A double digit raise for Joe
First, I can't say how glad I am that I found this forum!
About 1/3 of my savings are at Amerirpise - about $325k. Here are the mutual funds I have there, and I tired to get the expense ratio from Morningstar - let me know if I got that right at least. The bulk of my money is in the first 2:
fund - expense ratio
------------------------
GCTAX - 1.09%
GSHAX - 1.12%
GSMIX - 0.90%
GISAX - 1.65%
GGOAX - 1.47%
GCSAX - 1.26%
GREAX - 1.44%
GEMAX - 1.79%
^^^ that's about $265k
Then I have another $60 k in a Riversource annuity. I don't see any fund symbols for these but the annuity is made up of these allocations:
50.36% = RVS VP Div Eq Inc Fd
7.61% = RVS VP Hight Yld Bond
1.88% = RVS Life Fixed
16.12% = FTVIPT Mutual Shr Cl2
24.04% = Wagner Intl Small Cap
I guess my wrap fee was the annual consulting fee I paid - I'll save some embarrassment and keep that to myself.
So if I understand... much of this money is in ~ 1.1% expense ratio funds. If I move that to a 0.25% fund at Vanguard, I'd save about $2200 annually? I realize that's an improvement, but what I have now isn't awful, or is it?
(And should I still remain a Dennis Hopper fan?)
Joe, I am not sure you are going to like this post, since the object of the post is to make you mad (hopefully at Amerprise more than me) and feel a bit foolish and embarrassed. Think of it as an initiation ritual...
On the other hand I think you can get a double digit raise in your retirement income, if you follow my advice which I am fairly sure will be echoed by other regular and dump Amerprise.
First let me start with the positive. The Amerprise advisor and/or you aren't total financial idiots your portfolio of mutual funds is pretty well diversified across various type of assets. Without knowing more about the total $/fund and more importantly your other assets I can't know for sure how good it is but it doesn't suck
When you were researching your expense ratios for your mutual funds you may have noticed the Morningstar star rating for each fund. The M* star rating is probably as important as the expense ratio (in general higher ER lead to lower star ratings...) The M* star rating is the industry standard rating system of mutual funds. Think of it as a report card, a 5* fund is an A grade a 1 star fund is F. The primary component for the star rating is the performance of a fund vs it peers, so International funds are compared to other international fund, Large companies funds are compared to other Large companies etc. A secondary rating factor is the risk that fund takes, a fund that invests in risky stocks generally does better in bull markets, but lags behind in todays bear market.
Sadly your portfolio consists entirely of 1,2, and 3 star funds, which means that you have a D+ mutual fund portfolio. Assuming you've had these funds for 3 years, you paid the nice folks at Amerprise, and Goldman Sachs about $20,000 in total commission and expense fees for the privilege of their sage advice and lousy performance.
Let's translate this into $. Take the Goldman Sach International Small Cap fund GISAX. a 2 star fund. At first glance this fund doesn't look too bad in 2005 it was up 20% , 19% in 2006, and in 2007 it lost .6% in what was pretty flat market and over three years it averaged 6.27% per year. However, you have to look at the performance compared to other funds in the category. You see small cap international funds were one of the hot areas, the average fund in the same category was up 25% in 2005, 26.8% in 2006, and instead of losing a bit like your fund did was up 13% in 2007.
Overall this 2 star fund was trailed the category average by 10.8%/ year over the last 3 years and was in the bottom 5% of all similar funds. Assuming a 5-10% asset allocation and initial investment of 25K in the fund this would give you about 30K in contrast that same $25K in AVERAGE small cap international fund would be worth $40K. Now if you had it for 5 years it wasn't as bad but still would have cost you at least 10K. I won't bother with the math for the 1 star fund
In contrast lets look at a portfolio of three 100K investments in Vanguard funds made three years ago. The International Index fund VTGSX annualized 3 year return 16.5%, the Vanguard Total Stock Market VTSZX 5.8%, and the Vanguard Total Bond Index Fund 5.19%. (The last two are lower cost Admiral funds.) This portfolio would be worth about $393K, the total commission cost would be zero and your annual expenses would be running about $500/year.
Now expense ratio aren't the only thing to consider when picking a mutual fund but they are a big factor. I highly advise running firecalc and plug in your expense ratio vs the .15% average of my suggested portfolio. You'll find you can increase your withdrawal rate by almost 10% more if you consider the horrible performance of your funds.
As for your Annuity, my roommate has this same annuity as her only choice in her 403B, so I looked over the ridiculously thick prospectus. I'll just say it is the ultimate wealth creation investment vehicle, of course the wealth created is for the advisor not the owner. Sadly due to fees you maybe stuck with it for a while.
Vanguard isn't the only choice (just the one I am sure nobody will yell at me for) a fee only financial planner is possible choice if you really want some help on an on going basis. Vanguard, Fidelity and Schwab will offer you free initial consulting if you transfer over $250K worth of assets to them. We may quibble about their advice but it is better than the vast majority of Amerprise [-]sales scum[/-] advisors.
Finally step back for a second. I am sure you have heard of the years of the million dollar bonus paid to wall street types. Every year the firm that tops the list big bonus is Goldman Sachs. I've interviewed and worked with dozens of Harvard, Stanford, MIT, Wharton, Berkeley MBAs who've gone to or come from Wall St firms including some from Goldman. Don't get me wrong these are sharp folks (mostly 25-35), perhaps this was part of the pitch the Amerprise guy gave you for choosing Goldman Sachs funds. Still, I've always been amazed that could get paid millions of dollars in some case tens of millions. It isn't like they can shoot a basketball, win American Idol, or paint a masterpiece. Why on earth does management pay them this much.
The answer; is for you to look in the mirror. It is folks like you who let them baffle you with dozen page brokerage statements, hundred page prospectus, and smooth Amerprise salesman. You are giving them million dollar bonuses and they are giving you dismal performance. Something isn't right! Or as one of the pioneers of early retirement research says, drive your financial advisors Porsche.
stepping off my soapbox...
