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Vanguard vs IFA
Old 05-20-2011, 12:30 AM   #1
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Vanguard vs IFA

I am semi retired and have a pension & health benefits. I want toconsolidate my 401k & Iras. I am thinking about giving Ifa my retirement portfolio or doing the buy & hold fundadvice aggresive portfolio using vanguard funds. I Would appreicate lots of your thoughts. Is IFA worth .90 fee
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Old 05-20-2011, 06:38 AM   #2
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......... Is IFA worth .90 fee
No
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Old 05-20-2011, 06:44 AM   #3
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Is IFA worth .90 fee
What are you getting for $900 per year for every $100K invested?
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Old 05-20-2011, 07:28 AM   #4
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What are you getting for $900 per year for every $100K invested?
+1

And remember, that fee is in addition to the underlying fund fee.

Think of it this way. If you subscribe to the theory of a 4% portfolio withdrawl while in retirement, you are just 10 basis points from a 1% management fee. That is almost 25% of your target withdrawl you are giving up, each and every year.

It may be worth it to you (if you don't feel you can do it on your own, or just don't care), but I would think most on this board would give it a second look.

Just my opinion (since you asked)...
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Old 05-20-2011, 09:37 AM   #5
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When some one asks this question I always quote Bogle

"when investing you get what you don't pay for."

Educate yourself and ask questions on this forum. You can implement a simple index fund based plan with Vanguard and be successful. If you want to keep it really simple you can use one of their Target or Income "fund of funds".

I have a basic 50/50 AA using 4 Vanguard funds, Total Stock Market, Total International, Total Bond Market and Wellesley. The expenses are very low if you have enough to get the Admiral shares...for Total Stock Market the fee is 0.07%, so on $100k you pay $70 a year.
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Old 05-20-2011, 10:38 AM   #6
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Play with firecalc. Note what the differences are between 3.1% SWR and 4% SWR. I am careful enough and young enough that that IS the difference between retirement and working a few years longer. (3% is considered a safe perpetual withdrawal rate that doesn't raid the principal).
The statisticians say that there is a 1% higher yield with IFA, but that higher yield comes from higher risk. You might consider a low cost firm for the majority of your allocations and reserve the IFA for the "needed" additional classes that round out your allocations. FWIW, I don't.
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Old 05-20-2011, 11:25 AM   #7
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The statisticians say that there is a 1% higher yield with IFA, but that higher yield comes from higher risk. You might consider a low cost firm for the majority of your allocations and reserve the IFA for the "needed" additional classes that round out your allocations. FWIW, I don't.
As far as investing return is concerned I don't believe that an IFA can be any more successful than the amateurs on this board. Both groups have access to similar products and the strategies are well known.....IMHO, if you are paying for stock picking and market timing you are wasting your money which leaves the various flavours of indexing and rebalancing which take all the voodoo out of it.
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Old 05-20-2011, 08:44 PM   #8
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Look, some folks just don't feel comfortable managing money and/or don't want what they see as the stress of doing it - picking wrong, changing at the wrong time, etc - and/or don't want doing it getting in the way of what they consider to be "living". Any or all of those issues make having an advisor worth something to such people whether it's worth anything to anyone else or not. Personally, I have several of the concerns I listed & thus have an advisor.

Now is it worth 0.9%? Well, I think you can do way better than that with any of Cardiff Park, Evanson Asset Management, or Portfolio Solutions. Perhaps Vanguard has a good & relatively inexpensive advisor program. Those three's % fees may be impacted by how much you have to invest, but all will be 0.5% or less if you have a half million to invest. There may be others. But I do think 0.9% is too high a price. JMO though.
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Old 05-20-2011, 09:17 PM   #9
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Look, some folks just don't feel comfortable managing money and/or don't want what they see as the stress of doing it - picking wrong, changing at the wrong time, etc - and/or don't want doing it getting in the way of what they consider to be "living". Any or all of those issues make having an advisor worth something to such people whether it's worth anything to anyone else or not. Personally, I have several of the concerns I listed & thus have an advisor.

Now is it worth 0.9%? Well, I think you can do way better than that with any of Cardiff Park, Evanson Asset Management, or Portfolio Solutions. Perhaps Vanguard has a good & relatively inexpensive advisor program. Those three's % fees may be impacted by how much you have to invest, but all will be 0.5% or less if you have a half million to invest. There may be others. But I do think 0.9% is too high a price. JMO though.
The OP asked if an IFA was the way to go with his/her 401k money. I think most replies will advise against the IFA just because the demographic on here is mostly DIY investors.

The low fee companies you mention all do passive investing, I wish I got paid for being passive. I can see the value in getting advice to set up a plan, but passive investing is just that, so why pay someone to be passive for you?
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Old 05-20-2011, 11:08 PM   #10
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With $1M to invest Evanson Asset is a far better way to access DFA funds and their complex slice and dice approch. Half that and Scott Burn's Assetbuilder.com is worth checking out. IFA fees are excessive, and if you need the kind of hand holding they do, far better to stay with Vanguard - where you could easily do better than all of the above anyway, given the low expenses and many funds and ETFs available. Unless you really, truly need (and know why you do) international and emerging market small cap, value and unhedged foreign bonds and really know your modern portfolio theory and are committed to it I say stick with Vanguard.
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Old 05-21-2011, 09:23 AM   #11
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I am semi retired and have a pension & health benefits. I want toconsolidate my 401k & Iras. I am thinking about giving Ifa my retirement portfolio or doing the buy & hold fundadvice aggresive portfolio using vanguard funds. I Would appreicate lots of your thoughts. Is IFA worth .90 fee
I think it might help if you articulate exactly why you would like to go with IFA. Is it to access DFA funds? or is it to have an advisor take care of all the details? or another reason?
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Old 05-21-2011, 10:09 AM   #12
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One can easily (and I mean EASILY) run their own portfolio that matches the IFA and FundAdvice asset allocation and also matches their performance while saving the fee. So if you are in the withdrawal or retirement phase why pay 25% of your sustained withdrawal rate to these guys? That just doesn't make any sense at all unless you have quite a lot of bucks to throw away.

For the past several years I have used the IFA Port 60 as a benchmark that I compare the returns of our portfolio against because it has the same percentage of bonds that our portfolio has. One can match the IFA performance if one has the same percentages of value, small-cap, and foreign stocks (including emerging markets). This is easy to do with Vanguard funds and a couple of extra exchange-traded funds for emerging markets small caps.

It also doesn't make sense in light of other places that can do the same thing for you for a fraction of the cost. So if you don't want to do it yourself, at least investigate the other much lower cost outfits that compete with IFA and Merriman.

A reminder: sustained withdrawal rate of 4% includes your fees and taxes, so if you are paying 1% in fees, that's like a 25% tax on your SWR. Ouch!
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Old 05-21-2011, 10:43 AM   #13
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Also to add: the Bogleheads discuss this all the time. There is a simplified portfolio of fewer funds that does a great job of matching the IFA asset allocation. The simplified portfolio consists of 4 stocks funds plus a bond fund. The 4 stock ETFs are VTI, VBR, VXUS, and VSS (or their mutual funds) in equal percentages. You can't get much simpler than that!

See also this discussion at Bogleheads: Bogleheads :: View topic - Ultimate Buy and Hold - 8 slices vs 4
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Old 05-21-2011, 12:42 PM   #14
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The OP asked if an IFA was the way to go with his/her 401k money. I think most replies will advise against the IFA just because the demographic on here is mostly DIY investors.

The low fee companies you mention all do passive investing, I wish I got paid for being passive. I can see the value in getting advice to set up a plan, but passive investing is just that, so why pay someone to be passive for you?
Look, some folks just don't feel comfortable managing money and/or don't want what they see as the stress of doing it - picking wrong, changing at the wrong time, etc - and/or don't want doing it getting in the way of what they consider to be "living". Any or all of those issues make having an advisor worth something to such people whether it's worth anything to anyone else or not. Personally, I have several of the concerns I listed & thus have an advisor. Some of us just maybe aren't DIY. Why can't you let them alone? Is there some kind of rule here saying you have to be DIY that I'm not aware of? If not, give it a rest, please.
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Old 05-21-2011, 12:48 PM   #15
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Look, some folks just don't feel comfortable managing money and/or don't want what they see as the stress of doing it - picking wrong, changing at the wrong time, etc - and/or don't want doing it getting in the way of what they consider to be "living". Any or all of those issues make having an advisor worth something to such people whether it's worth anything to anyone else or not. Personally, I have several of the concerns I listed & thus have an advisor. Some of us just maybe aren't DIY. Why can't you let them alone? Is there some kind of rule here saying you have to be DIY that I'm not aware of? If not, give it a rest, please.

If, as LOL pointed out, you are happy self-taxing your portfolio's SWR by 25% for the service you get fine. We should let others unwittingly do so because you don't like us talking about it? Not going to happen.

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Old 05-21-2011, 01:22 PM   #16
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....
Personally, I have several of the concerns I listed & thus have an advisor. Some of us just maybe aren't DIY. Why can't you let them alone? Is there some kind of rule here saying you have to be DIY that I'm not aware of? If not, give it a rest, please.
I see no problem with using an advisor. I wrote as much:
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Originally Posted by LOL!
It also doesn't make sense in light of other places that can do the same thing for you for a fraction of the cost. So if you don't want to do it yourself, at least investigate the other much lower cost outfits that compete with IFA and Merriman.
Others on this thread pointed to lower-cost alternative advisors.
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Old 05-21-2011, 03:02 PM   #17
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Also to add: the Bogleheads discuss this all the time. There is a simplified portfolio of fewer funds that does a great job of matching the IFA asset allocation. The simplified portfolio consists of 4 stocks funds plus a bond fund. The 4 stock ETFs are VTI, VBR, VXUS, and VSS (or their mutual funds) in equal percentages. You can't get much simpler than that!

See also this discussion at Bogleheads: Bogleheads :: View topic - Ultimate Buy and Hold - 8 slices vs 4
And some like even more simplicity over slice and dice so go with 3 fund portfolios.

Three-fund portfolio - Bogleheads

With the tools that Vanguard, Fidelity etc give you it's easy to track AA and rebalance when it gets off by say 5%. However, one area where I think advice might be worth paying for is in designing a withdrawal strategy. It's far more complicated than accumulation, but once you have a strategy there should be no need for continual management from an IFA.
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Old 05-21-2011, 05:52 PM   #18
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I have a basic 50/50 AA using 4 Vanguard funds, Total Stock Market, Total International, Total Bond Market and Wellesley. The expenses are very low if you have enough to get the Admiral shares...for Total Stock Market the fee is 0.07%, so on $100k you pay $70 a year.
I hope this means great minds think alike. These are the exact funds with a 50/50 allocation that we have at Vanguard. (We aren't split totally between these funds as we still have some funds in Fidelity 401(k)s which are part of the 50/50 allocation).
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Old 05-21-2011, 06:09 PM   #19
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When I look at the bogleheads link it seems like it is comparing various slice and dice portfolios against each other. But it doesn't seem to compare a S&D portfolio implemented using DFA funds versus vanguard / MSCI indexes which I think would be the relevant comparison since IFA uses DFA. Maybe I missed the comparison as the thread is pretty long.

However, given that DFA funds have performed better than the vanguard/msci equivalent, it's not so clear cut to me which is the better option. For example, 10-year return of the US-small-value fund DFSVX is 9.65% vs 7.48% for VISVX. I guess this is maybe the 1% better statistical performance that another poster mentioned.

For disclosure, I'm with the do-it-yourself camp with vanguard funds (and a few others). But if I had cheap access to DFA (less than the 0.9% advisor fee) I would certainly use them for new money in select classes.
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Old 05-21-2011, 08:05 PM   #20
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When I look at the bogleheads link it seems like it is comparing various slice and dice portfolios against each other. But it doesn't seem to compare a S&D portfolio implemented using DFA funds versus vanguard / MSCI indexes which I think would be the relevant comparison since IFA uses DFA. Maybe I missed the comparison as the thread is pretty long.

However, given that DFA funds have performed better than the vanguard/msci equivalent, it's not so clear cut to me which is the better option. For example, 10-year return of the US-small-value fund DFSVX is 9.65% vs 7.48% for VISVX. I guess this is maybe the 1% better statistical performance that another poster mentioned.

For disclosure, I'm with the do-it-yourself camp with vanguard funds (and a few others). But if I had cheap access to DFA (less than the 0.9% advisor fee) I would certainly use them for new money in select classes.
DFA strikes me as rather weird. They start off as passive indexers and then come up with this caveat that small cap value tilt gets better returns, it may well be right, but somehow it feels like they had to come up with just enough active management voodoo to sell to the investors. To top that they espouse keeping costs down, yet you can only buy their funds through a fee charging advisor....something doesn't quite add up.
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