I invested half of my son's inheritance with a 13.5% return. A major broker underperformed the S&P 500 with the rest ... - Yahoo Finance | Canada News Media
“I have been managing my own investments for almost 20 years and I have done a pretty good job, especially considering I am self-taught.” – Getty Images
Dear Quentin,
When my father passed away nine years ago, he left a sizable inheritance in trust for my two children, with me as the trustee. My children were young adults at the time, and I suggested that they allow me to invest the funds for them to save on fees they would pay an investment adviser. I have been managing my own investments for almost 20 years and I have done a pretty good job, especially considering I am self-taught.
Most Read from MarketWatch
My daughter agreed to let me invest her full inheritance and my son said he wanted to split his money between me and a financial adviser at a major investment-management company (who he found through a friend of a friend). He expressed concern about my lack of training in portfolio management and experience navigating through bull and bear markets. I understood his concerns and agreed to split the funds into two separate accounts.
Nine years later and my son is looking to purchase his first home. He wants to make a sizable down payment and has indicated he will fund it through equal distributions from the two investment accounts. While this sounds reasonable, here’s the rub: The portfolio I manage has done much better than the one the brokerage house is managing. Over the last nine years, my portfolio has an annualized average return of 13.5%; the other has underperformed the S&P 500 SPX.
As his mother and trustee, I plan to suggest that he take all the money from the other account and invest it with me as his adviser instead, but I don’t know how hard I should push the matter if he doesn’t agree. Am I letting my ego get in the way here, or is leaving the funds in the better-performing portfolio the smarter thing to do? At the end of the day, it’s his money, but as the trustee, how assertive should I be?
“Your son is a young adult now, so I expect there will come a time when you will hand over the responsibility to him. Plus, you won’t be around forever.” – MarketWatch illustration
Dear Troubled,
I would pose a slightly different question to your son.
Rather than ask, “Would you allow me to manage the other 50% of your investment portfolio instead of this investment company?” I would ask, “Why did they underperform the S&P 500 while my curated portfolio rose by 13.5%?” The second question is a fact-finding mission that will help your son learn from the different investment approaches, the value (or lack) of diversification in your choices and how much good old-fashioned luck may (or may not) have played a part.
What are the terms, duration and the mission of the trust? Your son is a young adult now, so I expect there will come a time when you will hand over the responsibility to him. Plus, you won’t be around forever. As you are probably aware, a trustee has a fiduciary duty to the beneficiaries and must act with integrity, exercise reasonable care, act with prudence and good faith and generally avoid risky investments, and act in accordance with the rules of the trust.
Did you invest in tech stocks like Amazon AMZN, Apple AAPL, Meta, Google parent Alphabet and Microsoft? Was there one stock that skewed the outcome? For example, did you happen to choose Nvidia NVDA, which has skyrocketed due to the rise in, and development of, artificial intelligence? Or did you include some other stock that outperformed the market over the past 10 years? Did you dabble in the meme-stock craze of 2021 and get out before you lost your shirt? (I’m guessing not.)
This would be a more enlightening discussion to have with your son, especially if you wish him to eventually make decisions over his own investments. For instance, if you had invested in any of the following tech stocks over the last decade, you would obviously be way ahead of the S&P 500 by now: Advanced Micro Devices AMD, Super Micro Computer SMCI, Green Brick Partners GRBK.PRA, Broadcom AVGO, Fair Isaac Corp. FICO and/or Monolithic Power Systems MPWR.
There are no guarantees that a recession or geopolitical event — from Ukraine and the Middle East to the U.S. presidential election — won’t hurt the portfolio you manage for your son, while benefiting the big broker’s portfolio (or, indeed, vice versa). Although not a term universally loved, even the so-called Magnificent Seven — Apple, Microsoft MSFT, Alphabet GOOGL, Amazon, Nvidia, Meta META and Tesla TSLA — have had mixed fortunes this year.
Nobody is expecting you to be the next Catherine Wood or Abigail Johnson — although you’re doing a pretty great job already — but if you talk strategy instead of stock prices, you can have a conversation with your son where you may learn from each other. On that note, how often does your son talk to the financial adviser who manages the other half of his investments about the amount of money he invests, tax implications, volatility and investment performance? It should be at least once a year.
You want to pull rather than push. As Bill Mauldin, the two-time Pulitzer Prize-winning cartoonist, wrote in “The Brass Ring,” his 1971 memoir: “If you’re a leader, you don’t push wet spaghetti, you pull it. The U.S. Army still has to learn that. The British understand it. Patton understood it. I always admired Patton. … I didn’t like that attitude, but I certainly respected his theories and the techniques he used to get his men out of their foxholes.”
There’s a fine, but important, line between assertiveness and pushiness. Unless you have reasons not to trust the investment company managing the other half of your son’s assets, or see major flaws in their strategy, any conversation you have with your son should have one long-term goal in mind: handing over the keys to his financial future and helping him to eventually manage his own money if/when the time comes.
If that is your goal, it’s clear that your love comes before your ego.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
