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Moving to passively managed accounts
Old 07-12-2016, 09:13 PM   #1
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Moving to passively managed accounts

Hi - I need some advice.

I am early 40's years old, spouse early 50's years old. 1 school age child. Spouse is retired. I work part time.

Our net worth is currently 2.8 million. I don't want to get into specifics of why for the odd asset allocation but I am looking to move it to more passively managed funds to take more responsibility of our money, simplify, reduce fees, and minimize tax implications. We do not currently need this money / have alternate income source.

78 % in a single actively managed mutual fund. ( taxable)
6 % with financial adviser in multiple funds / assets (taxable)
6 % with financial adviser in high expense mutual funds ( retirement accounts)
3 % with retirement fund at Fidelity through work.

The rest of the money is in cash / annuity / 529. Annuity & 529 are with financial adviser.

My questions are:

- I initially liked Vanguard. Have read about "hidden fees." How did you decide between Vanguard vs Fidelity vs Schwab?

- Does Vanguard have hidden fees?

- When / how do I sell / move / buy taxable mutual funds to Vanguard / Schwab for tax efficiency?

- I will potentially be moving $ 1.5 million - should this be done slowly over time? I have an accountant helping me with this but interested in advice.

- This is personal choice but -- thoughts on breaking clean with financial adviser vs slowly removing money over time. How do you "break up" with adviser?

- I have taken quizzes, read bogleheads and have general idea for asset allocation. But how do you decide which funds to actually pick?

Thank you
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Old 07-12-2016, 09:20 PM   #2
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Quote:
Originally Posted by wren007 View Post
- Does Vanguard have hidden fees?
If they do they have done a superb job of hiding those fees from the hundreds of thousands of investors who do business with them - and some of those folks are pretty darned smart!

Kidding aside, this sounds like something a broker or commissioned financial advisor would say to try to discourage you from moving money from them. I've never seen evidence Vanguard or Fidelity have hidden fees.
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Old 07-12-2016, 09:49 PM   #3
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I've been with Fidelity for 15 years, no hidden fees. I'll be moving 500k to Vanguard next month, they have zero hidden fees. How do I know that? I w*rked in the fund industry for many years and understand how fees can be charged(may have written code to do it). If you want to learn more about fees google "mutual fund fees". You'll learn about 12B1, loads, defered sales charges...(probably forgot a couple). Bottom line if you read about fees, read the prospective looking for fees you'll know for sure.

I'd agree sounds like nonsense from a FA. Now those folks are the home of hidden fees. The fees mentioned above were implemented for the broker dealers. They've invented more like wrap fees just for your account.
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Old 07-12-2016, 09:59 PM   #4
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One of the best primers out there for self managing and getting used to the whole index investing thang is from Jim Collins' website (but he recently wrote a book too available now). So I'd suggest reading through to get really comfortable with the whole idea of passive/index investing and how the market works.

Jim Collins - Stock Series

Other great resources:

Bogleheads wiki site: https://www.bogleheads.org/wiki/Main_Page

And read these for sure: https://www.bogleheads.org/wiki/Getting_started

https://www.bogleheads.org/wiki/Bogl...g_start-up_kit

First, would suggest figuring out your investment policy statement. This is a primer for what your goals are and how you will assess hitting them and any adjustments you might want to make along the way.
https://www.bogleheads.org/wiki/Inve...licy_statement

Once you've figured out the IPS, then it's time to figure out your risk tolerance and asset allocation:
https://www.bogleheads.org/wiki/Asset_allocation

And how to set up your asset allocation across multiple accounts:
https://www.bogleheads.org/wiki/Asse...tiple_accounts

And if you truly want an easy, simple and almost hands-off portfolio you can set and forget (for the most part), check out the lazy portfolio info:
https://www.bogleheads.org/wiki/Lazy_portfolios

And you absolutely can do index investing with Fidelity if you have them through work. Vanguard is the gold standard for low cost investing, but Fido has many index funds (used to be called the Spartan series, but they just rebranded them to be "Fidelity" index funds) that are the same if not a tiny bit better expense ratios. They are doing this as both a loss leader (hoping you'll come for the index funds, but be tempted by the managed funds too), and to keep competitive with Vanguard. Competition is VERY healthy!

Both are fine companies and you can't go wrong with either of them (in Fido's case, stay away from the managed funds or "professional" management fees for them handling your portfolio and you're golden).

https://www.bogleheads.org/wiki/Fidelity



Anyone that says any of those (Vanguard or Fido, or even Schwab) are shady or have hidden fees is a liar and trying to steer you wrong, or has sustained some sort of brain injury to make them say such things. Both of these companies are held to extremely high industry standards and have received the highest ratings for investment companies. Saying that Vanguard would do such a thing is really laughable because they are client-owned and it is operated at-cost - there is no for-profit operations there; they charge just enough in fees to pay their employees/operating costs, but they are not in the business to make profits for some fat-cat board or CEO - it all comes back to the investors themselves because the investors ARE the owners. They charge the lowest fees in the industry. I would ask to see the proof from a reputable source before buying any of that crap.

And then I would run far, far away from this person for being dishonest at worst and stupid at best. Either way, they are not a good source for advice.

Oh - and breaking up with an advisor... I have done it many times now and it's been a laugh sometimes. You just decide where you want to move your funds, if you're changing to a completely new company like over to Vanguard from someplace else, you don't even have to tell them. Just contact Vanguard and have them help you get the paperwork completed and they'll contact the company and get the funds shifted over. The old place might hit you with a few closing accounts/transfer fees (definitely expect this and be happy if you don't have that happen) but otherwise, you don't ever have to answer their calls or emails if you don't want to. You can always just shoot them a "so long and thanks for all the help but I want to get more hands-on with my money" generic kiss off once you have everything moved over if you're feeling super nice, but don't feel like that is necessary.

And be aware that it can take weeks and even a month or two if the company is a sore loser (most are not like this, but some companies are jerks and do hold things up as much as possible, but just keep asking Vanguard or whomever to keep on them and it will happen eventually).

If you are leaving your money in the same place but want to take it out of the paid professional management, then you just contact them and tell them that you are taking over your account and want to self-manage, and ask them if there are any specific steps you need to take to do this (formal letter or an email or just start selling off the stinker funds and buying what you want). In my case, I had to open a new self-managed account, and there were several funds they had me in that were "exclusives" supposed to be perks of being professionally managed (yeah, okay) and I could no longer hold once I transferred the account to self-managed, so they sold those off for me and moved the funds over as cash and whatever the other non-exclusive funds they had me in. After they showed up in my new account, I sold off the other junk and bought into the index fund allocation I'd figured out beforehand. My Fido guy was actually very nice and helpful (and told me that index investing was great) when I pulled my accounts out of professional management, but I had another account with a guy at UBS that was a total ass and quite insulting, and I made sure to report his unprofessional behavior after I got my account out of their hands.

But if you just have some managed funds (not actual assets that an advisor is supposed to be personally assigned and acting on your behalf), you can sell those off and buy passive funds (index) funds any time.




.
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Old 07-13-2016, 05:25 AM   #5
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Quote:
Originally Posted by wren007 View Post
- Does Vanguard have hidden fees?
Quote:
Originally Posted by REWahoo View Post
I've never seen evidence Vanguard or Fidelity have hidden fees.
You would not need to worry about Vanguard hidden fees at your investment level.

ETF/Stock Trading Fees: https://personal.vanguard.com/us/wha...eescommissions
Quote:
Vanguard Brokerage Services® charges a $20 annual account service fee. However, we don't charge the fee to 1) Voyager, Voyager Select, Flagship, and Flagship Select clients; 2) clients who hold at least $10,000 in Vanguard funds and ETFs; or 3) clients who have elected e-delivery of statements, our annual privacy policy notice, and brokerage and mutual fund confirmations, reports, prospectuses, and proxy materials.

Vanguard Advantage® Account - Offered to clients of Voyager Select ($30, charged annually), Flagship (free), and Flagship Select (free).
Fund Fees: https://investor.vanguard.com/mutual-funds/fees
Quote:
A $20 fee will be charged annually for each fund account in which you have a balance of less than $10,000. Fees are automatically waived when you register for secure access to our website and let us send account documents to you electronically. They're also waived for all Voyager, Voyager Select, Flagship, and Flagship Select Services clients.
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Old 07-13-2016, 06:54 AM   #6
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Originally Posted by wren007 View Post
...........Our net worth is currently 2.8 million...........78 % in a single actively managed mutual fund. ( taxable)
.........
I think the hardest part will be getting that 78% in a taxable account into index funds without incurring large capital gains.
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Old 07-13-2016, 07:01 AM   #7
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You may want to check with Vanguard and/or Fidelity to see if your current investments can be transferred "in-kind" so as to avoid large capital gains and then slowly sell-reinvest to minimize the taxes as it fits into your financial picture.
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Old 07-13-2016, 07:15 AM   #8
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You may want to check with Vanguard and/or Fidelity to see if your current investments can be transferred "in-kind" so as to avoid large capital gains and then slowly sell-reinvest to minimize the taxes as it fits into your financial picture.
+1.

As for which funds to invest into, since you'll be passively investing. If you went with Vanguard, just follow the indexes. For example, I just invest in their total us stock index, total international stock index and total total bond index funds. I have one set for non-retirement, then another for retirement. When time comes to rebalance, I just deal with my percentage allocations and don't have to mess around with "Is the fund manager a good manager?". The beauty of passive investing .
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Old 07-13-2016, 07:58 AM   #9
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Quote:
Originally Posted by FrankiesGirl View Post
One of the best primers out there for self managing and getting used to the whole index investing thang is from Jim Collins' website (but he recently wrote a book too available now). So I'd suggest reading through to get really comfortable with the whole idea of passive/index investing and how the market works.

Jim Collins - Stock Series

Other great resources:

Bogleheads wiki site: https://www.bogleheads.org/wiki/Main_Page

And read these for sure: https://www.bogleheads.org/wiki/Getting_started

https://www.bogleheads.org/wiki/Bogl...g_start-up_kit

First, would suggest figuring out your investment policy statement. This is a primer for what your goals are and how you will assess hitting them and any adjustments you might want to make along the way.
https://www.bogleheads.org/wiki/Inve...licy_statement

Once you've figured out the IPS, then it's time to figure out your risk tolerance and asset allocation:
https://www.bogleheads.org/wiki/Asset_allocation

And how to set up your asset allocation across multiple accounts:
https://www.bogleheads.org/wiki/Asse...tiple_accounts

And if you truly want an easy, simple and almost hands-off portfolio you can set and forget (for the most part), check out the lazy portfolio info:
https://www.bogleheads.org/wiki/Lazy_portfolios

And you absolutely can do index investing with Fidelity if you have them through work. Vanguard is the gold standard for low cost investing, but Fido has many index funds (used to be called the Spartan series, but they just rebranded them to be "Fidelity" index funds) that are the same if not a tiny bit better expense ratios. They are doing this as both a loss leader (hoping you'll come for the index funds, but be tempted by the managed funds too), and to keep competitive with Vanguard. Competition is VERY healthy!

Both are fine companies and you can't go wrong with either of them (in Fido's case, stay away from the managed funds or "professional" management fees for them handling your portfolio and you're golden).

https://www.bogleheads.org/wiki/Fidelity



Anyone that says any of those (Vanguard or Fido, or even Schwab) are shady or have hidden fees is a liar and trying to steer you wrong, or has sustained some sort of brain injury to make them say such things. Both of these companies are held to extremely high industry standards and have received the highest ratings for investment companies. Saying that Vanguard would do such a thing is really laughable because they are client-owned and it is operated at-cost - there is no for-profit operations there; they charge just enough in fees to pay their employees/operating costs, but they are not in the business to make profits for some fat-cat board or CEO - it all comes back to the investors themselves because the investors ARE the owners. They charge the lowest fees in the industry. I would ask to see the proof from a reputable source before buying any of that crap.

And then I would run far, far away from this person for being dishonest at worst and stupid at best. Either way, they are not a good source for advice.

Oh - and breaking up with an advisor... I have done it many times now and it's been a laugh sometimes. You just decide where you want to move your funds, if you're changing to a completely new company like over to Vanguard from someplace else, you don't even have to tell them. Just contact Vanguard and have them help you get the paperwork completed and they'll contact the company and get the funds shifted over. The old place might hit you with a few closing accounts/transfer fees (definitely expect this and be happy if you don't have that happen) but otherwise, you don't ever have to answer their calls or emails if you don't want to. You can always just shoot them a "so long and thanks for all the help but I want to get more hands-on with my money" generic kiss off once you have everything moved over if you're feeling super nice, but don't feel like that is necessary.

And be aware that it can take weeks and even a month or two if the company is a sore loser (most are not like this, but some companies are jerks and do hold things up as much as possible, but just keep asking Vanguard or whomever to keep on them and it will happen eventually).

If you are leaving your money in the same place but want to take it out of the paid professional management, then you just contact them and tell them that you are taking over your account and want to self-manage, and ask them if there are any specific steps you need to take to do this (formal letter or an email or just start selling off the stinker funds and buying what you want). In my case, I had to open a new self-managed account, and there were several funds they had me in that were "exclusives" supposed to be perks of being professionally managed (yeah, okay) and I could no longer hold once I transferred the account to self-managed, so they sold those off for me and moved the funds over as cash and whatever the other non-exclusive funds they had me in. After they showed up in my new account, I sold off the other junk and bought into the index fund allocation I'd figured out beforehand. My Fido guy was actually very nice and helpful (and told me that index investing was great) when I pulled my accounts out of professional management, but I had another account with a guy at UBS that was a total ass and quite insulting, and I made sure to report his unprofessional behavior after I got my account out of their hands.

But if you just have some managed funds (not actual assets that an advisor is supposed to be personally assigned and acting on your behalf), you can sell those off and buy passive funds (index) funds any time.




.
I'm obviously not the OP, but if I were I'd be sending you a gift for this amazing post, which may be the single most comprehensive, useful and valuable thing I've seen in many years of benefitting from this forum. It's so great I'm going to save a copy for friends and family who ask about the basics of investing. Really great stuff - thanks!!!
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Old 07-13-2016, 08:46 AM   #10
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OP - on your taxable fund, if you have had this for many years, know that the fund company will not have tracked your cost basis (I assume you have been reinvesting dividends and capital gains). Hopefully you have kept all of your year-end statements so you can recreate your cost basis because you have already paid taxes on the dividends and capital gains when you received them. I had to build a ginormous spreadsheet for a couple of taxable funds that I not only had held for 30+ years but also had done monthly automatic investments for several years. It was a pain in the neck but in the end, I had no gain when I sold the shares recently (the fund has been throwing off massive LTCG distributions the past 4 years so the share price has been declining).
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Old 07-13-2016, 09:55 PM   #11
Confused about dryer sheets
 
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Thank you all, especially FrankiesGirl. I appreciate the step by step instructions. I've always LBYM but have never set IPS. I like that.
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Old 07-14-2016, 05:21 AM   #12
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- Does Vanguard have hidden fees?
Vanguard has a pretty unique structure: it is owned by its investors. So if it has hidden fees it goes right back into the pot.

One 'hidden' thing they probably do is securities lending (not sure) to increase their income a little.

If they do it, it is used to lower management fees further.

[Edit] redundant post I just realized. +10 on the post of FrankiesGirl!
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Old 07-14-2016, 12:20 PM   #13
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You may want to check with Vanguard and/or Fidelity to see if your current investments can be transferred "in-kind" so as to avoid large capital gains and then slowly sell-reinvest to minimize the taxes as it fits into your financial picture.
+2 FrankiesGirl gave you some great, detailed advice. I concur. I have great respect for Vanguard and their low fees, but Fidelity is a very close match in that regard, and I think has a little broader offering. I noticed that all your highest fee investments were with a FA. Not an accident. About 2 years ago I fired a FA at a major firm and went with a self managed account there. After some other problems with them still, this year I moved over $1M to join my other investments at Fidelity. I also earned $2500 from Fidelity for doing that, which may still be available to you.
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