account management costs

[cfcf]

Hi. I posted a few months ago but got shy ever since.

Now I have a question: What is a reasonable fee or percentage to pay for the management of an $800K nest egg ($500K qualified, $300K non-qualified, all diversified between large/mid/small caps (growth and value), bonds, international, MM)?

I presently pay 1% (out of a pre-tax account), and it covers fund and fund manager reviews and performance reports, rebalancing, quarterly portfolio reports, and a yearly sit-down meeting about life status/changes/direction.

I feel WAY guilty about spending several thousand dollars on this, but it is nice to not have to noodle over these things all the time.

Thanks

CFCF

[unclemick]

Guilt is relative.

Zero is to buy X number of 'different' stocks and hold 'forever'. There are academic curves on this pulblished periodically. Then there's Bernstein's 15 stock diversification myth which I reread often. And then, and then I believe intercst wrote on REHP about ? paying your adisor more than than you pay the IRS? or something like that. And - pay attention there's more - many here roll their own bonds rather than pay bond fund fee's. Heh, heh - it's a personal comfort zone thing. I have vanguard balanced index - low enough for me to 'tolerate' AND recognizing there is a 'semi- insisible' drag do to turnover. Poke around some past posts - you'll find some interesting stuff. Rememeber - emotional comfort is good - PROVIDED - you know what your paying.

[BigMoneyJim]

The subject of paying advisors/managers pops up frequently here. As I read the above I was inspired by an analogy about making my own investment decisions:

It's like a chilly swimming pool. I'm not brave enough to jump in all at once, but I want to play, so first I get my feet in and let them acclimate. Then I go in knee-deep, then hip deep, then waist deep, then inch in until I'm ready to plunge all the way.

I'm comfortable with my knowledge of how my U.S. stock funds and bond funds work; at least comfortable enough to know the risks and how they fit into my strategy. I know at some point in the future I'll want to learn more about individual bonds, TIPS, iBonds and buying them myself outside of a fund, but for now I'm waist-deep in mutual funds. Sometime I may learn more about REITs, individual stocks or international stock funds, but I don't need to know now.

Now I'm 34 and building wealth, so it's psychologically a little different than having $800k already being managed. But someone who's disciplined and knowledgable enough to save $800k already has what it takes to learn how to manage his own money.

By the way at $700k or $800k I would start looking at the possibility of retiring immediately, although I'd be more comfortable with the idea at $1.2mil.

Oh, and I hope nobody here caused you to be shy. Don't let these guys scare you off.

[wabmester]

I think of it this way: that same $8000/year could be spent on investment education. At that price, you could probably get a masters in economics and know your stuff much better than your advisor. Or you could spend $20 on a book, still know more than your advisor, and save $7980/year

Or, you could spend a lot of time on this site. We are
free as well as entertaining. Seriously, financial
advisors? We don't need no stiiiiinking financial
advisors

John Galt

[ESRBob]

CFCF;
I think you may be a financial planner's dream client -- helping them on their own mission to retire early! Seriously, I think you can do better -- if you aren't comfortable going all the way to self-managed, you should still be able to find a fee-only financial planner who for a thousand dollars a year or so can do all these same services for you. I pay my DFA guy that, not for his advice, but to get access to those funds at institutional rates, but he does provide the same services you get for that price, in high-priced NY Metro area.

You don't need to evaluate too many funds, either. Read Bernstein's Four Pillars book (get it at the library for free!) and he lays out everything for you there. Basically, you need to figure out which asset classes to be in, then pick from the relevant Vanguard or DFA funds (in most cases) and you are home free.

Your Vanguard account (with Cash Edge, where all your various accounts are consolidated together in one display) will give you daily reports; print them out four times a year and you've got your quarterly reports

You are also paying fund fees, which your advisor might also be being paid on. Make sure whatever you do that you are in no-load funds, and that your advisor is not getting anything extra for steering you to one fund or another. But I would still try to switch to a lower cost fee only person or go to self-sufficiency. Between a few good books and this board you should be able to manage.

Best of luck,

ESRBob

[cute fuzzy bunny]

You can get well under .3% by simply buying a vanguard lifestrategy or target retirement fund that suits your needs. They even have a survey/questionaire on their home page that will tell you which one suits you. Or you can pay them something like $500 one time to have someone talk to you and tell you what to do.

After that they'll send you more regular reports and pieces of paper than you can stand. I heated my house through the winter on reams of flat wood pulp sent to me from valley forge PA.

[cfcf]

Thanks for the notes.

We've gotten lazy about financial things as our lives got busier and busier over the years. (As busy as we are with work and fun, it never ceases to amaze us to watch uber-parents juggle a million times more things than us as they deal with the kids and associated issues).

Anyways, for us, once time is a bit more available for hands-on money management, we'll definitely become rabid about doing it ourselves, as you all have suggested we do. That $8000 fee will look mighty fine as a "found" income stream during retirement.

We are planning to retire within 5 years (me 47, wife 52 at that point), and by then hope to have between $1.2-$1.5 million if we continue to sock it away, stay mostly anti-consumer, and the portfolio doesn't bonk.

Crossing fingers and toes.

CFCF

When I semiretired in 1993, my total net worth was
less than $200,000. I was married with one
child at home. Just decided I wanted to and did it,
working out the details on the fly. Turned out fine.

John Galt

[cfcf]

John Galt,

Just so i can understand what's possible, do you mind telling us your present portolio balance, your present yearly income from it, and your present yearly living expenses?

CFCF

[BigMoneyJim]

Quote:

John Galt, Just so i can understand what's possible, do you mind telling us your present portolio balance, your present yearly income from it, and your present yearly living expenses? CFCF

I think a lot of us are curious on that one. With John Galt, though, I doubt we'll ever get the whole story--at least not all at one time. He does have a working spouse, a corporation dragging net losses to offset taxes and a bunch of real estate and bonds. He usually fails to mention these things when he says he retired on $200,000. (I expect the $200k includes bonds; doubtful it includes the real estate.) He's also counting on Social Security when it kicks in. There's almost certainly other pertinent details he hasn't let loose yet. I like to pretend he's in the Witness Protection and Relocation Program.

I have been lurking here for quite some time and also believe that John Gault's boasting of ER with 200k or so more that a little misleading.

If your spouse is still working and bringing in say 40k, thats like a million in the bank.

[Nords]

It's also a nearly two years of groceries, almost four mortgage payments, five years of restaurant dinners, ten longboards, or the most money I've ever paid for a car.

As for your "noodling", FundAlarm can cover the fund & manager reviews & performance reports. (It's free.) You can handle the rebalancing. Quicken, Vanguard, or any other mutual fund company can cough up the portfolio reports. We'd all be happy to chip in and help with the annual life-status discussions.

I think I'd be motivated to either learn how to do it myself or to find out how cheaply Vanguard could do it for me.

Ouch! You guys are driving a stake through my heart,
even as I have done my best to be helpful and "give
back" to the ER community, blah blah, etc etc .

Truly, I find it difficult to reveal all of my financial life,
even on an anonymous basis. Anyway, in my defense
everything posted by me is 100% true. However,
there is always "the rest of the story". You will
have to wait until my memoirs come out to learn
all of my secrets.

John Galt

[unclemick]

I suggest re-reading TH's post very carefully. Vanguard Lifestrategy is our ER (eleven years and counting). 20% - is a concession to male hormones - I can't stop putzing around (aka hobby stocks).

From 1966 - 2004 MY PERSONAL BEST WAS WHEN I DID ABSOLUTELY NOTHING - NOT ONLY KEEPING MY HANDS OFF THE THROTTLE - I DIDN'T GO NEAR THE CAR.

My hands on during the acumm. years got a few sports cars, a little penthouse living, a duplex, a fish camp - AND a lot of butt whippings marketwise I have 'conviently blotted from memory'.

I know, I know, - a little over the top - but DCA and balanced index got me to and keeps us in ER - like 80-90% of it.

More than one way to skin a cat - almost as many as there are ER's.

My two cents - simple is good.

Looking at a similar dilemma, yet the details are more complicated. My father bought, held & loves stock splits (hates mutual funds). He is very ill now and we've had to hire a planner to manage the investments. My mother has also been quoted 1%. I'll meet with this person next week and get more information.

Any suggested resources (books,etc.) would be much appreciated. Though my mother needs to move sooner on some decisions, perhaps I could go back to school and learn this stuff?

JP

[oldcrowcall]

I am about the same as you. I am getting ready to jettison my 1% portfolio manager. When I realized that my 2 1/2% SWDR really had to be 1 1/2% to compensate for his fee!! Also, the idea of a fee only financial planner being completely "independant" is somewhat of a myth. Most are biased in that they want to create a long term income stream for themselves by managing your money.

[unclemick]

Jean

Your first and worst task may be an accountant - not a planner. With splits and spin offs keeping track of my 37 hobby stock tax cost/share is fun - or at least that's what I tell myself.

1. You need the tax basis for each holding so you know the cap gain - should you desire to sell.

2. Then try to figure out what your dealing with - depending on the stocks you may be adquately diversified and 'own in effect a low expense mutual fund'. Perhaps too much to hope for - but the academic curves get real interesting beyond 4-8 stocks.

3. Of course then you have to decide - what was the purpose of owning the stocks - a hobby like fishing, income, growth as an inflation protection? Planners get trained 'out of the can' - i.e. they all believe the earth is flat - or more seriously - more or less read the same books. You can too.

[cute fuzzy bunny]

Jean - are we talking a handful, dozens or hundreds of stocks? If we're talking about broad holdings of fairly healthy companies you might transfer the holdings to a low cost brokerage and do nothing. When you need money, liquidate a holding. You might get some advice for free here on which ones are likely candidates to eject.

The lifestrategy/target retirement options are great for cheap autopilot with the caveat that some (including myself) think that many equities are overvalued right now, and broad indexes in a broadly declining market are not where you want to be. Of course, as unclemick points out, sensible measures applied to investing over long hauls has failed to beat such simple index investing. But we've never been at these relative valuation levels before...

If you insist on active management in investments of the same vein, vanguards "wellington" and the more conservative "wellesley" produce high income and excellent capital appreciation with index fund like prices. For more diversification in actively managed investments, vanguards STAR fund itself is composed of about a dozen different stock and bond funds, and also produces excellent returns at a low management fee.

[Nords]

Your best stock strategy may be to just stand there-- do nothing. If your father built up those positions over years of buy & hold, then I doubt you're going to do any harm in the next 12 months. Leave the stuff in the brokerage, don't trade, file the paperwork when it arrives, cash any checks you get into a money market, and let 'em ride.

Meet with the advisor if you must, but keep your hand on your wallet. You don't have to pay for education (school) any more than you have to pay for financial advice. First, I'd start with the classic Bernstein "Four Pillars of Investing" from the library. Learn the vocabulary on diversification and low-expense investing. You can also read his articles at efficientfrontier.com and look for subjects that catch your interest.

An older buy & hold stock classic is "Eight Steps to Seven Figures" by Charles B. Carson. It was written in the charming bull-market innocence of the late '90s but it may match your father's philosophy. It's one of the few books that advocates holding stocks and that has also stood the test of buy & hold. Another columnist you may want to read (who's profiled in the Eight Figures book) is Humberto Cruz. You can read his articles in the Florida Sun-Sentinel at http://www.sun-sentinel.com/business...cruz.columnist .

Other stock-trading (and stock-holding) websites include the Motley Fool and Investopedia.com. Both will educate you on the basics of buying stocks and give you ideas on when (if) to sell.

I'd stay away from Bill O'Neill, Investor's Business Daily, Wall Street Journal, and CNBC. They're active traders and you don't need to join their club unless this stuff absolutely fascinates you.

Finally, here's Paul Farrell's column on two questions to ask your "financial planner". http://cbs.marketwatch.com/news/print_story.asp?print=1&guid={736E8CB3-BFD2-4889-8F9E-A81F9966192F}&siteid=mktw It's a pass-fail quiz-- (1) What investments does the broker hold? You don't want to know amounts, you just want to know which funds & stocks in what percentages. Ducking this question indicates hypocritical advice or someone getting paid from commissions. (2) Can you recommend some equivalent no-load funds, especially low-cost index funds from Vanguard? Again if they can't come up with a recommendation, you can do better anywhere else.

Bottom line, first you'll want to know how much it originally cost to buy those stocks, how much they split, and how much (if any) was reinvested (dividends). That'll establish your cost basis for taxes, and this may be the one area where you want the help of a tax accountant who's skilled at tracking through this jungle.

Next you'll want to figure out what to sell first-- if anything. I'd sell only when you need the cash or if you decide that you're too concentrated in one area. (There are a number of tools to help with this analysis, including Quicken and Morningstar's websites.) If you don't need the money and you're not overconcentrated in one area, then don't worry about it.

If you're having trouble sleeping at night for fear of the market crashing and wiping you out (probably unlikely at your low cost basis), then your brokerage could help you set what are called "trailing sell stops" at a price of 10-15% below each stock's current price. Only do this if a market correction makes you feel nauseous. If you don't care then it's not worth doing it. But if you were worried about a correction and it happened, a price drop of that amount would trigger the sale of that stock. You could then keep the cash and reinvest it in a bond or stock mutual fund at Vanguard.

Your only costs are hours of reading and plowing through websites, plus a few hundred bucks to a tax accountant if your records aren't already organized.

There's also plenty of free advice here (worth what you pay for it!) that can help you with your analysis. If you want to list the stock portfolio here, it'd be best to do so with the comany's name, its stock ticker, and its percentage of the total (don't do it in dollar terms). You'll get plenty of opinions on your status & options!