Investing with HSBC?
February 28, 2013 10:29 AM Subscribe
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?
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?
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, 2013 [3 favorites]
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, 2013 [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, 2013 [2 favorites]
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, 2013 [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, 2013
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, 2013
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, 2013 [1 favorite]
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, 2013 [1 favorite]
Response by poster: 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, 2013
posted by A god with hooves, a god with horns at 10:45 AM on February 28, 2013
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, 2013 [1 favorite]
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, 2013 [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, 2013 [1 favorite]
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, 2013 [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, 2013
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, 2013
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, 2013
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, 2013
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, 2013
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, 2013
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, 2013
posted by kelseyq at 2:10 PM on February 28, 2013
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, 2013
posted by Dansaman at 3:34 PM on February 28, 2013
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, 2013
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, 2013
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, 2013
Move on.
posted by IAmBroom at 5:51 PM on February 28, 2013
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posted by JPD at 10:34 AM on February 28, 2013 [2 favorites]