Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Waddell and a Reed versus Vanguard?
Old 10-12-2012, 11:57 AM   #1
Recycles dryer sheets
ICNTR's Avatar
 
Join Date: Jul 2012
Posts: 79
Waddell and a Reed versus Vanguard?

In the past I have explained that I have a $300k 401k and a $100k pension from prior employer that I eventually need to roll into an IRA. My wife's brother has been a W&R rep for our entire 19 year marriage so they have almost all our investments with the exception of these two employer funds. Most on here have steered me towards vanguard or fidelity which I understand and appreciate. I know their fees are much, much less. W&R fees are pretty steep. However, when I had vanguard recommend compatible funds and when compared the past 10 year performances, the w&r finds performed better.

My question is, does it ever make sense to pay a higher fee if you get better performance? Part of me feels like i would like the DIY approach and really don't want EVERYTHING with one high-fee company but I also can't argue with the past results.

What am I missing here?

Also, I have called and other than risk, there does not seem to be a need to rush my conversions of these funds. Am I missing a reason to do it sooner rather than later. (I resigned back in mid-June)
__________________

__________________
ICNTR is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 10-12-2012, 12:04 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 18,299
Quote:
Originally Posted by ICNTR View Post
My question is, does it ever make sense to pay a higher fee if you get better performance?
Sure, when you can look back 10 years, and see that the high fee fund did better after fees over that time than an equivalent index fund. You should have bought it 10 years ago.

But that doesn't help you today. And it never will.

The other thing to watch out for - did those funds do better just because of the times? If stocks are going down, and they hold cash/bonds, they will look good. But in a rising market, they will look bad. Gotta compare apples-apples.

-ERD50
__________________

__________________
ERD50 is offline   Reply With Quote
Old 10-12-2012, 12:11 PM   #3
Recycles dryer sheets
ICNTR's Avatar
 
Join Date: Jul 2012
Posts: 79
I did buy them back then. Actually have been accumulating them for the past 18 years and they have been a part of the reason that we could retire early. I guess that is why I am questioning a sudden change of approach. Not to mention the obvious family relationship hardship but I can deal with that if necesary. I know that nobody can see into the future so I think comparing past results is one reasonable approach to help facilitate a future decision. I just want to make sure I am not missing some other big issue besides the obvious higher fees.
__________________
ICNTR is offline   Reply With Quote
Old 10-12-2012, 12:13 PM   #4
Thinks s/he gets paid by the post
Gotadimple's Avatar
 
Join Date: Feb 2007
Posts: 1,764
As far as converting these funds, you have time if the plan sponsor will let you stay and the investments are performing well for you.

I am of the opinion that one doesn't need to spend a lot to get good performance. Hopefully, when you compared W&R and Vangard fund performance, you also compared the costs of those two. That is, what would the annual expense be in each of those 10 years for each investment. Remember, that annual expense reduces performance. I think you'll find that W&R did not perform as well AS LONG AS you are comparing exact investments. In addition to looking at 10 year performance, I would look at 3 year performance to see how well W&R/Vangard funds did in recent memory.

If you feel that you would like to do it yourself, then perhaps keeping it separate from W&R is the reason you don't invest it with your brother-in-law.

-- Rita
__________________
Only got A dimple, would have preferred 2!
Gotadimple is offline   Reply With Quote
Old 10-12-2012, 12:29 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,485
Assuming that the W&R fund is comparable to the VG fund (ie; they are really apples-to-apples) if the W&R fund outperformed the comparable VG fund that would make me feel better about the higher fees, but just because it has done so in the past does not mean that it will continue to do so in the future.

While I prefer index funds, there is a reasonable argument to be made to have a mix of index and managed funds as long as the managed funds expenses are not exorbitant. You might be able to do a rollover into an IRA with W&R but invest the IRA in VG or another provider's index funds and get the best of both worlds and diversification between index and managed funds under BIL/W&Rs roof.

Or you could rollover your 401k and pension to a Vanguard IRA invested in VG funds, and link your W&R accounts so you can see all your holdings in one place.
__________________
pb4uski is offline   Reply With Quote
Old 10-12-2012, 01:49 PM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2004
Posts: 11,616
Okay, so which W&R funds are we talking about, and which Vanguard funds did you compare them to? Looks like there are about 20 of them. I did aquick comparison of the first one on their list:

WRA Accumulative Funds Class A: (Ticker: UNACX). It's a domestic equity fund containing mostly large-cap growth stocks. 10 year avg total return (as of 10/11/12) net of 5.75% load and other expenses: 5.94%
For Ref: Morningstar Rating within LG category: 2 stars.
In addition to the sales load, the fund has an expense ratio of 1.17% per year.

Comparable VGD index fund: Vgd Growth Index Fund, Investors Shares. Ticker VIGRX. 10 yr Avg Total Return (ending 10/11/12): 7.65%
Morningstar Rating in category: 4 stars
Expenses: No loads, .24% expense ratio.


Now, this single example doesn't prove much, except that the investors in this W&R fund would have made more money over the last 10 years if they'd been with Vanguard in a similar index fund. And we know for sure they'll pay almost 1% more in costs right off the top no matter how the fund performs. Still, every year there are some managed, high-expense funds that outperform their indexes. But the number of those that repeatedly accomplish this gets small over extended time windows.

I don't believe it's worth it to pay high fund costs in hopes that a fund that has outperformed its index will continue to do so. Which W&R funds do you believe may be worth the loads and expenses?
__________________
"Freedom begins when you tell Mrs. Grundy to go fly a kite." - R. Heinlein
samclem is online now   Reply With Quote
Old 10-12-2012, 04:29 PM   #7
Thinks s/he gets paid by the post
 
Join Date: Jul 2005
Posts: 3,863
Quote:
Originally Posted by pb4uski View Post
Assuming that the W&R fund is comparable to the VG fund (ie; they are really apples-to-apples) if the W&R fund outperformed the comparable VG fund that would make me feel better about the higher fees, but just because it has done so in the past does not mean that it will continue to do so in the future.
+1.

All mutual fund performance numbers include the effects of ER's. If the expensive fund has done better than the cheap alternative fund, then the expensive manager has managed to pay his fee and give you something extra. There's just no guarantee it will happen in the future. You want to be sure the manager (or preferably a long-term team) has been in place during the historical period you looked at and will stay in place in the future. A well-defined strategy is nice too. And a fund company that looks out for fund shareholders. All part of selecting your favorite mutual fund.

Does W-R have a good selection of non-W-R funds? If not, I'd go somewhere else. Why be stuck with an expensive W-R fund when you could select from many different expensive funds, or cheap index funds. It seems unlikely that the recommended W-R fund is the one you would choose out of the entire universe of funds.
__________________
Animorph is offline   Reply With Quote
Old 10-12-2012, 06:27 PM   #8
Recycles dryer sheets
 
Join Date: Sep 2012
Location: Madison
Posts: 161
This is not about comparing performances, it is about Family Dynamics. By moving the funds to WR he becomes your "vendor", someone you may someday need to cajole, pressure or argue with. that's hard to do with a BIL. By having the funds elsewhere you don't open up this can of worms, correct?
__________________
Cheesehead is offline   Reply With Quote
Old 10-12-2012, 07:52 PM   #9
Thinks s/he gets paid by the post
growing_older's Avatar
 
Join Date: Jun 2007
Posts: 2,609
It's possible for a given actively managed fund to out perform some other fund with lower expenses for a time, but I would be astonished if that was a general result for W&R funds. What I am sure of, is that there is sales material that makes it appear that paying the high fees is somehow good.

Please provide specific fund names of the outperforming funds you were invested in.
__________________
growing_older is offline   Reply With Quote
Old 10-12-2012, 08:42 PM   #10
Thinks s/he gets paid by the post
photoguy's Avatar
 
Join Date: Jun 2010
Posts: 2,301
Quote:
Originally Posted by ICNTR View Post
I know that nobody can see into the future so I think comparing past results is one reasonable approach to help facilitate a future decision.
This heuristic serves us very well in almost all areas of life EXCEPT for investing. There is a reason that the SEC requires funds to warn that "past performance is no guarantee of future results". In fact one could actually make the argument that you should buy funds/indexes that have done poorly in the recent past and that by buying funds that have done well you are more likely to purchase at the top.


Quote:
Originally Posted by ICNTR View Post
I just want to make sure I am not missing some other big issue besides the obvious higher fees.
W&R could have just gotten lucky like Bill Miller who had a 15 year win streak vs the S&P500 before blowing all his gains. Or they could be playing statistical games by doing things like shutting down their funds that did poorly so looking at their results 10 years later is subject to survivorship bias. Another very common tactic is to compare the funds to an inappropriate benchmark or cherry picking dates of comparison.


Larry Swedroe compared W&R funds to vanguard and found that W&R didn't add any value:

Does Waddell & Reed Back Up Its Claims? - CBS News
__________________
photoguy is offline   Reply With Quote
Old 10-12-2012, 10:04 PM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Nov 2007
Posts: 7,533
I would say higher fee funds are very very rarely a better deal than very low cost index funds like those Vanguard offers. Or some ETFs offered by ishares or Schwab.

Especially if you are paying any up front sales charges. Maybe you are at the asset level where you don't pay any sales charges.

You are probably paying about 1% per year too much in management expenses, including the 0.25% 12b-1 fee that doesn't actually go toward managing the fund or increasing the fund's research of securities.

1% on a million dollars is $10,000 per year you are giving away in management fees you could avoid. Maybe you could transfer all your funds to vanguard or similar low cost provider and save on expenses. If you still need advice from your BIL, stick a thousand bucks in his Christmas stocking each year. He'll probably make more from that, and you'll still be saving thousands or tens of thousands per year. One caveat is the taxes you would realize on selling the W+R may be very high, so consider that in a decision to transfer.

Looked at from another angle, I recall from your other thread you were planning on roughly a 3% withdrawal rate from your portfolio. Since you are actually spending around 1% extra in management fees versus what the typical vanguard investor is paying, you are actually spending closer to 4% of your portfolio each year. 4% WR for someone your age isn't nearly as safe as a 3% WR.

You are the boss of your capital now, and I'm not sure you can afford to keep your BIL on the payroll unfortunately. Time to make those tough executive decisions and cut costs from your operations. Luckily I did the same with my Edward Jones guy who fully serviced me my first year or two of my career, then I figured out I could do a lot better on my own and get better interfaces for my investments (vanguard/fidelity websites were FAR superior at the time - don't know now).
__________________

__________________
Retired in 2013 at age 33. Keeping busy reading, blogging, relaxing, gaming, and enjoying the outdoors with my wife and 3 kids (5, 11, and 12).
FUEGO is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


 

 
All times are GMT -6. The time now is 03:32 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.