Bond Funds in Retirement

[rayinpenn]

I must admit to a passion for low cost index funds (set it and forget it investing); it occurs to me that with that many funds you are essentially creating a broad based index. Having said that wouldn't having say 2 or three low cost vanguard index funds be a more efficient alternative?

In my humble opinion Lose the CFP (I hope you paid by the hour). Have you looked at the admin fees on all those suggestions?

Remember over time nearly all managed funds don't beat the market. So reducing fund admin cost is critical... Oh and those CFP fees ugh!


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[samclem]

This should not be surprising. If the financial advisor truly is a CFP, he is required to adhere to a fiduciary standard of putting his clients' interests ahead of his own when giving professional advice.

Alright, if you want to defend this CFP, a good place to start would be with those expensive bond funds. They have ERs of about 0.5% above functionally equivalent bond funds that are readily available. How can we possibly say they meet the "fiduciary standard" of being in the client's best interest, rather than those of the CFP? I know CFPs do it all the time, but it's not at all in the client's best interest.

Under the circumstances, I consider the OP should seriouly consider sticking with the CFP's advice. At some point in the future, OP may advance beyond a novice investor and be ready to make independent financial decisions, but I don't think we're quite there yet.

And then what will she do? We don't know if these are taxable accounts or not--selling these loser high-fee funds and getting new ones could require that she pay a lot of cap gains taxes. And then she'll get to fight the CFP's efforts to hold on to her account (see the many threads by folks who have struggled to get free of Ameriprise and other CFPs--Lisa99 documented her experience well). Why not just start out on the right foot? The OP is asking the right questions and has shown a willingness and ability to do research. Nothing about this investing is hard--she's one good book and a few hours away from being set to do this herself. I'm not ready to infantalize her and urge that she just go along with the nice man who will take her money and leave her with a bigger mess to clean up. She's a retiree, the 1% fee paid to this CFP will cost her about 25% of her annual withdrawals from her savings--does that seem like a good use of her funds, compared to doing some reading and getting good guidance here? If she spends 20 hours on reading/posting/setting up the accounts, that's quite an attractive payback, and in future years it will take her far less time.

 

[bmcgonig]

I guess looking at the portfolio I'm just irked for a few reasons

High expenses in the funds. As samclem has pointed out.
The 1% fee above that for simply buying funds and ETFs. That's ridiculous in this day and age.
The 2.5% portfolio allocations. The 3.8% allocations etc. I see that as an attempt to build up the portfolio to make it look more sophisticated to a newbie investor when I truly believe little allocations like that make no sense.

So maybe he's not a charlatan, but all of the above are in no way in the OPs best interest. I would think that the best compromise for the OP would be using Vanguard Advisor for 30 basis points, if she doesn't want to do it herself.




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[pb4uski]

Too many funds are proposed. It looks like the overall proposed asset allocation (AA) is 50% equities/47% bonds/3% cash. You could probably get similar investment results at a much lower cost with 3-5 Vanguard funds and an online savings account for cash.

For example:

50% - Vanguard Total World Stock ETF - 0.17% ER
47% - Vanguard Total Bond Market ETF - 0.07% ER
3% - online savings - 0.00% ER

Or you could even do it with just one fund... Vanguard's 2015 Target Retirement is 50/50 and the 2020 Target Retirement is 60/40... so pick one and let them d the driving for you for 0.16% a year. The 2020 version has had returns of 8.01%, 9.38% and 5.83% for 3 years, 5 years and since inception on 6/7/2006. I wonder what the proposed portfolio returns have been for the last 3 and 5 year periods.

https://personal.vanguard.com/us/funds/snapshot?FundId=0682&FundIntExt=INT#tab=2

 

[rayinpenn]

I really don't like bad mouthing CFPs but geez 1%? That's a lot of money. Let's say you do well and the last 5 years before retirement you have a million dollar portfolio. (Yeah sounds like a lot of money but there are many people who have it.) that 1% will be $10,000 a year for 5 years or $50 large! (Sorry got into my James Cagney I mean Thousand) not count the Vig (ops did it again - I mean interest).

Me I'd rather have that money for the wife I'm sure she will out live me by many years (only the good die young). What I suggest you do is Google transparent investing - "the whole story". Read it and every thing you can on index funds and low cost investing. Warren buffets letter to the shareholders are also excellent reading as well.

A CFP takes a broad based exam but it doesn't mean he or she is a prudent investor.

I want you to watch Wall Street, the Boiler Room, and the wolf of Wall Street then fire him or her and take the advice offered on vanguard funds.. If you are really angry for 25 large I can make the CFP have an accident (just kidding, I really need to avoid those Cagney movies)

If you must use a CFP (I wouldn't) get one that charges by the hour. If they try to sell you anything fire them immediately and run away!

Corny jokes prudent advice
RayinPenn


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[Greg V]

A good, and short, book that gives a good foundation in managing your investments is "The Investment Answer" by Daniel C. Goldie and Gordon S. Murray. You can get it on Amazon. It's a quick read and, by giving you solid background on investing in an organized fashion, would prep you to go through the many good recommendations already put forth in this thread and apply them to your situation. Don't be rushed into making these big investment decisions until you are ready and feel comfortable with the path you are taking. A little study may help you feel much more confident in your choices.

 

[samclem]

If you don't feel comfortable with DIY and must have some handholding when it comes to managing your investments, consider Vanguard Personal Advisor services. They're more expensive than DIY (0.30% AUM) but probably a far better option than the CFPs you've had so far.

+1. The OP could do it herself after a bit of reading, probably save a lot of money, and be set up to easily maintain her accounts for the rest of her life. But if she just doesn't feel comfortable doing that, using Vanguard Personal Advisor Services has 3 major advantages over using her present "advisor":

1) The fee paid to the advisor will be 70% less. Every year.
2) The funds they'll recommend will be low in cost, saving her a good deal of additional money every year.
3) She'll won't have to fight to get her money away from her high-fee advisor if/when she decides she's getting taken advantage of. She'll already have accounts set up at Vanguard, her automatic transfers will be set up so she can see and change them whenever she wants, etc. It will be a smooth and simple transition to doing things on her own.

It can be difficult to find an advisor who bills by the hour and doesn't accept any money from the products sold to clients. This is especially true if one doesn't live in a major town. So, if the "assets under management" fee schedule is used, 0.3% is a lot better than 1.0%

 

[CaliforniaMan]

I don't think the question is whether the CFP is a charlatan or not, but rather does the added extra expense for his/her recommendations make sense. Clearly, as others have pointed out the mix is more complicated than necessary, but the fees add up to 1.65% of the portfolio, 1.70% if you exclude cash. How can this make sense when you can do it all for no more than 0.20%.

As others have pointed out before me. You have to educate yourself. It is your money, and no one cares more about your money than you. And once you know enough to be able to choose a CFP, then you don't need one.

When the expected long term return may be somewhere around 4%, why would you want to give 1.65% to your adviser. You are giving more than 40% of your income to your CFP! Now does that make any sense? Especially since it is now so easy to do on your own using a place like Vanguard.

Hmmm, 40% of my money to my adviser every year, up market or down market to do nothing but what? Watch his money come in?

Ok, I do have something good to say about one adviser of a friend of mine, he kept him from selling in the 2008-9 decline. But what about the others that told their clients to get out. How stable will yours be? And after your study you should be able to learn not to sell out in panics.

This is really not rocket science.

 

[Goldenmom]

Hi all and thanks for taking your time to help us. All our accounts are in IRAs. We have 5 funds we brought over from Ameriprise and a partial transfer of a variable annuity cash out. We didn't want to pay a surrender charge so are waiting to cash out the rest. A rollover from our 401(K) is in cash. In fact, most of our account is currently in cash and is in the process of being transferred to the CFP. No trading has started, and I told them to wait on any investing until we do due diligence. We are 66 and 70 and my husband is semi-retired and self-employed so we want to open a solo 401(K) to help with taxes. I am overwhelmed by all of the help I have gotten from all of you. If anyone has additional books, blogs, movies or movie quotes, or sample portfolios to share, I will welcome those. (A movie quote I especially like is from Rounders: "You can't lose what you don't put in the middle." I am calling Vanguard first thing in the morning and investigating a low-cost, simple portfolio. If you think of anything else that will help guide me with that please let me know. I am considering beginning with the Vanguard advisor and then turning that off when I am set up and comfortable with what I'm doing. What does 30 basis points equal in dollars? I have head this term "basis points" but don't know how it translates to cash. Thank you, thank you, thank you, to all and sorry for the same question on 3 forums--as a newbie, I don't yet know how many of you read the same forums and I wanted to get a lot of feedback in a short time (a wide net). Where should I post new questions on Vanguard investing? I will check this thread but want to start posting where it will make the most sense. Sending you all the best.

 

[samclem]

I am calling Vanguard first thing in the morning and investigating a low-cost, simple portfolio. If you think of anything else that will help guide me with that please let me know. I am considering beginning with the Vanguard advisor and then turning that off when I am set up and comfortable with what I'm doing.

That's probably a good approach. As preparation, I'd recommend you visit the links provided by California Man in post #42.

What does 30 basis points equal in dollars? I have head this term "basis points" but don't know how it translates to cash.

A "basis point" is just 1/100th of a percent. So, 30 basis points is .30%. Your present CFP is charging you 100 basis points.

Where should I post new questions on Vanguard investing?

You can get help on this board, as a lot of us are Vanguard investors. A more specialized board just for Vanguard investors is the Bogleheads board at Bogleheads - Index page
The Bogleheads site on Morningstar used to be very popular many years ago, but the above link goes to where the main action is now.

Don't be a stranger! You'll find all of this to be very simple, but your CFP won't make it sound like that. Glad you got clear of the Ameriprise crew, but you're still in a high-cost CFP relationship. Variable annuities, Ameriprise, now this--uggh. That's a tough road, but you've made a lot of salesmen happy and probably paid for a set of braces or two for their kids. Now do something for yourself and don't look back.

 

[clifp]

Alright, if you want to defend this CFP, a good place to start would be with those expensive bond funds. They have ERs of about 0.5% above functionally equivalent bond funds that are readily available. How can we possibly say they meet the "fiduciary standard" of being in the client's best interest, rather than those of the CFP? I know CFPs do it all the time, but it's not at all in the client's best interest.


And then what will she do? We don't know if these are taxable accounts or not--selling these loser high-fee funds and getting new ones could require that she pay a lot of cap gains taxes. And then she'll get to fight the CFP's efforts to hold on to her account (see the many threads by folks who have struggled to get free of Ameriprise and other CFPs--Lisa99 documented her experience well). Why not just start out on the right foot? The OP is asking the right questions and has shown a willingness and ability to do research. Nothing about this investing is hard--she's one good book and a few hours away from being set to do this herself. I'm not ready to infantalize her and urge that she just go along with the nice man who will take her money and leave her with a bigger mess to clean up. She's a retiree, the 1% fee paid to this CFP will cost her about 25% of her annual withdrawals from her savings--does that seem like a good use of her funds, compared to doing some reading and getting good guidance here? If she spends 20 hours on reading/posting/setting up the accounts, that's quite an attractive payback, and in future years it will take her far less time.

I'm going to side mostly Karluk. I don't think the CFP is charlatan here.
I'm guessing based on the heavy mix of Schwab funds, that he is part of the Schwab adviser network and the ones I've meet have have been pretty sharp.

I look at the the bond funds he is recommending and I think here is a guy who has been listening to all the smart money guys like the ex PIMCO folk (Bill Gross Mohamed A. El-Erian) Warren Buffett who calls Government bonds return free risk. He has figured out away of getting 1/2 of her money into bonds without an exposure to the bubble of US Government and Agency bonds.

The problem the standard portfolio of 50% total stock market and 50% total bond market is the bond portfolio. Total bond market is 70% US government bonds and agency's (e.g. GNMA.Fannie Mae). There is very little upside potential for these bonds and lot of down risk. Interest will rise hopefully in a controlled manner by the Fed. However there is reasonable chance they will rise much more rapidly if for example China needs to raise cash to prop up their stock market, economy and sells there several trillion dollars worth of US bonds. A 4% rise in US government bonds over the next couple of years back to historical interest rates would result in ~20% loss in the Total Bond Market. Her portfolio of international bonds, short-term and unconstrained bonds funds would do much better, my guess is probably only lose 1/2 as much.

Of course it is important to point out the smart money guys, and myself have been wrong about rising government interest rates for many years.

That said I do agree with SamClem 1% of the total assets (assuming we are talking >250K) is entirely too much money to be paying for this advice.
If they were charging $250/hour and gave you a bill of $2,000 I wouldn't be upset.

You can do this yourself and as motivation look at how much that 1% fee adds up to. I see no reason to pay 1% on a long term basis, but I also think you could do worse than stick with his recommendations for the next 1 year.
Stick around read the various recommended books. Then next year give us your result and you'll be in a better position to fire, or cut back the expenses of the CFP.

 

[bmcgonig]

1% never sounds like a lot in the abstract. However, remember that around here we fight about what constitutes a safe withdrawal rate from a portfolio in retirement. Many say between 3 and 4% approx. That is folks take 3 to 4% of their portfolio each year to live on. If you are conservative and are taking 3% then the CFP is getting $10000 a year EVERY YEAR for every $30000 you get. If you had a million dollars then you would paying him approx $200,000 over the next 20 years.

And all he did was chose some mutual funds for you.


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[samclem]

He has figured out away of getting 1/2 of her money into bonds without an exposure to the bubble of US Government and Agency bonds.

It's generous to ascribe his selections to anything but self interest. But, okay, let's say this guy is trying to avoid USG bonds (the safest investments in the world, as far as risk to capital, but let's put that aside and decide that reaching for extra yield in bonds is a good idea in the case of this retiree). Could you put together a high-grade corporate bond portfolio of MFs or ETFs with fees less than these .80% - .98% ERs? I know you could. Me, too, in about 15 minutes. And the fees would be a LOT less. So, let's hear how this guy is a good egg. He's absolutely not putting her interests first, and that's what he's supposed to be doing.

 

[rayinpenn]

"In fact, most of our account is currently in cash and is in the process of being transferred to the CFP."

Now you are scaring me... I assume you would have an account with a nationally known investment firm? If you invest with vanguard the accounts are in your name and available for your review and modification a couple of laptop clicks away.

Call me crazy but I don't give my money to anyone.., now I'm sure this CFP is legit but I'm just not comfortable with people holding my money. Yeah I know not everyone is Bernie Madoff but they could be. Sure people have done it for years without a problem - but some have and it was terrible.

 

[wolf]

"In fact, most of our account is currently in cash and is in the process of being transferred to the CFP."

Now you are scaring me... I assume you would have an account with a nationally known investment firm? If you invest with vanguard the accounts are in your name and available for your review and modification a couple of laptop clicks away.

Call me crazy but I don't give my money to anyone.., now I'm sure this CFP is legit but I'm just not comfortable with people holding my money. Yeah I know not everyone is Bernie Madoff but they could be. Sure people have done it for years without a problem - but some have and it was terrible.

GoldenMom. I'm scared too. Your account is in cash and being transferred to a CFP. " RED FLAG!" Appears your CFP is in a hurry to get your money before you change your mind. (get informed).

If you can, stop the transfer.. Listen to Sam Clems advice. Stop talking to the CFP. Everything "CFP" says is biased.

There is no rush. Learn before you make any cash moves. As many have
already said, Vanguard, is nationally known, low cost fund company.

Glad you are asking for advice. PLEASE TAKE THE ADVICE!!!

 

[Goldenmom]

The 401K rollover cash arrived at Schwab today. I called Vanguard to open our account and we called Schwab together to check on what is in my accounts. I asked them to put a restriction on any buying while we were opening/transferring funds to our Vanguard account and they said they would put a restriction on the accounts. Vanguard is sending me paperwork for my new account and fund transfer form and when they talk with my husband they will get his paperwork sent. He is out of town working all week. Too late to stop the transfer, but I have told CFP twice in emails and on phone there is to be no trading at this time. I will reiterate this again on the phone tomorrow. Not sure what else we can do as we will need to complete and return forms to Vanguard. Ideas?

 

[wolf]

Hope they do not charge you a 1% annual fee?

Good luck.

 

[samclem]

Not sure what else we can do as we will need to complete and return forms to Vanguard. Ideas?

If all your funds are at Schwab now, you could call them and modify the account so that the CFP is no longer authorized to trade on your account, see balances, act as your agent, etc. He has no need to do any of that at this point, and it's just a bad idea to allow >any< person to have access to your funds without good reason. He doesn't have a reason any more.

You'll want to arrange the transfer to Vanguard so that they "pull" the money from Schwab, not so that Schwab (or your CFP, especially) "pushes" the money to Vanguard. Neither your CFP nor Schwab has any particular interest in seeing your money leave, and so sometimes it seems to take a while to get these things done if a person arranges things so that the "losing" party has to move the money.

BTW, since all your funds are in IRAs, it will make arranging your asset allocation simpler. If you had a mix of IRAs and "regular" after tax accounts, there would be some value in preferentially putting "tax inefficient" assets (e.g. bonds) in your IRA and putting more tax efficient assets (e.g. stocks) in your regular accounts. But, all your accounts are in IRAs, so this won't be a further complication. (If what I wrote above doesn't make sense to you now, don't worry about it. There's a quick primer at this link. But the "takeaway" is that the simplicity of your situation is one more thing that argues for your ability to handle all the management of these funds by yourself--soon).

Another thing: Will you be wanting/needing to see your husband's Vanguard accounts, set up automatic bank transfers on his accounts, etc? If so, talk to Vanguard about sending the paperwork so that you can do this (and so that he can do the same in your accounts, if desired). Yes, as a practical matter you could just share passwords to your online accounts with your husband, but if you get appointed as his "agent" everything is "legit" and if you need to call and ask for help over the phone about his money, Vanguard will talk to you.

 

[karluk]

I would like to take the opportunity to compliment the members of this forum who participated in a most effective hatchet job on OP's CFP. I see that the slander has progressed to the point of accusing said CFP of being a thief, apparently based on no more substantive an issue than OP's transferring money to a Charles Schwab brokerage! I wonder what a Schwab spokesman would have to say if he happens to see this thread?

 

[MichaelB]

Reading all the entries in this thread, I see mostly reasonable and well-intended posts offering helpful and proactive investment advice to Goldenmom. This thread could be useful for other current and future members if it continues along that line.

 

[Sarah in SC]

Wow, missed all this. Interesting.

Hi Golden, I'm a CFP, and glad to have the chance to at least defend my ignoble profession for a few minutes.

So your IRAs are now at Schwab, in cash. That's a fine place for them to be while you get your ducks in a row, investment education wise.

You will want to put in writing to your advisor that you want your accounts to remain in cash for a little while, and to make no purchases. He will most assuredly not want to go against your written wishes.

Once you've confirmed that the IRAs will remain in cash, you can do some comparison shopping among the various places. Schwab is the custodian (that's the industry term for where your IRAs "live") we use, so I'm very familiar with their offerings.

Many of the stock and bond funds you may wind up purchasing can be bought right there at Schwab, if you wish, there is no need to move the funds to another custodian, unless you have a compelling wish to do so. So you could buy Vanguard, Fidelity, Oakmark, or whatever funds through their platform. Again, that is if you wish to keep them there rather than move to Vanguard or wherever.

Many of my fellow ER forum folks are incredibly savvy DIY investors who have spent decades in some cases learning about investing and are extremely comfortable with their level of experience and their subsequent choices of investments.

I recognize there are people not quite at this level, myself included, who are always going to be a little less confident in our choices, and I for one always want to be learning more, for my own investing purposes and for work. Please don't be worried that you have so much catching up to do--once you get into learning more about investing, it can actually be fun!

And welcome to the forum, which certainly contains a hefty share of opinions!

 

[karluk]

Reading all the entries in this thread, I see mostly well-intended posts offering helpful and proactive investment advice to Goldenmom. This thread could be useful for other current and future members if it continues along that line.

Sorry, MichaelB, but I don't agree at all. To me the tone of this thread is that, no matter how highly rated the investments are that a CFP recommends, he is certain to be accused of being a "charlatan" at best, a thief at worst, unless every single one of his recommendations is a low cost index fund. I consider that anyone reading this thread in the future will think twice about trusting any financial advisor, even one acting as a fiduciary, because of course "everyone knows" that even fiduciaries are all out to line their own pockets at the expense of their clients.

Sorry again for speaking up, but if this thread were representative of the kind of investment advice that one commonly sees on er.org, I would consider that this would be the last place I would go to find objective financial feedback.

 

[CaliforniaMan]

Sorry, MichaelB, but I don't agree at all. To me the tone of this thread is that, no matter how highly rated the investments are that a CFP recommends, he is certain to be accused of being a "charlatan" at best, a thief at worst, unless every single one of his recommendations is a low cost index fund. I consider that anyone reading this thread in the future will think twice about trusting any financial advisor, even one acting as a fiduciary, because of course "everyone knows" that even fiduciaries are all out to line their own pockets at the expense of their clients.

Sorry again for speaking up, but if this thread were representative of the kind of investment advice that one commonly sees on er.org, I would consider that this would be the last place I would go to find objective financial feedback.

I don't know what you mean by the "tone" of this thread. It is just a bunch of anonymous strangers giving their own personal opinions on the subject. And as I read it, most of the posters do not assume the CFP is a charlatan, but rather question if the expense makes any sense.

For example I said in my post 58:
"I don't think the question is whether the CFP is a charlatan or not, but rather does the added extra expense for his/her recommendations make sense.
...
When the expected long term return may be somewhere around 4%, why would you want to give 1.65% to your adviser. You are giving more than 40% of your income to your CFP! Now does that make any sense?
...
This is really not rocket science."

These are the opinions of various anonymous strangers. The "tone" as you say it, is just what you make of it, or what posts you want to single out.

The reader has to take them, collectively or individually for what they are worth, and in the end make their own judgement.

 

[karluk]

CaliforniaMan, I willingly acknowledge that some of the posts in this thread were helpful and avoided gratuitous ad hominem attacks on the CFP. Yours was one of the them, and I apologize if my criticism of this thread as a whole comes across as unfairly including the helpful posts.

But I stand by my criticism of the thread as a whole. Somehow er.org has allowed too many posts in this thread to slander the CFP without any supporting evidence whatsoever. There are lots of places on the internet where lies and slander are the norm. I expected more from er.org.

 

[NW-Bound]

I have accounts at a few different brokerages, including Schwab and Vanguard. Schwab is a fine place to keep my money, and they have some index funds with even lower expense ratios than Vanguard equivalent funds.

I have had my accounts at Schwab for decades vs only a few years with Vanguard. So my opinion may be biased, but Schwab's service is better for no more money.

Vanguard is also a fine place to keep your money, but I do not see it as "the" place.