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Edelman vs Do It Alone
Old 10-04-2014, 09:13 AM   #1
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Edelman vs Do It Alone

Good Morning FIRE's. Always look forward to discussions and very much value people's feedback.

Planning on retiring 31 Dec 14. Somewhat scarey. High paying job, won't get back. Enjoy people, but not the stress, hrs. Impacting health. Take too much time from enjoying life. Think I can RE.

Met with Edelman associate yesterday. Actually thought our pension and SS could handle basic expenses. Their numbers not so rosey. I was counting on BIG reduction in taxes, no more retirement savings. Today re-calculating, just my post retirement living expenses not matching theirs. Hmm.

Anyway - real question here is. I l liked what I heard with regards to establishing a strategy and sticking the course thru rebalancing. We got a free copy of Lies about Money and had good portfolio guidance and how to allocate based on needs, timeline, risk amongst US Stocks, International Stocks, Bonds, and Hedge Positions.

They pushed for further diversification using large number of ETFs in different sub classes like Large Cap Value, Large Cap Growth, Small Cap, ... within US Stocks. Similar for International Stocks, Bonds, and Hedge Positions.

My question is - can a normal FIRE'er accomplish somewhat similar diversification using Vanguard mutual funds in the different classes or worth the 1.4% (approx) fee (ouch).

Appreciate anyone who has used/heard of Edelman or doing just that on their own. And did your taxes/expenses go down after retiring? Still can't figure their numbers.

Thank you FIRE'ers.

Kannon
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Old 10-04-2014, 09:24 AM   #2
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Never heard of Edleman.

But... your taxes are typically much lower in retirement than while working. I went from ~17% federal income taxes or so while working to ~7% now and it would be zero if I was not taking Roth conversions.

The difference in expenses might be that they are using a % of income replacement approach. If so, that is balderdash. What you want to replace is living expenses, not a % of income. For example, let's say Edelman is assuming that you spend 80% of your income when in fact you live frugally and only spend 50% of your income. Focus on providing for your living expenses rather than a percentage of income. However, to do that properly you will need to have a good handle on what you spend to support your current lifestyle and how that will change if your retire, particularly if you are moving once you quit work.

1.4% is bloody ridiculous!!! You can easily put together a sensible retirement portfolio using low-cost mutual funds or ETFs. Vanguard Total Stock, Total International Stock, Total Bond and Total International Bond can go a long way and will cover all the subcategories adequately.

You'll find lots of good threads on these topics so start reading!
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Old 10-04-2014, 09:27 AM   #3
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The large majority of folks here are DIYers when it comes to investing. From the very simple 1 fund approach (pssst Wellington or Wellesley) to various forms of couch potato portfolios. Most of us use low expense index funds, vs higher expense active funds.

As far as expenses. If you track your spending you can blow the advisors numbers off - you *know* what your expenses will be.

For me - I based my spending on the following:
- Gross income (averaged over a few years) minus:
- SS taxes
- medicare taxes
- retirement savings.
- mortgage payments. (My retirement coincided with paying off the house)

Then I added back in
- increased health insurance premiums
- increased travel budget.

Since I'd been diverting so much to paying off the house and retirement savings, the spending number was MUCH smaller than the typical 80% - 120% of pre-retirement income that some financial advisors seem to quote.

As for taxes.... If you have a big pile of investments/savings in taxable accounts (vs 401k/IRA) that will be your source of funds - yes, your taxes will be lower. If you live in a state that doesn't tax pensions, then you'll have that advantage. The tax figure in retirement will vary based on source of income and location of residency.
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Old 10-04-2014, 09:30 AM   #4
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Sounds like you're in similar place as me a year ago. I found this info interesting in its approach and use of Vanguard ETFs (or mutual funds) across asset classes to diversify and reduce volatility risk. VANGUARD TAX-DEFERRED ETF PORTFOLIOS | Paul Merriman
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Old 10-04-2014, 09:41 AM   #5
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1.4%!!! Holy dogfarts! Run. They are trying to scare you into paying TEN TIMES what a low cost index portfolio will cost you. This stuff is not rocket science. If you were able to accumulate that kind of money through your own efforts, you will be able to figure out the 4th grade math necessary to manage it yourself.
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Old 10-04-2014, 09:45 AM   #6
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I occasionally listen to Ric Edelman's show (mostly a giant ad for his company, but he has some interesting things to say about investing, so I listen a bit) - that's where I get my opinion of him and his company.

I do question his fundamental investing philosophy. One example: he's big on leverage - specially keeping a big mortgage so you can invest the money. He's very outspoken about it. Of course, during the recent financial meltdown (some of which had something to do with mortgages) he stopped talking about that aspect of his views. Now that some time has passed, he mentions it more. I guess he thinks people have short memories.

Being somewhat cynical, I might point to that those who are paying fees to his company pay a little bit more if they take money out of their houses and invest it with his company...

He also is big on fund picking (1st cousin to stock picking). Again, that's the service he sells - you pay them to pick funds for you.

Anyway, as others have mentioned, there is a strong DYI streak in here. You'd be well served to work at educating yourself on investing. Read some books. Definitely read this forum and others like bogleheads.org. Maybe use the services of the fee-only advisor for advice if you really feel you need it.

Good luck!
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Old 10-04-2014, 10:19 AM   #7
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I occasionally listen to Ric Edelman's show ...
I do question his fundamental investing philosophy. One example: he's big on leverage - specially keeping a big mortgage so you can invest the money. He's very outspoken about it. ...
I'll preface this for the OP - I'm very comfortable with holding a reasonably sized, low-rate mortgage and investing the rest for the long term in retirement (many on the forum have a strong aversion to any debt - to each their own). But even I was taken aback by some of Edelman's comments about the size of a mortgage to take out, and to keep refinancing as the value increases (that is how people get in trouble with an upside-down mortgage if values drop).

This is a red-flag to me - I think it is self-serving, the more you mortgage the more you have for him to manage and collect his fee (wow, 1.4% is HUGE!).

Like others have said, you can easily diversify and do it cheaply. I don't believe that Edelman or any of these FA have any magic-mojo to create a portfolio for you that will outperform what you can do on your own, and I'd expect you to lose after the 1.4% fees.

You need to calculate your expenses, and you can get help here (some has already been given). Years ago, I went to an FA because I had some funds in an account with my my company and it was a use-it-or-lose-it deal, so I used it for an FA analysis. I later realized just what a joke it was. Their estimates for my retirement expenses just didn't really account for retirement at all, it was just a sum of my current expenses. Simple example - I had no car loans, so magically, my auto expenses were $zero! Hmmm, don't I need to allocate funds to replace those old cars?

DIY - as we often say here, the hardest thing to understand about managing your own finances is how simple it can be. There are entire industries built upon the concept of making it sound complicated, so that you need to hire them to help you. Relax, DIY.

-ERD50
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Old 10-04-2014, 10:46 AM   #8
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My question is - can a normal FIRE'er accomplish somewhat similar diversification using Vanguard mutual funds in the different classes or worth the 1.4% (approx) fee (ouch).
Yes you can do it alone or have Vanguard do it for you for 0.3%. That's 1/5th of what this other company would charge.
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Old 10-04-2014, 10:59 AM   #9
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1.4%!!! Holy dogfarts! Run. They are trying to scare you into paying TEN TIMES what a low cost index portfolio will cost you. This stuff is not rocket science. If you were able to accumulate that kind of money through your own efforts, you will be able to figure out the 4th grade math necessary to manage it yourself.

+1. Check out the FIRE suggested reading list. I can personally vouch for "The Bogleheads Guide to Investing," "The Four Pillars of Investing" by Bernstein, and "Investing for Dummies" by Tyson. If you're uncomfortable DYI, get a fee only advisor. Don't let Edelman get their hooks into your blood, sweat, and tears.
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Old 10-04-2014, 12:58 PM   #10
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To pile on to what others have said:
- As you may know already, when you are done looking at things, you'll probably get comfortable with an annual withdrawal rate from your portfolio of somewhere between 3% and 5%--most studies and calculators end up in that range, the exact numbers depend on the assets chosen, how long you'll need the money to continue, etc. If Edelman takes 1.4% of your assets every year, it will have to come right out of that money you withdraw from your portfolio every year. So, from a $1 million portfolio, you'd take home withdraw $30K to $50K, give him $14K, and have $16K to $36K to meet all your expenses (including taxes). Clearly paying these guys approx 28% to 47% of your annual withdrawals is a nonstarter.
Luckily, you don't need to pay that money. It is not hard at all to do this yourself, just stick around here, read the applicable FAQs on this board, and read one or two of the recommended books. If you feel like you need some handholding, definitely go to a fee-only advisor and pay for their time. (Edelman's guys are only going to spend 8-12 hours working on your particular situation, using their formulaic approach. Is it really worth paying them over $1000 per hour?) But don't do that before you've read a book or two. The Bogleheads guide is excellent, and I liked Bernstein's 4 Pillars. It will probably take you a few dozen hours to read the books and get comfortable, but at the end you'll be able to do this yourself in about 10-20 hours per year, and only by reading the books wil you be able to spot a bad advisor who is lining their own pockets at your expense.
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Old 10-04-2014, 02:16 PM   #11
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Originally Posted by kannon View Post
Good Morning FIRE's. Always look forward to discussions and very much value people's feedback.

Planning on retiring 31 Dec 14. Somewhat scarey. High paying job, won't get back. Enjoy people, but not the stress, hrs. Impacting health. Take too much time from enjoying life. Think I can RE.

Met with Edelman associate yesterday. Actually thought our pension and SS could handle basic expenses. Their numbers not so rosey. I was counting on BIG reduction in taxes, no more retirement savings. Today re-calculating, just my post retirement living expenses not matching theirs. Hmm.

Anyway - real question here is. I l liked what I heard with regards to establishing a strategy and sticking the course thru rebalancing. We got a free copy of Lies about Money and had good portfolio guidance and how to allocate based on needs, timeline, risk amongst US Stocks, International Stocks, Bonds, and Hedge Positions.

They pushed for further diversification using large number of ETFs in different sub classes like Large Cap Value, Large Cap Growth, Small Cap, ... within US Stocks. Similar for International Stocks, Bonds, and Hedge Positions.

My question is - can a normal FIRE'er accomplish somewhat similar diversification using Vanguard mutual funds in the different classes or worth the 1.4% (approx) fee (ouch).

Appreciate anyone who has used/heard of Edelman or doing just that on their own. And did your taxes/expenses go down after retiring? Still can't figure their numbers.

Thank you FIRE'ers.

Kannon
I listen to Ric Edelmans podcast every week. I assume you do also so you know about his investing philosophy of using low cost ETFs in a diversified portfolio.

I use Fidelity for my Roth and brokerage account and they have some great tools on the Fidelity website that will help you build a diversified ETF portfolio. Some of their ETFs are free trades.

Thousands of people use Edelman financial services and he has been around for 25 years so he must be doing something right. Edelman is a full service FA so they offer advice in other areas with that fee.

DIY if you enjoy managing your own money. For many people paying the FA
fee is worth it so they can retire and focus on other things in retirement life.

Here are the fees that Edelman charges. Our clients pay no commissions, trading costs, brokerage fees or any administrative charges. Instead, Edelman Managed Asset ProgramŽ (EMAP) features a single annual fee. It is calculated quarterly and debited from your account in arrears, based on the beginning and ending values of all the accounts in your household (adjusted for any money you deposit or withdraw during the quarter). Your quarterly statement will show the management fee for the quarter; you will also receive a year-end summary.

The fee is based on the value of your account. So the more you invest, and the higher your account value grows, the lower your rate – potentially providing valuable savings to you.

The fee schedule for Traditional EMAP is:

First $150,000 2.00%
Next $250,000 1.65%
Next $350,000 1.25%
Next $250,000 1.00%
Next $2 million 0.75%
Next $7 million 0.60%
Next $15 million 0.50%
Amounts above $25 million are negotiable
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Old 10-04-2014, 02:38 PM   #12
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1.4% is bloody ridiculous!!! You can easily put together a sensible retirement portfolio using low-cost mutual funds or ETFs. Vanguard Total Stock, Total International Stock, Total Bond and Total International Bond can go a long way and will cover all the subcategories adequately.
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1.4%!!! Holy dogfarts! Run. They are trying to scare you into paying TEN TIMES what a low cost index portfolio will cost you. This stuff is not rocket science.
+1!

This is a guy who flunked Algebra 1 in HS. (Maybe it would have helped if I'd cracked open a book.) But I'm doing it with a couch potato portfolio that is doing quite nicely, thank you.

Granted, those guys might be getting better results than me. But I seriously doubt that they are doing better than me after their compounded fees are subtracted, year after year after year after compounded year.

But it does take a significant amount of time to manage it myself. I probably spend 15-20 minutes a year on it.
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Old 10-04-2014, 02:46 PM   #13
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If you are emotional about your investments, ie if you were panicking during last downturn, you need a FA, if not, and you are conservative and analytical, you don't.


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Old 10-04-2014, 03:18 PM   #14
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....
Thousands of people use Edelman financial services and he has been around for 25 years so he must be doing something right. ...
But that doesn't mean that the 'something' he does right is the best option for an investor with a smidgen of easily gained knowledge.

Bernie Madoff was around since the 60's - just sayin'. Longevity does not always infer 'best choice for me'.

Quote:
DIY if you enjoy managing your own money. For many people paying the FA fee is worth it so they can retire and focus on other things in retirement life.
DIY can take less time than what one might spend communicating with the FA. Pick a few funds like Couch Potato for diversification, re-balance annually (or not - it probably makes little difference), go fishing (or whatever you choose).

A 1% fee (assuming no extra costs from being put in high expense funds) means you need an extra 25% in your next egg to retire (assuming a somewhat aggressive 4% WR - you'd need 33% more for a 3% WR). You could push your retirement life out quite a few years trying to save up another 25-33% nest egg. Your best years. That could be a lot of retirement life that you lost to your FA - versus a little time to check your investments occasionally.

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Old 10-04-2014, 03:37 PM   #15
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But that doesn't mean that the 'something' he does right is the best option for an investor with a smidgen of easily gained knowledge.

Bernie Madoff was around since the 60's - just sayin'. Longevity does not always infer 'best choice for me'.



DIY can take less time than what one might spend communicating with the FA. Pick a few funds like Couch Potato for diversification, re-balance annually (or not - it probably makes little difference), go fishing (or whatever you choose).

-ERD50
I totally agree. DIY is the way to go if you enjoy it.

I just think for many people investing for retirement is boring and a waste of personal time.
So using a FA like Edelman will benefit many people who otherwise might not get into a routine of saving and investing.


Obviously people on here aren't going to pay that kind of FA fee.
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Old 10-04-2014, 03:44 PM   #16
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I totally agree. DIY is the way to go if you enjoy it.

I just think for many people investing for retirement is boring and a waste of personal time.
So using a FA like Edelman will benefit many people who otherwise might not get into a routine of saving and investing.


Obviously people on here aren't going to pay that kind of FA fee.
I sort of agree - but I don't think you have to 'enjoy it'. You just need to compare and say 'what would I rather do, set up a couch potato portfolio and pretty much forget about it, or spend X (XX?) years more at work, building the nest-egg 25-33% larger to pay that FA?'.

So unless you enjoy working, it's a question of which do you dread the least - years of extra work and fewer years of freedom, versus a few hours a year of DIY finances.

-ERD50
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Old 10-04-2014, 03:55 PM   #17
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Millions of people smoke meth. Should OP light up along with them?
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Old 10-04-2014, 04:05 PM   #18
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I sort of agree - but I don't think you have to 'enjoy it'. You just need to compare and say 'what would I rather do, set up a couch potato portfolio and pretty much forget about it, or spend X (XX?) years more at work, building the nest-egg 25-33% larger to pay that FA?'.
My sister and I were talking about this topic today. She worked in a financial services office that handled 457 accounts and of course their own IRA's. It still amazes her that even working in that environment with the benefits of long term planing, or the financial disasters that follow not planning ahead being "in their face" every day, so many people ignored opening or contributing to their own retirement accounts of any sort be it Roth, IRA, or just simple ordinary taxable saving.

I have come to conclude that it is more the personality type rather than intelligence because we both agreed that there are so many otherwise apparently intelligent people who simply do not/cannot understand the benefits of delayed gratification. When I mentioned that my ex "couldn't stand to see a dollar in the bank" she remarked that the way she put it was that her ex "couldn't stand the weight of a dime in his pocket".

Almost everyone knows someone like that, or the sister in this post who, now 60, is suddenly aghast at what a pittance her SS benefit will be. Those on the forum here are almost unanimous in saying "What did she think was going to happen?" The rest of the population will be thinking it's a doggone shame but it can't be helped or "There's nothing you can do" or something along those lines. It seems to me that most people just do not have the capability of planning ahead long term regardless of how intelligent they are or are not.
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Old 10-04-2014, 04:20 PM   #19
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I sort of agree - but I don't think you have to 'enjoy it'. You just need to compare and say 'what would I rather do, set up a couch potato portfolio and pretty much forget about it, or spend X (XX?) years more at work, building the nest-egg 25-33% larger to pay that FA?'.

So unless you enjoy working, it's a question of which do you dread the least - years of extra work and fewer years of freedom, versus a few hours a year of DIY finances.

-ERD50
I just think many people are not wired to DIY when it comes to investing.

So if somebody can save 800k with Edelman vs. 900k with DIY thats still not too bad.

Some people just don't have the emotional discipline to do it alone.
Some of my coworkers are like this. I just don't get it but emotion gets the better of some people.
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Old 10-04-2014, 04:32 PM   #20
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There is nothing wrong with using a financial advisor if you are not comfortable doing it yourself. But, please, don't agree to pay more than 0.5% in annual fees. There are many FA's that will take, er, manage, your money for that or even less.

Also, if you can find one, think about using a CFP who charges only by the hour. So, if they spend 10 hours a year on your account, you pay them 10 x hourly rate. Even if the rate is $200 an hour, you should be way ahead.

I've known several people who were financial advisors and it is 90% a sales career. Most of them have limited knowledge of actually managing a portfolio and just parrot advice that is fed to them by their research departments or whatever Barron's is saying. Buy they are really good at wining and dining potential clients because that is what makes them more money.
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