Am I being negligent or incompetent to leave these investments where they are?

In My Humble Opinion (IMHO)
#1

The S&P 500 was at $1944.41 on September 1 2015, and grew to $2740.37 by November 1 2018 (a few days ago) according to http://www.multpl.com/s-p-500-historical-prices/table/by-month. That means it got bigger by a factor of 1.409 over 38 months, so it grew at a rate of 11.4447 percent annually.

Over the same time period, the package of investments I have with a local financial company grew by a factor of 1.130, or 3.943 percent annually.

I like the idea of a S&P Index Fund as a very plain and mainstream way of investing, with a low expense ratio (Schwab charges 0.03% for example). I like what Warren Buffet has said about them. I understand that if I had put my money in that fund it would have grown at 11.4447 - 0.03 = 11.417 percent annually.

That’s correct, isn’t it?

So, am I basically practicing negligence or incompetence by leaving my funds where they are, instead of just putting the money into the Schwab S&P 500 Index Fund?

The package of investments I’m talking about is 1/3 of my total. It includes a range of risks. There are major fractions in individual stocks that the local company’s staff buys and sells, a couple different mutual funds, and an annuity. The local company has a sound history and online articles about them all seem positive. I also have a name brand 401K and an employee stock ownership program, each another 1/3 of my total, and both connected to my employer. The 401K is all stocks and so somewhat high risk, and the stock ownership program is quite high risk as it is all in one company and my remaining career prospects are also strongly tied to the same company. Better judgement on managing the risk level of my savings is probably in order, but it’s also hard to come by, as advisors always seem to have conflicts of interest (even when paid an outright fee rather than through commissions). I’m 61, have about 15 years salary saved, and anticipate retiring in 5 years and dying in about 24 years.

What say the wise Dopers?

#2

Your investment manager seems to have underperformed rather dramatically. This part of your portfolio is almost 25% lower than it would have been.

Unless the investments are way below average risk, this is a pretty significant underperformance over three years. From your description it doesn’t seem like the portfolio would be less risky than S&P 500 index fund or ETF.

Actually, there is another part of your portfolio that concerns me. You have 1/3 of your net worth in company stock? Unless you have some compelling reasons to hold that, I’d be looking to reduce my exposure there.

#3

Index funds almost always outperform specific individual choices. Switch now. And, as*** The Mighty Atlas*** already said, start shedding your company stock ASAP. Your level of exposure is way too high.

#4

“Buying and selling” individual stocks might be making wise choices or it might just be their way of generating transaction costs. What do you pay in commissions for all of these trades? And the annuity might be a wise choice but they’re famous for generating really high commissions. And who wrote those online articles that are so positive?

#5

Another vote for this.

I always considered the greatest risk to my career to be the stability of my employer, also risking my retirement by holding company stock was a non-starter. (I once knew an investment banker who told me that the stock market was a risk to his career and as a result, he would not invest in the market!)

I always invested in some index funds but when I retired 10 years ago, I started shifting to a simple Three-fund index portfolio. It has worked out and I sleep well.

#6

Yeah, these are the kinds of replies I thought I’d get. I don’t want to be too short term in evaluating them, but 3 years is a pretty good trial period.

I am able to take out as much as half my company stock at a time, no more than yearly. I’ve done so twice and think a third time is in order. But, there are some reasons to think 2018 and 2019 will be really good years for it, and 2018 has been so far. I think I’ll pull half out in about a year.

The positive articles were small things by local journalists, and I was paying more attention to trustworthiness than performance in doing my research. I don’t have articles saying they get investors a great return.

#7

While I think you should move the money, I don’t think you are negligent. You have a plan, and actually monitor your performance. That puts you ahead of many.

If those 15 yrs salary are in cash, you can be fairly agressive in reallocating that local money. If on the other hand that is counted in the local money/401k/eso then you should consider having some in cash equivalent. Any money you need in the next 10 years should not be in stocks.

Given your age and plans, you have limited time to rebuild if bad things happen. Meaning your ridk tolerance should be significantly lower than it was 5-10 years ago. Even if your company’s stock is likely to do well, given your total exposure to the company you should sell it. But if you don’t, at least write options on it, create dome income.

#8

Yes, the 15 years salary IS the local/401K/eso. I have a few thousand cash and zero debt. My expenses are fairly low. In fact it looks like SS alone would go a good part of the way to covering them, like maybe more than half, though there’s considerable uncertainty in medical expenses. I probably have enough in non-stock to cover the rest up to 10 years from now, assuming I’m working the first half of that. Of course, if I move everything into a 500 fund then that wouldn’t be true anymore.

#9

Im not a financial planner or consultant. In your shoes, i would look at the following:- if I got fired tomorrow, and could not continue in my current career, how much could I still make (from handing out carts at Walmart, doing taxes for H&R block etc - i.e. worst case). And if I cut expenses to the bone, would there be a shortfall. If so, compute that shortfall until soc sec kicks in. Then calculate the shortfall between ss and expenses, if any, until year 10 from now. Whatever that amount is, that, or a significant portion of it, should not be in equities, and preferably be in cash equivalent.

Note that this avoiding of risk will cost you about 6 or so percent on average vs having it in an index fund. But it makes it significantly less likely you will be forced into unpleasant decisions if the next signficant downturn is at an inopportune time.

#10

  1. Moving all your money at one time from investment 1 to investment 2 can either be good or terrible. There’s a lot of risk doing this. (Risk above and beyond typical investing.) How comfortable are you with risk?

  2. Moving a lot of money into an investment that zig zags over the years when it’s at the top of a zig is not a good idea. The issue is guessing if something’s at the top or not. But historically, it seems that the current market has maxed out and is showing signs of fizzling. YMMV.

So moving all your money now into a stock index fund is high risk with a good risk of timing it well to hit a downturn.

The standard recommendation regarding investing in something new is to stagger putting money into it. Some now, some later, etc. These irons out the zig zags. It lowers your risks. It may not be the absolute maximum in hindsight, put it’s likely to return decently and not cause a lot of sweat.

Plus you diversify. Not all eggs in one basket.