I invested half of my son’s inheritance with a 13.5% return. A major broker underperformed the S&P 500 with the rest. Should I take over all his assets?

I invested half of my son’s inheritance with a 13.5% return. A major broker underperformed the S&P 500 with the rest. Should I take over all his assets?

Dear Quentin,

When my father passed away nine years ago, he left a sizable inheritance in trust for my two children, with me as the trustee. My children were young adults at the time, and I suggested that they allow me to invest the funds for them to save on fees they would pay an investment adviser. I have been managing my own investments for almost 20 years and I have done a pretty good job, especially considering I am self-taught.

My daughter agreed to let me invest her full inheritance and my son said he wanted to split his money between me and a financial adviser at a major investment-management company (who he found through a friend of a friend). He expressed concern about my lack of training in portfolio management and experience navigating through bull and bear markets. I understood his concerns and agreed to split the funds into two separate accounts.

‘As the trustee, how assertive should I be? ’

Nine years later and my son is looking to purchase his first home. He wants to make a sizable down payment and has indicated he will fund it through equal distributions from the two investment accounts. While this sounds reasonable, here’s the rub: The portfolio I manage has done much better than the one the brokerage house is managing. Over the last nine years, my portfolio has an annualized average return of 13.5%; the other has underperformed the S&P 500

As his mother and trustee, I plan to suggest that he take all the money from the other account and invest it with me as his adviser instead, but I don’t know how hard I should push the matter if he doesn’t agree. Am I letting my ego get in the way here, or is leaving the funds in the better-performing portfolio the smarter thing to do? At the end of the day, it’s his money, but as the trustee, how assertive should I be?

Troubled Trustee

Dear Troubled,

I would pose a slightly different question to your son.

Rather than ask, “Would you allow me to manage the other 50% of your investment portfolio instead of this investment company?” I would ask, “Why did they underperform the S&P 500 while my curated portfolio rose by 13.5%?” The second question is a fact-finding mission that will help your son learn from the different investment approaches, the value (or lack) of diversification in your choices and how much good old-fashioned luck may (or may not) have played a part.

What are the terms, duration and the mission of the trust? Your son is a young adult now, so I expect there will come a time when you will hand over the responsibility to him. Plus, you won’t be around forever. As you are probably aware, a trustee has a fiduciary duty to the beneficiaries and must act with integrity, exercise reasonable care, act with prudence and good faith and generally avoid risky investments, and act in accordance with the rules of the trust.

Did you invest in tech stocks like Amazon Apple Meta, Google parent Alphabet and Microsoft? Was there one stock that skewed the outcome? For example, did you happen to choose Nvidia which has skyrocketed due to the rise in, and development of, artificial intelligence? Or did you include some other stock that outperformed the market over the past 10 years? Did you dabble in the meme-stock craze of 2021 and get out before you lost your shirt? (I’m guessing not.)

This would be a more enlightening discussion to have with your son, especially if you wish him to eventually make decisions over his own investments. For instance, if you had invested in any of the following tech stocks over the last decade, you would obviously be way ahead of the S&P 500 by now: Advanced Micro Devices Super Micro Computer Green Brick Partners Broadcom Fair Isaac Corp. and/or Monolithic Power Systems

‘You don’t push wet spaghetti, you pull it.’ — Bill Mauldin

There are no guarantees that a recession or geopolitical event — from Ukraine and the Middle East to the U.S. presidential election — won’t hurt the portfolio you manage for your son, while benefiting the big broker’s portfolio (or, indeed, vice versa). Although not a term universally loved, even the so-called Magnificent Seven — Apple, Microsoft Alphabet Amazon, Nvidia, Meta and Tesla — have had mixed fortunes this year. 

Nobody is expecting you to be the next Catherine Wood or Abigail Johnson — although you’re doing a pretty great job already — but if you talk strategy instead of stock prices, you can have a conversation with your son where you may learn from each other. On that note, how often does your son talk to the financial adviser who manages the other half of his investments about the amount of money he invests, tax implications, volatility and investment performance? It should be at least once a year.

You want to pull rather than push. As Bill Mauldin, the two-time Pulitzer Prize-winning cartoonist, wrote in “The Brass Ring,” his 1971 memoir: “If you’re a leader, you don’t push wet spaghetti, you pull it. The U.S. Army still has to learn that. The British understand it. Patton understood it. I always admired Patton. … I didn’t like that attitude, but I certainly respected his theories and the techniques he used to get his men out of their foxholes.”

There’s a fine, but important, line between assertiveness and pushiness. Unless you have reasons not to trust the investment company managing the other half of your son’s assets, or see major flaws in their strategy, any conversation you have with your son should have one long-term goal in mind: handing over the keys to his financial future and helping him to eventually manage his own money if/when the time comes.

If that is your goal, it’s clear that your love comes before your ego.

April is National Financial Literacy Month. To mark the occasion, MarketWatch will publish a series of “Financial Fitness” articles to help readers improve their fiscal health, and offer advice on how to save, invest and spend their money wisely. Read more here.

The Moneyist regrets he cannot reply to questions individually.

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