Bruce Mazo, CFP®, CLU®
This is meant to be a conversation-starter, not specific advice for any individual. With that in mind, let's consider two households, both at or near retirement, similar in net worth, but at polar opposites in their financial mix:
1. Pension and / or other stable predictable streams of cash flow (e.g. Social Security) when, taken together, cover all of your annual expenses, both fixed and discretionary.
2. No streams of any kind. One "bucket" of capital to be used to cover all expenses.
First of all, it is my professional opinion and belief that a competent Fiduciary will not actually accept you as a client if that Fiduciary doesn't feel that s/he can provide meaningful added value to you. In the two oversimplified cases above, the household with stream(s) of cash flow that cover all their expenses might not gain additional value by paying a Fiduciary for any financial advice. And conversely, that Fiduciary might not accept that household as a client.
On the other hand, the household sitting on only a "bucket" of money / assets (i.e. no "streams") might benefit greatly.
"Major emotional mistakes in the investing realm are not calculated in basis points, they are tallied in the hundreds of thousands of dollars, or, in extreme cases, in the millions. Wealthy people know this. They’ve learned to forge alliances with doctors, lawyers, accountants, consultants and advisors whom they can trust and confide in. The costs have paled in comparison with the benefits – in some cases, over generations." -- Josh Brown in The Reformed Broker
Some time ago I was working after dinner at home near the kitchen and I heard my then teenage daughter ask a financial planning / investment question to my then (now late, ex-wife, then a 4th grade elementary school teacher). So I came out to the kitchen and said, “Why didn’t you ask me that question instead of Mom? You know that is my business. And my daughter said, “Dad, I didn’t want to know that much about it!”
So some readers might not want to know "how the watch works." Fair enough. For those who do, note that one of the links below discusses the possibility of having all of the previously-mentioned bucket of money in one choice. Advantages & disadvantages of doing it that way are in that post, so I won't repeat here.
But I might encourage a brief peek at Nest Egg Choices. One question that I have not answered ... there or here ... is how much in each choice? Simply because, that is what you pay a Fiduciary Advisor to do. Recommend which choices as well as what percentage of your Nest Egg into each choice.
Not completely randomly there is also a link to and about Bill Sharpe. Professor Sharpe was one of my teachers at the Stanford GSB. At age more than 80, he is still active. And he is trying to formulate some possible answers to the above question. I.e. which choices, and how much into each? I added the link because Professor Sharpe, a bright, highly-educated and experienced professional, sees this question as complex and non-trivial. I agree!
Also I encourage you to peek at the Robert Shiller speech. I had the opportunity to attend that speech live. Shiller got my attention when he mentioned the largest historical drawdown has been more than 80%. If you think for a moment about the two households discussed above, that 80% drawdown might not make much difference to the household with all their expenses covered by streams of cash flow. But if that second household owns a chunk of risk assets subject to an 80%, that could be a big problem.
As it turns out, most of us are somewhere in the middle. The streams of cash flow might be there. But these streams might not be enough to live the way we wish to live in retirement. So we are at least thinking about tapping the buckets of assets at times -maybe for a vacation - pay for a wedding -- etc. etc.
"Knowing a client personally enough to anticipate what market environments will trigger their worst impulses toward either crippling fear or reckless greed is a task uniquely suited to emotionally intelligent, skilled human advisors." -- -- Josh Brown in The Reformed Broker
A few ending thoughts: Not everyone wants (or needs) a Fiduciary. A Fiduciary advisor will not necessarily "require" all your investments be placed there. But the Fiduciary will have to see everything or not really be following Fiduciary standard. Some people are too private to do that. But in that case they become D-I-Y. "Do-It-Yourselfers." Some people are fine with all that but choose not to follow the Fiduciary advice received. So ... split the difference! Retirement is complex. No one has a monopoly on the right answers. Overconfidence is arguably one of the biggest risks. Know your own situation - expenses - income - assets - debts - etc. Get The Facts. Discuss your own views with ... spouse ... someone else you trust ... etc. And then continue to monitor. And ... don't get thrown out at Third Base!
25 years to bounce back? Try 4-1/2 Manage your own money using just one equity investment? L Income Fund recommended for Fed retireesBill Sharpe and the Challenge of Retirement Planning What I like and why for your retirement nest egg Nest Egg Choices: Advantages + Disadvantages Robert Shiller recorded speech 80% drawdown G Fund Guarantee per TSP website Why some might benefit from human personalized financial advice A Professional Financial Advisor Should Protect You From "Unforced Errors"