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Re: Set it and forget it retirement
Old 03-08-2006, 08:43 AM   #21
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Re: Set it and forget it retirement

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Originally Posted by gindie
While I agree with the "target portfolio" approach, I'd first investigate a couple of others besides Vanguard.

True, Vanguard is the cheapest, but they tend to have the most conservative stock/bond mix.

Before commiting to Vanguard, take a look at the similar, but a little more aggresive offerings by T. Rowe Price and Fidelity.
If you want a more aggressive stock/bond mix, just pick a more aggressive stock/bond fund at Vanguard. Like Target retirement 2015 or Lifestrategy conservative growth (or moderate growth, if you want more risk). When other fund companies charge you 1-1.5% in fees, they have to get more aggressive to increase the returns (and as a result, volatility) to pay the extra 1-1.5% in fees. No need to shop around when you are already at the discount store (Vanguard) who only charges 0.2-0.25% for the funds I mentioned.

Mugs, without investigating further, it looks like your brother has recommended funds that would make your portfolio almost all stock (very little cash or bonds). With this type of portfolio, you will experience a lot of price fluctuation and volatility. You may want to consider a less risky portfolio with a larger share of cash/money markets/bonds.

As to selecting the advisor, DON'T DO IT!!!! The total expenses for an advisor will be around 2.5% (1% for the advisor, plus 1.5% for mutual fund expenses that the advisor will stick you in). 2.5% of $1.25 million is $31,250 per year, almost the exact same amount you will need to withdraw from your portfolio. Wow. Just find a fund or a few funds, and like you said, "set it and forget it". You'll do a lot better that way.
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Re: Set it and forget it retirement
Old 03-08-2006, 12:59 PM   #22
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Re: Set it and forget it retirement

Vanguard does tend to run more towards the conservative side, however its pretty easy to 'counteract' that by choosing a more 'aggressive' fund or leaning more heavily towards a 'riskier' choice.

It also makes picking some normally risky asset classes less concerning. Look at the credit quality in the 'high yield corporate bond fund'. Not that bad really.
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Reply from brother
Old 03-09-2006, 07:17 AM   #23
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Reply from brother

Hi,

This is Mugs' brother.

You all sure have been helpful to her with all of your replies.

Probably the best thing you've all done is that she's now leaning against using that expensive financial planner! I tried to dissuade her, but she needed that extra nudge.... If she still feels that she'd be more comfortable running her portfolio by a financial planner, the one's at Vanguard should do nicely.

The portfolio I recommended was stock heavy, but I figured that the SS would act like bonds and, along with the bond portions of the VGSTX(35%), VSMGX(29%), and VWENX(31%) would balance her portfolio.

However, I see now that I was designing a portfolio more for MY needs than for HERS. She should probabily go with a 55/45 (or maybe 50/50) bond/equity split.

I still like the original funds that I recommended, but would add a DODIX portion that, along with the SS treated as bonds and other funds, would achieve the desired mix. If she decides to go with a fee based financial planner like Vanguard, they might have some other suggestions for actual funds.

I wasn't recommending the Vanguard targeted funds because they seem to concentrate on index funds, while I believe that SELECTED managed funds tend to do better.

Thanks again for all of your help for her........ PLEASE, keep it coming!

HBH


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Re: Set it and forget it retirement
Old 03-09-2006, 07:38 AM   #24
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Re: Set it and forget it retirement

Vanguard Target funds would be simple and easy. Few managers beat the market average after expenses (plus hidden transaction costs) and taxes. In taxable accounts the high turnovers eats into your return.

Target 2025 is about 60%stock/40% bond, which is typical of portfolios used in research that developed the 4% withdrawal rule of thumb.
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Re: Set it and forget it retirement
Old 03-09-2006, 08:13 AM   #25
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Re: Set it and forget it retirement

I should add that the 4% rule of thumb is taken from academic studies that didn't include investing costs, so your net withdrawal is lower. High cost funds typically just reduce your net even more.

Retirement Savings Choosing a Withdrawal Rate That Is Sustainable by Cooley, Hubbard, and Walz. (also known as the Trinity Study)

Zunna.com/research has some other variations on this study.

For all the hype over winning fund managers, few are able to repeat over time, with most simply being lucky to catch a winning trend. Once you hold a large number of securities (as happens as money flies into a winning fund) you tend to become average.

Magellan fund under Peter Lynch barely beat the S&P 500 after costs and taxes, but when compared to the midcap stocks he invested in early in his career there, he fell behind (I've lost my reference for this, past hard drive failure). As it grew he moved to larger stocks and fell behind.
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Re: Set it and forget it retirement
Old 03-09-2006, 10:40 AM   #26
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Re: Set it and forget it retirement

Hello HBH,

She is a doubly lucky gal. Not only did she receive some pretty good advice here, but some pretty good advice from you also.*

Many new investors jump into the investment world (401k, ira etc) and flounder around for years and years before they realize that there is a sane way to manage investments* and it really is not very difficult to do.* Your sister may be spared much of this lost time. And time is money as we all know.

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Re: Set it and forget it retirement
Old 03-09-2006, 01:27 PM   #27
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Re: Set it and forget it retirement

Caroline, Re: having all your assets at Vanguard, here's what I previously wrote:

Quote:
Simply put, the funds Vanguard offers are separate companies from The Vanguard Group, Inc. Each fund is owned by the investors that own shares of the fund [i.e. you and me]. The Vanguard Group, Inc is owned collectively by all of the vanguard funds [wellington, wellesley, 500 index, etc.]. Hence, Vanguard is owned by all of us, not Bogle, Brennan or anyone else.

The Vanguard Group, Inc provides services to the funds [at cost] pursuant to a Service Agreement. If the fund, or whoever votes in voting matters [probably the funds' trustees with Vanguard funds], decides that Vanguard is not longer the best administrator of that fund, that fund can find someone else to administer the fund. Of course, IIRC John Brennan is the Chairman of each of Vanguard's funds, so the likelihood of this happening is nil. Grin

Also, each fund has a custodian [like JP Morgan Chase for Wellington] that is responsible for maintaining the Fundís assets, keeping all necessary accounts and records of Fund assets, and appointing any foreign sub-custodians or foreign securities depositories. So, The Vanguard Group, Inc. does not hold any of the assets, and IIRC each funds' assets are separate from the assets of The Vanguard Group, Inc.

I would no problem holding all of my investments with Vanguard. Except for the TSP, we have all of our investments with Vanguard.

- Alec
Mugs,

I really don't see much point in owning numerous balanced funds. The whole point of the balanced funds or "funds of funds" [like STAR] is that the fund is your only fund - quick, easy, cheap. Wellington, STAR, and the dodge funds all have a large value tilt [Wellington + Dodge funds more so than STAR].

Certainly nothing wrong with using active funds, but IMO most of the outperformance over the index balanced funds is due to the value tilt of the active funds, not necessarily the security selection. But, if you want value tilted balanced funds nothing wrong with Wellinton or STAR [especially if you can get the admiral shares].

You could probably create a similar portfolio just using VSMGX, DODGX, DODIX, and DODFX. [or just use STAR ] Just depends on how much of a value tilt you want.

- Alec
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Re: Set it and forget it retirement
Old 03-09-2006, 02:18 PM   #28
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Re: Set it and forget it retirement

Quote:
Originally Posted by Cut-Throat
You should have no Problem with a 1.25 Mil portfoilo and only needing about a 3% withdrawal rate.* My advice would be to go with the Vanguard Target Retirement Fund 2005. They will change the allocation for you as you get older. The yield on this fund is around 3.8% which is more than you need to add your SS to give you $50K per year.
This is your best advice. I currently own 5 managed funds that gives me good diversification but I may move to a Target fund when I retire in a few months. Hard to beat a good old simple approach.
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Re: Set it and forget it retirement
Old 03-09-2006, 02:32 PM   #29
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Re: Set it and forget it retirement

Hmmmm

At age 62 - lead sled dog is Vanguard Target Retirement 2015 plus a few male hormone dividend stocks in lieu of golf or chasing wild, wild women.

Starting at 22 - it took maybe twenty years or so to figure out active management or wild women perhaps wasn't the best way to go.

heh heh heh heh heh - the Norwegian widow turned out to be a real sweetie.
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Re: Set it and forget it retirement
Old 03-09-2006, 02:46 PM   #30
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Re: Set it and forget it retirement

Quote:
Originally Posted by unclemick2
Hmmmm

At age 62 - lead sled dog is Vanguard Target Retirement 2015 plus a few male hormone dividend stocks in lieu of golf or chasing wild, wild women.

Starting at 22 - it took maybe twenty years or so to figure out active management or wild women perhaps wasn't the best way to go.

heh heh heh heh heh - the Norwegian widow turned out to be a real sweetie.
I may give up managed funds but I'm NOT giving up golf or the wild women!*
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Re: Set it and forget it retirement
Old 03-12-2006, 08:13 PM   #31
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Re: Set it and forget it retirement

This is Mugsie,
Sorry to have taken so long in posting this response but please know that I am deeply appreciative of the many thought-provoking responses to my problem -- although I feel very fortunate that I have such a problem! I am still trying to understand all of my options that all of you have given me, but I will NOT go with Fisher -- and I thank you for all of your reasons. And, I will post my decision when I make it -- but I am still not sure what my final decision will be. Thank goodness I still have a few more months. By the way, I will be 63 when I retire in November and I will wait until January 2007 to start my social security. I realize that I must be MUCH more conservative in my retirement because I really do want to set up my portfolio and NOT worry about it, given the fluctuations of the market--

What is the consensus of American Funds, such as Investment Company of America? A good friend of mine has been strongly suggesting them only -- and another has been recommending only Vanguard.* I am especially interested in trying to understand* targeted accounts. Hmmm. I guess I should follow my brother's advice more -- although I realize that it will be my decision (and responsibility) and not his.

Again, my many thanks.

Mugsie
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Re: Set it and forget it retirement
Old 03-12-2006, 10:14 PM   #32
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Re: Set it and forget it retirement

American has some good funds and in general they seem to be a pretty good company but their funds have loads.

I think that the load is normally 5.75% but if you invest a large amount (e.g. move all of your 401k into American at once) they decrease and/or void the load. It may even go to zero for investments the size of your 401k but you should check it out on their web site.

My strong preference would still be Vanguard but American is also a good choice if you can avoid the load.

MB
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Re: Set it and forget it retirement
Old 03-12-2006, 10:20 PM   #33
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Re: Set it and forget it retirement

Like MB said, American has good funds but carry a load. Vanguard has good no load funds. Over time a particular American fund may beat a particular Vanguard but I would give the preference to Vanguard.

I have one Vanguard fund and had two American funds, still have one. They did pretty well but I am consolidating into Vanguard. No complaints about American except for the load issue.
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Re: Set it and forget it retirement
Old 03-12-2006, 10:39 PM   #34
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Re: Set it and forget it retirement

Hi Mugs,

Personally, I have about 90% of my portfolio invested with Vanguard.

A 1% fee may sound reasonable until you have a so-so year when your portfolio earns say a 4% return - then your expenses consume a whopping 25% of your return.

Something to think about...

Lance
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Re: Set it and forget it retirement
Old 03-13-2006, 08:09 AM   #35
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Re: Set it and forget it retirement

If you buy $1 million worth of American Funds mutual funds, I believe there is no up front sales charge. If you sell within 1 year, there is a 1% back end sales charge (called a "contingent deferred sales charge" I believe). All american funds shareholders pay a 12b-1 fee of 0.25% per year (this is part of the expense ratio) which compensates your broker and doesn't add to the research the fund conducts to select securities. I own a lot of american funds that I acquired before I got smart about fees and expenses. If I had to do it over, I would have started with Vanguard instead.

If you want set it and forget it, I'd pick a fund or two at VG that is balanced and as conservative as you want it. Buy it and let it ride, taking your dividends and eating into your capital if needed.

Your last post brings up a question. When you say you don't want to "worry" about your portfolio, do you mean (1) you can't sleep at night when your portfolio moves up or down by tens of thousands of dollars every day; or (2) you don't want to spend time each year rebalancing your portfolio and deciding on whether to sell some or all of your holdings and then select and purchase new mutual funds?



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