All eggs in the Vanguard Basket

[cbo111]

As I patiently wait for my various brokerage firms to issue 1099's, my DW innocently asked me " why don't you just put it all in Vanguard?" Well, I didn't have an answer, so let me ask you all. I currently have about 450K in a Vanguard VPAS. I also have about 300K in my previous employer megacorp 401K, and some $ in Ameritrade.
What is the downside, if any, to putting it all in Vanguard? Is there increased risk? Seems like it would make record keeping more simple as we age. Thanks for your collective wisdom.
Chuck

 

[braumeister]

Simple, certainly. But you may find drawbacks as well.

Personally, I have the bulk at Fidelity, next largest chunk at Vanguard, and some at Schwab. Obviously, I'm a fool who complicates his life unnecessarily.

But I love the research available at FIDO, as well as the superb website.
And I like being able to buy one of my favorite ETFs, SCHD for free at Schwab, as well as some of their research.

Vanguard makes low cost investing easy, but I think you get what you pay for and their website is IMHO abysmal. But I like having Admiral shares, so I keep it up.

Since I keep track of everything in Moneydance, I don't see any particular advantage in consolidating everything at one place. Simplicity is fine, but as long as I have my wits about me, I'll probably keep doing what I do.

OTOH, about three or four years ago, I had nearly 40 different investments. Today I have just 15. So I understand the allure of simplifying.

 

[ejman]

Well, I have 78% of my eggs in Vanguard. I've been ER'd for 13 years now and although I'm sure Vanguard is perfectly safe for all of my eggs it's never going to happen. If there is a major something or other happen I want to make sure not everything I have is sitting at the Valley Forge computers or their emergency backup site either. As someone famously said "I don't know what I don't know..."

 

[Whisper66]

I'm thinking along the same lines. Have money in 5 different companies but the largest (and growing) is in Vanguard. One of my goals this year is to cull it down to just two companies. Don't feel comfortable with just one in case Vanguard ends up in some sort of problem and temporarily I can't get to those funds.

 

[MRG]

What is the downside, if any, to putting it all in Vanguard? Is there increased risk? Seems like it would make record keeping more simple as we age. Thanks for your collective wisdom.

Chuck

Depends what are your concerns? I'm of the belief you have to define what you're trying to mitigate the risk of.

Fund performance is pretty easy if you are an indexer. Pretty much a wash.

Vanguard as an entity could, I guess, become insolvent? I'm going to think they have as good of plan as anybody.

Physical or cyber issues? Well I'm going to say they have a plan for that. As an investor they don't share the the plan details do they? How come, nobody does.

Cybersecurity? I retired from the industry, and obviously folks don't want their Megacorp to be in the news because of a preventable cybersecurity issue. But again nobody shares their detailed plan.

That said my investments live in a couple of places. That is part of my plan for now. When I turn 59.5 the real need for my prior 401k goes away. I may roll it to a separate entity in a different physical location.

Now, how do I know where my data is physically at..........? How do any of us know what any fund company's internal DR policies are? Sure a couple of companies say they will make you whole if their cyber issues cost you but what does that mean if shtf?

Of course I could start to fret over the land or satellite links next. Then the zombies become a welcome thought .

 

[GrayHare]

An investment company could decide it doesn't like something about you, perhaps the tie you are wearing, and restrict access to your account until you repent/stand on your head/ESAD/whatever. It's smart to have other options so you are not at their whim. Can't happen? It has to me.

 

[MRG]

An investment company could decide it doesn't like something about you, perhaps the tie you are wearing, and restrict access to your account until you repent/stand on your head/ESAD/whatever. It's smart to have other options so you are not at their whim. Can't happen? It has to me.

That's a good point. My brokerage account got locked for several months. I could trade but withdrawal 0! It was the target of a TOD and the state of PA held it until the estate cleared their painfully slow, paper based tax system.

That was a real PIA. In my case it was just the account, but I could see how it could be the broker/fund co.

 

[swakyaby]

An investment company could decide it doesn't like something about you, perhaps the tie you are wearing, and restrict access to your account until you repent/stand on your head/ESAD/whatever. It's smart to have other options so you are not at their whim. Can't happen? It has to me.

And it has also happened to me. Had a rollover IRA with an investment company. After awhile (8 months), I realized they were no longer sending me the quarterly statements. Called to ask them why. They wouldn't answer why, just kept asking for copies of my driver's license, social security card, and other nonsense. I would mail it exactly as requested, and . . . crickets. Would call again and get "we never received it" and go through it again . . . crickets. I asked if there was some kind of "hold" on my account. They said yes. I asked why . . . silence. Went through this for 9 months without any explanation on their part and no access to my retirement account.

Finally, I decided to call another investment company (T.Rowe Price) and asked them if they would help me transfer my IRA to them. They (excitedly) said "no problem." So T.Rowe Price initiated a rollover IRA direct transfer request to the other custodian of my IRA funds and got . . . crickets. 30 days later they sent a more sternly worded demand and copied it to me, and got, you guessed it, crickets. At 60 days, T. Rowe Price sent a menacing letter to the current custodian quoting various laws of the securities and exchange commission and a threat to file a formal complaint. At exactly 89 days and 23 hours, the custodian of my IRA transferred all funds to T.Rowe Price without any comment at all. I thought this was better than me trying to fight this company on my own.

So, like GrayHare I'm wary of keeping all of my assets with one company in case they decide to make life miserable for me, for whatever reason.

 

[Gone4Good]

Fraud is my number one concern. Massive internal theft and external account hacking are both things that would worry me about having all my money at one company or controlled by one password.

It's not something that necessarily keeps me up at night, but it is as meaningful a risk as anything that can happen in the market. And I do diversify against market risk.

 

[target2019]

Fraud is my number one concern. Massive internal theft and external account hacking are both things that would worry me about having all my money at one company or controlled by one password.

It's not something that necessarily keeps me up at night, but it is as meaningful a risk as anything that can happen in the market. And I do diversify against market risk.

I'm on the fence as to whether two is better than one in the event of massive fraud. Think you'd have to slice that risk into smaller pieces to examine, but still it is not something anyone can assess in a few minutes.

With two banks, you have more attack vectors. For example, combined there are more employees, computers, servers, etc. Bank A may have a hardened, well-tested approach, Bank B may seem like all is in order, but...

I was headed down the all-Vanguard path, but have been moving to multi-vendor (Schwab). I'm keeping the 401(k) at company for now, and will probably move that to Schwab eventually, and use their house ETFs. Also have bank for bill pay. That makes 4 financial institutions. So my approach is multi-vendor.

 

[foxfirev5]

I'ved had enough minor snags over the years to convince me to go the diversified path. But not too much. Vanguard and Fidelity for investments, one online bank and one local bank for other needs.

 

[papadad111]

I think this might be age and health dependent.

As we get older and cognitive capabilities decline, having things in just a few places does make sense especially if a trusted family member is assisting with financial matters.

All eggs in one basket may increase risk , although that risk seems to be a very VERY small percentage.

Also most broker/dealers do have nasd sipc insurance as well. They all also have cyber-hack insurance and they protect your assets... Maybe I'm naive to believe the insurance ... But it is in place.

I believe the more open accounts you have, the higher the risk of cyber fraud happening to any one of those accounts and the bigger digital footprint / likelihood of you experiencing a hack.

There are some good legal reasons to not consolidate an employer sponsored plan ...and some plans have access to super duper low cost index funds which are incentives to stay put and not consolidate... but that's not what we are really discussing here.

 

[cbo111]

Wow, the number of folks who have experienced some sort of lock-out from their accounts is a little concerning. Maybe I will stick with two separate vendors in case one decides to hold my $ ransom for months. Thanks again for the inputs.

 

[big-papa]

Simple, certainly. But you may find drawbacks as well.

Personally, I have the bulk at Fidelity, next largest chunk at Vanguard, and some at Schwab. Obviously, I'm a fool who complicates his life unnecessarily.

But I love the research available at FIDO, as well as the superb website.
And I like being able to buy one of my favorite ETFs, SCHD for free at Schwab, as well as some of their research.

Vanguard makes low cost investing easy, but I think you get what you pay for and their website is IMHO abysmal. But I like having Admiral shares, so I keep it up.

Since I keep track of everything in Moneydance, I don't see any particular advantage in consolidating everything at one place. Simplicity is fine, but as long as I have my wits about me, I'll probably keep doing what I do.

OTOH, about three or four years ago, I had nearly 40 different investments. Today I have just 15. So I understand the allure of simplifying.

Similar to my situation. Most is at Fidelity, but a good sized chunk is at Vanguard as well. Fidelity was my first taxable account when I started investing in Mutual Funds in the early 1990s. Then nearly every company I worked for used Fidelity for their 401Ks. As I left each one, it was very easy to roll it over into a Fidelity IRA. So all of my deferred accounts are there. As time went on, I decided it might be good to diversity things a tad, so I opened up an account at Vanguard taxable account after receiving a small windfall from an employer. Back in the dark ages when I didn't know what I was doing and traded individual stocks, I had a Schwab account. As time went by I had no time for that and moved the funds into a balanced fund there until I could figure out what I wanted to do. It wasn't much money and in the interest of simplification, I closed the account and moved it to Vanguard in January this year. Everything is now tracked on spreadsheets.

Big-Papa

 

[MRG]

Also most broker/dealers do have nasd sipc insurance as well. They all also have cyber-hack insurance and they protect your assets... Maybe I'm naive to believe the insurance ... But it is in place.

There are only 3 companies that have a fraud gaurentee(cyber-hack), Vanguard, Fidelity, and Schwab. The others make no mention.

Having spent many years in the industry I do not concern myself with the fund company or their agents. Why? They have dealt with fraud for many years. Many of their policies were developed back when the record keeping was done on paper, and updated when new knowledge is available.

Move to a different fund company to gain a separation of assets. How do you know it's really separate? Since there are a limited number of systems that do the record keeping for all the fund companies how do you know what fund companies are running on the same computing systems? If Fund XYZ got hacked and all their assets disappear(highly unlikely), why wouldn't the hackers go to Fund ABC and do the same thing? After all the external security is the same technology.

 

[unclemick]

Yes. Since 2006. At age 72 going on 73 trying to simplify.

heh heh heh - ER'd 1993 so it took a while. Still have two or three very small DRIP plans I haven't got around to consolidating.

 

[papadad111]

Also most broker/dealers do have nasd sipc insurance as well. They all also have cyber-hack insurance and they protect your assets... Maybe I'm naive to believe the insurance ... But it is in place.

There are only 3 companies that have a fraud gaurentee(cyber-hack), Vanguard, Fidelity, and Schwab. The others make no mention.

{

Double check your "research"... here is an example of fraud guarantee and that was just my 10 second google skills...there are many others I am sure:

https://www.tdameritrade.com/security/asset-protection-guarantee.page

Beyond that, there is SIPC and then typically counter-party insurance:

"SIPC first returns your share of the broker's remaining assets, then uses its own funds (up to $500,000 per account, including a $100,000 limit on cash) to buy the same number of shares that you originally owned. That $500,000 limit only applies to the maximum amount SIPC will spend on its own to make up for any missing securities; not the total amount of money you can get back. If many of the customers' assets remain intact at the brokerage firm, then you can get back a lot more than that SIPC limit -- which is a key difference between how SIPC protects brokerage customers and how FDIC covers bank deposits.
In the rare case when an investor's losses exceed SIPC's limits, the difference usually is covered by brokers' supplemental insurance -- often provided by Lloyds of London or a new firm called CAPCO, the Customer Asset Protection Company, which provides excess SIPC coverage to 15 major brokerage firms, such as Goldman Sachs, Morgan Stanley, Raymond James and Wachovia Securities.

source: Is Your Brokerage Account Safe?-Kiplinger

 

[MRG]

Double check your "research"... here is an example of fraud guarantee and that was just my 10 second google skills...there are many others I am sure:

https://www.tdameritrade.com/security/asset-protection-guarantee.page

Beyond that, there is SIPC and then typically counter-party insurance:

"SIPC first returns your share of the broker's remaining assets, then uses its own funds (up to $500,000 per account, including a $100,000 limit on cash) to buy the same number of shares that you originally owned. That $500,000 limit only applies to the maximum amount SIPC will spend on its own to make up for any missing securities; not the total amount of money you can get back. If many of the customers' assets remain intact at the brokerage firm, then you can get back a lot more than that SIPC limit -- which is a key difference between how SIPC protects brokerage customers and how FDIC covers bank deposits.
In the rare case when an investor's losses exceed SIPC's limits, the difference usually is covered by brokers' supplemental insurance -- often provided by Lloyds of London or a new firm called CAPCO, the Customer Asset Protection Company, which provides excess SIPC coverage to 15 major brokerage firms, such as Goldman Sachs, Morgan Stanley, Raymond James and Wachovia Securities.

source: Is Your Brokerage Account Safe?-Kiplinger

We're talking about two different things. You're clearly discussing brokerage. I shouldn't have quoted that as I was talking about fund companies. I've checked T. Rowe, American Funds, Hancock, be my guest looking at the other 240. They gaurentee nothing regarding their ability to insure you against loss. That said it's really not a concern, as I've stated the industry has dealt with fraud since day one. Those companies don't want the negative press and make their customers whole.

 

[mathjak107]

you have to understand the sipc insurance and the extended insurance on your account and when it apply's and does not apply .

take fidelity as an example:

"the SIPC will cover up to $500,000 in securities, including a $250,000 limit for cash held in a brokerage account.
What Fidelity accounts are covered?
All Fidelity brokerage accounts are covered by SIPC. This includes money market funds held in a brokerage account since they are considered securities. Learn more about SIPC coverage at www.sipc.orgOpens in a new window..
Excess of SIPC
In addition to SIPC protection, Fidelity provides its brokerage customers with additional "excess of SIPC" coverage. The excess coverage would only be used when SIPC coverage is exhausted. Like SIPC, excess protection does not cover investment losses in customer accounts due to market fluctuation. It also does not cover other claims for losses incurred while broker-dealers remain in business. For example, fraud claims would not be covered if the brokerage firm was still in operation. Total aggregate excess of SIPC coverage available through Fidelity's excess of SIPC policy is $1 billion. Within Fidelity's excess of SIPC coverage, there is no per customer dollar limit on coverage of securities, but there is a per customer limit of $1.9 million on coverage of cash awaiting investment. This is the maximum excess of SIPC protection currently available in the brokerage industry.
Both SIPC and excess of SIPC coverage is limited to securities held in brokerage positions, including mutual funds if held in your brokerage account and securities held in book entry form..


but then:

"While the following investment products are not insured or eligible for FDIC, SIPC, or any specific coverage, Fidelity is proactive in keeping assets safe.
Mutual funds
If you own Fidelity mutual fund shares directly, not through a brokerage account, your investment is in assets that are the property of the funds, not Fidelity. The funds and Fidelity are separate and distinct legal entities. The assets of each Fidelity fund are held by its custodian separate from any other assets belonging to Fidelity or any other fund. Neither Fidelity nor its creditors may access the funds' assets to satisfy financial obligations of Fidelity.
While SIPC and Lloyd’s of London protection applies to brokerage accounts, it does not apply to directly held mutual fund accounts. "
------------------------------------------------------------------------------------------------------------------------------------------------------------------

looking at it initially it appears you have unlimited coverage but when you read the details you learn you may have no extra coverage.

unless the funds and assets are held in street name in a brokerage account your IRA'S AND FUNDS BOUGHT THROUGH A MUTUAL FUND ACCOUNT
are not covered .

it makes sense since if you buy the funds directly and not own them through your brokerage account the funds are held in your name .


your funds or stocks are held in street name in your brokerage account and as such ONLY CREDITED TO YOUR ACCOUNT BUT ANYONE CAN STEAL THEM AND SELL THEM .

they get the additional coverage , but anything held directly like you ira's or funds you bought through a mutual fund account have no extra coverage since they are held only in your name in a separate legal entity from the brokerage ..

 

[jim584672]

I would never put everything in one brokerage. You never know if a massive fraud is happening somewhere. At least two different firms would be my suggestion.

 

[Mr._Graybeard]

Also most broker/dealers do have nasd sipc insurance as well. They all also have cyber-hack insurance and they protect your assets... Maybe I'm naive to believe the insurance ... But it is in place.

There are only 3 companies that have a fraud gaurentee(cyber-hack), Vanguard, Fidelity, and Schwab. The others make no mention.

Of those three, the most overtly active in the area of password protection seems to me to be Schwab. They've given me some kind of random-number generator to further encrypt my password -- the other two don't have that.

 

[target2019]

Of those three, the most overtly active in the area of password protection seems to me to be Schwab. They've given me some kind of random-number generator to further encrypt my password -- the other two don't have that.

Schwab gives you Symantec VIP device, which is a type of multi-factor authorization.
With Vanguard I have MFA turned on, and it behave similarly, but a code is sent to my phone.

With either, your communications are encrypted by virtue of secure connection (https in you browser).

Schwab logon seems to me much faster. I can press the button, and get a six digit code instantaneously.

Vanguard makes me logon successfully, and then lets me send a code to my phone. It usually works, but sometimes the code doesn't come promptly.

 

[braumeister]

I use the same Symantec VIP system for my Fidelity logon, but it's an app on my iPhone. Launch the app and you get a six digit random number that's good for 30 seconds at a time. Quite nice, and completely reliable.

 

[Senator]

I have most of my retirement money at Fidelity. Some at the Megacorp 401K, but not for long.

I also have a local bank for checking, etc. I use Fidelity as a "hoarding place", and my local accounts as spending money.

 

[FreeBear]

Wow, the number of folks who have experienced some sort of lock-out from their accounts is a little concerning. Maybe I will stick with two separate vendors in case one decides to hold my $ ransom for months. Thanks again for the inputs.

+1

Glad I'm not the only one with these concerns. We have 3 major discount brokerage accounts, with old 401K still at Megacorps designated (independent) brokerage. For cash we use a popular online savings bank and a couple of more local banks for daily cashflow.

Want to keep 401K as long as Megacorp permits, would probably have to move if they change brokerages, which happened twice during my career there. We have a 40+ years timeframe, so I doubt we'll consolidate too much for the reasons others have mentioned. It takes more w*rk to figure and manage our global AA, but that's what my big spreadsheet is for. Less time worrying about individual account hacking, lockouts, etc.

Thanks everyone, very helpful thoughts, esp. those with real-world cautionary tales. Glad it worked out for you folks in the end, sigh of relief...

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