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Another withdrawal article: There is hope!
Old 11-21-2011, 10:19 PM   #1
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Another withdrawal article: There is hope!

Here is an interesting article on the 4% rule allowing for the expenses incurred while investing. I think it is very interesting reading.

Withdrawal Rates Drop as Fees Rise
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Old 11-22-2011, 06:59 AM   #2
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I have read about the basic concept it many times before but that is a nice presentation of the situation. In a nutshell, Rick Ferri compares three retirees with similar $2M portfolios retiring in 2000. An index investor (3 VG Admiral funds); a similar active fund investor in "Morningstar category average funds; a category average investor who is paying an advisor .8%/yr to pick funds. As of 2010 the index investor beats the Morningstar average investor by a lot but the $150,000+ that goes to the advisor really takes investor #3 to the cleaners.

Of course no advisor would agree with the basic premise that the funds he or she chose for investor #3 would return the Morningstar averages. But it is hard to envision those choices returning the $150K plus the difference in fund management fees. To do that the advisor would need to be following a very different strategy of active trading which is not the conservative approach Ferri is evaluating.
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Old 11-22-2011, 11:32 AM   #3
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Here's another WR article

tap-retirement-accounts-wsj: Personal Finance News from Yahoo! Finance

This stuck out to me.

Quote:
Using his own calculator based on data from 1965-95, he found that 3.4% is the top "safe" withdrawal rate for a retiree with a 40% stock and 60% bond allocation, assuming investment fees of 1.3%.
Hmmmm, how can I withdraw more from my portfolio without changing my asset allocation?
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Old 11-22-2011, 12:24 PM   #4
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Quote:
Originally Posted by nun View Post
Here's another WR article

tap-retirement-accounts-wsj: Personal Finance News from Yahoo! Finance

This stuck out to me.



Hmmmm, how can I withdraw more from my portfolio without changing my asset allocation?
Stop paying 1.3% in fees?
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Old 11-22-2011, 12:31 PM   #5
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Quote:
Originally Posted by HFWR View Post
Stop paying 1.3% in fees?
<rimshot!>
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Old 11-22-2011, 04:54 PM   #6
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Quote:
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Stop paying 1.3% in fees?
Wow, and here I was paying 1.3% fees
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Old 11-24-2011, 10:25 AM   #7
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Quote:
...assumed one investor hired an advisor to pick actively-managed funds
Herein lies a problem-- this is stacking the deck against the advisor by making him use "actively-managed funds" which will have hire expenses--there are advisors who use low cost index funds that are NOT available except thru an advisor and that have historically had the best returns and maintained LOW expenses doing it year in and year out.(DFA funds). You may wonder why use an advisor at all if all they do is buy index funds.

The advisor I ended up using charges 0.5% of the portfolio to manage and buys low expense index funds (mostly DFA) and monitors and adjusts the asset allocation- not just International vs US stock vs Bonds but also to have an appropriate large small stock mix, a tax advantaged mix and a long/short bond mix that has resulted in returns that are neither way better than the market, nor much worse in any given year, but steadily solid--It is possible I could do as well buying my own funds and not paying the advisor, but I especially like the tax considerations that he does for me. Also, for the given examples in the article-we do not know the range of returns year to year that might have provoked some considerable anxiety..-my advisor's approach-even over the 1998-2008 "lost decade" yielded a 6% yearly average return...not great- but certainly better than I think could have done on my own and better than the proverbial sharp stick in the eye...
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