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YOUR MONEY | Money Talk

Feel Dumb Paying Broker's Fee? You Might Be Smarter Than You Think

July 26, 1998|LIZ PULLIAM

Q: Am I foolish to use a full-service broker? I like my broker, and I don't really want to follow the market myself all the time. But when I pay $75 to buy stocks and see commercials for $9 trades, I wonder if I'm dumb.

A: What, you mean you want a life? How dare you?

A perverse byproduct of the explosion of media attention to personal finance is that people now feel guilty if they want to call in a professional. The unrelenting message seems to be that you can--or should--do everything yourself, from picking stocks to analyzing your insurance coverage to doing your taxes to planning your estate.

That's why you feel uneasy watching those ads featuring smiling "just folks" who brag about the cheap stock deals they pulled off. If it's so easy that anyone can do it, why aren't you?

The fact is, there are people out there who thrive on doing their own research, picking their own stocks and executing rapid-fire trades with a few mouse clicks. Some spend endless hours charting the burbles of a stock's trading volume and more endless hours comparing notes on their latest conquests in Internet chat rooms.

Then there are the rest of us, who fade out when talk turns to price-to-earnings ratios and who can't seem to get beyond an annual report's table of contents.

It's OK for us pikers to dabble occasionally in the stock market. That's how we learn about investing--by doing it. Nothing focuses our attention so beautifully as having a few hundred or thousand dollars at stake, as long as we can afford to lose that money if the market turns against us. In fact, some longtime investors will tell you that a few real losers will teach you more about investing than a hundred lucky picks.

But for money that matters--your retirement funds, your kids' college education, your plastic surgery fund--you either need to get serious about investing or bring in some serious help.

You use a full-service brokerage because you want some guidance and access to top-quality research. You may even get better execution--that is, better buy and sell prices--with a full-service broker than you can with an online or discount brokerage, although the debate on that issue is loud and ongoing.

In addition--and perhaps more important--a good broker can offer you ideas, teach you about the market and talk you out of some of your worst impulses. None of the above--research, guidance or a good slap in the face--comes cheaply.

If you're discontented with the service you're paying for, you may need to find yourself another broker or financial planner, or (horror of horrors) consider making long-term buy-and-hold investments in mutual funds that you rarely change. After all, mutual funds are designed for folks who want to have a life.

If, on the other hand, you're happy with your broker and you're more or less keeping up with the market indices, then congratulations.

All you have to do is check your broker's disciplinary history occasionally, to make sure she hasn't started ripping off the elderly or plundering orphans' trust funds. (The consumer hotline for the National Assn. of Securities Dealers, which tracks brokers' disciplinary histories, is [800] 289-9999.)

So the next time you start to worry about that $75 trade, think about this: for that same $75, you could rent a single-engine plane for an hour and try to fly yourself from Van Nuys to San Diego. People do it all the time, you know. Of course, most of those people have invested hundreds of hours and thousands of dollars in their hobby; more than a few have some pretty hairy near-death experiences to relate as well. The smart ones either get very good or they get out and let the professionals do the job.

In other words, just because some people are willing to risk flaming death, literally or financially, doesn't mean you should too.

*

Q: I've saved quite a lot in my 401(k) but it kills me that I'm going to have to pay taxes on the money when I withdraw it in retirement. Is there any way I can get around paying those taxes?

A: Well, you can take your statement literally. If you're dead, you won't have to pay the taxes; your heirs will. Either way, the IRS will get its due.

*

Liz Pulliam, a personal finance writer for The Times, got her private pilot's license in 1989 and quit flying two years later. Pulliam will answer readers' questions on a variety of financial issues in this column but regrets that she cannot respond personally to queries. Questions can be sent to her at liz.pulliam@latimes.com or mailed to her in care of Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053.

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