.  Then you need to take his advice and move some of that money you have in your money market account into your Roth IRA.  Then you need to apologize to him for thinking bad thoughts about him.  Then you need to send 3 of your friends to go see him.  People like you and your friends need guys like him at times like these.  You'll thank him later.   

Hey Kool-Aid's picture
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Joined: 2008-03-30

AMEN!

gvf's picture
gvf
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And if you don't trust Spiff, I have a 10 year fixed annuity at 5.5% that I'd be willing to sell you I've also got this bridge that leads to nowhere somewhere around here, I'll sell you the deed on it. 

walking9's picture
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Joined: 2008-09-30

PJ, the way this industry charges clients is the product of a changing and confusing regluatory environment.
Don't blame  the advisor. As long as you understand how your advisor gets paid, and the fact that everyone needs to get paid, you can make an intelligent choice.
In the near future, I think fees and such will become much easier for the average person to understand.

Borker Boy's picture
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Joined: 2006-12-09

And I wonder if they'll eventually force folks to stop splitting the ticket to get higher commissions?

walking9's picture
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Joined: 2008-09-30

Do you mean not hitting breakpoints?

Borker Boy's picture
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Si!

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