Vanguard report on the value of financial advice

[mathjak107]

i have almost 40% of my portfolio in gld,tlt, vxf , shy ,ivv . but it is not exactly low volatilitytoday . there are days the moves exceed my 100% equity growth model because lately all assets have been moving together . i was using small cap value but the swings are incredible in that or ijs . they move 2 to 3x the s&p almost daily .

the rest i split between 3 models in the fidelity insight newsletter which i have been using for 30 years .

that lets me optimize the rest based on the time frame for the money .

 

[nativenewenglander]

i have almost 40% of my portfolio in gld,tlt, vxf , shy ,ivv . but it is not exactly low volatilitytoday . there are days the moves exceed my 100% equity growth model because lately all assets have been moving together . i was using small cap value but the swings are incredible in that or ijs . they move 2 to 3x the s&p almost daily .

the rest i split between 3 models in the fidelity insight newsletter which i have been using for 30 years .

that lets me optimize the rest based on the time frame for the money .

I stopped getting the FI newsletter a few years ago. I didn't like the volatility of their choices any longer, as I close in on full retirement. I think they have value and good advice, but it no longer fit my risk profile.

 

[mathjak107]

funny you said that because at one point i wrote them and asked them why they did not have something kind of in between the 25% equity income model and the 60-70% growth and income model and they said basically they recommend a combo of the models rather than just one portfolio .

i do like that idea and we have 5 years withdrawal's in the income model , 5 years in the growth and income model and the rest in the growth model .

i have used the growth model since 1987 by itself with very good results . since then it has averaged over 11% a year cagr .

but i do keep 40% of our portfolio in a toned down version of the golden butterfly . i prefer an extended market fund and s&p 500 fund to the very volatile small cap value and s&p 500 fund .

 

[Corporateburnout]

A former co worker who retired the same time I did 3 years ago uses an advisory service to manage his portfolio with a 50/50 AA. He pays about 1% in fees. I'm a DIY investor with the same AA spread among 8 Index funds with a combined expense ratio of .07.

In 2016 my portfolio returns were 1.65% better than his.

He is considering a DIY approach if his managed portfolio returns at the end of this year underperform as last.

 

[mathjak107]

i can't see paying a mgmt fee ever with the various vanguard and fidelity newsletters out there that do a very good job putting models together .

unless you are so undisciplined you can't handle your own money even if someone else is calling the shots .

 

[poorcarver]

I sometimes think that using a manager at 1% vs self managed at whatever lesser number is like the choice to use mostly services around the home or doing things oneself. I self manage my investments (if you can call the four basic Admiral funds balanced from time to time "management"). But neither I or DW do much in the home, we have a cleaning lady, landscaper, etc. I hate yard work (I do the vegetable garden), painting and general maintenance, so pay way more than it would cost to do it myself.

 

[FlaGator]

I sometimes think that using a manager at 1% vs self managed at whatever lesser number is like the choice to use mostly services around the home or doing things oneself. I self manage my investments (if you can call the four basic Admiral funds balanced from time to time "management"). But neither I or DW do much in the home, we have a cleaning lady, landscaper, etc. I hate yard work (I do the vegetable garden), painting and general maintenance, so pay way more than it would cost to do it myself.

Thank you!

I've grown tired reading all the needling of those of us who choose to use advisers by the DIY crowd in this thread. This is my one consistent complaint about this forum, and it hasn't changed in nearly 10 years.

We choose to spend our money differently - some on travel, housing, food, etc. Why the haranguing and insults for spending it on a manager?

Seems some people can't get past their "superior" asset management approach to understand that us fools who were motivated enough to be able to pull the plug early have made a conscious choice and are willing to live with the dire consequences for our financial well-being that they foresee.

In my case, I turned everything over to a fee-only adviser associated with DFA after years of reasonable DIY performance using VGD. The trigger was was my wife's terminal illness and the time I was spending nursing her and ensuring our school age kids were tended to. Didn't have time to do anything but that.

A few years on, life has settled out, and I have no interest in taking that up again. Also like that while I am responsible, I have a cross-check available. I'm not dogmatic, though, and hold open the idea I might take it back again. Fees are <0.7% of AMU, still <1.0 with fund expenses.

The DIY pursuits need to get over themselves

 

[RobbieB]

I think you'll find that some will have questions.
What benchmark is ML using, for instance?
What AA?
Do you verify the IRR they give you?

When threads like this come up, it seems to be difficult to accept that some FAs must outperform the market just as many don't. And then there's the challenge of outperforming year after year.

Take care.

I do take care. I fired the 2 under achievers and went with ML. But not for everything. My bonds are with 2 other firms and my cash with another 2.

ML doesn't choose my AA, I do. ML has my equities only. They have proven themselves good at their job.

I don't know what "benchmark" ML uses, I don't even know what a benchmark is. Is it the mark I make when I sit on a dusty bench?

 

[samclem]

A few years on, life has settled out, and I have no interest in taking that up again. Also like that while I am responsible, I have a cross-check available. I'm not dogmatic, though, and hold open the idea I might take it back again. Fees are <0.7% of AMU, still <1.0 with fund expenses.

The DIY pursuits need to get over themselves

Well, you can get the "pro" advisor viewpoint you crave on TV ads, radio, newspapers, and lots of other places. This is a rare spot of disagreement with the "you all really can't hope to match the pros" viewpoint, and I think the world can afford this counterpoint to the well funded (and compensated) calls for "professional" management.

If you have enough resources so that giving about .8% >extra< from your entire stash every year to advisors and fees isn't something you find objectionble, then I would not try to dissuade you from it. But for many people, this represents about 1/5th or more of what they'd be able to safely withdraw from their investments to pay their living expenses. They don't want or need to pay those costs, and I'm glad they can come here (and Bogleheads, etc) to get some help.

 

[FlaGator]

Well, you can get the "pro" advisor viewpoint you crave on TV ads, radio, newspapers, and lots of other places. This is a rare spot of disagreement with the "you all really can't hope to match the pros" viewpoint, and I think the world can afford this counterpoint to the well funded (and compensated) calls for "professional" management.

If you have enough resources so that giving about .8% >extra< from your entire stash every year to advisors and fees isn't something you find objectionble, then I would not try to dissuade you from it. But for many people, this represents about 1/5th or more of what they'd be able to safely withdraw from their investments to pay their living expenses. They don't want or need to pay those costs, and I'm glad they can come here (and Bogleheads, etc) to get some help.

Convenient leap to assume that I "crave" the "pro advisor viewpoint" when I clearly stated my history and reason for making the switch.

Maybe I have enough that's it's immaterial, maybe I don't - you'll never know. Maybe I think the best thing I can do with my life is spend my time getting my kids launched as successful adults after they watched their mother die.

Having taken communion myself at the Church of DIY, I agree there is more than one way to invest. From this thread it seems many of evangelists for the Church of DIY believe all the potential converts are in the pews.

 

[samclem]

Maybe I think the best thing I can do with my life is spend my time getting my kids launched as successful adults after they watched their mother die.

Obviously, there's a wide variance in the amount of time people devote to managing their own investments. Some people watch the markets daily and try to time the market. I devote about 2 hours per year to rebalancing, and it's clearly possible to spend even less and still produce better performance than most FAs produce (esp after considering fees). You say you have the tools available to monitor the performance of your FA, I can't believe I'd be able to do that task in less time than I'm spending just doing the job myself.

I'm glad you've found an answer that makes the situation better for you and your family. One of the themes used to market the services of FAs is the savings in time that clients receive in exchange for the money they spend. I just don't want anyone reading this forum, especially someone new to this subject, to believe that getting performance that matches the average FA requires a lot of time. It absolutely does not.

 

[ERD50]

Thank you!

I've grown tired reading all the needling of those of us who choose to use advisers by the DIY crowd in this thread. This is my one consistent complaint about this forum, and it hasn't changed in nearly 10 years. ...

The DIY pursuits need to get over themselves

I'm honestly curious which posts you consider "needling". Hopefully none of mine.

I do try to point out that DIY isn't as hard as many people think, and I honestly believe that choosing and monitoring an FA is more work than just DIY.

If it seems to get repetitive, consider what samclem mentioned - there is a whole industry bombarding people with ads that they "need" an FA, it's all too complex for their little, tiny brains. So we use our little soapbox here to try to get the word out, and there is a constant stream of newcomers and lurkers, so it bears repetition, in the opinion of some of us. Many, many (dare I repeat "many") subjects are repeated here, redundantly, over and over, again and again, if you get my drift while beating a dead horse!

I get it that some people "like" using an FA. Fine, to each their own. But I will speak my mind if they try to project that as saving them time or money over DIY. As always, an exception can be made for special circumstances, but usually that is best served by an hourly consultation, as needed, not an ongoing % of AUM.

-ERD50

 

[Rustward]

I'm honestly curious which posts you consider "needling". Hopefully none of mine.-ERD50

Sorry, I don't intend to offend you, but some of your posts are needling.

I do try to point out that DIY isn't as hard as many people think, and I honestly believe that choosing and monitoring an FA is more work than just DIY. -ERD50

Not everybody who uses some form of management does it because they think DIY is too difficult.

If you think that choosing a financial professional is more work than DIY then maybe you aren't doing it right.

Different people use management for different reasons. It is nobody else's business what they do or why unless they are asking for some kind of assistance or education on the subject, or they just want to discuss it.

If it seems to get repetitive, consider what samclem mentioned - there is a whole industry bombarding people with ads that they "need" an FA, it's all too complex for their little, tiny brains. So we use our little soapbox here to try to get the word out, and there is a constant stream of newcomers and lurkers, so it bears repetition, in the opinion of some of us. Many, many (dare I repeat "many") subjects are repeated here, redundantly, over and over, again and again, if you get my drift while beating a dead horse!-ERD50

Many people get bombarded by hundreds of industries on a daily basis. Financial management just happens to be one of them. It would be nice to see the bombardment of financial management in these forums stop.

OK. If it needs repetition, put it in one of those sticky posts and refer to it with a link so we don't have to read it over and over and over and over, again. Anyone who wants to can go back and read it as often as they like.

I get it that some people "like" using an FA. Fine, to each their own. But I will speak my mind if they try to project that as saving them time or money over DIY. As always, an exception can be made for special circumstances, but usually that is best served by an hourly consultation, as needed, not an ongoing % of AUM.-ERD50

Well, then walk the walk -- to each their own.

But then you contradict yourself by saying that you will speak your mind. You can't have it both ways. Pick one or the other.

Again, put this in a sticky post so we don't have to go through this again.


Anybody want to talk about variable annuities? Variable universal life? Car title loan?

I didn't think so. Peace to all.

 

[target2019]

I do take care. I fired the 2 under achievers and went with ML. But not for everything. My bonds are with 2 other firms and my cash with another 2.

ML doesn't choose my AA, I do. ML has my equities only. They have proven themselves good at their job.

I don't know what "benchmark" ML uses, I don't even know what a benchmark is. Is it the mark I make when I sit on a dusty bench?

I actually meant "do what you think is best for yourself."

Benchmarking your investment performance is basic advice. It goes hand in hand with your AA. Maybe I'm wrong.

 

[samclem]

If you think that choosing a financial professional is more work than DIY then maybe you aren't doing it right.

Or, maybe the people who "aren't doing it right" are the people who believe the first list below takes less time than the second list:
1) Meet with an advisor, assure their desires are known to him/her, assure the advisor agrees and will act accordingly, and to monitor the account activity to assure no churning, questionable purchases or outright fraudulent activity is occurring. Take corrective actions when warranted, and when the advisor leaves/dies/gets transferred/gets arrested, etc--repeat the first steps.
2) Spend a couple of hours (or less) to sell shares for the coming year and rebalance their accounts.

OK. If it needs repetition, put it in one of those sticky posts and refer to it with a link so we don't have to read it over and over and over and over, again. Anyone who wants to can go back and read it as often as they like.

And/or fans of using an FA can start their own sticky about the joys of active management. ("Why my FA is GREAT!" or "My FA is worth his $5k per hour," etc.). Then, when folks come through (happens frequently) who are paying exorbitant amounts for inept "assistance" by FAs/salesmen/new best friends, we can just direct them there so they can see how to pick the "right" person.

Peace to all.

 

[Rustward]

Or, maybe the people who "aren't doing it right" are the people who believe the first list below takes less time than the second list:
1) Meet with an advisor, assure their desires are known to him/her, assure the advisor agrees and will act accordingly, and to monitor the account activity to assure no churning, questionable purchases or outright fraudulent activity is occurring. Take corrective actions when warranted, and when the advisor leaves/dies/gets transferred/gets arrested, etc--repeat the first steps.
2) Spend a couple of hours (or less) to sell shares for the coming year and rebalance their accounts.


And/or fans of using an FA can start their own sticky about the joys of active management. ("Why my FA is GREAT!" or "My FA is worth his $5k per hour," etc.). Then, when folks come through (happens frequently) who are paying exorbitant amounts for inept "assistance" by FAs/salesmen/new best friends, we can just direct them there so they can see how to pick the "right" person.

Peace to all.

You don't seem to get it: You do your own thing. I do my own thing.

But don't criticize what I do. And I won't criticize what you do.

The FA "people" are not trying to convert you DIYers to FAers, but it seems to be the other way around.

I promise not to try to convert you to my way of doing things.
In return, don't try to convert me to your way of doing things.

Is this so hard to understand?
Am I being unreasonable?

 

[samclem]

I promise not to try to convert you to my way of doing things.
In return, don't try to convert me to your way of doing things.

Is this so hard to understand?
Am I being unreasonable?

I think it is unreasonable to ask people not to communicate on this issue.
I'm not trying to convert you. We aren't PMing,right?
Everything here is for the benefit of everyone who reads it here. That's lots of folks.
Anyway, if you >were< trying to convince me to use an active manager, I sure wouldn't resent it, tell you to keep it to yourself, or take it personally. I'd figure you were trying to help me out and I'd appreciate it.

 

[RobbieB]

The bias here is obvious. Very easy to see.

You wrote it yourself; "monitor the account activity to assure no churning, questionable purchases or outright fraudulent activity is occurring"

You default to the FA is a crook and needs to be watched.

 

[samclem]

The bias here is obvious. Very easy to see.

You wrote it yourself; "monitor the account activity to assure no churning, questionable purchases or outright fraudulent activity is occurring"

Fraud happens--to credit card accounts, bank accounts, and investment accounts. It would be irresponsible for me to give another person trading authority on my account and then not monitor that account.

Inept, inappropriate action by FAs certainly happens more frequently than outright fraud. But it costs clients a lot of money (and makes a lot of money for "advisors"). "What are these "A" shares?" "This variable annuity with the big front end commmission that you've suggested for inclusion inside my IRA--that's a good idea, right?"

If they are doing a lot of trading (e.g 10 trades per month), then it's more work for me to determine if the activity is legit. If they are doing little trading (e.g 5 trades per year)--and they are sticking to my preferred very simple AA, then it is natural to ask what value I'm getting from the AUM charge.

 

[RobbieB]

I don't worry about churning, I don't pay for trades.

I look at the monthly statements from the brokers just like I look at the bank statements and the credit cards.

There are only common stocks, no variable annuities, no commissions on anything.

I pay the fee as a % of AUM. The guy gets paid more when he makes me more dough. He has a financial interest to make ME money.

I'm not worried.

 

[FlaGator]

Quote:
Originally Posted by Rustward
If you think that choosing a financial professional is more work than DIY then maybe you aren't doing it right.


Or, maybe the people who "aren't doing it right" are the people who believe the first list below takes less time than the second list:
1) Meet with an advisor, assure their desires are known to him/her, assure the advisor agrees and will act accordingly, and to monitor the account activity to assure no churning, questionable purchases or outright fraudulent activity is occurring. Take corrective actions when warranted, and when the advisor leaves/dies/gets transferred/gets arrested, etc--repeat the first steps.
2) Spend a couple of hours (or less) to sell shares for the coming year and rebalance their accounts.

Quote:
Originally Posted by Rustward
OK. If it needs repetition, put it in one of those sticky posts and refer to it with a link so we don't have to read it over and over and over and over, again. Anyone who wants to can go back and read it as often as they like.


And/or fans of using an FA can start their own sticky about the joys of active management. ("Why my FA is GREAT!" or "My FA is worth his $5k per hour," etc.). Then, when folks come through (happens frequently) who are paying exorbitant amounts for inept "assistance" by FAs/salesmen/new best friends, we can just direct them there so they can see how to pick the "right" person.

Peace to all.
--------------------------------------
No needling here, so move on.......

If that has been your personal experience with an FA, it is regrettable. It has not been mine, and I don't think I'm any luckier or smarter than the average bear on this forum

What many people here are, is experienced and educated over many years. That experience gives us confidence in our decisions that many people do not have. In my case that education came from doing it both wrong and right, substantial reading and a lot of conversation and listening to both winners and losers in the savings/investment game.

I disagree with unsupported, flat assertions on principle, and the claims in this thread that DIY "takes less time", is "better" have not been supported by anything other than one person's experience/opinion. And that is likely to NOT be the same as someone else's situation.

I acknowledge that the lowest cost way to invest is on your own using index funds from the cheapest providers. Considering the acquisition of knowledge it takes to make those decisions confidently and successfully over a market cycle, saying it takes less time to DIY ignores the learning curve. Selecting a quality FA is a topic for another thread (if we really need another one ).

If the objective of participating here is to learn and help others do the same, IMO it would be more helpful to avoid assertions and provide some info as to why a given approach worked for you.

 

[ERD50]

Sorry, I don't intend to offend you, but some of your posts are needling. ...

I'm not offended. I asked for feedback, I got it, and I appreciate it.

I certainly don't intend for my posts to be 'needling' or offensive. But I do tell it like I see it. And I've learned that some people don't appreciate that. But if I'm being open and straight about it and trying to be helpful, I see that as their problem, not mine. They can ignore my information if they choose.

Originally Posted by ERD50 View Post
I get it that some people "like" using an FA. Fine, to each their own.

Well, then walk the walk -- to each their own.

But then you contradict yourself by saying that you will speak your mind. You can't have it both ways. Pick one or the other.

It's not a contradiction. I can speak my mind and share my ideas, that's what we do in a forum like this. You are free to speak your mind, and act opposite from where my information might lead you.

As far as the rest of this, I think samclem already covered it better than I could...

...

I promise not to try to convert you to my way of doing things.
In return, don't try to convert me to your way of doing things.

Is this so hard to understand?
Am I being unreasonable?

OK, OK, NO, and YES.

I'm not trying to convert anyone. I'm providing information, people can do with it what they want.

Easy to understand.

Yes, I do think it is unreasonable to think that people won't present their thoughts about personal finance on a forum dedicated to early retirement. After all, this forum is not called "The Early Retirement Forum exclusively for those people with no savings and such large COLA'd pensions that they don't need to care one wit about managing or investing their money, their cash flow covers all conceivable expenses". The acronym would be unmanageable, and it would be a teeny-weensy-small subset of the population. What would they talk about, whether their checks arrive on the 1st or the 15th?

-ERD50

 

[Scuba]

I managed our portfolio for years and did reasonably well. However I managed it for growth, not income. Decided to hire an FA 3 years before FIRE for two reasons:
1. Transition portfolio to produce enough income for ER while still investing for growth as much as possible.
2. Confirm that we were ready for ER by running multiple scenarios and demonstrating to DH and me that we had enough to fully fund our desired cash flow needs after ER. We had run our own scenarios but definitely took comfort in having a pro do it for us and discuss different AA and investment strategies.

We pay 0.7% for about 60% of our assets. The other assets are tied up in employer deferred comp plans that cannot be rolled over or are in income producing real estate investments.

At some point, I may resume management of our portfolio, but I may not. I measure the FA's performance by comparing to a weighted average benchmark of the relevant indices based on AA. For 2016 we underperformed but the 3-year average was better than the indices. I agree with others that it is difficult for FA's to exceed index performance over the longer term. However, we may decide to stick with our FA because:
1. Time has value to me and I enjoy not having to spend as much time as I used to on managing our portfolio.
2. Our portfolio is almost exclusively individual stocks & bonds, not mutual funds or ETF's. It does take more time to manage this type of portfolio vs a few funds, but it is more tax-efficient and the finance geek in me likes owning individual companies vs broad indices.
3. Our FA doesn't sell any products such as insurance, annuities, etc. Simply manages the money for a fee. When I have questions, she answers them and I have been impressed by her thought process and sometimes different perspective than mine.

I also generally like having a professional to help me with life in general. I hire a doctor when I have a health issue. I hire an auto mechanic to maintain or repair my car. I hired a general contractor to manage our remodel. We have a housekeeper. And I hire a CPA to do our taxes, even though I'm also a CPA (I've never done tax work professionally).

Maybe others don't agree, but I think an FA who has been successfully managing portfolios for decades through multiple market cycles might be able to do it better than I could, even though I have substantial financial expertise.

Just like any other profession, there are good and bad FA's out there. Even people who are smart and theoretically could manage their own money may have other reasons to hire and get value from an FA.

 

[Corporateburnout]

Not sure if this was discussed here before but a recent article in the WSJ shows that 82% of actively managed US mutual funds trailed index funds for the last 15 years.

http://www.early-retirement.org/forums/newreply.php?do=newreply&noquote=1&p=1868196

You may need a subscription to access the article. For those who are unable to access the article try these two links:

http://online.wsj.com/public/resources/documents/print/WSJ_-A001-20170413.pdf
http://online.wsj.com/public/resources/documents/print/WSJ_-A008-20170413.pdf


From the article:
"Over the 15 years ended in December 2016, 82% of all U.S. funds trailed their respective benchmarks, according to the latest S&P Indices Versus Active funds scorecard. This was the first year that the analysis included 15 years of data, helping smooth out periods of volatility that can affect the performance of active managers."

 

[samclem]

Not sure if this was discussed here before but a recent article in the WSJ shows that 82% of actively managed US mutual funds trailed index funds for the last 15 years.

And yet, despite the persistence of articles and studies like this, active management continues. Many people believe their MF is in that lucky 18%, or that they or their FA is skilled enough to jump to the good funds just in time, etc. Or, they believe their FA, working from a storefront, can pick winning individual stocks with less volatility than a well diversified AA with holdings of thousands of stocks (no explanation on why these expert stock-pickers aren't just using leverage/options to become fabulously wealthy without needing to flog services to retail investors.)

It takes many years of data and a good knowledge of statistics to know if an advisor is outperforming the market on a risk-adjusted basis. By then, the investor's money is gone (and the guru has a plausible explanation, anyway).