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Old 05-19-2013, 07:42 PM   #41
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I was thinking the same thing. This thread didn't start out as a market timing discussion, but circumstances have certainly conspired to make it a perfect illustration of the dangers of making wild deviations from one's target asset allocation, however temporary. The extremely large amount of money converted to cash plus the unusually sharp increase in the stock market since OP sold his equities have combined to generate a rather painful missed opportunity. We would have to know more details of what was actually sold and for what price, but it seems likely that the losses from this ill-timed move to cash are somewhere in the mid to high five figures. Ouch!

So OP is paying thousands of dollars for advice from a financial advisor who has already cost him tens of thousands in missed profits. As you say, the only choices now are to bite the bullet and repurchase equities at a higher price, or sit with a large cash position and hope for a correction. But holding all that cash for an indefinite period creates additional risk that the market will continue to rise while OP is on the sidelines.
Who says the advisor advised sitting in cash during this time? I don't think you can put that on the advisor, nor do,we know that is what even happened.
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Old 05-19-2013, 09:07 PM   #42
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Who says the advisor advised sitting in cash during this time? I don't think you can put that on the advisor, nor do,we know that is what even happened.
I am simply taking OP at his word. Retire2020 wrote

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I did inform my FA that I'll be selling most of it and he did not have any issue with it.
A competent financial advisor would have both known and taken the initiative to point out to a new client that this move to cash greatly increased OP's risk without increasing his expected return at all. Instead, based on OP's own account of the conversation, the FA at best passively acquiesced and perhaps tacitly approved this foolish move to cash as a convenient way to get his hands on a large account without having to take the time and effort to design a transition plan to get OP's money into DFA funds without going to an entirely cash position for a couple of weeks.
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Old 05-19-2013, 10:33 PM   #43
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I am simply taking OP at his word. Retire2020 wrote

A competent financial advisor would have both known and taken the initiative to point out to a new client that this move to cash greatly increased OP's risk without increasing his expected return at all. Instead, based on OP's own account of the conversation, the FA at best passively acquiesced and perhaps tacitly approved this foolish move to cash as a convenient way to get his hands on a large account without having to take the time and effort to design a transition plan to get OP's money into DFA funds without going to an entirely cash position for a couple of weeks.
Actually worrying about a couple of weeks of returns sounds more like market timing to me. In the long run, missing out on one episode of a couple weeks up before a likely correction and the next run up should be meaningless. It would be different if there were repeated trips in and out of the market, but that is not this situation. And we have no idea how long the time is between the liquidation and the DFA purchase. Also the comment about the size of the portfolio shows a key point appears to have been missed. THIS advisor does not get paid a percentage of the portfolio. The fee is hourly or quarterly at a flat rate--the same for large or small portfolios.
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Old 05-20-2013, 08:50 AM   #44
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In the long run, missing out on one episode of a couple weeks up before a likely correction and the next run up should be meaningless.
You might think so, but you would be wrong. If OP buys back into the stock market right now at, let's say, an average price 3% higher than when he sold, he will permanently be stuck with a portfolio that is worth 3% less than if he or his FA had had the good sense to avoid this two week excursion to cash. The only way this FA can recoup the loss is to promise market beating returns going forward. But I will assume that he has enough common sense not to do that. He would only be setting himself up for lawsuits when he fails to deliver.

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And we have no idea how long the time is between the liquidation and the DFA purchase.
We don't know the exact day, but we DO know the time frame - two weeks - based on OP's earlier posts. That's last Friday, so if he hasn't already purchased he is either about to do so, or he has completely changed his plans and now intends to stay in cash until the market starts to cooperate with his opinion of how it should behave. Good luck with that.


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Also the comment about the size of the portfolio shows a key point appears to have been missed. THIS advisor does not get paid a percentage of the portfolio. The fee is hourly or quarterly at a flat rate--the same for large or small portfolios.
I did not miss that point at all, but I'm not sure exactly how it is relevant. The FA has given tacit approval for this two week exercise in market timing that has now gone badly wrong and cost OP tens of thousands of dollars. If I were in the market for a FA, I would not exactly find it reassuring to have one described to me as "This guy's advice is terrible,but at least his fees are reasonable." But that's an accurate description of the FA based on the facts as we know them.
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Old 05-20-2013, 10:11 AM   #45
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I sold about 150k around the same time to get my AA in line with my goals. Cost me about 4500 bucks so far. In theory, anyone who rebalanced in the past few years made a similar " blunder " as the OP. However, I don't see any advantage to using DFA funds anymore. There isn't any guarantee that all the slicing and dicing is going to improve returns. And you can get access to all the market segments now anyway thru vanguard and or ETFs.
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Old 05-20-2013, 12:21 PM   #46
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I wouldn't worry about selling. You decided to redo your portfolio. So it is what it is. I wouldn't second guess it.

I've only read the first post so far, maybe this is answered latter on. Are you sure you need a financial adviser? If you are just going to by index funds it should be pretty trivial to manage it yourself. I also would not buy into any hype that DFA funds are better than any other index fund. I believe DFA makes you use an adviser. So I would dump them.

If I was going the index route I would use whatever is cheapest in terms of ER and any fees. I would manage it myself and probably use Vanguard.

Honestly if you are going the index fund route there is no reason why you can't just use the same balanced fund in all of your accounts, and that way you don't have to mess with it at all.
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Old 05-20-2013, 07:30 PM   #47
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This is all Monday morning quarterbacking. If the usual sell in May and go away had happened this year then the timing would have been favorable. This is beyond silly, it is just knee jerk criticism. The OP said his FA had no idea he was selling, he did it on his own. We do not know how much his particular portfolio "missed out" on the last few weeks run up. He says he was in 80 different funds. We do not know how out of balance the original portfolio is or was, or whether new fund investments are going to all be up as much as the broader market has been these few weeks. And we don't know what will happen tomorrow or whenever. In the long run this little difference will be a tiny drop in the bucket of what one hopes is a much larger portfolio. Speculating that tens of thousands have been missed out on is just hating on advisors.

As for the comments about DFA being no better than other funds, that is an opinion. Not based on any facts or numbers, but it is an opinion. The Indexes are often changing, stocks are added or subtracted and pure index funds must immediately sell and buy to reconstitute their make up to match the index committees NEW definition of an asset class. This has cost an estimated 0.6% cost just doing reconstitution...a cost DFA index funds largely can avoid. They also leverage their size in beneficial ways not available to other passive approaches. It is much more than strategic slice and dice that has made them the success that they are. The facts show that the DFA approach in the past has been consistently more tax efficient and lower cost and with higher returns than many other approaches including Vanguard. Whether that will hold in the future is unknown but with a low cost advisor adding a tiny fraction of a percent to the cost, that is a gamble many are willing to take based on prior results and belief in their method of indexing. If you use a higher cost advisor then all bets are off and that probably cancels out even theoretical DFA advantages.
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Old 05-20-2013, 08:19 PM   #48
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This is all Monday morning quarterbacking. If the usual sell in May and go away had happened this year then the timing would have been favorable. This is beyond silly, it is just knee jerk criticism. The OP said his FA had no idea he was selling, he did it on his own. We do not know how much his particular portfolio "missed out" on the last few weeks run up. He says he was in 80 different funds. We do not know how out of balance the original portfolio is or was, or whether new fund investments are going to all be up as much as the broader market has been these few weeks. And we don't know what will happen tomorrow or whenever. In the long run this little difference will be a tiny drop in the bucket of what one hopes is a much larger portfolio. Speculating that tens of thousands have been missed out on is just hating on advisors.

As for the comments about DFA being no better than other funds, that is an opinion. Not based on any facts or numbers, but it is an opinion. The Indexes are often changing, stocks are added or subtracted and pure index funds must immediately sell and buy to reconstitute their make up to match the index committees NEW definition of an asset class. This has cost an estimated 0.6% cost just doing reconstitution...a cost DFA index funds largely can avoid. They also leverage their size in beneficial ways not available to other passive approaches. It is much more than strategic slice and dice that has made them the success that they are. The facts show that the DFA approach in the past has been consistently more tax efficient and lower cost and with higher returns than many other approaches including Vanguard. Whether that will hold in the future is unknown but with a low cost advisor adding a tiny fraction of a percent to the cost, that is a gamble many are willing to take based on prior results and belief in their method of indexing. If you use a higher cost advisor then all bets are off and that probably cancels out even theoretical DFA advantages.
I've looked into DFA before but at the time couldn't justify the cost of the advisor. There wasnt anyone offering access for a tiny fraction of a percent. I think it was IFA and more like 1.5% at the time. Can you provide info on that. I'd like to look into it. Thanks
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Old 05-21-2013, 10:19 AM   #49
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karluk:
It was my call and not FA's. When did I say that FA gave me two week's tactics? It was all my thinking what I wanted to do. You've read in bits and peaces and drawn your own conclusion. I've already mentioned in this thread how much I'm paying to FA -- it's not % based or into thousands. I also mentioned how messed up and out of balance my previous portfolio was and I wanted to start fresh. I also mentioned that market could go either way when I buy back but who can time the market?
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Old 05-21-2013, 03:04 PM   #50
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This is all Monday morning quarterbacking.
+1 Assuming what just happened had to happen is an interesting mental quirk. When you get out of the stock market, if there are no taxes or fees, all you do is get out of the stock market. You certainly reduce risk, if you keep the proceeds in cash. You may reduce return, depending on how the wheel spins.

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Old 05-21-2013, 07:31 PM   #51
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Market timing - pure and simple - and likely unwise...
Why Investors Fail
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Old 05-21-2013, 09:19 PM   #52
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Market timing - pure and simple - and likely unwise...
Why Investors Fail
Based on what the OP stated (he sold to clean up his positions in multiple funds) I would say this not market timing. Personally, I hate being out of the market and I would try to clean up my portfolio without liquidating everything. But I didn't see the OP state that he/she thought the market would go down and that's why he sold.
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Old 05-21-2013, 09:22 PM   #53
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didn't GS predict 2100 S&P500 by 2015? I think the OP could lose a lot more than 5 figures in potential missed earnings.

GS was quite correct about gold recently.
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Old 05-22-2013, 07:54 AM   #54
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This is all Monday morning quarterbacking.
This comment was not directed at me, but to the extent that it applies to my criticism of OP and his market timing strategy, I feel obligated to point out that my criticism has been unchanged from my first post in this thread until my last. The problem is not that OP gambled tens of thousands of dollars and lost, but that he gambled at all and his FA stood by passively and let it happen. I pointed out the problems with OP's move into an all cash position on the morning of 5/7, so I think I should get credit for "early first quarter quarterbacking" at the very least, not "Monday morning quarterbacking". As I wrote on 5/7

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I sincerely wish you the best of luck in your move to cash, but in all honesty this doesn't strike me as a good way to arrive at your new asset allocation. The mutual funds you've just sold will probably be up or down a percent or two while you are on the sidelines, just through normal market fluctuations. That means you are unnecessarily gambling tens of thousands of dollars on what is essentially a flip of the coin. You may win, or you may lose, but what you're doing is gambling, not investing.

You may have done all this selling without consulting your financial advisor, but if he/she knows about it (and approves), it also strikes me that your FA is being quite lazy and not earning the fee you're paying. A good financial plan should analyze your current investment compared to your target and offer a coherent plan to get to your goal without exposing yourself to the kind of unnecessary risk you're currently taking. How hard is it to analyze the holdings of FCNTX and coordinate selling it while simultaneously buying comparable DFA funds?

On the positive side, DFA has a sterling reputation, so by hiring this FA you are getting access to some of the best mutual funds in the market. Good luck and I hope it all works out for you and your DW.
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Old 05-22-2013, 08:11 AM   #55
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karluk:
It was my call and not FA's. When did I say that FA gave me two week's tactics? It was all my thinking what I wanted to do. You've read in bits and peaces and drawn your own conclusion. I've already mentioned in this thread how much I'm paying to FA -- it's not % based or into thousands. I also mentioned how messed up and out of balance my previous portfolio was and I wanted to start fresh. I also mentioned that market could go either way when I buy back but who can time the market?
I find it highly admirable in you to stand up and take responsibility for this fiasco. It has always been clear that you were the prime mover in this move to an all cash position, and that your FA's role was limited to standing passively by and letting it happen.

As far as your oft repeated excuse for liquidating a messed up portfolio and starting fresh, quite frankly that just reinforces my low opinion of your FA. It's certainly understandable that you, as a client, should feel overwhelmed by an overly complicated portfolio with dozens of holdings, but your FA advisor should not have felt the same way. He handles investments for a living and should be competent enough to figure out a way to get from your previous investments into a 65/35 allocation (which you indicated was your target) without this highly risky and completely unnecessary detour into all cash.
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Old 05-22-2013, 06:25 PM   #56
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Based on what the OP stated (he sold to clean up his positions in multiple funds) I would say this not market timing. Personally, I hate being out of the market and I would try to clean up my portfolio without liquidating everything. But I didn't see the OP state that he/she thought the market would go down and that's why he sold.
You are correct, the OP didn't state the the intent was to sell high then buy low (time the market). However it has a similar affect if the plan was to clean-up the portfolio via redistribution. In this case (as you mentioned) it would have probably been neutral if first deciding on what instruments to redistribute to, then sell and invest in these as a single event. But that is not what was done - so therefore essentially equilvalent to market timing (which turned out not to be the best choice in hindsight if invested in general stock market during the last 3 weeks). IMO
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Old 05-22-2013, 09:56 PM   #57
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I sold about 150k around the same time to get my AA in line with my goals. Cost me about 4500 bucks so far. In theory, anyone who rebalanced in the past few years made a similar " blunder " as the OP.
Rebalancing is not a blunder. Rebalancing is following good investing discipline.

Taking yourself out of the market for 3 weeks for a portfolio makeover is a blunder. A makeover should be done in a day or at most a few days. I suspect the real motive for being out 3 weeks was market timing which backfired, as it often does.
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Old 05-23-2013, 06:14 AM   #58
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Looks like a market downdraft today. Could be a good entry point for those who are out and want in.
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