7 Lessons I Learned from Managing My Mother's Money

Filed under: Investing Basics, Family Money, Personal Finance, Investing

Portrait of mature man and his wife making financial revision at home — **Alamy**

After my father passed away eight years ago, I took the lead role in helping my mother manage her finances. During my first meeting with our (former) money manager, three things amazed me.

Retail brokers really do try to sell you speculative, high-commission products.
Good luck getting a decent yield on the cash component of your savings.
Challenging your broker with the wisdom of John Bogle can only lead to trouble.

Before taking on this task, I had very limited investment experience. I worked for a bank, but my experience was focused largely on lending. I'd been a risk manager for mortgage, credit card and personal loan portfolios across the U.S. and Europe.

To prepare for our first meeting, I did a lot of reading. And it wasn't easy. The loss of my father was unexpected and extremely emotional. And I felt a tremendous sense of responsibility, because my mother was depending upon me. She had been married to my father for more than 40 years. They were high school sweethearts. And he had always managed the investment portfolio.

Buying Into Bogle

The first book I read was "Bogle on Mutual Funds." As someone who was analytical by nature, I found that the data he presented made his conclusions clear and obvious. Beating the market consistently over time was impossible. Management fees were too high. Mutual fund managers could live comfortably off their 2 percent (or more) management fees, regardless of their performance. And the interests of brokers are not aligned with your long-term interests. They want you to trade and trade often, with a nice commission being taken along the way. Often, the more speculative the investment product, the higher the commission.

After reading the book, I was convinced that my mother should have roughly her age in bonds, as a percentage of her portfolio. And her entire portfolio should be in low-cost index funds, preferably from Vanguard. (I loved that book.)

Then I looked at the cash component of her portfolio, and I was shocked by the extremely low interest rate that she was receiving. Brokerages are keen to have you invest. So, it is very difficult to get the best certificate of deposit and savings account interest rates. And the differences were dramatic between what I found online and what the brokerage would offer.

In today's market, it's difficult to find good yield on cash. However, online banks can offer much higher interest rates. For example, you can find online savings accounts that pay 0.95 percent. I just recently spoke with a Morgan Stanley (MS) broker, and the best savings option he had to offer paid 0.5 percent. This makes sense: Brokers want you to invest, so they aren't motivated to find you great rates for FDIC deposits. At least, that has been my experience.

Speculative, High-Commission Products

With my homework done, I went to my first meeting with mom's broker. It didn't go well. Within the first five minutes, I could tell we were getting the standard "pitch." The investment he was offering was a hot new pick, destined for success.

I calmly told him that I wanted to talk about our asset allocation (time to de-risk, now that my mother was a widow), our fund choices (time to reduce costs) and our cash allocation (time to increase the interest rate). I was basically told that I could not expect the service of a broker if I made those selections.

I asked if we could just pay him a flat fee for his time, so that he wouldn't have any conflicts of interest. He became angry at my insinuation that he was conflicted.

Sharing Bogle's Wisdom (Mine, Too)

I realized that I was being foolish. Bogle's conclusions and advice constitute an attack on the entire money management establishment. Too much money has been spent by people for too long, chasing speculative returns that end up lagging the general market returns. It was absurd of me to think I could go into the office of a broker getting paid on commission (even if he would call himself a "financial planner"), challenge him to be something completely different, and expect a good result.

We ended up leaving our broker and working with someone we trust to put our interests first. My mother's portfolio was de-risked. (And not a moment too soon: My father passed away in 2006, and we all know what happened to the markets not long after that.) The expense ratio came down. And I've learned a lot along the way.

Eight years into this adventure in money management, I have acquired seven bits of hard-earned wisdom that I am happy to share:

Don't be afraid to challenge, and to ask seemingly stupid questions. And if you don't like the answer (or don't understand it), ask again. Or find someone new who can answer your question.
Don't ever feel rushed into a decision. I have frequently said, "Let me think about it." That gives me time to think, talk to others and not rush into any decision.
Don't stop reading. The more you become familiar with the language used in the financial planner's office, the more comfortable you become with the process. I was petrified the first time I went into the office (despite my college degree and job in banking). Over time, it gets easier.
If you don't understand something, don't do it.
Bogle's advice has been working. Keeping roughly my mother's age in bonds, while keeping costs low, has been a winning formula during one of the most difficult investment horizons. At a minimum, compare your approach to that of John Bogle.
Don't check the value of your portfolio every day. I did that in the early years, and it drove me crazy. And it didn't make much of a difference in what decisions we made, because we weren't chasing returns.
If you have elderly parents, don't be afraid to talk about money with them. You will have to deal with their financial situation sooner or later, and it is better to talk about it in advance.