bostonbubble.com

[StallionMang]

Hi-
Can anyone recommend good advisor that understands the issues? My gut and my wife's are telling us different things... hearing rent vs buy calculations explained by a 3d party might help. We're in Waltham.
We're in apt, which does not jive with nesting instincts. Been looking since last summer, and it's an exhausting struggle. My suggested compromise is to rent a house, until such time as seasonally adjusted CSI stops dropping for 3 months in a row. Who knows when that will be... in the meantime, we'll have gotten closer to where we want to be.

[Guest]

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go to the website www.patrick.net

the article on the left is a good place to start

lots of good information there .
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[Guest]

Not looking for a blog... Looking for a dude(tte) at a desk, to run the numbers.

[Shoeshine]

Why pay for someone to run the numbers when the answer is unpainfully obvious and simple.

Look at what www.patrick.net says in parts one and two
and run the numbers yourself.

It should take you less 30 minutes with a simple calculator.

If you want, send me $50 dollars to my PayPal account and PM me your numbers, and I will run them for you .

Cheaping then what some nimrod accountant will charge you

Oh, one more peice of advice, DON'T have a Realtor run the numbers,
because their results are bogus and beyond worthless

Good Luck
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[Shoeshine]

Try this Calculator from the NY Times

http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html#

plug in your numbers, and then hit calculate

there, I just saved you a $500 accountants fee
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[Shoeshine]

note you can move the sliders on the left to explore different
rent and house appreciation scenarios

this calculator is pretty easy to use

gl

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[GenXer]

Shoeshine: Are you licensed to provide investment advice? Are you a fiduciary in a true sense, that is, do you have a disclosure which outlines your conflicts of interest (which are hopefully none)? Are you liable for giving wrong or unsuitable advice? If the answer to all of the above is yes, you are most likely qualified to provide advice to StallionMang.

Whereas I agree that (unfortunately) many practitioners who offer investment advice are no better than a NY times calculator, I would like to defend those of us who have a solid foundation in the 'system-level' financial analysis and are able to provide value-added services to our clients. Not everybody has the skills and/or the inclination, but those of us who do (and are not arrogant to claim they know it all), as well as those of us who put their money where their mouth is (by following the same advice they give to their clients, AND by being liable for its suitability) are more than capable of providing better advice than that of a calculator or a website which is general in nature. Nothing beats personalized advice, and getting the wrong advice can cost a lot more down the line.

StallionMang: As was mentioned before, NY times calculator is a good place to start. Where it gets interesting is the assumptions you are making. Also, financial and investment planning is an inseparable part of providing a rent vs. buy assessment. Where can I put in the assumption that you lose your job? What about the assumption that you will not live in that house for more than 7 years (median house occupancy)? What about the variability of stock market/housing returns over time?

Here are some problems with the rent vs. buy calculators (NY times one is the BEST one, but it still has the same problem). Your outputs are sensitive to your inputs in such a way as to provide diametrically opposite conclusions if your inputs are, for all intents and purposes lie within a relatively small range of values. That is, your outputs are critically sensitive to the small changes in your inputs, especially for very long time horizons. This is true in the limited reality described by the calculator, and you can bet your house this is true in real life scenarios, which provide additional (and possibly even much larger) sources of error in the form of unforeseen events (just as job losses and emergencies).

The NY times calculator is nowhere near reality. It is just a single data point in an infinite range of possible outcomes. In fact, you can bet your money that it is wrong, because it is not even a Monte-Carlo type calculator, as it annualizes inflation and returns, so it provides very unrealisitc expectations. It is so wildly wrong that in fact I would not use it as anything BUT a way to help explain the tradeoffs. The reality is a lot more difficult, and a lot more careful planning is required to make such financial decisions as rent vs. buy. I wish I could say it is exact science, but it is not. It is more like financial risk management in the presense of extreme outliers, though there are definitely ways of bounding the problem given your personal situation.

There are very smart people on this forum (Shoeshine - I'm sure you are one of them). I'm sure they are really good at running their own finances. However, in my experience, not everybody is capable of performing this task well enough by themselves. People do need help. I've been doing taxes since I was 15, but now they get too complicated, and I hired an accountant to help me out. However, tax accountants are not in the business of providing financial advice (buying a house is financial advice, for all intents and purposes). My website and email are in my profile. I'm (almost) always available, and I'd be happy to help anybody who wants an unbiased financial advice.

[Guest]

[BelmontRenter]

[BelmontRenter]

[BelmontRenter]

[GenXer]

Guest: I totally sympathize with your sentiment! In my experience, some people I know got hurt by their advisers. How did it happen? Simple. These advisers are
1) Incompetent (i.e. don't know what they are doing, especially when it comes to the stock market and portfolio management)
2) Have no idea that they are incompetent (i.e. too arrogant to accept that they do not know what they are doing, so they persist in doing the same thing)
3) In the business of selling products without knowledge or understanding of what they are selling (i.e. selling loaded funds and annuities)
4) Believe that they posess special skills to 'beat' the market (see 2 above)

Some tips when picking a financial adviser. If you do decide to go to a financial adviser there are several things you must make sure before you go:

1) Get their disclosure before you sign that contract. Most advisers are only able to make money by selling products and by offering expensive annuities and/or wrap accounts to manage your money. This may be hard to understand from the disclosure, but there are several clues one can use to determine if the adviser is a fiduciary:
a) Make sure the adviser is fee-only (i.e. no commission from sales, no soft dollars for selling/advertizing products, etc)
b) Stay clear of those advisers who are associated with major banks and financial institutions - this is a clear sign that they are selling products.
c) Any adviser who is offering annuities (which are neither Fidelity nor Vanguard) is most likely making a buck at your expense (especially if you are under 60)
d) Any adviser who offers funds with loads (front/back) and 12b.1 fees is by default a salesperson
e) Avoid any adviser who believes that expensive managed funds are better than index funds and those who likes to 'trade' in your account thinking that he can 'beat' the market

2) Always ask adviser who manages their money...if they are 'outsorcing' this to somebody else, stay away.

3) Other ways to check the quality of investment advice:
a) Always ask the adviser whether they believe they have skills to beat the market (honest advisers will know that this is almost impossible to do)
b) Ask your adviser what kind of 'return' to expect (honest advisers will not guarantee anything)
c) Whether they use 'proprietary' strategy

4) Be weary of advisers who claim to have 'portfolio optimization' tools or who use 'Monte Carlo' simulators - many are not aware of the pitfalls of these tools, and are sometimes too sure that they are really able to 'predict' something

5) Make sure that the adviser is following his or her own advice

6) An adviser may be an expert financial planner, but may not be an expert in portfolio management - its like going to a pedeatrician for an advice on a surgery.

Please feel free to add to this list! It is true that many advisers failed their clients during these times. But I hope there are those out there who did well for their clients by not only managing their money, but also by giving them solid financial advice.