Hi! New and looking for advice on how much cash to hold

[mtbikelover]

Quote:

Originally Posted by OldShooter @mtbikelover, I am not going to join the native drumbeaters trying to convince you to ditch your FA. You have made your position clear on that. I would, however, like to flag a few things that I'd suggest you watch for: 1) The FA seems to think the he/she can successfully pick stocks. This is most charitably characterized as naive. It is also hazardous to your financial health. 2) Is the FA charging you the 1% fee on cash and near cash? This is not defendable; the FA has no way to add a whit of value to these holdings. I am involved with one nonprofit where the FA charges no fee on cash and near-cash. I have heard of others where a discounted fee is charged. If you are paying full price you are being cheated. 3) You say "I have some stocks that are up 40% in the 14 months we have been with him." That's really no surprise. Market prices are so "noisy" that it is relatively easy to come up with some winners. What has been proven to be impossible is to come up with a $$ preponderance of winners by picking stocks. IOW, pay absolutely no attention to individual stocks in the portfolio; watch only the total return of the equity portfolio versus the total return of a broad benchmark like the Russell 3000 or the ACWI (All Country World Index). In fact, I have arranged for the FA I mentioned to report quarterly on the equity portfolio against the ACWI. To say that involved some kicking and screaming is an understatement. What most FAs want you to look at is the overall return of the portfolio. But it is impossible to measure the FA's performance using a composite number. You're well informed and thoughtful. Just keep your eyes on the big picture and make sure the value you're receiving from this FA is worth the fees, including the likely market underperformance. (Like others here, I am skeptical of this, but none of us have a vote.)

Thanks for not telling me to ditch him! The 1% is charged on cash if it is something waiting to be invested. If it was part of our overall strategy to keep a certain amount in cash and never move it, that would not be charged any fee.

And just to clarify - we have $1.5M with him. My current employer 401K is with fidelity and can't be moved and my husband has an annuity from the other FA that also can't be moved until next year. The total on those is $800k. I also have 529 plans for my kids that total $215k. The FA gives us advice on that $1M also but we don't pay the 1% on that.

Maybe when my husband retires and no longer has to have a management company handling his company's 401K we will discuss managing the money on our own. But for now, we are staying with our FA.

[The Onceler]

What fisher? Pre-trek? I have a 1995 Mt Tam. Super light and great geometry. Love it. XTR v brakes now and some other mods but still the same bike.

[mtbikelover]

Quote:

Originally Posted by The Onceler What fisher? Pre-trek? I have a 1995 Mt Tam. Super light and great geometry. Love it. XTR v brakes now and some other mods but still the same bike.

It’s pre-trek. KaiTai. I think it’s 2000 or 2001.

[kgtest]

Oh, what was the FAs plan for cash? You mentioned a sale. Do you ever do IPO? Usually FA's get money by pushing specific products but not always. Pinterest and Zoom IPO tomorrow. I know some people getting in on that action. I'll update you later on how it turned out. They called this gambling, and I agree, I think I might gamble a bit too, but am really waiting for Slack to IPO. It's on my bucket list to buy on an IPO day that I feel will launch.

[OldShooter]

Quote:

Originally Posted by kgtest Oh, what was the FAs plan for cash? You mentioned a sale. Do you ever do IPO? Usually FA's get money by pushing specific products but not always. Pinterest and Zoom IPO tomorrow. I know some people getting in on that action. I'll update you later on how it turned out. They called this gambling, and I agree, I think I might gamble a bit too, but am really waiting for Slack to IPO. It's on my bucket list to buy on an IPO day that I feel will launch.

Misinformation here. Investing in IPOs is, statistically, a losing strategy. Probably (hopefully?) the OP's FA knows this. And, @kgtest, you should understand that the only IPOs that get offered to small retail investors are ones so stinky that the brokerage house's institutional clients and heavy hitter clients won't take the deal. So if you are not in the latter two categories, you better be careful. Like by keeping your money in your pocket.

FA's getting paid based on AUM are Registered Investment Advisors or Investment Advisor Representatives, IOW fiduciaries and are not paid for pushing products. The only "FAs" that get paid for pushing products are registered representatives who are held to the very weak "suitability" standard and who have no legal obligation to act in the clients' best interests. Unfortunately, anyone with $15 headroom on a credit card can go to VistaPrint and get "Financial Advisor" printed on some business cards.

[kgtest]

Quote:

Originally Posted by OldShooter Misinformation here. Investing in IPOs is, statistically, a losing strategy. Probably (hopefully?) the OP's FA knows this. And, @kgtest, you should understand that the only IPOs that get offered to small retail investors are ones so stinky that the brokerage house's institutional clients and heavy hitter clients won't take the deal. So if you are not in the latter two categories, you better be careful. Like by keeping your money in your pocket. FA's getting paid based on AUM are Registered Investment Advisors or Investment Advisor Representatives, IOW fiduciaries and are not paid for pushing products. The only "FAs" that get paid for pushing products are registered representatives who are held to the very weak "suitability" standard and who have no legal obligation to act in the clients' best interests. Unfortunately, anyone with $15 headroom on a credit card can go to VistaPrint and get "Financial Advisor" printed on some business cards.

Agreed. Dont do the IPO. I tried today but wasnt willing to pay more than what other people apparently were. Ive never veen able to actuslly execute a limit order on an IPO day in that regard it is losing. I am really just curious where they decide to out the cash. It seems OP has little risk to just go VTI with the 125k and call it a day. Just buy the entiee market and rise and fall with the other boats jn the sea. That is my final answrr 125k on VTI.

[OldShooter]

Quote:

Originally Posted by kgtest ... I tried today but wasnt willing to pay more than what other people apparently were. Ive never veen able to actuslly execute a limit order on an IPO day in that regard it is losing. ...

Just to be clear, an IPO is priced and sold, usually to a favored few. Once it is sold out, then it is just like any other stock on the market. There is a bid price and an asked price and there is trading. The goal of the initial pricing is to hit a number that does not result in the stock going up substantially in the secondary market. This would mean that the underwriter has left money on the table.

If you are writing limit orders, you are in the secondary market. You are not buying the IPO.

[kgtest]

Roger that. No wonder ive basically stuck to indexing. So...how do I get access to the IPO like Slack. Do you need to be a who's who? Oh sorry about the spelling this autocorrect on my phone is terrible. Couldnt figure out how to edit from mobile app but i got it now

[OldShooter]

Quote:

Originally Posted by kgtest Roger that. No wonder ive basically stuck to indexing. So...how do I get access to the IPO like Slack. Do you need to be a who's who? ...

Of course. Tiny retail customers like you and me will never be given access to anything decent in the national market. The underwriters will first offer the deals to their institutional and heavy-hitter clients. Only if that group refuses to buy/deems the deal too stinky, will the retail brokers start calling their small clients. Why would you want to write a few hundred tickets if you could write just one and in the process stroke & reward a big client?

I have made money on a couple of local IPOs, very small time stuff, back when I was doing more local private-placement type investing and had a good relationship with a couple little local brokerage houses. But anything national, anything good, I didn't have a prayer. Still don't.

But to console yourself, do a little research on IPOs. I have not done it for a while, but I'm pretty sure the answer is still that they usually turn out to be bad investments. It is only the home runs you hear about. There are more strikeouts that don't make the news.

[karen1972]

So as to your original question, I'm 46 and I hold 1 year in cash equivalent. I use to feel like I needed 2 years, but with the amount of dividends being thrown off I don't think that is necessary.

So for example if we need $50k/yr, and I make $25k in dividends in my taxable account.. thats $50k to cover the first year at which time I'd have $25k to cover the next 6 months at which time I'd have another $12.5k to cover the next 3 months

The biggest difference being once I did retire, I stopped re-investing all my dividends and cap gains (from mutual funds) in my taxable accounts and they go automatically to my money market, so that provided me the extra coverage to only keep a 1 year cash reserve on hand. Also since those dividends count against my ACA AGI, best to use those for expenses.

[TDub]

Quote:

Originally Posted by OldShooter I watch the market every day just like I watch fish in an aquarium. Pretty fish, bumbling around, no rhyme or reason to it. More interesting than a lava lamp. I never look at or calculate our portfolio value.

This level of portfolio and market attention really appeals to me. Just out of curiosity, how do you get away with presumably making withdrawals but never checking up on the value of your portfolio? Wouldn’t that knowledge typically affect one’s WR?

[OldShooter]

Quote:

Originally Posted by TDub This level of portfolio and market attention really appeals to me. Just out of curiosity, how do you get away with presumably making withdrawals but never checking up on the value of your portfolio? Wouldn’t that knowledge typically affect one’s WR?

Well, to be strictly accurate we look at the portfolio once a year between Christmas and New Years. Maybe one year out of three we will make a trade or two. Other than that it is just small trades when we need some cash and we plan where in the AA these will be made.

We have been very fortunate in life and we are also are fairly careful about how we spend. DW watches what is on sale at the grocery store for example and I typically buy toys and tools on CraigsList or eBay. Very rarely anything new. The result is that even with quite a bit of travel, we have more money than we will ever need. We just aged into RMD territory this year and it looks like our RMDs plus SS plus a tiny megacorp pension I have will be enough for us. So long answer to a short question, we do not withdraw based on portfolio value.

The other thought I'd offer is that portfolio value is fairly volatile, so watching it frequently really gets you only noise, no signal. Looking at trailing rate of return over a year or, better, five years and looking at an average portfolio value is really about all the real information that you can get. So ... we're back to our one-year review cycle. Or maybe we should switch to five years?

[HI Bill]

Quote:

Originally Posted by OldShooter The result is that even with quite a bit of travel, we have more money than we will ever need. We just aged into RMD territory this year and it looks like our RMDs plus SS plus a tiny megacorp pension I have will be enough for us.

Splurge a little. Check out the Blow that Dough thread. Robbie is my idol!

[aubailey]

two suggestions---dump the FA and work 6 more years and it sounds like you would be in good shape. Put cash in any mutual fund money market.

[aida2003]

Quote:

Originally Posted by mtbikelover I hear you all on the FA but there are other reasons we use him which I didn't go into because I wasn't looking for advice on whether to have an FA or not. First, my husband owns a business and needs to have someone manage his company's 401K. This FA handles that for him. So we have to pay someone to do that job anyway. The previous person he used was awful, too old, and did everything with paper and pencil and got my husband into things that were horrible investments just to pad his wallet. Anytime I asked a simple question (like maxing out his after tax contributions to his 401K and rolling that to a Roth as soon as we retire), the previous guy had no clue. Second, this FA has also helped us with setting up custodial Roth IRA's for my two kids and they don't charge the 1% on that. Third, we tried Fidelity. Numerous times. They were worthless. They could not give us any advice as they are not allowed to give stock advice. Fourth, he has made some good investment decisions...things we never would have looked at. I have some stocks that are up 40% in the 14 months we have been with him. The portfolios that are invested are doing very well.

I think the old timers are missing the point here on this thread.
The OP clearly states that they don't want to dump this FA. Considering their wealth (in addition to the savings, they own a business, rental properties, etc. so they're really well off, it sounds), I think it's worth the money to pay that 1% to the FA. If they believe it's money well spent, it's their right to keep the FA. Y'all already did a good job to dissuade her .

What is not clear to me, whether the AA in stocks means individual securities or stock funds or a mixture of both. If they have some 'play money' in stocks, it's not bad either IMO, unless all 66% is in individual stocks.

Finally, I feel that the OP quibbles regarding the $125k cash only, but not the rest of the cash they hold. To put this $125k in the perspective of their total wealth (beyond $2.6M), that sounds like she's worried 'about peanuts' (really). Like somebody else stated already...it's sort of 'insurance' and I don't think anybody has had a great return of such instruments.
Somebody will win by timing the $125K. Either the OP convinces the FA to invest her $125K right now and the stocks keep going on, so she sees a better return or perhaps the FA is right for holding and waiting for bargains coming his way... Flip a coin and you might have an answer for that