Did you see the 1980 film "Used Cars?"
The film starred Kurt Russell as a sleazy used-car salesman. The film drew laughs because it so fit the sterotype that American's have regarding the person who may have sold them their last car.
It just so happens that on the "trustability" scale, car salesman don't seem to rank very high. I'm beginning to wonder if we're not being too hard on them.
The recent TV series about Bernie Madoff detailed how one of the greatest financial criminals in U.S. history systematically stole somewhere between $20-50 BILLION from investors through an elaborate Ponzi scheme, which went undetected by the SEC for decades. Let's see the car salesman top that! ( I won't even go into how a politician can be nearly broke when they enter politics, and be worth hundreds of millions years later, while earning nothing more than a public servant's salary...)
Most people have a very happy relationship with their stockbroker. Many times I have asked folks, "how's your portfolio doing?" only to have them tell me something like, "it's been doing good lately." When I ask them for specifics, many times they can't tell me what "good" actually means. Often, when I analyze their holdings they have in fact been doing good, for the last year or two, but they are very surprised to discover that they are no better off than they were ten years ago! Why did they stay in the holdings they were in? They trusted their stockbroker.
As I do portfolio reviews for people, I sometimes can't believe the things I see. Here's one example from a recent analysis:
This broker had placed his client in XXX fund. The lady had been with this broker for nearly twenty years. This was the number one holding in her portfolio, and she had been in it since 1996.
The timeframe on this animal runs from 1984 to 2016. As you can see the fund, which has a Morningstar 1-star rating, lost 59%, recovered slightly, lost 42%, and then stumbled upstairs a bit. The fund has consistently lost money for it's entire existence.
Now, I don't know about you, but when I see something like this it makes me angry. This lady trusted her broker to take care of her, yet he let her stay in this fund over two decades. I wish I could say that I don't see this kind of thing very often, but I do.
How is this stockbroker any different from the used car salesman? Well, the broker probably has a college education, speaks eloquent English, and doesn't major in plaid sportcoats. He's educated, so he must be honest, right? My Dad used to tell me that a dishonest worker might steal from his company, but a dishonest CEO will steal the whole company.
Do you know how your money is invested?
If you haven't had your portfolio analyzed in a while, and by more than one analyst, maybe now is a good time to do it. 2008 struck hard, and I don't see any reason why it can't happen again. Are you OK with a 50% drawdown on your portfolio?
Let me say that this is not intended to be an indictment of stockbrokers. There are a lot of very good brokers out there who genuinely look out for their client's best interests. The fact remains, however, that when it comes to your nest-egg, you need to understand what's going on with it.
And the next time you meet a used-car salesman, shake his hand warmly, and take the thing for a test drive. He's not such a bad guy after all.
Until next time,
Are you retiring soon, or already retired? You might be interested in our weekly webinar. To see a list of topics that will be discussed, click here: