Terrified. Begging for help - Income/Investing

[pb4uski]

T...So if I put the whole pot at Vanguard, only $500k out of 4mm is insured. Does this concern any of the savers/investors on this board?

Actually, Vanguard provides more protection through additional insurance they provide. See https://personal.vanguard.com/us/whatweoffer/stocksbondscds/accountprotection

But what about asteroids? What's your plan for that?

My point is, don't get silly about such things.

 

[DevonMiles19]

Asteroids

Actually, Vanguard provides more protection through additional insurance they provide. See https://personal.vanguard.com/us/whatweoffer/stocksbondscds/accountprotection

But what about asteroids? What's your plan for that?

My point is, don't get silly about such things.

I hear what you are saying but respectfully, we just went thru a rather interesting period of time. A time when things we take for granted....our currency, our banking system, gold at the Federal Reserve, etc are things that most of us can't quite vouch for. GM will never go bankrupt...people on this board a few generations ago would've said. Lehman will never go under. My employee perk stock in Enron is safe.

All I'm saying is that yeah, we can't plan for asteroids or armageddon. I'm just asking if anyone is concerned that should something happen (imagine, banks and wall streeters cooking books!)....do you feel secure having a huge chunk of non insured money with an institution.

I guess I've become too skeptical for my own good.

 

[ERD50]

.... GM will never go bankrupt...people on this board a few generations ago would've said. Lehman will never go under. My employee perk stock in Enron is safe.

No rational person would have said any of those things. 'Never'?, really?

All I'm saying is that yeah, we can't plan for asteroids or armageddon. I'm just asking if anyone is concerned that should something happen (imagine, banks and wall streeters cooking books!)....do you feel secure having a huge chunk of non insured money with an institution.

If you have money invested in mutual funds with Vanguard or Fidelity, or many others, it really isn't 'with the institution'. It is invested in those companies in the fund. They just hold the paper receipts, and you have a copy.

And I won't say 'never', but if Vanguard or Fidelity absconds with all the funds that people on this forum has invested there, things will be so bad that money will be the last thing on our minds. Think bullets and rations and drinking water.

If I were you, I'd be focused on what I can control - do you really have a health issue, and if so, what are your options for the most positive outcome. You're all over the map right now. One thing at a time.

Good luck with everything.

-ERD50

 

[bmcgonig]

Something that may not be that apparent, but is worth highlighting: if you pay a wealth manager 1%, that reduces the amount you can draw by a quarter to a third. Learn enough and teach your DW enough to avoid the use of an advisor. Its about the most remunerative thing you will ever do.

Interesting post by Michael Kitces regarding this, basically saying that it's not 1% in fact, but much less because of declining assets

http://www.kitces.com/blog/the-impact-of-investment-costs-on-safe-withdrawal-rates/

 

[bmcgonig]

Interesting post by Michael Kitces regarding this, basically saying that it's not 1% in fact, but much less because of declining assets http://www.kitces.com/blog/the-impact-of-investment-costs-on-safe-withdrawal-rates/

Frankly if the above is true, I.e. What Kitces says that 1% is really less than 1/2% I would strongly recommend a wealth management company! yes! one of those 1% guys. Your wife will really need hand holding and advice in times of stress like 2008/9. If the market is down 30% she will probably bail. A good conservative wealth management company does this very well, and answer all her calls, and tell her everything will be fine when the roof is collapsing on the market.

And no my money would never go there in my situation, but if I was in your shoes it would.

 

[pb4uski]

....I guess I've become too skeptical for my own good.

Yes, you probably have.

But please note that in the last 5 hours you haven't received any responses other than mine to your query as to whether any savers/investors on this board are concerned about the SIPC limitations. I think there's your answer.

BTW, SIPC coverage is by account, so if you have multiple accounts (your IRA, DW IRA, joint investment account, individual investment accounts, roth IRA, etc. with a broker-dealer that fails and funds are missing, each account is insured to $500k.

That limit is $500,000 per person per account type.

A customer could increase his SIPC coverage at the same brokerage by having different account types. For example, he could have a regular taxable account, a regular individual retirement account, a Roth IRA and a 401(k) plan covered up to $500,000 each, for a total of $2 million, says Steve Harbeck, SIPC's president and chief executive.

 

[samclem]

Interesting post by Michael Kitces regarding this, basically saying that it's not 1% in fact, but much less because of declining assets

Impact of Investment Fees & Costs on Safe Withdrawal Rates | Kitces.com

If anybody reads the article at that link and 1) accepts its assumptions and 2) is comforted by them, then that person is a fool.

I generally like Kitces' articles, but this is the very worst I've seen from him.

1% fees result in a very large reduction in safe annual withdrawals.

 

[bmcgonig]

If anybody reads the article at that link and 1) accepts its assumptions and 2) is comforted by them, then that person is a fool. I generally like Kitces' articles, but this is the very worst I've seen from him. 1% fees result in a very large reduction in safe annual withdrawals.

A rebuttal other than calling BS might be more useful...

 

[samclem]

A rebuttal other than calling BS might be more useful...

The article speaks for itself. In a nutshell: "If you withdraw 4% PA and you go broke, the declining balance means you didn't really pay the FA 1% of the initial balance every year for the entire time". It is sublimely obvious in its own twisted way (who measures fees like that?), and it is entirely beside the important point (the client has gone broke. Did the FA's fees accelerate that?).

Furthermore, if the client's portfolio does well (which we would hope would be the majority of cases), the same bizarre measurement standard (constant % of initial investment) would mean the client paid considerably >more< than 1%. Kitces brushes this off--since the client didn't die destitute, I guess he shouldn't care what he paid the FA. We don't get a nice chart from Kitces or a long explanation, or even a number, just a few words minimizing the relevance of these (growing) fees. Well, if he's got the historical returns and he gave us the most "favorable" case (1% fees really = 0.4%), he should use the same methodology and give us the mean and median amounts (what would that be? 1% fees really = 1.5%? 2%? 5%?). We don't know, because he doesn't tell us these less flattering results.

Sorry, it's drivel. And self-serving drivel served up to those who will repeat it to their [-]marks[/-] clients. If a portfolio can safely support a withdrawal rate of 4%, and if fees are 1%, then the client will be living on just 3%, a heck of a lot less than if he didn't have those fees. If Kitces had stuck with that, he would have been fine. And right.

 

[47]

The article speaks for itself. In a nutshell: "If you withdraw 4% PA and you go broke, the declining balance means you didn't really pay the FA 1% of the initial balance every year for the entire time". It is sublimely obvious in its own twisted way (who measures fees like that?), and it is entirely beside the important point (the client has gone broke. Did the FA's fees accelerate that?).

Furthermore, if the client's portfolio does well (which we would hope would be the majority of cases), the same bizarre measurement standard (constant % of initial investment) would mean the client paid considerably >more< than 1%. Kitces brushes this off--since the client didn't die destitute, I guess he shouldn't care what he paid the FA. We don't get a nice chart from Kitces or a long explanation, or even a number, just a few words minimizing the relevance of these (growing) fees. Well, if he's got the historical returns and he gave us the most "favorable" case (1% fees really = 0.4%), he should use the same methodology and give us the mean and median amounts (what would that be? 1% fees really = 1.5%? 2%? 5%?). We don't know, because he doesn't tell us these less flattering results.

Sorry, it's drivel. And self-serving drivel served up to those who will repeat it to their [-]marks[/-] clients. If a portfolio can safely support a withdrawal rate of 4%, and if fees are 1%, then the client will be living on just 3%, a heck of a lot less than if he didn't have those fees. If Kitces had stuck with that, he would have been fine. And right.

I agree with Samclem. There are so many problems with this super simplistic assumption.

For Kitces argument to be true, the client's portfolio needs to be run to the ground. What is the client supposed to do after the portfolio hits zero?

The "safe" withdrawal rate is supposed to provide some cushion even for unexpectedly long life and possibly leave a reasonable amount for the next generation. It is supposed to deplete the entire asset only probabilistically at the worst case and not deterministically as a matter of course.

Even given all this the client and the adviser need to be in a permanent relationship for this to be even remotely be true. The fact remains that if you go separate ways after 5 years, you are out somewhat close to 5% of the original amount. More if the portfolio did well and increased. Less if it tanked. But then you have more than the fees to be mad about.

One way to look at this: You take 1% out of 3% it is one third, unless the plan all along is to take the entire 100% in a few years.

 

[pb4uski]

I think the OP (or anyone for that matter) can easily see the impact of a 1% FA fee by running Firecalc with and without the 1% fee under "How much are you paying for investing fees?" and see the difference it makes in portfolio survivability.

If I input a $4m portfolio consisting of 50% commercial paper and 50% equities (broadly similar to what the OP want to invest in) with a .2% annual fee and spending of $122k for 50 years and 3.5% inflation, I get a 83.9% success rate. If I change the fee from 0.2% to 1.2% then the success rate drops to 35.5% so it makes a huge difference.

However, if I change the portfolio to something similar to Wellington (65/35) and the inflation rate to CPI and the fee to Wellington's ER of 0.17% then the success rate is 100%. (If I add a 1% FA fee the success rate drops to 98%).

If I change the AA to (35/65) similar to Wellesley and a .18% ER then the success rate is 96%. (If I add a 1% FA fee the success rate drops to 56%).

To me, the increased risk associated with being too conservative is interesting, but it seems that the OP isn't listening to anything other than his own fears and paranoia, so we're wasting our breath.

 

[DevonMiles19]

Thanks Pb

Hi Pb.......

Thanks for the analysis.

As far as fears and paranoia: I gotta plead 100% guilty to that. I'm planning for a worst-case, deadly scenario, in a world full of unknowns, world where there's no post WW2 booms and 50 cent gas and sole superpower status with an absolute novice survivor spouse being at the financial helm. So yeah, I gotta admit...paranoia and fear are things I'm bathing in, marinading in, and all I know right now.

But please don't' think you and others are wasting breath because it's been extremely helpful. I've been indeed playing with new scenarios, allowing for more equities exposure and I've spent quality time on Vanguard's website, playing with different allocations of Wellington, Wellsley, Muni Funds.

I'll be digging into Firecalc hard now. Just gotta get familiar with which Firecalc calculator to use.

You guys aren't wasting your breath. Seriously each of you is like an angel to me right now and I wish I could raise a glass to each of you in person.

 

[Bestwifeever]

Devon, this health scare is sort of an epiphany for you. I pray it is just a scare, but either way (and that is a long continuum there of possibilities, not all dire) keep moving forward with working on healthy habits, getting your spouse at least aware of your health and the family finances, and getting on top of your assets to make them work for you. Your nest egg is substantial and it should last a long, long time, and you want your family to reap the benefits of your hard work that went into creating it. Best wishes to you.

 

[DevonMiles19]

Hi BestWife

Devon, this health scare is sort of an epiphany for you. I pray it is just a scare, but either way (and that is a long continuum there of possibilities, not all dire) keep moving forward with working on healthy habits, getting your spouse at least aware of your health and the family finances, and getting on top of your assets to make them work for you. Your nest egg is substantial and it should last a long, long time, and you want your family to reap the benefits of your hard work that went into creating it. Best wishes to you.

Thank you BestWife....and yes, epiphany indeed. I had decided that even if the doc gives me good news, I'm going to operate differently. DW and I are spending a few hours per week on finances...right now just getting her familiar with where the money is, how to read bank statements, how to calculate asset allocation, calc return on investments, reading basic articles in Money or Barrons.

Health: Been perfect for 18 days in all categories. Losing weight noticeably. Even if doc gives good news, I'll never be the same. I used to live for food, and right now, the thought of yummy food scares me, borderline grosses me out. (If you knew me, you'd claim some robot took over my brain. I'm the guy who prefers a steak dinner over an evening with Miss America anytime)


I've never been consumed like this. I remember during the 2008-2009 recession, I faced bankruptcy, right down to not having food money. While I was scared, I was nowhere near as consumed as I am today.

 

[pb4uski]

....I've never been consumed like this. I remember during the 2008-2009 recession, I faced bankruptcy, right down to not having food money. While I was scared, I was nowhere near as consumed as I am today.

That was a very scary time, but candidly, very unusual and hopefully not to be repeated.

I remember that during that time my AA/personal investment policy would have steered me to sell bonds and buy stock as the decline in stocks resulted in my AA becoming bond heavy. I'm ashamed to admit that despite being an experienced investor that I lacked the courage to do what my AA was telling me to do and instead just stood pat. I would be significantly wealthier today if I had had the courage to do what i should have known was the right move. Oh, well.

 

[DevonMiles19]

Hi PB

Yeah I remember that recent meltdown well.

I sold all stocks on the way down. All of it. But for a sick joke, I kept "1" share of each company in my e-trade account.

I remember Buffet saying "be greedy, buy buy buy" but at that time, I had to concentrate ALL cash towards saving my business interests. I just had a new baby at home, I had 40 employees hoping for paychecks at work and I decided to put all cash towards protecting the mothership and thankfully, we came out surviving and smelling like a rose.

But in the meantime, all the stocks I sold about 4 years ago........

The worst one is up 50%. The best one is up 150%.

LOL or cry. I choose lol.

 

[AllDone]

Microalbumin

This is a test for early ( that's right -- early!) diabetic kidney disease. The treatment is weight loss and blood pressure control. The prognosis for people who get their diabetes and blood pressure under control is excellent. Stop worrying. The best way to control DM and BP is just what you are doing. Lose weight, exercise, cut down on alcohol and sugary crap.

We got excellent, free advice from Vanguard. I agree with the people who advocate dumping the financial advisor. We went looking for one in early 2009 and all the ones we talked to were nutso. It seemed to us that they were mostly looking for ways to charge us and letting their political views influence their advice in a big way. Vanguard, however, has been super helpful and cheap. DH who once had no knowledge about investing has taken over and is happy to give me the monthly report that the stuff is reproducing faster than we spend it.

I return to lurking.

 

[DevonMiles19]

Thanks RN

Yes, the albumin (protein)/creatinine (muscle metabolism waste product) ratio is a measure of kidney disease. Kidneys are very sensitive to untreated high blood pressure and diabetes where the delicate filtration system within the kidneys gets damaged over time. Thus, large amino acids, such as proteins, end up getting excreted through the kidneys - this is measured and reported as the albumin part of the test. Same with creatinine. The difference is creatinine should be in your urine. So if the creatinine measurement is low (not being filtered through the kidneys), then it has no where to go but back into the bloodstream.

Age/gender/race will factor in when diagnosing kidney disease. Your age alone is an excellent predictor of recovery: you have the resilience that older folks don't. Have you been diagnosed with high blood pressure? Or diabetes? It sounds like you have gone from seeing a primary care physician to a nephrologist who is now managing your health issues.

Before you go in on the 11th to your next appointment, make sure you have a (long) list of questions, including your suspicions that you have a terminal disease. You need to allow for a long discussion, get your questions answered, and hopefully relieve you of your worries and stress. And please do include your wife in these discussions, she needs to be part of the treatment course.

Thanks for the post RN, really appreciate it. To answer your question, in my most contrite and sheepish way: I've been overweight forever. Overall not a healthy person. No smoke and drink, but no exercise and bad food all the time.

Over the past 5-6 years, when I was at a doc's office for some routine ailment they'd look at me and say "you know your BP is somewhat high? You need to get that taken care of". My response was 'yeah, i'm gonna diet and exercise and do it myself".

So, while it wasn't official diagnosis, I have had high BP readings over the years.

I already got a slight drop after living healthier. I'm losing weight daily, doing 100% of the right things, NO wrong things, and right now I can physically feel calmer and I know BP is lower...though it maybe still high. I'll find out Nov 11th.

So the question is......I'm wondering if life will give me a chance to correct this via BP meds and healthy living. OR....the distinct possiblity that I let BP go un-treated, so maybe I'm beyond repair now.

 

[NW-Bound]

I sincerely hope that this is just a wake-up call for you, and that you will be doing all right. But, but, but, people often forget after an ordeal, and go back in the old rut.

I have a friend who was overweight. After getting a heart attack and surviving it, he went on a diet, lost some weight, and looked great. Alas, it did not last, and the last time I saw him he now weighed more than ever, and was limping on a bad hip.

You'll need to let your wife know and to enlist her help to keep you on the right track.

PS. I am not a medical person, but read that high BP puts a stress on your kidneys.

PPS. Many wives like to overfeed their husband. My BMI never went above 25, but I often have to tell my wife to get me smaller portions or I would start to throw away food (despite my frugal nature).

 

[WestcoastRN]

See? You get it!! So many people put their head in the sand and wake up when it's too late. Preventative care is the single best gift you can give yourself. You are only 38 years old, young enough to reverse many health issues...issues that could turn into irreversible chronic illness. While I've read your posts, I would guess you are in a high-stress work environment (40 employees? wow!). I commend you for taking the health warning to heart.

If weight control is the source of your high blood pressure (which it oftentimes is), all the more reason for your wife to be involved. Way easier to lose weight when your partner is on board!

Ok, I'm off my nurse soapbox...

 

[DevonMiles19]

Thanks RN

See? You get it!! So many people put their head in the sand and wake up when it's too late. Preventative care is the single best gift you can give yourself. You are only 38 years old, young enough to reverse many health issues...issues that could turn into irreversible chronic illness. While I've read your posts, I would guess you are in a high-stress work environment (40 employees? wow!). I commend you for taking the health warning to heart.

If weight control is the source of your high blood pressure (which it oftentimes is), all the more reason for your wife to be involved. Way easier to lose weight when your partner is on board!

Ok, I'm off my nurse soapbox...

Please stay on the soapbox. Hoping to charm as many replies out of you as i can RN

All I can do now is hope I'm not too late. I ignored high BP for years, so who knows kidneys might be gone. Hoping to heck this is a warning sign that I can correct...or at very least slow the disease down for another 17 or so years.

It would stink to croak early, but in 17 years my kids will be 22 and 18 with good friends and their own routines. By then hopefully they are thru teenage years, on the right "track", and I was around to mold them where at least ONE of them will look in on their Mom as much as possible. Financially I'd also love that to burn that time off the clock. That's 17 less years of financial unknowns, less hardship on DW with 2 little kids, and on and on. I could croak knowing college was handled, and DW had a pot of $XY she can burn thru without getting too risky.

Pretty pitiful. I'm sitting here hoping to hit 55.

Can't believe it.

 

[harley]

I think you are sort of wallowing. You don't have a clue if you are going to die tomorrow, or in 40 years. Just like the rest of us. A bad result on a medical test sucks, but it sure isn't the end of the world. It's not like your doctor told you to go home and close out your affairs. Sure, start taking better care of yourself, lose some weight, get control of your finances. It's never a bad idea. But you're not going to enjoy your remaining time (whether 1 day or one decade or 1 century) if you fly into a panic every time you get some bad news. I doubt very much you accumulated $4M by getting the twitches every time there was a problem. Suck it up, deal with it, it's life. JMO, of course.

 

[haha]

If anybody reads the article at that link and 1) accepts its assumptions and 2) is comforted by them, then that person is a fool.

I generally like Kitces' articles, but this is the very worst I've seen from him.

1% fees result in a very large reduction in safe annual withdrawals.

Blunt, but 100% correct. As assets go up, so does the $ amount represented by that 1%. FA doesn't just take 1% of the starting amount, he generally takes 1% each year, drawn quarterly at minimum. And if that 1% is all you are losing, you are one of the luckier clients. There are many other ways to divert cash flow from an uninterested or uninformed client. And face it, almost all clients are both uninformed and uninterested. If they were informed and interested, they would rarely be clients..

If someone's survivor cannot do a very simple coffee table portfolio, how could they even safely cross the street? Cooking is infinitely more difficult than a simple index fund portfolio, but how many survivors who have never cooked a meal spend the rest of their lives eating at McDonalds?

I have never been particularly impressed by "My spouse is not interested and will not learn". Does one's spouse take care of his or her personal hygiene? Does he or she clean the bathtub after use? Usually, yes, though this takes much more time every day than planning and keeping track of a simple portfolio.

Ha

 

[Sparkie67]

I've never been consumed like this. I remember during the 2008-2009 recession, I faced bankruptcy, right down to not having food money. While I was scared, I was nowhere near as consumed as I am today.

That was a very scary time, but candidly, very unusual and hopefully not to be repeated.

I disagree, and think DM19, you are right to worry. America has traditionally funded its overspending by selling bonds to foreigners. Over the past 12 months this has all but dried up (95% reduction), so the Fed is 'printing' up the money to buy them. Effectively, America is overspending, and printing the money to do so, reducing the value of the rest of the world's dollar holding.

As a foreigner reading a US based forum, I see a fairly certain outcome. It won't be upto America to determine how this turns out. Tapering / debt ceilings etc are all pretty irrelevant. When the rest of the world no longer needs dollars to trade (which is rapidly becoming a reality), and the US continues to devalue everyone else's dollar holding, the dollars will come home. The bonds will be sold, and the only buyer is the US government.

Devalued dollar, inflation, massive local social liabilities. Collapsing economy. The cause of 2008/9 still exists in the system. Only now its worse. I'm not in the guns and bunker brigade, but America has had it's day. I'd be looking to structure your monies accordingly.

 

[HFWR]

I disagree, and think DM19, you are right to worry. America has traditionally funded its overspending by selling bonds to foreigners. Over the past 12 months this has all but dried up (95% reduction), so the Fed is 'printing' up the money to buy them

May be right to worry, but care to provide a reference for that 95% reduction?