Dropped the ball or not?

[lacawac]

Hi all, looking for an opinion on an investment I have. Last year about 8 months ago I hired Edward Jones to manage some $ I had been sitting on in the bank.
I,m 62 years of age ,retired because of a disability and trying to optimize what I have. Leading up to hiring EJ I told the rep I was looking to supplement my income by investing $250,000. He told me he felt that they could get me at least 5% on the $ after their charges of 1.25%. last year the stock market was not good and I get that. Heres my question . Although the account was down about $12,000 last month, when I went to get my taxes down, I ended up owing $300 to the feds and $200 to the state, along with losing about $700 I would have gotten back because of Capital Gains from the acct.Even though the acct lost a substantial amount the gains had to be shown as income therefore the tax consequences. My question is from a management standpoint am I being foolish thinking that the acct should have been looked at and adjustments made to take care of that,for example selling some off at a loss. any advice would be appreciated,thanks

 

[Sunset]

I would be surprised if your investment was not scattered into about 50 different funds, stocks, and bonds.

All those funds do their own thing and don't give a rat's hair about your tax situation (not that they could predict it anyhow).

Frankly that is what I hate about Mutual Funds in general as you get to claim capital gains, but nothing is put into your pocket.

So since you lost money, and they made it worse by charging you 1.25% ( $3,125 ) for that privilege, doesn't that make you mad. ?

Are you sure they didn't charge more than that in management fees ?

10 years from now, you will have paid them $31,250 assuming you stay relatively flat (more if you gain something).

I suggest you move your money to Vanguard and put it some of their funds. They charge about 0.20 in fees.

 

[Gone4Good]

My question is from a management standpoint am I being foolish thinking that the acct should have been looked at and adjustments made to take care of that,for example selling some off at a loss. any advice would be appreciated,thanks

Possibly.

If the distributions were long-term capital gains you (or your adviser) could have harvested some loses to reduce or eliminate the taxes owed. If the distributions were short-term capital gains that's not possible because those distributions are always reported as ordinary income. So it's possible there was nothing to be done.

But if they were LT distributions, tax avoidance planning seems like something your adviser should have at least mentioned as a possibility.

 

[Ready]

I don't understand how they could predict a 5% return on your money. If they invested in bond funds, those are not paying anywhere near 5%. If they invested in equities, nobody can predict what returns will be like in the short term. They could go up 25% or down 25%, and they have no idea which direction the market will go.

Are you sure they stated a 5% return? Was it based on a long term forecast? Do you know what type of investments they put your money in? Looking at returns over a one year period is pretty meaningless, but hopefully they clarified that before they took your money.

And as you will likely see from other posters, Edward Jones is not highly thought of on this forum.

 

[MRG]

Seriously I don't want to be a Debbie Downer but run away from Edward D. Jones! They charge an outrageous amount to mismanage your money. Then they put you in high cost funds that pay kickbacks to them! They exist to make your money theirs.

I could go on for hours but I'll stop. Instead please spend 8 minutes and watch the R rated parody on ED Jones. I promise(sadly) every word Fast Eddie says is true.

https://youtu.be/LDyDDBv2HzE

ETA: +1 On Vanguard.

 

[Gone4Good]

One other thing to consider.

Not all funds generate the same magnitude of taxable distributions. Some actively managed funds generate lots and lots of taxable distributions because they're constantly buying and selling securities. Other funds, like index funds, tend to be much more tax efficient.

If you got a big tax bill in a bad year, it could mean that you own some tax hogs. It could also be just unlucky timing on your part and therefore not something that will repeat every year. But it might be worthwhile to look at the distribution history of the funds you own to see how tax efficient they are.

 

[JPatrick]

Lots of tax horror stories this year, namely mutual funds that lost their butt, but magically produced large cap gains that we get to pay taxes on.
A lot of this can be avoided through the use of ETF's---ask about them if you stay with AGE.
Also, you may be expecting a little bit too much management from your 1.25%.

 

[RE2Boys]

Remember that cap gains get special treatment so that you may have actually paid zero % on the capital gains from the funds, all depends on your tax bracket. How you got the $700 in taxes due to cap gains not sure.
And measuring your tax return by what refund you get or what you owe means nothing. I engineer my taxes so I always owe, if I had my way I'd pay the whole year of taxes on April 15. I just avoid having to pay penalties.

 

[target2019]

Hi all, looking for an opinion on an investment I have. Last year about 8 months ago I hired Edward Jones to manage some $ I had been sitting on in the bank.
I,m 62 years of age ,retired because of a disability and trying to optimize what I have. Leading up to hiring EJ I told the rep I was looking to supplement my income by investing $250,000. He told me he felt that they could get me at least 5% on the $ after their charges of 1.25%. last year the stock market was not good and I get that. Heres my question . Although the account was down about $12,000 last month, when I went to get my taxes down, I ended up owing $300 to the feds and $200 to the state, along with losing about $700 I would have gotten back because of Capital Gains from the acct.Even though the acct lost a substantial amount the gains had to be shown as income therefore the tax consequences. My question is from a management standpoint am I being foolish thinking that the acct should have been looked at and adjustments made to take care of that,for example selling some off at a loss. any advice would be appreciated,thanks

What the advisor will say is that they can't give tax advice. They do not manage the account for tax advantage. However, we can hand you over to Uncle Bob, who's a nice guy and does tax advice.

There is other discussion here and elsewhere about EJ, and I think you should seriously consider moving the money elsewhere.

 

[OrcasIslandBound]

Many in this forum are only planning to consume 2 1/2 to 3 1/2% of their portfolio to live on during retirement. Giving away 1 1/4% to a so called financial advisor is similar to saying that you want to give them 1/3 to 1/2 of your total income so they can manage your money.

Sent from my Nexus 4 using Early Retirement Forum mobile app

 

[petershk]

I agree.

Separate taxes and fees. If you pay 500$ on 250K that is a small % of the expected income 250K is expected to bring (say 10K/yr after inflation). The 3K of fees on that expected 10K is the major problem. "Feeling" you can getting 5% is worthless. I can't pay my mortgage with "feelings" =.

Consider the incentive. If they get 1.25% no matter what happens their goal is to make you feel good. If they get kick backs and fees by selling and buying... they will so that. I'd go back and say "wow... that's a good feeling... tell you what... I'll pay you 1.25%.AFTER you beat the market by that much over a 5 year period. My guess is they won't agree with that which shows how much they trust their feelings. Alternatively you could see if they would comp you if their feelings are wrong... of course they won't.

I'd dig in us forum bogleheads and mad fientist and get a real sense of taxes, fees and inflation... and see if after that you still want to spend 1%+. For me it was very enlightening.

Good luck! People here don't make $ from giving you advice so it's probably more honest .

Sent from my HTC One_M8 using Early Retirement Forum mobile app

 

[petershk]

BTW you didn't drop the ball. There's HUGE industries with vast resources that exist to separate investors from their money and only tiny resources spent on the opposite.

I spent untold amounts for many years before I looked around and started to figure it out... and am still WAY less informed than many people on this site.

Sent from my HTC One_M8 using Early Retirement Forum mobile app

 

[travelover]

One more vote to dump your EJ guy and just put the money into a Vanguard Target fund or Wellesley.

 

[HadEnuff]

Run away!!! Most of life's lessons cost us money, or time, or both. Minimize your losses and get away from them. My advice is to read Bernstein's "Four Pillars of Investment" and read a lot of the money management threads on this site.

As mentioned above, many retirees figure on living on 3-5 % of the nut, don't give one half, to one third of that away to a salesman.

 

[Bestwifeever]

... My question is from a management standpoint am I being foolish thinking that the acct should have been looked at and adjustments made to take care of that,for example selling some off at a loss. any advice would be appreciated,thanks

Perhaps EJ would have charged more for the cost of making the adjustments than the taxes were.

 

[Lsbcal]

Hi all, looking for an opinion on an investment I have. Last year about 8 months ago I hired Edward Jones to manage some $ I had been sitting on in the bank.
I,m 62 years of age ,retired because of a disability and trying to optimize what I have. Leading up to hiring EJ I told the rep I was looking to supplement my income by investing $250,000. He told me he felt that they could get me at least 5% on the $ after their charges of 1.25%. last year the stock market was not good and I get that. Heres my question . ...

You are paying them $3130 per year! At a firm like Vanguard the ER should be more like 0.14% (for a balanced offering like Target Retirement 2010). That translates to $350 on a $250k portfolio. And there is no risk in reducing the management fees.

 

[MRG]

You are paying them $3130 per year! At a firm like Vanguard the ER should be more like 0.14% (for a balanced offering like Target Retirement 2010). That translates to $350 on a $250k portfolio. And there is no risk in reducing the management fees.

No, he's paying Much More!

The 1.25% is only the EDJ advisor fee. Then they put him in high ER funds that give EDJ "revenue sharing" incentives. I recall a guy who once, all in he calculated one of these advisors was costing a real 1.75% (between the flat fees and the 12B1 charges) on funds he could have bought himself! That's every year market up or down, big gains or none.

 

[Lsbcal]

I knew an older lady that had an account with Edward Jones. She was thrilled that she got taken out to lunch and such. I mentioned that they were eating her lunch.

 

[tmm99]

I read some of your older posts. (You had 1M in IRA, 300K in cash back in 2014. Considered variable annuities, investment advisors, etc..) It looks like you have been looking for help for a while. Most of the people who are posting on your thread are financially savvy folks and they handle their own finances. Some of us however are not as savvy, like myself (, although I know enough not to go for financial advisers who require 1.2% payment). Anyway what I gather is, you need someone who can help you make sound decisions in a more comprehensive manner than one time question here and there that you have been asking here. (I am saying this only having read your older posts..)

My suggestion is to find a fee-only certified financial planner using a resource like http://www.garrettplanningnetwork.com It will probably cost a few thousand dollars (one time fee unless you want to go back for annual reviews, etc), but you will probably get a much more sound plan than from any financial advisers who are affiliated with some firms, and you will be implementing the plan yourself, so you will learn to do it on your own little by little. They will look at your expenses also (you mentioned in another thread that you need to come up with a few thousand dollars in addition to your pension/SSDI.) as well as estate planning if you are inclined to do so. I have hired a CFP via Garrett Planning Network myself back in 2007 or 2008 once - and I have been able to manage my own finances since then (I read a couple of books since then also...) although I am not a sophisticated investor by any means.

One person did mention Edward Jones in one of your threads (again this was by a non finance savvy person...) while a lot of folks mentioned to go to Vanguard (which has very low fees for hiring an adviser). So my vote is to go with a fee only *certified* financial planner (CFP or CFA) since you could get a comprehensive help you probably need, or if you do not want that for some reason (interviewed a few people but cannot find someone you like, for example), I would talk to Vanguard (VG) (0.30% is their fee). I am recommending the fee only CFP first because 1) CFP would probably give you a more comprehensive help across the board (expense analysis and optional estate planning as well as recommending allocations etc) 2) they can make recommendations on all your money at different firms while I am not sure if VG would deal with the money sitting outside of VG.

Anyway, that's what I would do in your situation. Neither the fee only CFP or VG would promise you a solid 5%+ return like you may want, but I think they would give you a realistic picture/plan that matches your financial goal.

Good luck

 

[Danmar]

Would have been a lot smarter to ask our opinion before you dropped the ball. But never too late to pick it back up.

 

[Lsbcal]

...

My suggestion is to find a fee-only certified financial planner using a resource like Garrett Planning Network - Making competent, objective financial advice accessible It will probably cost a few thousand dollars (one time fee unless you want to go back for annual reviews, etc), but you will probably get a much more sound plan than from any financial advisers who are affiliated with some firms, and you will be implementing the plan yourself, so you will learn to do it on your own little by little. ...

Not a bad idea here. I would try to get most of my assets placed at Vanguard or maybe Fidelity. That is because the FA will probably charge a percentage of assets under management i.e. it is no longer a fee only situation. Is Garrett associated with DFA? In that case, they offer DFA (a good quality fund company) access but only through the FA and their management fees.

It should be noted that a Vanguard will do a workup if one is transferring substantial assets to them. They also have a newish service that offers low fee on going advice. I would call them for a perspective as there is no cost to do so and they will not pester you.

 

[ERD50]

I read some of your older posts. (You had 1M in IRA, 300K in cash back in 2014. Considered variable annuities, investment advisors, etc..) It looks like you have been looking for help for a while. ...

Made me look. The OP, lacawac, looks to be asking this same basic question almost every year for about 5 years. And like this thread, rarely comes back to discuss (or even acknowledge) the advice given.

http://www.early-retirement.org/forums/search.php?searchid=5796418&pp=25&page=2

Maybe next year?

BTW, I somewhat disagree with you that someone needs to be financially savvy to DIY. A Target retirement fund, or a simple 2-3 index portfolio, set and forget, will likely outperform the typical EJ choices. You only need to be savvy enough to absorb the data we offer here to show just how simple it is, and how unlikely it is that a retail type EJ place will add value. More likely that they will subtract value (for you, they will do fine).

-ERD50

 

[Lsbcal]

Made me look. The OP, lacawac, looks to be asking this same basic question almost every year for about 5 years. And like this thread, rarely comes back to discuss (or even acknowledge) the advice given.

...

I hope he updates us. I rarely participate in advise giving because of lack of acknowledging in past such threads.

 

[lacawac]

replying

Sorry if I offended anyone by not replying, probably because I still don,t know what to do , that's why its been five years . I,m at the point now that I have to start to withdraw from this acct to live. Maybe ive had my head in the sand, but again I apologize if ive offended anyone. Now I'm thinking about Vanquard and am going to call them I think it all stems to the fact I'm afraid to trust anyone!

 

[Coolius]

The immediate thing you can do now - to start recovering from the poor situation you are in at this time - is to dump EJ ( and fast! ) and move your money to Vanguard.

This forum is a wealth of information on Asset allocation, risk analysis, and withdrawal rates.

Make use of the wise folks here. I know they are happy to help.