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Old 09-11-2015, 05:27 PM   #21
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Have you asked your CFP why they have chosen this fund when they could get a similar asset allocation from a couple of index funds with far lower expenses? Are you looking for capital growth or income or a bit of both? How does it fit in with the rest if their recommendations?
Yes, I have expressed concern about the fees but they don't really respond except to say these are the funds they will use. We want to keep up with inflation and be able to draw off some living expenses without touching our principal. Is that what you meant? I am new to financial terms but trying to learn.
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Old 09-11-2015, 05:47 PM   #22
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I might be mistaken, but I think this is a correct analysis if the plan is to live off of dividends. If, however, you take the total return approach (capital gains + dividends) and are willing to sell some of it over time, then you need to look at the total returns, including the sequence in which the individual returns occur.

For many people who have enough money invested, it's a perfectly reasonable idea to live only off of dividends. For others (myself included), it's doubtful I'll ever have enough saved to do that unless dividends really increase from where they are now. So, I take a total return approach which means selling a certain portion of my assets every year for living expenses. If the amount I choose to withdraw per year is a small enough percentage of my total portfolio, then I'm unlikely to run out of money before I croak.

Many people here advocate a pure index fund approach for both stock and bond funds. Others, like myself, have a mixed approach. I do own some managed funds, but I have several criteria I use in that selection. The fund must be old enough to have some history, the fund's investment approach has to be stable, the fund manager must have been there for a very long time, for example. I don't require that it beat an index every single year, but it should most years and by enough to make up for the years where it doesn't. This takes considerable time and effort vs. an index-only approach and you have to monitor more often since funds can change, managers can leave, etc.

Now NPFFX from a total return approach with a quick (not nearly exhaustive) look at data from Morningstar (M*)
- M* likes it. 5 star - gold
- 5 year returns of 11%, but 10 year returns of 7.47%. 2008 losses were pretty heavy compared to other funds I've looked at.
- M* is showing that it beats the MSCI index they've assigned to this fund for 1,3,5,10 and 15 year returns. But SP500 beats it at 3 and 5 years. Something to think about.
- A little confusing on the manager. The fund has been around since 2001, but M* shows a couple of managers being there before that time. Might need to dig deeper to see if the fund changed its name some point along the line.
- It's about 43.5% US Stock and 49% Non US Stock. You can get the same sort of mix with a combination of VTMGX and VFIAX with a much lower overall expense ratio and much much lower if you don't pay a CFP to do it. Would need to do some more analysis to see how the overall performance would stack up against this fund.

Finally, it's sort of tough to look at a single fund in isolation in a portfolio. You need to understand why he's chosen this fund in relation to other funds he'd like to see you use and then explain why this overall mix of funds would work for you. Even I, who use a mix of managed an index fund, would first have him explain why you wouldn't be better off with a pure index approach vs. his approach. If he can't answer that by at least using some historical data, then you might want to consider a different planner. Even then, as others here have already pointed out, it's not that tough to get yourself proficient enough to do all of this yourself and quickly save the CFP fee and, perhaps, more. Plenty of resources out there to get you started.

All the best
big-papa
Thank you again big-papa. I know I will be learning a lot from you and the others here. Do the members here ever post their holdings for the education of others, perhaps on another thread? I would be very interested in seeing the funds you are in. I know Jim Cramer likes the Vanguard 500 index fund VFINX. It sounds like many here use Vanguard. I will be meeting with the planners next week. I would appreciate any other questions that I might ask them. By the way, is there a tutorial on Morningstar that shows how to use the data on the site? Again, many thanks to you.
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Old 09-11-2015, 05:50 PM   #23
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To the OP: A general rule of thumb is withdrawals from a well diversified portfolio of about 4% per year have historically been sustainable. If a person gives 1% to a CFP, then they will be cutting the amount of their annual spending money by 25%. It's very expensive--If my hard-earned savings will generate $50K per year for us to live on, I would think long and hard before giving $12,500 of it to a financial planner/adviser for something that takes only a little time.
There are many well researched sample portfolios that you can duplicate yourself and do very well. They use low-cost funds and they have historically done well in a variety of market conditions. This really doesn't need to take more than 12 hours per year of your time. There's good information in the FAQ files here, along with some good book recommendations.
Where can I find sample portfolios on this site? That would really help me. Thanks!
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Old 09-11-2015, 06:02 PM   #24
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I check the FAQ for sample portfolios but got no results. If any of you can point me to those I would very much appreciate it. I would also be interested in your favorite investment podcasts, books, blogs, and other resources for low-cost investing. If any of you have opened a solo 401K, where did you open it? Thanks to all.
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Old 09-11-2015, 06:55 PM   #25
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Thank you again big-papa. I know I will be learning a lot from you and the others here. Do the members here ever post their holdings for the education of others, perhaps on another thread? I would be very interested in seeing the funds you are in. I know Jim Cramer likes the Vanguard 500 index fund VFINX. It sounds like many here use Vanguard. I will be meeting with the planners next week. I would appreciate any other questions that I might ask them. By the way, is there a tutorial on Morningstar that shows how to use the data on the site? Again, many thanks to you.
You're welcome! Members do sometimes show their portfolios - it usually happens when somebody puts a poll together. People vote and there's a running graph that shows the answer to the actual poll (like what % do you have in stocks), but in the postings you'll often see people reveal their actual portfolios.

Like everything, there is no right answer for everybody so you're going to see everything from "just holding CD's" to "100% individual stocks" and everything in between. From another comment you made, it looks like you want to go with a dividend approach. In the upper, righthand corner of the screen, you can do a search in the early-retirement archives and find a number of threads relating to dividend investing there.

On Morningstar, I'm not aware of a tutorial. I start with typing in a quote for a fund. That first page gives you a lot of information, but there is a tab for "performance", "management", "portfolio", etc. that will give you more. Morningstar also has a fund screener to help you narrow down fund choices. The basic one that's free is pretty good. There is also one that's part of their paid subscription and is probably the most comprehensive I've ever seen. They often have a 14 day free trial so it might be worth a look at some point (though it's one of those "free" trials where you give your credit card number and you have to actively cancel it on day 14 yourself). Then they have a cool tool called "X-ray" where you can enter your entire portfolio and amounts in each investment and it'll give you some detailed information about the overall portfolio.

Welcome to the forum!
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Bond Funds in Retirement
Old 09-11-2015, 07:35 PM   #26
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Bond Funds in Retirement

For a simple portfolio Google "Three Fund Portfolio". And follow the links to the Bogleheads website, as well as a very good Wiki on it. It's a very simple three pronged approach to investing. International stocks VEU, Bonds BND, US Stocks VTI, in any combination you choose. Rebalance annually and forget. But the Bogleheads forum is a wealth of discussion and information for portfolio advice.

Dump the CFP that charges 1%. It's a sucker play. What you want is a CFP that charges by the hour, even if it's an expensive hour.


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Old 09-11-2015, 07:58 PM   #27
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Yes, I have expressed concern about the fees but they don't really respond except to say these are the funds they will use. We want to keep up with inflation and be able to draw off some living expenses without touching our principal. Is that what you meant? I am new to financial terms but trying to learn.
I would educate yourself about investing and drop the CFP as soon as you feel secure in your own knowledge and abilities. The CFP is putting you in funds with overly high expenses and charging you 1% to do it. Go to the Vanguard website and use the educational and portfolio tools they have to design a portfolio for your own circumstances. You will probably get a recommendation of a four fund portfolio made up of US and International Stocks and Bonds using funds like VTSMX, VGTSX, VBMFX, VTIBX. How aggressive you want to be really depends on your personality and other sources of income like a pension, rent or SS.

Or you could simply buy a single "Life Strategy" fund made up of those four funds in various percentages and your expenses would only be 0.16%. There are also two very popular funds available from Vanguard called Wellesley and Wellington that are made up of high quality stocks and bonds and are often used to produce income from dividends.

The thing you need to realize is that this is not complicated. All you need is a few inexpensive Vanguard funds and you will has as much investing and income generating success and anyone else. Forget about all the other stuff available that people will try to sell you.....you don't need it.
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Old 09-11-2015, 08:14 PM   #28
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To the OP: A general rule of thumb is withdrawals from a well diversified portfolio of about 4% per year have historically been sustainable. If a person gives 1% to a CFP, then they will be cutting the amount of their annual spending money by 25%. It's very expensive--If my hard-earned savings will generate $50K per year for us to live on, I would think long and hard before giving $12,500 of it to a financial planner/adviser for something that takes only a little time.
+1

Amen samclem! I couldn't afford to ER if a "financial advisor" ate up 25% of my yearly budget. Instead of looking at 1% (or whatever) of "assets under management", I also take the perspective that this is 25% of my yearly living expenses, assuming 4% SWR. This isn't even accounting for the high expense ratios of many active funds often promoted by financial planners.

The crazy thing is that most folks (except here) think that 1% or 1.5% is cheap, since they don't look at the killer impact on their actual retirement budget! I mention 1.5% because this is what a friend is paying...
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Old 09-11-2015, 08:27 PM   #29
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If I just wanted a simplified, hands-off approach to investments, I'd go with a single low-cost balanced fund (Vanguard Balanced, Wellington, Wellesley, LifeStrategy, Target Retirement or Managed Payout) instead of paying 1% AUM to a financial advisor on top of fund expenses.
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Old 09-11-2015, 08:43 PM   #30
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For a simple portfolio Google "Three Fund Portfolio". And follow the links to the Bogleheads website, as well as a very good Wiki on it. It's a very simple three pronged approach to investing. International stocks VEU, Bonds BND, US Stocks VTI, in any combination you choose. Rebalance annually and forget. But the Bogleheads forum is a wealth of discussion and information for portfolio advice.
OP - the above is the best place to start (IMHO). If you wish to consider a slightly broader number of funds, one source with similar goals (low cost, index funds) can be found by Googling "couch potato cookbook". It offers a few portfolios of index funds with varying degrees of complexity and exposure to different investment areas. These are the funds that I personally choose to make most of my investments in.
https://assetbuilder.com/knowledge-c...otato-cookbook
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Old 09-12-2015, 02:04 AM   #31
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Our CFPs have NPFFX in our fund proposal. When we looked it up on morningstar we do not see how this fund can provide value and profit for us with its yield and expenses. Can anyone explain how we can make money with a bond fund with a .51% or .71% yield and expenses of .82%? We would also pay a 1% annual fee to the financial planners. Thanks for your help and suggestions of other retirement forums that might be of help to us as we do our due diligence for the rest of the funds on our proposal.
You are being fleeced. You're paying 1% for the so-called 'privilege' of them making EVEN MORE money off of you by selling you expensive actively managed funds. Fire them immediately. Hire a fee-ONLY fiduciary for a one time or one task consultation. Buy index funds. Bond and stock index funds.
A legitimate registered investment adviser will provide you with copies of both parts of a "Form ADV", and provide you with a written disclosure of exactly how he will / may be compensated for his services and list any potential conflicts of interest. Do not work with any adviser who does not provide you with these critical documents once per year.
Better yet do it yourself. Investing in index funds and rebalancing is easy.
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Old 09-12-2015, 09:00 AM   #32
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Where can I find sample portfolios on this site? That would really help me. Thanks!
Goldenmom,
What I'd recommend:
1) Don't be in a rush to do anything. Take your time to do some self-education and it will pay BIG dividends in helping you to stay on track in the future--when the markets get crazy, when a friend offers you a chance to invest with their "really good" advisor, when you hear a new hot new investing concept on the radio. Unless you need to move your money immediately for some reason, take a month or so to read a book or two and spend some time at some good web sites.
2) Resources: The FAQs here have some books that are widely recommended here. They are solid, easy to understand, and have concrete examples of portfolios. My personal recommendations would be The Bogleheads Guide to Investing and The Four Pillars of Investing (William Bernstein). I also like "The Coffeehouse Investor" and most books by Larry Swedrow. You can also learn a lot online--my three favorites are this board, Bogleheads, and the Vanguard website.
3) Then set up your desired asset allocation and the portfolio of assets needed to achieve it. That sounds very "formal" and difficult, but it can be done easily and quickly--too easily, really: Many folks jump in and buy a bunch of different things without taking the time to do steps 1 and 2 above, and they are easily swayed to change their investing style later (usually at great expense in taxes or "selling low, buying high) because they didn't have a good philosophical "mooring" for the things they bought in the first place,they You'll find good model portfolios in the books above, and some have been recommended in this thread (the Bogleheads "Three Fund Portfolio" is one).
4) Nit-noids:
a) If you get totally swamped by this whole thing, or it's something you don't want to take on, you could just put all your retirement savings into the Vanguard Target Date Retirement fund of your choice (e.g. Target Date 2020, Target Date 2035, etc). Don't get hung up on the year listed in the fund name, each is just a portfolio of other mutual funds with a mix of stocks and bonds. Over time, each will get more "conservative", investing less and less in stocks and more in bonds. The portfolios are well diversified and rebalanced automatically. By going with one of these Target Date funds (compared to setting up your own portfolio) you'll give up some tax efficiency and the ability to fine-tune assets, 1) that's often not a bad thing and 2) you'll still get investment results far better than most other investors who fiddle around their portfolios more actively. I think doing your reading and setting up your own portfolio is the better long-term solution, but using one of these Target Date funds is a good fallback position and far better than falling into the clutches of an expensive "percent of assets under management" Financial Advisor/CFP who will put you into high-expense funds.
b) Living off dividends and leaving the principal untouched (as mentioned in your earlier post): This is a valid approach and many investors use it. But it's not as simple or inherently "good" as it sounds. Keep an open mind as you do your reading, many people find that the "total returns" approach makes more sense to them. Stock share prices generally go up in value faster than inflation--in a widely diversified basket of stocks, this real (above inflation) gain in stock prices is often more than the dividends returned by the stocks. If you never sell any then you don't benefit from this--you just leave more money to your heirs at the expense of a better standard of living you might have had. Said another way, it usually takes a bigger starting "pot" to generate the income we need if we are just going to live off dividends and interest. Also, in some cases the mutual funds that concentrate on "high dividends" end up heavily concentrated in a few industries (utilities, banking, etc), and this can leave your portfolio dangerously overweighted in a few sectors, and that's not a "safe" thing.
Good luck!
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Old 09-12-2015, 09:15 AM   #33
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....Do the members here ever post their holdings for the education of others, perhaps on another thread? ...
FWIW, I target 60/34/6 stocks/bonds/cash and rebalance annually.

Due to our circumstances, our portfolio is more complicated than it needs to be in terms of tickers but I think you could do pretty well just using Vanguard Total World Stock ETF for equities, one or more Vanguard bond funds for fixed income and online FDIC-insured savings accounts for cash. The total expenses for such a portfolio would be well under 0.20% and is an easy do-it-yourself with free help from Vanguard so you would have a ~1.5% a year headstart on what your FA is proposing for you.
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Old 09-12-2015, 09:55 AM   #34
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If any of you have opened a solo 401K, where did you open it? Thanks to all.
Yes, I opened a solo 401K 10 years ago at Fidelity. It was zero cost and they have been good to work with. If I were doing it today, I'd probably set it up at Vanguard (they didn't offer them at the time).
A Solo 401K is a >great< way to save on taxes if you have a small business with no employees (or if the only other employee is a spouse). It allows a person to defer taxes on more money than can be done with a SEP IRA or other options. And there's no reason to pay extra to set one up--they are free through many sources.
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CFP Recommended Portfolio
Old 09-12-2015, 06:47 PM   #35
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CFP Recommended Portfolio

Here is the list of recommended investments from our new CFP. I posted this list at the Morningstar Forum, but don't think I posted it here at Early Retirement. Thank you for taking time to critique these funds. It will help us to ask questions and consider our options. I am studying all of your comments and learning a lot from everybody. Thank you so very much!


CFP said: When fully invested, your portfolio will comport with your investment policy statement at (firm name). This means you will be invested 50% equity and 50% fixed income in the following manner:


(CFP said there would be no loads for any of the assets.)


8.4% - SCHA – Schwab US Small-Cap ETF
12% - SCHM – Schwab US Mid-Cap ETF
12% - SCHX – Schwab US Large Cap ETF
2.5% - NPFFX – American Funds New Perspective F1
2.5% - OAKGX – Oakmark Global 1
3.8% - IVVYX – Ivy International Core Equity Y
3.8% - SCHF – Schwab International Equity ETF
5% - BREFX – Baron Real Estate Retail
3% - Cash
12% - LALDX – Lord Abbett Short Duration Income A
7.5% - PDBAX –Prudential Total Return Bond A
7.5% - BICAX – Sterling Capital Total Return Bond A
5% - BASIX – BlackRock Strategic Income Opps Inv A
5% - MASAX – Main Stay Unconstrained Bond A
10% - TPINX – Templeton Global Bond A
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Old 09-12-2015, 07:11 PM   #36
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Did the CFP mention who was paying the front end load on all those class A shares? If they didn't you might want to run away.

The Schwab ETF's look fine, most else is high ER managed funds.
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Old 09-12-2015, 07:26 PM   #37
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He's picked a mix of reasonable funds and some with high fees. The high fee funds cannot be expected to perform better than low fee funds (whatever this advisor says), he just makes more money by selling them to you. (This is in addition to the"advisory fee" you'll be paying directly to the advisor). You can look up the fees for various funds at the Morningstar web site, just type in the fund/ETF symbol in the "quote" box, then go to the "expenses" tab.

An example I grabbed randomly:
BICAX: Annual expenses of .81%. A similar Vanguard fund (VICSX) has annual expenses of .12% . Why would anyone want to give up half a percent of interest for zero benefit (BICAX and VICSX have similar holdings, VICSX has produced better results over the last 5 years). BICAX also shows a 5% front end load (a giant red flag). Are you positive he's not going to charge you a load on this? Read everything very carefully.

Your "advisor" is apparently not going to deliberately pick funds that don't offer him a good payback, at your expense. Ditch this guy/gal and . You'll be much better off doing this yourself without "help" like this.

Do you understand why the advisor is recommending so many funds, and what each one does? Neither do I. And when he calls you in a few months recommending you sell some of Fund X to buy a new Fund Y, will you understand what he's doing, other than possibly lining his pocket with fees? >No one< cares more about your money than you do, and taking care of this yourself is the best way to make sure your interests come first. These selections already show that your interests do NOT come first with this CFP.

If you simply must have an advisor, insist on one that you pay by the hour, and who receives no compensation of any kind from the funds he is recommending (you'll want that in writing). And accept no recommended funds or ETFs with loads or with annual expenses higher than .25% (most funds should be quite a bit less). That should winnow out most of the sharks.
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Old 09-12-2015, 07:28 PM   #38
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CFP says load are waived. What does ER mean? I am a complete novice but trying to learn.
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Old 09-12-2015, 07:43 PM   #39
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What does ER mean?
ER ="Expense ratio". It's a fee that the fund takes off the top every year (whether the fund gains in value or not) to pay their expenses (including, in some cases, money that goes right back to "advisors" who sell them. That's why your advisor is pushing these high-expense funds) . You want to buy funds/ETFs with low ERs, they directly reduce your returns.
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Old 09-12-2015, 08:12 PM   #40
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Here is the list of recommended investments from our new CFP. I posted this list at the Morningstar Forum, but don't think I posted it here at Early Retirement. Thank you for taking time to critique these funds. It will help us to ask questions and consider our options. I am studying all of your comments and learning a lot from everybody. Thank you so very much!


CFP said: When fully invested, your portfolio will comport with your investment policy statement at (firm name). This means you will be invested 50% equity and 50% fixed income in the following manner:


(CFP said there would be no loads for any of the assets.)


8.4% - SCHA – Schwab US Small-Cap ETF
12% - SCHM – Schwab US Mid-Cap ETF
12% - SCHX – Schwab US Large Cap ETF
2.5% - NPFFX – American Funds New Perspective F1
2.5% - OAKGX – Oakmark Global 1
3.8% - IVVYX – Ivy International Core Equity Y
3.8% - SCHF – Schwab International Equity ETF
5% - BREFX – Baron Real Estate Retail
3% - Cash
12% - LALDX – Lord Abbett Short Duration Income A
7.5% - PDBAX –Prudential Total Return Bond A
7.5% - BICAX – Sterling Capital Total Return Bond A
5% - BASIX – BlackRock Strategic Income Opps Inv A
5% - MASAX – Main Stay Unconstrained Bond A
10% - TPINX – Templeton Global Bond A

Wow - that's a lot of different funds. My opinion is that each block: US stocks (5 funds), International Stocks(3 funds), bonds (6 funds), real estate (1 fund) could each be replaced by only 1 or 2 at most low cost funds that cover the same space if you want to create a diversified portfolio on your own or a single low cost balanced or life cycle fund if you don't want to create it own your own. You can probably do something much simpler than this and you most certainly can do something cheaper than this.


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