I must be financially thick

[ERD50]

𝄆 Keep it Simple. 𝄇

I know this is somewhat of a dumb question about AA since it is up to us what we are willing to risk, but staying in that 60-40 ratio is a bit of a classic. ... If I went to 1/3 International, 1/3 Wellesley, 1/3 Wellington that would push me just over 60% stocks wouldn't it? Or would a 50-50 combo be enough to get us what we need with a bit less risk? ....

𝄆 Keep it Simple. 𝄇

50-50, 60-40? - you are over-thinking this.

𝄆 Keep it Simple. 𝄇

If I followed your numbers right, you have ~ $785K portfolio, and plan on ~ $30K spend? That is a 3.832% WR. I forget your age, but when I plug that into FIRECALC for a 40 year profile, and hit 'Investigate' to see how various AA's do, see the attached.

Now, given the vagaries of past/future performance, does anything in the range of 60-100% look 'riskier' than 50% AA? It's pretty flat from 60% to 100%, no? If I got the numbers right, what I might be more likely to question is whether a 3.8% WR is too aggressive for ER, regardless of AA.

𝄆 Keep it Simple. 𝄇

Can't help but doubt myself......I thought Janus Global Tech funds were a good place to be in the late 90's.....ouch.

Stop it then. You see, no one is suggesting you allocate ANY money to any specific market segment - but you keep using that as an 'excuse' as to why you can't DIY. Just hit the broad market with a broad AA and call it a night.

𝄆 Keep it Simple. 𝄇


-ERD50

 

[F4mandolin]

Thanks ERD.....but our spending goal was up to $48k a year (with $30k needed from funds....imagine that's what you meant)....with less being the goal. We were about $62k in 2012, but that was with some house fixes....should be under $40k this year.

 

[ERD50]

... (with $30k needed from funds....imagine that's what you meant) ...

Right, I should have said $30K withdraw from the portfolio.

-ERD50

 

[obgyn65]

Your plan looks good to me, as long as you keep your expenses low.

Thanks ERD.....but our spending goal was up to $48k a year (with $30k needed from funds....imagine that's what you meant)....with less being the goal. We were about $62k in 2012, but that was with some house fixes....should be under $40k this year.

 

[racy]

Sounds to me like you want the hand holding but not the cost & sales pitches. You might consider switching to a fee based planner who won't be pressuring you to buy his stuff.

 

[clifp]

Uhhh, no.....I didn't start with that violin piece...and of course suck at playing it.....had to stop playing violin within two years of starting (at 30)...messed my back up playing. Don't practice much on mandolin either although I should crank it up again and actually get decent.

I know this is somewhat of a dumb question about AA since it is up to us what we are willing to risk, but staying in that 60-40 ratio is a bit of a classic. Am I pushing it a wee bit by staying with that (yep, after your opinion....opinion only). If I went to 1/3 International, 1/3 Wellesley, 1/3 Wellington that would push me just over 60% stocks wouldn't it? Or would a 50-50 combo be enough to get us what we need with a bit less risk? Still thinking of my wife here......hate to risk too much with her already risking a lot moving to the US in the first place....although the weather is a hell of a lot better, even during a Spokane winter . $48k a year spending money plus the principal increasing over the years was the goal. Pension and SS (or supplement that I get this summer) should cover a good $20,000 of that.....and a little more come age 62. Funds have to bring in a good $30k a year at that rate although our plan is to stay under that $48k a year.

Can't help but doubt myself......I thought Janus Global Tech funds were a good place to be in the late 90's.....ouch.

Yes i did Xray and the Vanguard portfolio end up with an AA of 70/30, which combined with your TSP allocation 70/30 puts you at 70/30 overall. Which seems fine considering how much I hate bonds right now.

Moving to a 2/3 Wellesley, 1/3 International moves you to a 59/41 AA for the Vanguard portfolio. If that makes you sleep better at night. Alternative you could stick with the 1/3 to each, and move say 10% from your C fund and 5% from your S into an F, or even more conservatively into the G fund. (I do hate bonds right now).

It is a bit more tax efficient to have bonds in your IRA/TSP and stocks in your taxable account. Which BTW, one of the reason I know your EJ is not particular brilliant. If he was rather than having a bunch of funds in your ROTH IRA he should have them invested in a bond fund or two period.

Having said that asset location is even less important than asset allocation for portfolio survival and as ERD showed even that is not really important.

What is important, especially in today very challenging investment environment, is reducing expenses. When I look at the your EJ portfolio, I can't say, OMG the guy is horrible. What he has done is spread your money among a dozen mutual funds with a decent track record. American funds are arguable one of the few fund families that have been competitive with index funds. But will they be in the future? who knows but the odds that most of the 12 will be are very small.

The only problem with these funds is they have high expense ratio 1.0-1.5%. (The real expense ratio is in the fund prospectus or on Morningstar) What this means is you are paying your EJ broker and American Funds and extra $3,500 or so a year. Fortunately you have most of the money in TSP with a super low expense ratio.

Now considering you want to withdraw $30,000 from $785,000, that $3,500 you are paying in extra expense is significant. Now if you actually only withdraw 30K last year, or if you guys were in your late 60s, no big deal. But you withdraw a lot more than 30k last year and you and your wife 56/53 which mean a more realistic retirement period is 35 or 40 year, not the default 30 years..

FWIW, and using my Suzie Orman nagging voice. After further review of your retirement finances, I am officially giving you my Yellow Warning Flag on your retirement. Here is why:

1. Your withdrawal rate is high
2. Your expense ratio is definitely too high
3. You aren't sticking to your budget (I know housing expenses this year, no way a furnace will fail, a pipe will burst, or the roof will leak this year)
4. You have a long retirement ahead of you and/or the wife
5. You want a conservative AA during a time when fixed income assets are at record lows.

Now it is possible to fix any of these issues, but for my money the easiest to fix is the expense ratio. (FIRECalc assume a much lower ER than you have.) Followed by doing some FIRECalc runs and seeing which AA maximizes your chance of withdrawing 3.8+% over 35 or 40 years.

 

[Tractor guy]

A few comments and questions:
Have you posted your goals and current portfolio on the bogleheads site? There are several very experienced advisors who are willing to give specific advice over there.

One of the things I've learned is that learning to invest is a continuous process. If you keep a broad asset allocation and stay away from salesmen, you won't hurt yourself any worse than you are now with EJ. So how about this as a way to do this in baby steps?
1) Talk to Vanguard and find out how many of your EJ funds can be transferred to a Vanguard brokerage account "in kind." After you transfer them, you'll still own the high expense ratio funds but you'll no longer be getting phone calls from the EJ broker who is trying to make more commissions from you. Vanguard will handle all of the paperwork and initiate the transfer for you. You will have to do very little with EJ to make this happen.
2) After you've done the transfer, talk to Vanguard's financial planners and ask them for a plan. Depending how much money you have with them, this will either be free or relatively low cost. The plan will be a generic set of funds with low expense ratios. It will likely be very similar to any suggestions that are made on the boglehead forums.
3) Implement the plan as you are comfortable doing so and after making sure you understand any tax issues. Hopefully, you'll have to pay some capital gains tax when you sell the funds that are in the taxable accounts. I say hopefully because that means there have been gains. You may want to spread this out over a couple of years to keep you from getting bumped up into another tax bracket.

I suggest you plug your numbers into firecalc to make yourself comfortable that your withdrawal rate isn't going to have you run out of money. My impression is that you are OK but I haven't worked the details and the details matter.

I also suggest you run from your EJ broker as fast as possible. If he's got you targeted as a variable annuity prospect, he needs a new car and thinks that you are the mark that can help him get it. He's going to be coming at you with other ideas that make him money at your expense.

The technicalities of investing is much, much easier than good music. There's only one song and there aren't any key changes. Once you learn it, you just keep playing it over and over.

The only hard thing to manage is the emotion part of it. Many people are tempted to pile in to riskier investments when the market is going up and prone to panic when it drops. Succesfull investors pick an asset allocation and then ignore the market except to rebalance. What did you do in 2008-2009? Did you sell stock funds? If you did or were tempted to, you may need a fee only financial planner to be the voice of logic when your emotions are telling you to do something NOW!!! You should be able to find one who charges much less than EJ.

Good Luck!

 

[ERD50]

Your plan looks good to me, as long as you keep your expenses low.

What is your definition of 'good', and how did you come to that conclusion?

Which expenses are you referring to - their spending, or the fees/expenses he's getting socked with by his Edward Jones guy?

As far as the plan looking 'good' - FIRECALC says that a 3.83% WR over 40 years and a 50-50 AA (even with the default lower expenses than he's getting from EJ) only gives about 84% success rate. Good?

FIRECalc: A different kind of retirement calculator

Moving to 60% equity AA improves it a bit to 89%, not exactly in my comfort zone.

And those expenses (spending) - I share clifp's concern about that number not including 'unexpected' house maintenance. There will always be something. And how about the money you need to sock away for an eventual car purchase. Even $20,000 in another 15 years will add $1,333 to in 'phantom' expenses - that increases the WR from 3.83% to 3.99%. That drops the success rate to 74.3%. I would not say 'good', I would say 'YIKES!!!!'.

FIRECalc: A different kind of retirement calculator

And even those numbers may be generous - remember that a 40 year FIRECALC run cannot include scenarios more recent than 1972.

-ERD50

 

[Mulligan]

4dd06 Keep it Simple. 4dd07

4dd06 Keep it Simple. 4dd07

50-50, 60-40? - you are over-thinking this.

4dd06 Keep it Simple. 4dd07

If I followed your numbers right, you have ~ $785K portfolio, and plan on ~ $30K spend? That is a 3.832% WR. I forget your age, but when I plug that into FIRECALC for a 40 year profile, and hit 'Investigate' to see how various AA's do, see the attached.

Now, given the vagaries of past/future performance, does anything in the range of 60-100% look 'riskier' than 50% AA? It's pretty flat from 60% to 100%, no? If I got the numbers right, what I might be more likely to question is whether a 3.8% WR is too aggressive for ER, regardless of AA.

4dd06 Keep it Simple. 4dd07

Stop it then. You see, no one is suggesting you allocate ANY money to any specific market segment - but you keep using that as an 'excuse' as to why you can't DIY. Just hit the broad market with a broad AA and call it a night.

4dd06 Keep it Simple. 4dd07

-ERD50

I have to agree, now I have the luxury of a nice pension, so my investing is used to grow assets, not live off of them, but... After you have determined your AA, and got tax efficiencies in order, why is not almost everyone who has limited investing knowledge or desire not in index funds? There are as many studies that prove them to be more successful over the long term than studies linking smoking to cancer, but yet only about 15% of all money
is in index funds. You would think with so much at stake, it would be prudent to keep more retirement monies in index funds.

Index fund performance gets better with age. The longer you own index funds, the more beneficial they become for you. If you own index funds in every asset class, the probability of your portfolio outperforming active funds is extremely high over time. See Index Fund Portfolios Reign Superior for an introduction on how holding multiple index funds multiplies their advantage.

http://www.forbes.com/sites/rickferri/2013/04/04/index-fund-returns-get-better-with-age/2/

 

[F4mandolin]

OK...getting my ducks in order...pretty well a done deal from my side, I just need to decide whether it's going to be Total Stock/Bond/International...or with a bit more towards Wellesley/Wellington with maybe some International thrown in.....I do thank all of you for your advice.....but it's going to happen, so thanks.

As far as Firecalc....I must not be using it correctly. Been half halfheartedly using it for several years and I always either come up with 100% or very close to it. Some things I put in must be a little off, or I also wonder whether ORD has thrown in my wife's little pensions at 60+ 66 etc. I have a tendency to assume I am doing something wrong, but maybe not.

As far as going over budget....yes....and no. Even I am not stupid enough to take the ER without spending at least one year counting every penny spent to see where we were. The year before we quit (and without any big house fixes) we came in right at $30K in expenditures. For the first full year of retirement (2012) we spent just under $63000. Of that, just short of $30k was for fixes that basically aren't very repeatable....or at least not very bloody often (bed-10 years etc).
$7100- 6' chain link fence around property to keep deer out, dog in.
$624- survey of part of property
$2100- 24 pine trees cut down, I split into firewood
$10,300- updating kitchen, 2 baths
$7197- laminate flooring throughout house
$2270- new adjustable bed (sweet)...2 back disks needed help sleeping

We have a less than 2 year old furnace. Roof good for another 10 years (unless some damn tree falls on it or something). Windows less than 2 years old. House is pretty set for at least the next 5-10 years unless something pretty unexpected happens. Also fairly likely we will downsize within 5-10 years as well to a cheaper/smaller house.....unless we head back to the UK....and then all bets are off since housing is crazy expensive compared to this area.

Without even trying, we spent about $33k last year on "normal" things. I play golf, so there goes a couple thousand. I drink WAY too much beer/sodas/junk food...there goes a couple thousand. Comcast is about to get the boot this summer, paying way too much for what we get. We drive less than 12K miles a year. Only eat out about once a month. If we needed to, knocking $5K off the $33K would be easy. Oh.....and we lost one dog and a cat last year....there goes another thousand+, but that could still happen this year as well.

Now....not to defend EJones.....people here keep quoting 5.75% for the loads. This is only true of the first bit you put in....goes down as your account gets larger. I think if you had a million(wishful thinking)...don't think there is a load at all. Yes....you would still be paying the higher yearly rates which is where they make the money off of those people. I don't know how to figure out how much it costs for turnover, EJ certainly has more than Vanguard, the bond funds seem to have twice the activity. People keep quoting over 1% for expense ratio....not sure where that comes from. There is one fund I am in that is over 1%....the others probably average around .7%. So unless people use the turnover figures in there to somehow bump things up way over 1% I don't know where those figures come from. The guy I started up with at EJones quit last summer because he said he was feeling bad about EJones kept putting the screws to him to sell things that weren't in the clients best interest.....not all EJ's are out to get you as is represented here way too often. There are crappy people all over out there...dangerous place this world we live in.....

 

[REWahoo]

OK...getting my ducks in order...pretty well a done deal from my side, I just need to decide whether it's going to be Total Stock/Bond/International...or with a bit more towards Wellesley/Wellington...

One thing to consider as you make your decision is how hands on do you want to be in managing your investments. Another is exactly how disciplined do you really believe you will be when it comes to rebalancing - especially when if/when we have our next market swoon similar (but hopefully not nearly as severe) to the 'unpleasantness' we experienced in 08/09.

Since retiring I've had the majority of our investments in Wellesley and Wellington. When the fit hit the shan in 08/09 I didn't have to do anything, confident the management teams of those two funds were selling bonds and buying [-]falling knives[/-] equities.

Looking back, I'm not sure I would have had what it takes to do that myself. I'd like to think so, but...?

If you want to be hands on and trust your ability to do what your plan says you should while your gut screams NO!!!, then you can probably do better with the lower cost indexes.

 

[clifp]

OK...getting my ducks in order...pretty well a done deal from my side, I just need to decide whether it's going to be Total Stock/Bond/International...or with a bit more towards Wellesley/Wellington with maybe some International thrown in.....I do thank all of you for your advice.....but it's going to happen, so thanks.

Cool, and it sounds like you have a better handle on your expense than I gave you credit for. Me bad. The good news is there generally plenty of cushion built into most retirement plans on this forum.

Regarding the expense, there are so many different classes of American funds (or most load fund families) that for somebody like myself taking a look at them it is virtually impossible to know what somebody owns without the ticker symbols and even then not always easy to know the real expenses.
So for instance EuroPacific class B has an ER of 1.54% but other class the ER is .74.

 

[RunningBum]

Now....not to defend EJones.....people here keep quoting 5.75% for the loads. This is only true of the first bit you put in....goes down as your account gets larger. I think if you had a million(wishful thinking)...don't think there is a load at all. Yes....you would still be paying the higher yearly rates which is where they make the money off of those people. I don't know how to figure out how much it costs for turnover, EJ certainly has more than Vanguard, the bond funds seem to have twice the activity. People keep quoting over 1% for expense ratio....not sure where that comes from. There is one fund I am in that is over 1%....the others probably average around .7%. So unless people use the turnover figures in there to somehow bump things up way over 1% I don't know where those figures come from. The guy I started up with at EJones quit last summer because he said he was feeling bad about EJones kept putting the screws to him to sell things that weren't in the clients best interest.....not all EJ's are out to get you as is represented here way too often. There are crappy people all over out there...dangerous place this world we live in.....

This isn't a ringing endorsement of EJ, and there's an inference that those still there are willing to heed the party line and sell crap to clients. It does say something good about the rep you had a year ago.

 

[Texas Proud]

ERD is being a bit nice in his post....

the real saying is the KISS method....

Keep It Simple, Stupid....

And yes, it does look like you have analysis paralysis.... stop overthinking and do what you need to do...

Heck, right now anything between 30% and 70% AA would be great... there is no 'magic number'....

 

[F4mandolin]

I DO NOT want to be very hands on, so maybe the Wellington/Wellesley is the better option, although I would still want to add a little more plain vanilla stock action on top of that....Total Stock maybe? International? As has been pointed out by clifp....I'm a little worried about buying into a bond market at this time....although....how many years has it been now that they have said the sky was falling on bonds? Do you just buy into the heavier Wellesley bond fund and close your eyes and not try to guess about what's going to happen? Could just move most into the Wellington and see what happens since I have enough cash for another 3 years.

I actually did fairly well during the sell off. I got real worried when the DOW was just over 14,000 and with reading more and more people saying the end of the world was coming....I moved all my TSP over to the G fund. Good call on my part. But.....my plan was to buy back in if it got to 12,000, which it did so I picked up some more C fund at that time. Then bought some more at 11,000. Then just hung on for dear life not expecting it to go where it did. A number of other teachers I worked with really really freaked out and went over to the G fund when it was way down because they couldn't take it. I got back in full bore around the bottom and tried to get them to get out of the G and back into other things....not much luck.
Whether by luck or skill?, I ended up better off buying back in the down turn. Missed by about 2 days when I bought back into the C fund at 12,000. If I had waited 2 more days.....took another hard drop and if that would have happened I think I would have stayed in the G for a lot longer. Oh well....followed my plan and am some thousands better off for it.

 

[REWahoo]

Do you just buy into the heavier Wellesley bond fund and close your eyes and not try to guess about what's going to happen?

Well, sorta.

I rolled over my 401k when I retired in 2005 into a mix of Wellesley and Wellington in a lump sum. It had a nice run up before the bottom fell out.

Could just move most into the Wellington and see what happens since I have enough cash for another 3 years.

If you are a bit gun shy of the bond market and OK with the 60/40 mix of Wellington, I see nothing wrong with that approach.

Oh well....followed my plan and am some thousands better off for it.

You did well - but you were still employed and had a paycheck coming in, right? Believe me, staying the course is an entirely different animal when what you see declining every day is the only thing between you and living in a cardboard shack for the rest of your life. That was a period some of serious white-knuckle OMG investing.

 

[sengsational]

I must admit having just skimmed the thread, but it seems that there's a cart/horse issue here.

I would say lay out our asset allocation target first. If you're going "zero" on a category, then state that. You should have at least: Cash, Domestic Bonds, Foreign Bonds, Domestic Stock, Foreign Stock, Hard Assets. If you don't know what numbers to put in there, just pick some numbers and refine them later, before you take action. Say 3,8,8,35,25,21. I'm not arguing for or against your personal risk tolerance, etc, but get something down on paper.

Once you have that defined, then enter your entire net worth into Morningstar Instant X-Ray and see where you come up ("as-is" scenario).

Now you examine the expense ratios of your current holdings. The high ones, are the first ones you move over to Vanguard. Again, back to the Instant X-Ray tool with your "to be" scenario. Does it hit your allocation target? You're done planning, now you need to execute.

Make a list of which account balances are going where. And as indicated earlier, the Vanguard employee will be glad to help you with the transfer paperwork.

 

[F4mandolin]

Well, sorta.

I rolled over my 401k when I retired in 2005 into a mix of Wellesley and Wellington in a lump sum. It had a nice run up before the bottom fell out.


If you are a bit gun shy of the bond market and OK with the 60/40 mix of Wellington, I see nothing wrong with that approach.


You did well - but you were still employed and had a paycheck coming in, right? Believe me, staying the course is an entirely different animal when what you see declining every day is the only thing between you and living in a cardboard shack for the rest of your life. That was a period some of serious white-knuckle OMG investing.

Yep....a job I probably should have stayed at for at least one more year. Saving almost $40K a year on a teacher salary those last couple of years...and no Masters even. Sweet job with good kids. Beautiful place N Yorkshire.....but damn does the wind blow there.

 

[F4mandolin]

I would say lay out our asset allocation target first. If you're going "zero" on a category, then state that. You should have at least: Cash, Domestic Bonds, Foreign Bonds, Domestic Stock, Foreign Stock, Hard Assets. If you don't know what numbers to put in there, just pick some numbers and refine them later, before you take action. Say 3,8,8,35,25,21. I'm not arguing for or against your personal risk tolerance, etc, but get something down on paper.

Once you have that defined, then enter your entire net worth into Morningstar Instant X-Ray and see where you come up ("as-is" scenario).

Now you examine the expense ratios of your current holdings. The high ones, are the first ones you move over to Vanguard. Again, back to the Instant X-Ray tool with your "to be" scenario. Does it hit your allocation target? You're done planning, now you need to execute.

Make a list of which account balances are going where. And as indicated earlier, the Vanguard employee will be glad to help you with the transfer paperwork.

Thanks, haven't tried the Morningstar xray in a looooong time. I'll give that a try now. Definitely just leaning towards Wellington for most of the approx $280k. As has been stated.....simple, and I can see driving myself nuts thinking about it too much. You should see me in front of the ice cream section at the grocery store......can be a long decision process.

Now the other question......do I leave the CD/corporate money in EJones or move that over as well? That is enough for me to live off the next 3 years.....maybe even pushing 4 years.

 

[REWahoo]

Yep....a job I probably should have stayed at for at least one more year. Saving almost $40K a year on a teacher salary those last couple of years...and no Masters even. Sweet job with good kids. Beautiful place N Yorkshire.....but damn does the wind blow there.

That's great, but not the point I was making.

When you are retired, no longer have a steady paycheck, and the market hits a rough spot, it can be significantly more difficult to resist selling (as some of your friends did) and stick to your rebalancing plan. Owning balanced funds like Wellington/Wellesley can take some of that pressure away and for that reason could be a better choice.

Good luck, when and if you do decide what to do...

 

[brewer12345]

Now the other question......do I leave the CD/corporate money in EJones or move that over as well? That is enough for me to live off the next 3 years.....maybe even pushing 4 years.

Personally, I would do a transfer of those assets with VG, too. Make a clean break from EJ.

 

[F4mandolin]

WAHOO- I got what you meant......again I was too thick to say it right. Got typing and got off on another tangent. I have the attention span of a middle school student (no offense to middle school students...actually liked working with them).

 

[REWahoo]

I have the attention span of a middle school student...

Another reason Wellington/Wellesley could be the better option.

 

[sengsational]

Personally, I would do a transfer of those assets with VG, too. Make a clean break from EJ.

That's what I'd do too. I might take $50,000 and put it in an account earning 1.5% (the catch is that you need to use the debit card 10 or so times a month). https://www.kasasa.com/kasasa-providers

 

[F4mandolin]

sengsational- already using my credit union account (checking up to $10K) that gets 2% with good debit card usage. No problem for me to hit the limit on using the debit card....more than 10 times.....hardly use money anymore. Several of those CD/corporates are getting well over 2% as it is.