Bond Funds in Retirement

[bmcgonig]

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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[nun]

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.

 

[FreeBear]

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...

 

[hnzw_rui]

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.

 

[Whisper66]

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-center/articles/couch-potato-cookbook

 

[MonkeyMan]

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.

 

[samclem]

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!

 

[pb4uski]

....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.

 

[samclem]

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.

 

[Goldenmom]

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

 

[MRG]

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.

 

[samclem]

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.

 

[Goldenmom]

CFP says load are waived. What does ER mean? I am a complete novice but trying to learn.

 

[samclem]

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.

 

[big-papa]

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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[Goldenmom]

I have now added the expenses for each asset in the CFP’s recommended portfolio. Please provide feedback when you have time. Thanks!
8.4% - SCHA – Schwab US Small-Cap ETF – 0.08%
[FONT=&quot]12% - SCHM – Schwab US Mid-Cap ETF – 0.07%[/FONT]
12% - SCHX – Schwab US Large Cap ETF – 0.04%
2.5% - NPFFX – American Funds New Perspective F1 – 0.82%
2.5% - OAKGX – Oakmark Global 1 – 1.11%
3.8% - IVVYX – Ivy International Core Equity Y -1.27%
3.8% - SCHF – Schwab International Equity ETF – 0.08%
5% - BREFX – Baron Real Estate Retail – 1.32%
3% - Cash
12% - LALDX – Lord Abbett Short Duration Income A – 0.59%
7.5% - PDBAX –Prudential Total Return Bond A - 0.83%
7.5% - BICAX – Sterling Capital Total Return Bond A – 0.81%
5% - BASIX – BlackRock Strategic Income Opps Inv A - 0.90%
5% - MASAX – Main Stay Unconstrained Bond A - 0.98%
10% - TPINX – Templeton Global Bond A – 0.89%

 

[CaliforniaMan]

Before you meet with your planners next week you really need to educate yourself about funds, fees, and expenses. Vanguard has a good model portfolio selection tool, based on your needs, that you can start with. Try this first, it is very easy to use and will give you specific recommendations of low cost funds you can use on your own without an expensive "adviser."
https://personal.vanguard.com/us/funds/tools/recommendation

You can then click on the recommendations for the specific information on that fund, including the expense ratio.

An overview of portfolio allocations models are given here:
https://personal.vanguard.com/us/insights/saving-investing/model-portfolio-allocations

Then do some probing with them to see why they want to put you into higher expense funds in addition to charging you the 1% fee. You can report what they tell you here if you want feedback. Good Luck!

 

[Goldenmom]

If we moved our IRAs to Vanguard would they be able to send monthly draws from our funds the way we have it set up now, and would they help us with RMD next year when my husband is 70 1/2? How do the distributions work? Thanks!

 

[samclem]

If we moved our IRAs to Vanguard would they be able to send monthly draws from our funds the way we have it set up now, and would they help us with RMD next year when my husband is 70 1/2? How do the distributions work? Thanks!

Yes and Yes, no problem.

There are many ways to handle withdrawals from your accounts. It's easy to set up an automatic fund transfer from Vanguard to your bank account--you can set it for any amount, any frequency you want. And Vanguard (or any other fund company) will tell you every year how much your husband's RMD is for the coming year (for the accounts you have with them).

Regarding your funds--dang, those expenses on the non-Schawb funds are worse than I feared. You can set up a much simpler portfolio yourself, one that you'll understand and which makes sense, and costs you a LOT less in fees.

 

[Goldenmom]

Thanks, and what portfolios do you favor? We are retirees. Apologies if you answered this already. I have a lot of helpful replies and need to reread them all.

 

[samclem]

Thanks, and what portfolios do you favor?

Yep, I already chimed in with the long-winded post here. In a nutshell--I recommend you not hop right to the construction of a portfolio before you take some preparatory steps. You shouldn't feel any pressure to get this done immediately.

But if you just want to make one right now anyway, I think California Man gave some very good advice in post #42. The Vanguard site can help you determine your requirements and build a suitable portfolio. Answer the questions at his first link and give careful thought to each one (remember that the "pensions" it asks about includes any Social Security you'll receive). Then go to the second link and look at the attributes of some sample portfolios. You'll probably come away with some very useful insights into what would work for you.
You can always come back here and post questions about constructing a portfolio (I'd recommend you start a new thread for that, this one has drifted far away from the subject line).

If you look at the answers you've received already you know that many here believe you should end your relationship with this CFP. I agree.

 

[bmcgonig]

I've been in the board for many years now, and I don't think you will find one soul that doesn't think that this CFP is a charlatan. Truly. The first thing you should do is just don't go back to him. Then take time to learn about this yourself. One good book will give you enough knowledge to be capable. Then you can go from there. But, truly, this CFP is NOT the way to go.


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[hnzw_rui]

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.

 

[Birchwood]

I may not be adding much to the excellent opinions here. To answer the question: Bond funds in retirement, bond funds should be a part of asset allocation and the main reason is not to make as much as stocks, but to stabilize your portfolio in volatile situation, like the coming recession and or bear market(if it comes). When the bear market comes and the S&P is losing 35%, the BF may be losing just a tiny fraction or may be gaining 1%.
I've read in WSJ, to put some in Vanguard Intermediate term BF.

 

[karluk]

I've been in the board for many years now, and I don't think you will find one soul that doesn't think that this CFP is a charlatan. Truly. The first thing you should do is just don't go back to him. Then take time to learn about this yourself. One good book will give you enough knowledge to be capable. Then you can go from there. But, truly, this CFP is NOT the way to go.

Well, I guess this will be a first for you then, but please include me among the souls who DON'T think that this CFP is a charlatan. In fact, I would go so far as to say that the posts in this thread which go out of their way to trash the CFP's integrity are doing a serious disservice to OP's search for unbiased investment advice.

Based on what OP has posted, the CFP has proposed investments consisting exclusively of highly rated ETFs and mutual funds and, where applicable, has waived any front end loads. I don't see the slightest evidence that the CFP is trying to make extra profit at OP's expense by the selection of the mutual funds in the proposed portfolio.

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. Quoting from the cfp.net website:

FIDUCIARY STANDARD

What is the “fiduciary standard of care?”

The fiduciary standard of care requires that a financial adviser act solely in the client’s best interest when offering personalized financial advice.

Who follows the fiduciary standard?

Under federal law, in particular the Investment Advisers Act of 1940, investment advisers are regulated by the Securities and Exchange Commission (SEC) or appropriate state authorities and are required to provide services to their customers under the fiduciary standard. CERTIFIED FINANCIAL PLANNER™ professionals providing financial planning services also must abide by the fiduciary standard, as defined by CFP Board.

Fiduciary Standard

Now, whether the CFP's advice is worth the 1% fee he is charging is another matter. Along with many others on this forum, I am a do it yourself investor and know perfectly well I could put together a portfolio that would perform similarly to the CFP's recommendations, which appear to be basically a 50% stocks, 47% bonds, 3% cash asset allocation.

But OP admits to being a novice at investing, NOT a DIYer. 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.