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Good advice? Or should I just not give advice??
Old 05-28-2014, 11:30 AM   #1
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Good advice? Or should I just not give advice??

My brother asked me (actually kind of begged me) to give him some advice on his holdings in an IRA.

First off I told him the fee's were high (they averaged almost 2%) and were in all kinds of funds that I was unfamiliar with. During 2013 he only "made" about 8%. He knew that stocks had surged 30% and was rather miffed.

I asked him if he knew about Vanguard or Fidelity and said he already had a small IRA with Vanguard. Duh!!! I told him to dump his high fee IRA and transfer it to Vanguard and then split it between Wellington and Wellsely. That way he could get the Admiralty rates.

I have a much more diversified portfolio but think that for him and his wife, this would do well for him. Told him it was a "boring" but solid way to go.

Was this OK advice or should I have spent more time and built him an index fund portfolio?
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Old 05-28-2014, 12:03 PM   #2
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In my opinion, unless he likes to monitor his holdings (ie split between equities and bonds), going with Wellington and Wellesley is a great idea. Sometimes "boring" is a good thing.
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Old 05-28-2014, 12:04 PM   #3
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I think you gave him good advise. He'll be ahead of where he was - and that's a big step.
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Old 05-28-2014, 12:11 PM   #4
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Seems fine to me.

I would have offered to critique his asset allocation once he comes up with one, rather than providing one to him, though. Still, your advise was solid.
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Old 05-28-2014, 12:46 PM   #5
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Agree with the others, you gave him good advice. Whether or not he should be miffed at 8% for 2013 would depend on his AA as you know, but we don't. If he wants a hands off portfolio, there's nothing wrong with Wellington and/or Wellesley, they're about as solid as funds get. I assume you also have a plan to determine his risk tolerance and thereby his asset allocation, he's going to have understand and balance risk and return, and live with whatever ups and downs come with them.
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Old 05-28-2014, 01:17 PM   #6
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Agree with the others, you gave him good advice. Whether or not he should be miffed at 8% for 2013 would depend on his AA as you know, but we don't. If he wants a hands off portfolio, there's nothing wrong with Wellington and/or Wellesley, they're about as solid as funds get. I assume you also have a plan to determine his risk tolerance and thereby his asset allocation, he's going to have understand and balance risk and return, and live with whatever ups and downs come with them.
I did ask if they wanted to take on more risk but he wanted conservative. I told him Wellington would go up more in good years when stocks go up and that Wellesly would go down less in poor years. He wanted to get some upside but not too much volatility. So that is why I made the suggestions. Told him to now and then balance to keep both at about 50%.
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Old 05-28-2014, 01:24 PM   #7
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Was this OK advice or should I have spent more time and built him an index fund portfolio?
As someone who has the bulk of my portfolio split between Wellesley and Wellington, I hope it was excellent advice!
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Old 05-28-2014, 01:56 PM   #8
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The best advice is to encourage him to learn about personal finances so that he can go through this with his eyes wide open, or even do the "finances" himself.
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Old 05-28-2014, 02:10 PM   #9
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I like the advice. When I retire I will probably do a mix of Wellesley, Wellington, and Total Stock Market Index. We will have pensions for about half of our expenses so will favor more stocks than bonds (for invested assets).
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Old 05-28-2014, 02:17 PM   #10
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Also maybe advise him to talk to the Vanguard (or Fidelity) people (so he can blame them too if everything goes to hell in a handbasket, rather than just you ). He probably qualifies for at least this, and maybe even more guidance: https://personal.vanguard.com/us/ins...ancial-engines

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Give your portfolio an online checkup:
Set your goals, get advice on investments, and forecast your chances of success with Financial Engines. Available as a complimentary service to investors with $50,000 or more in assets.
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Old 05-28-2014, 02:18 PM   #11
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Solid advice if his IRA is the bulk of his retirement savings. The only thing I can think of is if he also has substantial taxable funds then from a tax efficiency perspective he might be better off to go with Wellesley or some fixed income index in his tax deferred account and then equities in his taxable account but it would depend on the numbers.
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Old 05-28-2014, 03:55 PM   #12
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Good for you not to duck the question. You gave him reasonable advice that fit his risk preference, and if he takes your advice he should be much better off in the future. Hopefully he will want to learn more on his own so as not to completely rely on your advice down the road!
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Old 05-28-2014, 04:45 PM   #13
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Good for you not to duck the question. You gave him reasonable advice that fit his risk preference, and if he takes your advice he should be much better off in the future. Hopefully he will want to learn more on his own so as not to completely rely on your advice down the road!
Well, I'm know as "the rich uncle" in the family as I was able to retire early and seem to them to have "lots of money". I tried to learn as much as I could about investing from early on and put it to good use. Of course most of the family doesn't want to hear that "you need to live beneath your means" and to "invest as much as you can as early as you can", so their eyes glaze up in about 2 minutes. Most of the time they ask "is this a good time to buy gold"? or "should I buy Facebook"? So generally I demure and say "I have no idea". But my brother said he would take my advise and so I told him "these are boring but will make you some money" and happily he took my advise.
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Old 05-28-2014, 04:48 PM   #14
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My brother asked me (actually kind of begged me) to give him some advice on his holdings in an IRA.

First off I told him the fee's were high (they averaged almost 2%) and were in all kinds of funds that I was unfamiliar with. During 2013 he only "made" about 8%. He knew that stocks had surged 30% and was rather miffed.

I asked him if he knew about Vanguard or Fidelity and said he already had a small IRA with Vanguard. Duh!!! I told him to dump his high fee IRA and transfer it to Vanguard and then split it between Wellington and Wellsely. That way he could get the Admiralty rates.

I have a much more diversified portfolio but think that for him and his wife, this would do well for him. Told him it was a "boring" but solid way to go.

Was this OK advice or should I have spent more time and built him an index fund portfolio?
I'm really surprised at the folks who are answering this question in the affirmative. You haven't given enough information to determine if this was good advice or not.

Yes, Wellington and Welesley are excellent performing, low cost balanced funds with two different AA's. No question about that. But the AA of your brother's total portfolio plus his age and other personal circumstances must also come into play.

Since you did not mention any specifics such as your brother's age, future plans for retirement or other assets, we don't know how to judge whether the 50/50 AA inside his IRA you recommended is appropriate. For example, if the high cost funds you steered him out of were bond funds (you didn't mention) and they were in place to balance a 100% equity post tax portfolio of significant size, you may have just placed your brother way beyond the bounds of "conservative."

For example, if prior to the change the old, high cost funds consisted of $200k of fixed income funds and outside the IRA your brother had $200k of a TSM fund, his AA was 50/50. Now that you steered him toward a 50/50 AA inside his IRA, the total AA would be 75/25 which he might consider not conservative enough for his circumstances.

Sooooo...... Regarding your question...... We don't know if you gave good advise, not enough info.

Regarding the two balanced funds you steered him towards, they're excellent for what they are and if your brother's total scenario fits with an AA of 50/50 in his IRA, (and we don't know that) then your advise was good, IMHO.

Not trying to pick straws here, but recommending low cost funds from good firms is one thing. Recommending a specific AA is another. Without some info about your brother's personal circumstances, it's just a guess as to whether an even split between Wellington and Wellesley in an IRA is good advise.
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Old 05-28-2014, 08:20 PM   #15
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Brother is 67 and both he and his wife are taking SS. He has a fair amount of cash and bonds, so I wanted to get him something that would grow a little bit, but still be fairly conservative. Beyond that, I won't give any more advice.
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Old 05-28-2014, 10:10 PM   #16
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A 50/50 split between Wellsi/Welltn returned about 14.5% in 2013. Although better than the 8% the OP brother obtained it is still quite a bit short of the 30% target the OP's brother mentioned. Since no good deed shall go unpunished I think I would be concerned about the OP's brother not understanding how a balanced fund works and blaming OP for suggesting such poorly performing funds...
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Old 05-29-2014, 12:22 AM   #17
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Definitely would be more exciting to place it all on black or red, then spin the wheel. Otherwise boring might work out just fine.
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Old 05-29-2014, 10:16 AM   #18
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Brother is 67 and both he and his wife are taking SS. He has a fair amount of cash and bonds, so I wanted to get him something that would grow a little bit, but still be fairly conservative. Beyond that, I won't give any more advice.
At your brother's age and situation, I think your advice was quite appropriate.

I also think the suggestion that he spend some time and effort to learn about his own personal investing and financial knowledge is appropriate advice.

In the end, you are trying to help him out and I think you gave good suggestions that should benefit him in the long term.
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