Investing with HSBC?

February 28, 2013 10:29 AM

I recently read this question about the high cost of investing with HSBC and met with my investment advisor there to see if we can knock the fees down (unlike the poster of that question, I did not pay an initial fee.) Unfortunately, they can't, so I'm stuck paying 2.25% (that's all fees, total) annually if I stay with them. Here's the thing though: after fees, I got a ~10% gain on my investment 2012-2013 (so ~12.25% in total.)

The investment account was only opened in January 2012 - I had a $100K windfall that had to be immediately deposited in an IRA, otherwise I'd have to pay massive, massive taxes on it. I've been banking with HSBC for 10+ years and due to the nature of the windfall didn't have a lot of time to shop around.

Basically what I'm looking for is a completely hands-off investment with medium-high risk (I'm young), which I'm getting right now. I know I could be getting a (much) better rate on the fees, but I feel like I have a good thing going. Is this a stupid thing I am doing and I should move to, say, Vanguard ASAP? Should I wait it out to see where this is going?

posted by A god with hooves, a god with horns to work & money (16 answers total)

That was basically total return on the S&P minus fees. Move your IRA to Vanguard or someone cheaper.
posted by JPD at 10:34 AM on February 28 [2 favorites]

Here's the thing though: after fees, I got a ~10% gain on my investment 2012-2013 (so ~12.25% in total.)

Depending on when you invested in January 2012, the S&P 500 index gained 15-18% from then to now. You could get market returns with Vanguard and much, much lower fees. You can be completely hands-off in a single mutual fund that rebalances itself, like their Balanced Index fund or one of their Target Retirement funds.
posted by payoto at 10:34 AM on February 28 [3 favorites]

Given that the return on the S&P as a whole in 2012 was 16%, it sounds like you could do quite a bit better.

I'm not your financial advisor, but you can't go wrong with a fee-based planner who will tell you which mutual funds to buy. You can find some names here.
posted by Admiral Haddock at 10:36 AM on February 28 [2 favorites]

It really depends on what the HSBC investment is. Is it an indexed equity fund that happened to make 10% because the equity market rose 12.25% last year? Or is it an equity manager that make 12.25% in a market where the average person made 5%? The point is, are the fees you're paying right now giving you access to an investment or a manager that is in some way exclusive or otherwise unavailable on other platforms.

If all you're getting is exposure to a standard index-tracking equity fund then Vanguard is going to be a better choice because your fees will be low while your investment remains pretty much the same.

(on preview: seconding what others said above! (assuming your HSBC investment was in US Stocks))
posted by musicismath at 10:37 AM on February 28

Here's the thing though: after fees, I got a ~10% gain on my investment 2012-2013 (so ~12.25% in total.)

This is not surprising at all, because over the period of 2012-now, the Dow Jones is up 15% and the S&P is up 21%. It depends on what your particular investments are, but if anything your gains were probably lower than average.

There is really only one big decision you have to make with investing, and that is what assets you want to invest in. If you decide to invest in a broad index of the stock market, then the rest is just who is going to give you that asset with the cheapest overhead cost. A 2%+ yearly fee for a brokerage account is insanely high, you are losing a significant amount of your potential gains in fees. Move to Vanguard or any other brokerage that will let you invest in low cost index funds without having to pay an annual fee.
posted by burnmp3s at 10:41 AM on February 28 [1 favorite]

So do I just ring up Vanguard and say "hey, I have a bunch of money in an IRA at HSBC and I'd like to transfer the assets to you" and they'll get me a person with whom to talk to about my options with them?
posted by A god with hooves, a god with horns at 10:45 AM on February 28

I just checked my Vanguard account and from a year ago to today, I'm up 18%. My expense ratios per fund range from .05%-.34%. I invest in Vanguard 500 Index Fund Admiral Shares, Vanguard High Dividend Yield Index Fund Investor Shares, Vanguard STAR Fund (this one is kind of eh), Vanguard Target Retirement 2045 Fund, and Vanguard Total International Stock Index Fund Admiral Shares. I love all my funds with the exception of the STAR Fund.

And yeah, just call them up and they'll do the work. I love Vanguard!
posted by jabes at 10:50 AM on February 28 [1 favorite]

So do I just ring up Vanguard and say "hey, I have a bunch of money in an IRA at HSBC and I'd like to transfer the assets to you" and they'll get me a person with whom to talk to about my options with them?

Pretty much! Here is their transfer form (it's a PDF) with some preliminary info on the process to get you started. You could also read up on their balanced funds here.
posted by payoto at 10:57 AM on February 28 [1 favorite]

Unless you're stuck with a 401K, get the heck out of there. Vanguard or Fidelity both have extremely low rates and will be more than happy to manage the funds for you.

Just think about it this way: vs a lower-fee investment (let's say it was 0.25%, which would be high for index funds from the two I noted above) you lost out on 2%, or $2000. Stay with them another year and you're going to get hit with an additional $2000. Take a look at the Bogleheads Three Fund Portfolio approach for a stupid simple system that should do as well as or better than hand-picking your own stocks.
posted by Muu at 11:28 AM on February 28

Jack Bogle gives a killer explanation of why investors in actively managed funds are doomed to lag total market returns in The Little Book of Common Sense Investing.

I cannot do justice to all of the arguments he so devastatingly lays out, but here are some highlights:

-evidence bears out that more than 80% of actively managed funds perform worse than the market over any period of meaningful length.

-actively managed funds have significantly higher costs than index funds, so for an actively managed fund to actually stay ahead of an index fund, it has to beat the market by a substantial percentage. In your case, in order to just get your share of the market (you get "your share" by investing in an index fund), your funds at HSBC would have to consistently outperform the market by more than 2% every year. That's just to break even. If you want to do better than the market, your fund needs to outpeform the market by even more than that.

-as far as I know, there's never been a fund that has outperformed that market over a period of, say, 20 years. There have been some funds that have outperformed for periods of about 15 years (Legg Mason and maybe Magellan), but then subsequently underperformed--and only the investors who got into those funds near the beginning of their run realized the gains. Investors who got in later in the game (ie, that saw the funds had several good years and chased the good performance), missed out on much of the huge returns and wound up losing money relative to the market once the funds returned to earth. So, unless you are really good at guessing which funds are going to outperform the market (hint, no one is), you'll almost certainly fail to outperform the market, even if you jump into a fund that has been outperforming the market for several years running.

To answer your second question--if you move to Vanguard, it's almost as simple as calling them up and filling out some forms. The phone call will probably take 30-40 minutes. They will send you forms, you will send them back, they will contact HSBC and the money will be shipped over. The entire process from start to finish can take anywhere from about 10 days to many weeks. It does not, unfortunately, happen in a day or two.

2nding the Three Fund Portfolio. If you don't want to stay even that involved with your investment, put it all in one of Vanguard's Target Retirement Funds that is comprised of index funds. Target funds are designed to have different asset classes (increasing diversity, which reduces risk while giving you nearly the identical return if you stayed in just one asset class) and then rebalance those asset classes over time. Generally, the funds are more oriented toward growth and risk when you are younger (higher proportion of stocks) and become more oriented toward stability when you approach retirement age (when they will have an increasing proportion of bonds).
posted by MoonOrb at 12:19 PM on February 28 [1 favorite]

So do I just ring up Vanguard and say "hey, I have a bunch of money in an IRA at HSBC and I'd like to transfer the assets to you" and they'll get me a person with whom to talk to about my options with them?

Yup. Or, you can do it on-line. Not surprisingly, they make it pretty easy to move money to them.

Seconding the targeted retirement accounts. They are a little too conservative for my taste, in that they weight things too heavily towards bonds, but I adjust for that by picking a later retirement date than my actual one. Other than that, it's completely hands-off.

2.25% is robbery. In my Roth IRA with Vanguard my expense ratio is 0.17% (that is not a typo) and over the last year it returned just over 13%.
posted by It's Never Lurgi at 1:54 PM on February 28

yes, there are funds that have outperformed the market over 20 years. The value premium alone outperforms the market consistently.

ETA: It occurs to me you may be saying consecutive years of beating the market, and yes no one has ever done that, but that is a terrible terrible way to think about your equity portfolio, and the argument for active vs passive has nothing to do with that. And John Bogle would agree.
posted by JPD at 1:57 PM on February 28

There are a few services out there that will invest your IRA according to portfolio theory principles (which are espoused by Jack Bogle, recommended above) and do automatic rebalancing for quite low fees (0.3% or so.) I've been really pleased with Wealthfront for this, which is totally set-it-and-forget-it. Their customer service (which I used for help rolling over a couple accounts) has been amazing.
posted by kelseyq at 2:10 PM on February 28

Forget about what returns you got in the past. They have nothing to do with future returns. "Past returns are not an indication of future performance." Always remember that. The one and only thing you can control with certainty is fees. So go for the lowest fees, such as index funds (or ETFs) from Vanguard and Fidelity (Total Market Index, things like that). Managed = higher fees, unmanaged = lower fees. Fees might seem really small ("just a few percent"), but over a lifetime they can equate to hundreds of thousands of dollars. No joke.
posted by Dansaman at 3:34 PM on February 28

Well no. Past returns are an indication of future performance. What you are quoting is a legal disclaimer. If someone has a repeatable process and a congruent investment philosophy it is possible to say that historic and future returns are correlated.

For people who want to set and forget about investing and aren't spending a lot of time thinking about this and underwriting managers, yes - absolutely passive/index funds are the way to go, and fee minimization is paramount. That said there are persistent market anomalies that give enough patience and time allow you to outperform the market. The problem is that few people have the patience and temperment to bear the illiquidity and time risk required to take advantage of those anomalies.

So yes, if you are asking this question on MetaFilter you should be buying an index fund and seeking to minimize costs, but that doesn't mean just buying an index is the only right thing to do in all circumstances.
posted by JPD at 3:54 PM on February 28

HSBC is robbing you (legally), and the unusually good performance of the market lately is blinding you to this.

Move on.
posted by IAmBroom at 5:51 PM on February 28