Flying Solo?

[RoBo]

Hi, RoBo here. I am a 56 yr old "recovering attorney." Married, with 2 boys (both of whom are almost through with school and pretty much provided for through school) and a recently informally "adopted" daughter we are putting through nursing school.

About 4 years ago I burned out big time on the practice after a challenging and rewarding career. Up until this time I was so busy with my practice that we relied upon a "Wealth Management" Financial Planner-- part of a big partnership in the Midwest. We live modestly and saved a lot of money. Our FP has a strong public accounting background, much more sophisticated than my accountant and over the years he made a lot of very worthwhile tax suggestions that for me justified his fees. Also our FP was instrumental in assuring us we had enough to retire, making the most conservative assumption. I have not regretted the decision and truly enjoy my new life. In the last year and one half my portfolio has taken a beating, though because of the balancing, it has been less than the market. I am less than impressed with their selection of investments by our FP and his firm and a recent analysis I did suggests I would have done as well if I just bought indexed funds while still maintaining the balancing, from which most of the benefit has come.


I am really tired of the huge fees I am paying, particularly when my portfolio is shrinking so dramatically. My FP makes no $ on any transactions but charges a semi-annual percentage of the assets that they manage. As an alternative, I have looked for a competent FP to do the balancing portion on an hourly fee basis, but I have been unable to locate anyone who is top-notch and is interested in hourly work.

I have spent some time looking at the site, TheRetiredInvestor.com, which appears to be a fairly sophisticated way to do this on my own on a regular basis, but I am unsure how realistic this is. I am impressed by what they say and the approach that they take, at least on the part that they give free access to, but there seems to be a curious absence of reviews by any users on the net? This makes me nervous.

Another consideration is my wife. She is a wonderful, bright, educated woman, but I have been unable to get her interested in learning about our finances. She is two years younger than I am and, combined with my own recently developed health problems, statistically she is quite likely to out live me. As my wife and I have discussed my dissatisfaction with my FP she has agreed to make a real effort to try to become more involved and educated. While I trust the honesty of my FP, I strongly believe him to have drunk the "kool-aid", and to uncritically and in a self-interested way, have accepted the methodology (and marketing) of his firm. I have found him lacking in objectivity about a number of issues. I would be concerned if after my death my wife had to rely upon him without any basis to critically question what he suggests—their have been several times where I have had to nix his suggestion either because they were terrible investments or because it appeared to me that he was trying to get even more dollars from us and have us tied to him even more than we are. On the other hand, I would feel better about her relying upon him, even at the exorbitant fees charged, than simply looking in the yellow pages for a broker.

I am profoundly ambivalent about whether I should continue to swallow what seem to me to be very excessive fees for my FP's services or 'jump off the cliff' and try to manage all of this myself and educate myself and my wife in the process. Any thoughts on all of this would be greatly appreciated. Particularly welcomed would be any specific advice about how to proceed in terms of finding a qualified hourly FP (if they exist?), ways to educate ourselves, and reasonable methodologies to follow.

[Khan]

Welcome.

I think you will find that most here control their own finances/investing.

[Moemg]

Welcome ,
A good percentage of us use Vanguard . I find the site easy to use plus they are very helpful with any questions you have . They offer a yearly financial plan weighted towards their offerings plus a good review of your investments . Have your wife start with the most basic of books . I started with the book " Financial planning for the utterly confused " by Lerner . I am a widow and had to manage everything after my husband's sudden death and luckily I had some knowledge of what to do . I've seen many widows be taken for a ride by unscrupulous financial planners .Welcome & hope your wife has years & years before she needs to use this knowledge .

[REWahoo]

Yo, RoBo. Welcome to the forum.

As Khan said above, the majority of us here manage our own portfolios and you'll hear frequent references to Fidelity and Vanguard as a means to do so.

A quick search didn't turn up any info on the web site you mentioned so I'm not sure what sort of feedback you might get regarding the reliability of the information you find there.

Here is a list of recommended reading for the DIY investor,http://www.early-retirement.org/foru...ist-22300.html plus links to many threads on FIRE-related topics in our FAQ section. If you are serious about firing your advisor, the reading list is an excellent starting place.

Bottom line, with a DIY approach you can save fees and know the guy managing your investments is absolutely committed to your financial success.

[samclem]

RoBo,
ReWahoo has pointed you to the standard references, and they are a great start. I don't think you'll have any problem doing this yourself, and you'll save a ton of money and know it is being done right. It is not hard, and as your post indicates, many FPs steer their clients into needlessly complex arrangements primarlly as a way to generate dependency and fees.

Regarding the wife: It's very likely that your portfolio is highly complex if your FP has had his way. After you hack away the Gordion's Knot you'll probably have a much simpler portfolio that you can largely put on autopilot with the exception of a periodic rebalancing a few times per year. At that point you can show her what you do, leave some instructions in a safe place as a backup, and maybe spend some time to find a fee-only FP that will sit dowen with both of you and agree to give her a hand if the need arises.

Welcome. There are a lot of smart folks here. And me.

[freebird5825]

Quote:

Originally Posted by Moemg Welcome , A good percentage of us use Vanguard...I've seen many widows be taken for a ride by unscrupulous financial planners .Welcome & hope your wife has years & years before she needs to use this knowledge .

Welcome to the board!

All I can say is "Knowledge is power" if you are concerned for DW's safety down the road (I hope way down the road) when dealing with financial advisement types.
Ditto for using Vanguard and also a widow. VG was by far the easiest to deal with when I faced a mountain of paperwork. Some of their telephone reps spent over half an hour with me in some sessions, until all my issues were handled.
If you two work on this DIY project together, you will be all the better for it. Just think of all the stirring debates you two can have.
Have you thought about consulting with a fee-only CFP for an overall asessment? Food for thought...

[unclemick]

Hmmm - I too am a Boglehead and have most of my portfolio at Vanguard except for one drawer of a file cabinet with a few remaining DRIP plan stocks left. Long story - but after forty years of brilliant hands on doing it myself, reading books, 8 to 9 funds in a slice and dice portfolio and other mis-adventures, gradually woke up to the cost of my education and began simplifing. 1966-2006 finally going in Jan 2006 with Target Retirement 2015 as the big dog. I - being male with a few hormones left at age 65 (15 yrs of ER) can't part with a few individual stocks.

You might consider the mental exercise of benchmarking a life cycle fund matching your situation as close as possible - doing some reading and asking how much work(an evil word) by going full auto like I did (except for my hobby stocks) can I save and how does it compare to what I have now.

Life cycle fund auto rebalancing and changing asset mix as one ages with auto deduct to an interest paying checking account.

heh heh heh - full auto for retirement and hobby stocks for the hormones which remind me of the emotional side of investing - and I claim I can quit anytime after I stop watching football - ho ho ho.

[dex]

You will not find anyone here to support using a financial planner.
Basically you can do it yourself with an understanding of:
Budgeting
Cash Flow
Balanced portfolios - keep it simple - either ETFs or mutual funds appropriate for your risk tolorance, cash needs, and expectations for the future.
Your personal pyscology - most people are their worst enemy.
There is alot to learn. One thing to remember is if what you are planning appears to be complicated; you are most likely going in the wrong direction.

[Kabekew]

Hi Robo, and welcome!

I came here 6 months ago with the same question, after I had sold my technology business with enough for me to retire early (age 40).

I didn't know where to put the cash, so I set up four separate portfolios to run an experiment for a year, all with the same sort of 60/40 allocation, to see which is best.

I've been comparing a professional "wealth management" service (Fidelity's Portfolio Advisory Service), with my own 5-10 hour a week actively-managed portfolio, with a buy-and-forget Vanguard "balanced" fund, with a mostly-buy-and-forget portfolio of straight index stock (SPY and QQQQ) and bond fund (mix of Vanguard bond funds) all with the same 60/40 allocation. (And all portfolios pretty much have the same 1.0-1.1 beta).

After six months now, after all fees and taxes (with each account's gains and losses only applying to that account), my net returns are:

Self-managed portfolio return (5-10 hours per week work): 6.97%
Fidelity Professional Advisory Services return: 5.27%
Just dumping everything into Vanguard Wellesly: 0.4%
Putting the 60% stock portion into straight index funds (SPY/QQQQ) and 40% bonds into Vanguard index bond funds in the standard treasury/corporate/low-yield/high-yield mix: -2.5%

My conclusion, based on my numbers so far, is if you are retired but are willing to work 5-10 hours a week for $300 an hour net return, researching companies and doing due dilligence looking up analysts' recommendations and pouring through financial statements and annual reports, you should manage your own investments.

Or if you just want to travel, and hang out, and loiter around, and do your hobbies and visit your grandkids, I think my figures suggest you should let the wealth managers keep doing what they're doing!

(Just my anecdotal results, so far).

[donheff]

I was in a similar situation five years ago (except DW was the attorney making the big bucks). We used an FP because we were clueless about doing anything else. She was honest (I believe) and kept us from screwing ourselves in the tech bubble. As I approached FIRE I got interested in DIY. I read a few books and concluded thatt I could probably do better with a simple mix of index funds. Like you, I was not confident that I knew what I was doing so I hired a fee only advisor on an hourly basis to review my financial/retirement plan. She concurred that it looked sensible and made a few recommendation to tweak some sectors. Of course she added that she would be more comfortable if I would hire her on a percentage basis like your FP to make sure I didn't wander off track - I wasn't convinced. At about that time I discovered this board and figured I could get a pretty good group of free FPs here Like you we took pretty good hit on the current downturn, but no worse than I would have with an FP. The biggest hassle I have experienced is unwinding the complex mix of funds our FP had us in. Some were back-loaded mutual funds that were not worth breaking into until the load evaporated. I also dreaded the idea of selling fund X to buy index fund A and losing money in a market shift during the transition. So I used cash reserves to liquidate X at the brokerage and buy X at Vanguard at COB of the same day. It took a while to get the stuff simplified but it eventually came together. I too worry about DW handling things if I die -- she has zero interest in finances. But she is a smart lawyer, after all, and would be better at this than me if she put her mind to it. I will eventually put together a simple two page guide explaining our mix of funds and concept of withdrawals along with a book or two to read. She will do fine.

[dex]

donheff,
What is the number of investment instruments you currently have?

[donheff]

Quote:

Originally Posted by dex donheff, What is the number of investment instruments you currently have?

Six from one point of view and 10 from another . The six are Vanguard funds we moved our joint funds to from the broker. The other four are Fidelity funds because DW is still part time with her firm and thus has a bunch of her retirement funds invested in their Fidelity accounts. The funds are redundant to a large degree although the Fidelity mix is limited based on the firm's finance committee choices (not indexes).

Wait a second, I forgot about the TSP - I left my federal savings there because of the great rates. Another three funds in use there (all indexes). I guess things are still pretty complicated but the underlying concepts are simple based on couch potato portfolios discussed here.

[RoBo]

Dex-- I am quickly seeing the truth of your observation that no one here will support the idea of using an FP. The question that remains is whether this is because of the sagacity of doing it yourself as opposed to a reflection of the self-selection bias of people interested and involved enough in this site?

I do appreciate your thoughts.

[socca]

Quote:

Originally Posted by dex You will not find anyone here to support using a financial planner.

The key is knowing when you need an expert, and knowing when you can handle matters yourself. If you just need to take a pot of money and invest it, then you probably can (and should) handle this yourselves. However, more complex issues (e.g. estate planning) may require expert assistance. Note that fee-only financial planning is becoming more popular (as opposed to commission-based and/or a % of assets under management (AUM)). However, before searching for a fee-only FP you need to identify what you'd rather not do yourselves. Good luck!

[samclem]

RoBo,
I know there are good FPs out there, and that you can probably find one who will work on your portfolio for an hourly rate.
Here's the problem everyone has: To recognize a good FP you need to have a foundation of your own knowledge (what is asset allocation, does active management really work and is it worth the cost, how efficient are different asset classes from a tax POV, how are ETFs different from mutual funds different from individual stocks, how does the risk of a bond fund differ from the risk of an individual bond, what asset classes do you want to hold (and in what proportions), etc). If you've got this foundation of knowledge, you'd be able to tell if an FP was doing the right thing for you. If you do not have this foundation of knowledge, there's really no way to tell if the FP is competently handling your portfolio. And, once you've got this level of knowledge, it's really not hard to just do the job yourself and save the fee.

Kabekew brings you some interesting figures, and real data is always useful. He shared his approach here a few months ago, and we all had a spirited exchange regarding the true value of active management/stock selection/market timing. As you'll realize (and as he alludes to), the results of any 6 month window may have very limted predictive power concerning your upcoming multi-decade time horizon. There's a lot of info out there concerning the value of active management, it is well worth your time to get into the academic/peer reviewed journals and see if this is something for which you want to pay.

[dex]

Quote:

Originally Posted by RoBo Dex-- I am quickly seeing the truth of your observation that no one here will support the idea of using an FP. The question that remains is whether this is because of the sagacity of doing it yourself as opposed to a reflection of the self-selection bias of people interested and involved enough in this site? I do appreciate your thoughts.

My comments about FP only relates to investing for/while in retirement.

I think those who do not recommend a FP do so because they had experiences with them or are self taught and do not see the value a FP would add. Generally, speaking FP are viewed as salesman that put people into generic allocations. It might seem as if the allocation is taylor made but probably not. Their cost does not justify their services.

I would say that the main reason for doing it yourself are based upon the basic assumption that actively managed mutual funds do not beat the indexes. An individual investor with a little study can put together a mix of index funds that meet their needs.

If an investor does not understand the items I mentioned in my first post they can not properly communicate to a FP their needs.

I'm not sure if this helps. I have a background in finance and accounting so I take it for granted.