Money To Live

September 9, 2008

Guaranteed Returns

Filed under: investments,retirement — by moneytolive @ 5:00 am
Tags: ,

This week I am writing about conversations I had with my extended family about finances. Today, I turn to a conversation with my father.

Since my father retired and rolled over his 401(k), my parents were considering hiring a financial advisor. Fidelity offered an advisor for 1% of assets under management. This 1% would be in addition to fees charged in mutual funds.

Instead of hiring someone else, I suggested that I could help my parents to manage their retirement funds. My dad wanted me to guarantee him a rate of return. I said that I could only guarantee a weighted average of major market indices. He chuckled and said ok.

Weighted Averages

The Dow Jones Industrial Average (DJIA) and the S&P 500 are two of the best known indices in the US. Each of these is a “basket” of stocks that represent part of the stock market. The DJIA consists of 30 large companies, such as American Express, Coca-Cola, HP, and Wal-Mart and Walt Disney; the list is maintained by the editors of the Wall Street Journal and “for the sake of continuity, composition changes are rare.” The S&P 500 consists of 500 large companies that are financially viable and represent a range of industries (see the criteria for inclusion here).

There are many other indices that track specific sectors (i.e., technology, energy, pharmaceutical, real estate) or parts of the world (China, Europe, …). Investment firms Fidelity and Vanguard offer mutual funds that track indices.

By investing in funds that track major indices, you can expect returns that are a weighted average of internaional market returns.

p. s.

We worked out a nice deal — Since I am helping my parents manage their money and my brother is not doing anything, he has to give them money if they run out. (It is a joke, and my brother laughed when he heard it.)

This is my mom’s perspective on my financial advice.



  1. Nice writing. You are on my RSS reader now so I can read more from you down the road.

    Allen Taylor

    Comment by Allen Taylor — September 9, 2008 @ 5:34 am |Reply

  2. […] of helping my parents manage their retirement accounts is providing them with regular snapshots — spreadsheets summarizing their holdings and graphs […]

    Pingback by Money To Live - Tracking financial progress - in color — September 11, 2008 @ 5:35 am |Reply

RSS feed for comments on this post. TrackBack URI

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Blog at

%d bloggers like this: