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.
Bond Funds in Retirement
- Thread starter Goldenmom
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Not sure I can help, but I see people in bond funds for two reasons.
1. As an asset that is uncorrelated to the stock portion of a portfolio in the long run and, perhaps, for something that is anti-correlated in the short run
2. As a source of dividends.
This particular fund is highly rated by Morningstar. However, it isn't a bond fund. It's a stock fund, according to Morningstar. Large Cap Growth.
1. As an asset that is uncorrelated to the stock portion of a portfolio in the long run and, perhaps, for something that is anti-correlated in the short run
2. As a source of dividends.
This particular fund is highly rated by Morningstar. However, it isn't a bond fund. It's a stock fund, according to Morningstar. Large Cap Growth.
golfnut
Full time employment: Posting here.
To avoid high expense ratios, check out Vanguard or Fidelity index bond funds. You can easily find expense rations less than .25.
Some suggestions - check out the Morningstar discussion forum and the Bogleheads forum.
Also, check out some books authored by John Bogle, Larry Swedroe, and Rick Ferri. They all have easy to read books on mutual funds and asset allocations.
Then, decide if you really need a CFP and the 1% fee.
You'll save some coin.
Good Luck.
Some suggestions - check out the Morningstar discussion forum and the Bogleheads forum.
Also, check out some books authored by John Bogle, Larry Swedroe, and Rick Ferri. They all have easy to read books on mutual funds and asset allocations.
Then, decide if you really need a CFP and the 1% fee.
You'll save some coin.
Good Luck.
As an investor that follows Bogle's concepts of keeping costs lows, I wouldn't touch any fund with 0.82% expenses. Guess I wouldn't pay someone 1% of my portfolio each year to manage it either. Instead, I'd consider the advise I was given and look for a Vanguard fund or mix of funds that did something somewhat similar and then invest the money myself....assuming I liked the advise.
Edit - BTW - can go to something like Yahoo.com and plot NPFFX vrs something like the S&P 500 over time. Looks like the 500 performed better than NPFFX over the last 5 yrs at least. And one can buy a extremely low cost 500 fund at Vanguard (VFINX, 0.17% expense ratio)
Edit - BTW - can go to something like Yahoo.com and plot NPFFX vrs something like the S&P 500 over time. Looks like the 500 performed better than NPFFX over the last 5 yrs at least. And one can buy a extremely low cost 500 fund at Vanguard (VFINX, 0.17% expense ratio)
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And to add to my comments, if your CFP is promoting this as a bond fund, then something is terribly wrong.
You're welcome. But I'm still a little confused. Is your CFP recommending this fund as a stock fund for you? Are the original questions about yield and expense ratio still something you're wondering about?
If it is, you're going to get a myriad of opinions on this one.
There will be "total return" advocates vs. "dividend return" advocates
There will be "index funds always" vs. "managed funds & index funds mix" advocates
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nun
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Some other posts have pointed out that you should be really worried by the 1% the CFP is charging you. Have a Google for "bogleheads" and "couch potato portfolio". You'll save lots of money on fees and probably do better than most investment managers.
+1
Plus some good reads out there to help you out including two below. Easy reads and often available at used book bookstores such as Half Price Books (where I got mine)
The Intelligent Asset Allocator. How to Build Your Portfolio to Maximize Returns and Minimize Risk. McGraw-Hill, New York, 2000, ISBN 0-07-136236-3.
The Four Pillars of Investing. Lessons for Building a Winning Portfolio. McGraw-Hill, New York, 2002, ISBN 0-07-138529-0.
Just to bring this back on topic, I would agree with the others that I avoid the funds with high fees.
I personally would consider a CFP if and only if they were one time fee (unless I asked them to rebalance portfolio for me and paid them accordingly), and they didn't suggest high yield and high expense funds. But that's JMHO.
scrabbler1
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To me, the 1% you are paying the CFP is a far bigger and avoidable drain on your rate of return than the fund's actual fees. You can far better advice and at no charge by reading the advice in this forum and in Bogleheads.
Yes, this fund is in our investment proposal and I am still confused about the yield vs. expense. I welcome your opinion and thank you for taking your time.
Thanks for the sound advice. Sounds like you are living the dream. I am extremely impressed with you!
nun
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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?
Not sure we ever specifically answered your question above.
The cost of owning the fund is 0.82% + 1% = 1.82% per year
The value you are getting is 0.51% per year + any increase in value of the fund (assuming you sell it)
So to make money, the fund would need to increase in value at a rate of
1.82 - 0.51 = 1.31% per year to make money. That's a fairly small amount for a stock fund but one achievable through much lower cost index funds.
If I'm incorrect on above analysis, others please feel free to correct, thx.
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.
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.
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
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.
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.
Where can I find sample portfolios on this site? That would really help me. Thanks!
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.
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!
big-papa
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