Check out the latest “The Mole” column in Money, in which the Mole answers a question about dumping a horrible money manager. The question:
After three years of negative returns, I need to find a new money manager. What should I ask and is there anything I can rely on that ranks the quality and returns for money managers?
I’m guessing the three years are 2004 – 2006. If that’s the case, there’s no excuse to have negative returns. According to the Callan Periodic Table of Investment Returns, the S&P 500 Index total annual returns for 2004 – 2006 were 10.88, 4.91, and 15.79, respectively. To turn in a negative return over that same period of time is inexcuseable. This manager must be on drugs.
My advice for this person is to:
1. Dump the money manager, just beware of any tax consequences if this is a taxable account.
2. Develop an asset allocation plan.
3. Utilize low-cost index funds or exchange-traded funds. Index funds are great in that you generally don’t have to worry about underperformance. Of course, you’re never going to perform better than the market, but in most cases there’s nothing wrong with accepting market return.
I think simplicity is the best.