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When financial advisers survey clients in these ways, they often get back more than they asked for

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Like most service providers, financial advisers want to know what their customers think. But there’s a right and wrong way to ask.

Soliciting feedback is inherently personal. So it’s ironic that so many advisers rely on impersonal forms of communication to do so. For instance, prompting clients to take an online survey has limited benefit. They may ignore the request, especially if they get an auto-generated email or text. If they do respond, resentment can set in if they never hear back about their comments.

Moreover, in their eagerness to gather input, advisers tend to fall into traps. For starters, they conduct surveys once a year rather than seek comments more frequently. They may also spend so much time crafting specific questions and satisfaction scales (1-to-5 ranking? 1-to-10 score?) that they stoke impatience among respondents who simply want to provide unfiltered input about what’s top of mind for them. Worst of all, advisers may treat the survey as a thinly disguised effort to get referrals (“Would you recommend us to friends?”), which can backfire if clients suspect that’s its real purpose.

Of course, there’s nothing wrong with urging satisfied clients to spread the word. But there are more creative ways to go about it. Don Todd, a certified financial planner in Tampa, Fla., sought to build visibility for his firm. So he asked clients to critique his practice using Google Reviews. “The way we marketed before Covid, when we’d network in the community and meet with centers of influence, is not available to us now,” Todd said. “We needed to build our online presence.”

He estimates that more than 30% of the clients that he’s asked have followed through. Of the 21 reviews currently posted, all have given his firm five stars. “There’s some risk you’ll get negative feedback,” he said.

Because online reviews are generally not considered testimonials, they should not pose compliance headaches. As long as advisers do not taint the process (by, say, drafting suggested phrases for the client to post), they’re safe. But it’s still smart to get clearance from a compliance officer before proceeding.

As he intended, Todd has found that the feedback has doubled as a form of marketing. Recently, a friend referred a prospect to his firm. “The first thing [the prospect] did was read all the reviews,” Todd said.

In exploring the best way to collect honest customer feedback, a debate rages. Some insist that assuring a respondent’s anonymity encourages the most hard-hitting, revealing criticism. Others think that a more human appeal, by phone or in person, works better.

Jeff Bush, an adviser in Norristown, Pa., chose the latter approach. He began a series of conversations with about 50 of his clients, asking questions such as, “What’s it like working with us?” and “What do you value from an adviser?”

“The interviews, mostly by phone, lasted 15 to 20 minutes,” Bush said. “These were separate, dedicated information-gathering calls. I picked a cross-section of newer and longtime clients, some with a good relationship with us and others where we knew we could improve upon it.”

Bush has applied what he learned. For instance, he codified his service model into what he now calls “the seven pillars.” It’s a handy framework for educating others about the firm. “It’s a summary of all we do for clients,” he said. “We broke it down into seven categories such as wealth management, estate planning and philanthropy.”

In seeking feedback during one-on-one conversations, brace for impact. If the criticism stings, resist snap judgments; instead, ask for examples. And always express gratitude, even when the feedback stings.

More: Financial advisers know how to respond to people’s money worries, but what about health fears?

Plus: How to know when your financial adviser is really listening to your words



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This investment mix beats the S&P 500 — by a mile

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This article is the core of my best advice for long-term investors. If you want the very best equity portfolio, you’re about to learn what it is and how to put it together.

This article has three parts. The first is what might be called an “executive summary” of key points. The second outlines the step-by-step process of creating my recommended portfolio. The third digs deeper into a few related topics.

This is one of a series of articles I’ve written and updated annually for many years. Together, they outline a lifetime wealth accumulation strategy for do-it-yourself investors.

The other articles will tackle how to accumulate investment savings, how much to hold in bonds, and how to plan retirement withdrawals.

Part one

“Ultimate” isn’t a term to toss around lightly. But in the case of the ultimate buy-and-hold strategy, it fits. I believe this is the absolute best way for most investors to achieve long-term growth in the stock markets.

This strategy is based on the best academic research I can find — and it is the basis of most of my own investments.

Here are some key takeaways:

Because nobody can know the future of investment returns, massive diversification gives investors the highest probability for long-term success.

Most investors rely almost exclusively on the S&P 500
SPX,
-0.48%
.
But by adding equal portions of nine other equity asset classes, long-term investors can double or even triple their returns.

The additional return comes primarily from taking advantage of long-term favorable returns of value stocks and small-cap stocks. Taking this step involves only minimal additional risk.

The ultimate buy-and-hold portfolio works best for investors who don’t want or try to predict the future, time the market’s inevitable swings or pick individual stocks.

By investing in passively managed index funds or exchange-traded funds, this strategy offers investors a convenient, low-cost way to own thousands of stocks.

Read: Will Social Security still be there if I wait to claim it?

Part two

This “ultimate” all-equity portfolio automatically takes advantage of stock-market opportunities wherever they are.

It’s best to roll this out in steps so you can see how it goes together. To help you follow along, here’s a table showing the components.

The base “ingredient” in this portfolio is the S&P 500, which is a good investment by itself. For the past 51 calendar years, from 1970 through 2020, the S&P 500 compounded at 10.7%. An initial investment of $100,000 in 1970 would have grown to nearly $18 million by the end of 2020. Keep that figure in mind as a benchmark to see the results of the diversification I’m about to describe.

For the sake of our discussion, think of the S&P 500 index as Portfolio 1.

The next step involves shifting 10% of your portfolio from the S&P 500 to large-cap value stocks, which are regarded as relatively underpriced (hence the term value).

This results in Portfolio 2, which is still 90% in the S&P 500. Assuming annual rebalancing (an assumption that applies throughout this discussion), the 51-year compound return rises from 10.7% to 10.9%. That would turn $100,000 investment in 1970 into $19.4 million.

In dollars, this simple step adds nearly 15 times the amount of your entire original investment of $100,000 — the result of changing only one-tenth of the portfolio. If that’s not enough to convince you of the power of diversification, keep reading.

Read: We want to scale back to an up-and-coming town out West where we can retire — where should we go?

In Portfolio 3, we move another 10% into U.S. small-cap blend stocks, decreasing the weight of the S&P 500 to 80%.

This boosts the 51-year compound return to 11%; an initial $100,000 investment would grow to $20.7 million — an increase of nearly $2.8 million from Portfolio 1.

To create Portfolio 4, we move 10% of the portfolio into U.S. small-cap value stocks, reducing the weight of the S&P 500 to 70%. Small-cap value stocks historically have been the most productive of all major U.S. asset classes, and they boost the compound return to 11.4%, enough to turn that initial $100,000 investment into $24.4 million — with more than two-thirds of the portfolio still in the S&P 500.

Read: Is COVID-19 a preview of what retirement will be like?

To continue diversifying, we create Portfolio 5 by shifting another 10% into U.S. REITs funds. Result: a compound return of 11.4% and an ending cash value of just under $25 million.

I understand that many investors are uncomfortable with international equities. But I believe any portfolio worth being described as “ultimate” must venture beyond the U.S. borders.

Accordingly, to create Portfolio 6, we shift another 40% of the portfolio to four more important asset classes: international large-cap blend stocks, international large-cap value stocks, international small-cap blend stocks and international small-cap value stocks.

This reduces the influence of the S&P 500 to 20%. The result is a compound return of 12% and a 51-year portfolio value of $32.4 million — an increase of 81% over the S&P 500 by itself.

The final step, Portfolio 7, comes from adding 10% in emerging markets stocks, representing countries with expanding economies and prospects for rapid growth.

This boosts the compound return to 12.4% and a final value of $34.4 million.

This massively diversified 10-part portfolio is as far removed as possible from any effort to predict the future. Over 51 calendar years, it met all the asset-class predictions of academic researchers—and more than doubled the dollar return of the S&P 500.

Here are my specific recommendations:

Asset class

Recommended ETF (ticker)

Standard & Poor’s 500 Index

AVUS

U.S. large-cap value

RPV

U.S. small-cap blend

IJR

U.S. small-cap value

AVUV

U.S. real-estate investment trusts

VNQ

International large blend

AVDE

International large-cap value

EFV

International small-cap blend

FNDC

International small-cap value

AVDV

Emerging markets

AVEM

Unfortunately, this portfolio has an important drawback: It requires owning and periodically rebalancing 10 component parts. Relatively few investors have the time or inclination to do that.

Fortunately, we have devised a four-fund alternative that’s much easier to implement.

Since 1970, this “lite” version of the ultimate buy and hold strategy would have produced virtually the same compound return, dollar return and standard deviation as the 10-fund portfolio I outlined above.

In an upcoming article, I’ll roll out this new version.

Part three

It won’t surprise you to learn that there’s much more to say about this portfolio.

In 2020, we recalculated results from the 1970s to reflect new data we did not have in previous years. We also changed our assumptions about fund expenses that investors would have been charge in the 1970s. We believe our recalculations will better reflect what 21st century investors can reasonably expect.

Yet even after all these calculations, the returns did not change materially, and there’s no change in my beliefs or recommendations.

This updated data is as good as I can make it.

To learn more about these changes as well as some other reasons I think so highly of this portfolio, I hope you’ll tune in to my latest podcast.

Richard Buck contributed to this article.

Paul Merriman and Richard Buck are the authors of We’re Talking Millions! 12 Simple Ways To Supercharge Your Retirement.



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‘She is a financial idiot and partier’: I loaned my sister $4,780 for a lawyer during her divorce. I am still chasing repayments

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Two years ago, my sister called me from a divorce-settlement meeting without a lawyer. Her soon-to-be ex-spouse had a lawyer there. She was being pressured into giving up her portion of his pension that she was legally entitled to (their marriage was over 20 years). She was freaking out, in tears and realized she needed a lawyer.

I told her to leave that meeting and get a lawyer. Afterward, she asked me for money to pay for the lawyer and promised to pay me back. I testified for her regarding other marital financial issues (I was executor of our father’s estate, in which her husband had made false statements on his entitlements to some of her inheritance). She thanked me again and again in front of her lawyer and promised to repay me.


‘She borrowed another $5,000 from an aunt for a child-custody battle, which she lost.’

I am not wealthy and did not have $4,780 on hand, but I have good credit and used my line of credit. It will be two years in May and I have not received any payment. She was supposed to give me some monthly payments and lump sums at tax-refund time. Last year’s excuse for no tax-refund reimbursement was that she borrowed another $5,000 from an aunt for a child-custody battle, which she lost.

She earns $90,000 to $95,000 a year, but this year’s excuse is that she is in arrears for child-support payments. She is not destitute; she is a financial idiot and partier. I do have texts saying she will pay me back and others that say she has no money. She swore before Thanksgiving this year that she would start paying me in January. January came and went, no payment.

During a text discussion in early February, she informed me about her child-support arrears (so no lump payment from her tax-refund again) and is only planning $25 per month repayments when she could. That plan doesn’t cover the interest on the loan, and even if I was OK with covering the interest, it would be more than 20 years.

I told her that was not acceptable, and that she left me no choice. I didn’t say what action I would take. So I am planning to take her to small-claims court, and garnish her wages. The Virginia statute of limitations is two years, so I need to do this by early May. Now the financial idiot sent me a check for $25.

If I cash it, would it extend the statute of limitations? Should I cash it? What is the best approach? Also, she is a social-media junkie; on her Facebook and Instagram, there are multiple examples of vacations, drunken outings and other expenditures since May 2019 that could have helped to dig her out of the financial heap.

There is a capability to reimburse, but zero will. Any advice is appreciated.

Deadbeat’s Sibling

Dear Sibling,

Only gamble what you can afford to lose. Only invest what you can afford to lose. Only lend what you can afford to lose. I don’t believe you will be getting this money, so I advise you to write it off as a bad debt sooner rather than later. Sure, try the small-claims court, but failing that there will come a time when you will have to say enough is enough: “I tried to do the right thing, she didn’t repay it, and I can’t change her.” I do have questions about what you hope to achieve.


‘I see two unhealthy patterns: Your sister’s grifting and your gifting. Each serves a purpose.’

If she repaid you the principal sum, would you then start to feel similar rumblings of injustice over the interest? If she repaid you with interest, would you then suffer pangs of annoyance over the hoops of fire she made you jump through in order to be repaid? After all, you were doing her the favor, right? How dare she put you through this. And, thirdly, what is this $4,780 worth to you? It’s already been two years of self-righteous fury, stress and anxiety.

None of this should come as a surprise to you. I see two unhealthy patterns: your sister’s grifting and your gifting. But each of these serves a purpose. Yes, your sister reactivates the statute of limitations by repaying a small part of the loan and, thereby, acknowledging that she still owes you money — five years for breaching a written contract or three for an oral contract, but talk to a lawyer about that. When it does, this tortured game of cat and mouse begins anew.

How far are you willing to go to retrieve this debt? How long will you pursue it? And aside from the prospect of knowing that you are still in with a shot of getting the $4,780 back, what do you get out of feeling perpetually angry and frustrated at your sister? Does it reaffirm that you are the principled, upstanding one in the family? Or does pursuing your sister for this money remind her on a daily basis that she appears to be incapable of keeping a promise?


‘In order to truly move on, you too need to take responsibility for lending it to her in the first place.’


— The Moneyist

I ask you these questions for a reason. Of course, she’s behind on child support. You already know that your sister is a dramatic (and possibly irresponsible and/or reckless) person who has learned how to leverage her alleged victimhood to her advantage. She may see herself as a victim of a bad marriage, cruel husband, biased judicial system, and any other circumstance that does not include her own choices and actions.

Your sister may or may not accept responsibility for borrowing this money, but in order for you to truly move on, you too need to take responsibility for lending it to her in the first place. Few could fault you for wanting this money back. But in the game of life, you already win. You are the sister who endeavors to keep her word, look out for others, and be the adult in the room. Your sister loses. You get to be right. Your sister is wrong. And, for exactly $4,780, everyone else will see that.

I understand that you would like this money back, but many people lead uneven, tumultuous lives. You may also ask yourself if this unrelenting pursuit of money from such a person serves you and does what I hope you originally had intended to do by telling your sister to walk out of those divorce talks and hire a lawyer: help your sibling and, in some small way, help make her chaotic life easier.

You are not a credit company or debt collector. You are, for better or for worse, her sister.

You can email The Moneyist with any financial and ethical questions related to coronavirus at qfottrell@marketwatch.com

The Moneyist: ‘Warren Buffett and Harry Potter couldn’t get those two retired early’: Our spendthrift neighbors said our adviser was ‘lousy.’ So how come WE retired early?

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 group where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.



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Americans can’t file their income taxes fast enough — but they should brace for some unwelcome news in their 2020 returns

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It seems like you can’t get people to file their 2020 tax returns fast enough.

People are filing their taxes at a blistering pace so far this year, underscoring how serious Americans are about getting any tax refund due or any stimulus-check money they missed last year. The IRS began accepting and processing 2020 tax returns slightly later than usual because its systems needed a breather after distributing a second round of stimulus checks in late December.

However, there is some bad news that many Americans should be prepared for when they finally get their return: The average refund so far is $2,880 — as unemployed skyrocketed in 2020 due to restrictions on businesses and shelter-in-place orders due to COVID-19 — significantly less than the $3,125 average refund at roughly the same point last year.

New IRS statistics released Thursday, when put in context, show people are submitting their individual tax returns at a much greater rate than they were early into last year’s tax season. As of Feb. 19, only eight full days into the 2021 filing season, the IRS received 34.69 million individual returns, agency statistics show.

That’s 30.5% fewer returns than the 49.8 million received by Feb. 21 last year — but that was 26 days into the 2020 filing season and weeks before conformation that the coronavirus had really taken hold in the U.S. Simple math, in fact, suggests the volume of individual returns this year.


Simple math suggests the volume of individual returns this year.

When dividing the nearly 34.7 million returns so far this year by eight filing days, the result is 4.3 million returns filed per day. The 49.8 million returns filed last year, divided by 26 filing days comes to 1.91 million returns per day.

Put another way: The IRS has received approximately 21% more individual returns than the agency received last year by Feb. 7, which was 12 days into the tax season last year. Right now, Americans are facing an April 15 deadline to file and pay their taxes (June 15 in Texas), unless they get an extension to Oct. 15, which gives them more time to file their return, but not to pay.

However, they don’t yet factor in refunds that include payments for the Earned Income Tax Credit, a powerful anti-poverty tax credit geared towards low- and moderate-income working families. Refunds incorporating the EITC and the Additional Child Tax Credit will start hitting bank accounts during the first week of March, according to the IRS.

After the Internal Revenue Service started accepting tax returns on Friday, Feb. 12, the agency took in 55 million returns in the first weekend alone, Internal Revenue Service Commissioner Charles Rettig said this week. These 55 million tax returns were not just individual tax returns. They also included business returns and a variety of other returns, IRS spokesman Anthony Burke said.



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