Financial advisor question.

[GMfitter]

My company doesn't match our 401k and I am not a very savvy investor. I should have gotten professional help years ago, but, water under the bridge.
I am retiring this October. My 401k is just under 400k. How should I go about finding a good FA? Are they willing to help people with small accounts? Is it financially prudent to pay for advice?

 

[davebarnes]

1. Not prudent to pay.
2. Spend 5 hours reading at https://www.bogleheads.org/forum/viewforum.php?f=10
3. Rollover your 401k to an IRA at Fidelity, Schwab or Vanguard. Take control of your money.
4. Edward Jones is evil.

 

[Dtail]

Before any consideration of rolling the 401k into an IRA, do you have a Stable Value fund in your 401k?

 

[pb4uski]

The problem is that it is as much or more work to find a good FA as it is to just do it yourself. There are plenty of very good balanced funds out there that make it easy to DIY and avoid the typical FA charge of 1% of AUM... $4k a year on $400k.

What is your 401k invested in currently? Also, many companies allow you to just leave it in your 401k if you want to.... and if the company offers a good stable value fund or good investment options with low expense ratios or you are over 55 and under 59 1/2 then it might be better to leave it there.

 

[LOL!]

Unfortunately, I agree with the previous response. The cards are stacked against you. The playing field is not level. You are probably screwed. Does that sound too dismal?

A simple solution is to roll your 401(k) over to Vanguard and invest it all in the Vanguard LifeStrategy Moderate Growth fund. But for me to explain why that is a good solution would probably go nowhere until you learn some more things on your own. My apologies.

 

[SumDay]

If you can find a fee only planner who charges a reasonable price for an initial assessment, you'd at least be getting some "professional" advice. I like having someone to bounce ideas off, since DH is totally oblivious.

We found ours here: https://www.napfa.org/

Good luck to you.

 

[target2019]

My company doesn't match our 401k and I am not a very savvy investor. I should have gotten professional help years ago, but, water under the bridge.
I am retiring this October. My 401k is just under 400k. How should I go about finding a good FA? Are they willing to help people with small accounts? Is it financially prudent to pay for advice?

Prescription without diagnosis is malpractice.
No information is given for this 401k, so moving it to an IRA might be a good idea. Or it might be a bad idea. Or...
A lot more info is required. I suggest OP read more, as suggested above, and try to organize the personal facts in a way that allows others to make suggestions.

 

[O2Bfree]

Among other things, an FA will try to sell you mutual funds that have unnecessary fees and higher expense ratios than funds you can buy on your own. For example read about 12B-1 fees:

https://www.investopedia.com/terms/1/12b-1fees.asp

FAs make their living on fees and commissions selling products that are generally proven to be no better than products you can buy yourself.

If you feel you need to talk to an FA, maybe you can find one that will will charge a one-time fee to look over your portfolio and give some advice.

 

[Jerry1]

Who is handling your 401k through work? Most companies use companies like Fidelity and those companies will give you advice as part of their arrangement with your employer. That’s a good place to start.

 

[OldShooter]

1. Not prudent to pay.
2. Spend 5 hours reading at https://www.bogleheads.org/forum/viewforum.php?f=10
3. Rollover your 401k to an IRA at Fidelity, Schwab or Vanguard. Take control of your money.

+1 Pretty much this.

There is some good basic instructional material on bogleheads.org (https://www.bogleheads.org/wiki/Getting_started) but I find the forums themselves to be a little crazy, so I almost never go there. YMMV, of course.

There is quite a good book: "The Bogleheads' Guide to Investing" that you should definitely read. https://www.amazon.com/Bogleheads-Guide-Investing-Taylor-Larimore/dp/1118921283

If, after reading that book, you still feel you need some planning help, take @SumDay's good advice and find someone who will charge you by the hour or charge a fixed price to develop and document a plan. Remember you are hiring a technician, not a friend. Like hiring a lawn service. Good rapport is important, but expertise is more important. Interview, face-to-face, several before choosing.

 

[flintnational]

Whether you obtain an advisor or not, as others have mentioned, first you need to enhance your own knowledge. You need to know enough to identify the pros and cons of hiring an advisor and be able to determine if the advisor is looking out for your or their best interests. Here is a link to the Bogleheads reading list. For a single book recommendation, I like "The Four Pillars of Investing" by William Bernstein.

 

[joeea]

My company doesn't match our 401k and I am not a very savvy investor. I should have gotten professional help years ago, but, water under the bridge.
I am retiring this October. My 401k is just under 400k. How should I go about finding a good FA?

Start here: Financial Advisors & Planning Professionals | CFP - Let's Make a Plan

Are they willing to help people with small accounts?

Some are, yes.

Is it financially prudent to pay for advice?

That depends.

If you are capable of making the right decisions on your own, then perhaps you don't need anyone's help.

If you feel that you can quickly learn everything you need to know about your finances without missing anything important, then perhaps you don't need anyone's help.

If you feel very lucky, you could survey the widely varied and often contradictory opinions here and hope to pick out the right one for you.

Otherwise, it might make sense to spend a few dollars and a few hours with a good financial adviser. Then, you can decide if you need their help going forward or not.

Good luck, no matter what path you choose.

 

[OldShooter]

... If you feel very lucky, you could survey the widely varied and often contradictory opinions here and hope to pick out the right one for you. ...

Well, I guess you could look at it that way, but a couple of things are true:

1) "the right one for you" sounds like one is picking out a car or a sweater. In investing, presumably, one is looking for a strategy that reliably builds wealth with acceptable risk. That is the "right one" for anyone, IMO.

2) There is only one approach, passive investing, that is supported by decades of statistical evidence and academic research. Only one.

There is no reason for anyone to pay attention to SGOTI's opinions here at all. If the OP gets past the Bogleheads book, there are several books by respected authors that explain the evidence. Probably the most famous is "A Random Walk Down Wall Street" by Burton Malkiel. (https://en.wikipedia.org/wiki/Burton_Malkiel) Another is "Winning the Loser's Game" by Charles Ellis. (https://en.wikipedia.org/wiki/Charles_D._Ellis) Check their credentials; neither is just SGOTI. Be sure to get the most current editions of the books.

 

[joeea]

Well, I guess you could look at it that way, but a couple of things are true:

I do enjoy a few good truths.

1) "the right one for you" sounds like one is picking out a car or a sweater. In investing, presumably, one is looking for a strategy that reliably builds wealth with acceptable risk. That is the "right one" for anyone, IMO.

Maybe. I prefer a strategy that gets me to my goals as reliably as possible and with as low risk as possible.

That would be the right one for me.

Your mileage may vary.

2) There is only one approach, passive investing, that is supported by decades of statistical evidence and academic research. Only one.

There is no reason for anyone to pay attention to SGOTI's opinions here at all. If the OP gets past the Bogleheads book, there are several books by respected authors that explain the evidence. Probably the most famous is "A Random Walk Down Wall Street" by Burton Malkiel. (https://en.wikipedia.org/wiki/Burton_Malkiel) Another is "Winning the Loser's Game" by Charles Ellis. (https://en.wikipedia.org/wiki/Charles_D._Ellis) Check their credentials; neither is just SGOTI. Be sure to get the most current editions of the books.

Everyone seems to think they have the "one and only one" approach. I don't know who SGOTI is, nor what you have against them.

Would you agree that "passive investing" is an approach with many differing details?

Would you agree that an investor needs to learn more than just the one term "passive investing" to be successful in their investment goals? Otherwise it sounds like the modern version of "plastics".

 

[OldShooter]

... Everyone seems to think they have the "one and only one" approach. I don't know who SGOTI is, nor what you have against them. ...

True enough, everyone seems to think that, but when you look for statistical evidence and academic research to support their arguments, in all but one case, they fall away.

I am as greedy as the next guy. If someone shows me a better strategy backed by statistical evidence and academic research, I am on it. I don't think such a strategy exists, though, or the crowd that is fighting passive investing would have long since been beating us over the head with it. But I'm open.

SGOTI = Some Guy On The Internet

... Would you agree that "passive investing" is an approach with many differing details? ...

I guess that would be in the eye of the beholder. Nobel prize winner Eugene Fama says it very simply: "You have to hold the market portfolio." IOW, everything. To me, that's pretty simple.

... Would you agree that an investor needs to learn more than just the one term "passive investing" to be successful in their investment goals? Otherwise it sounds like the modern version of "plastics".

Well, not much more. I think that Fama would simply tell that investor to buy VT or VTWSX and be done with it. The only other question for some is whether the investor wants to have a degree of home country bias. That one is a little squishier because it adds the queston of exchange rates to the basic investing question. Fama's research collegue, Kenneth French, discusses home country bias in this short video: https://famafrench.dimensional.com/videos/home-bias.aspx

(I am only talking equities here. I am not a bond guy but of course your investor will need to learn a little about asset allocation at least the effects of various weightings of equities and fixed income.)

Incidentally, I specifically use the word "passive" because the phrase "index investing" has been hijacked by the hucksters. They have been coming up with a plethora of mutual funds with "index" in the name and high fees, trying to convince naive investors that it is passive investing. Even the S&P 500 funds are not really passive. They are a sector bet on US large caps, IOW only about 40% off Fama's "market portfolio."

 

[Running_Man]

If you have no knowledge and want to get 95% of all the advantage of passive investing, there is no need for any investment advice.

Use the standard 60% Stocks 40% bonds and cash putting two years cash in short term instruments (CD's Money market etc) Re-balance once a year subtracting 1% from the stock portion and add one percent to the bond portion and adding one years inflation adjusted of the $15,000 as the original withdrawal, this is a 3.75% withdrawal rate (if inflation was 2% first year take $15,300). Rinse repeat until you are too old to remember how to do this.

Use Vanguard VTI for stocks and Vanguard VBMFX for the bonds. So if you had $400,000 it would be $240,000 in VTI $130,000 in VBMFX and $30,000 in cash.

Every other of the 100,000 threads here is bragging on how to improve on this by minuscule amounts. This method will result in very low fees, keeping more money invested.

Long Term returns (1926 -2016) by stock percentage with worst yearly performance:

20% stock portfolio 6.6% Average annual gain 10.1 Loss worst year
30% stocks 7.2% annual 14.2% Worst Year
40% stocks 7.8% annual 18.4% Worst Year
50% stocks 8.3% annual 22.5% Worst Year
60% stocks 8.7% annual 26.6% Worst Year
70% stocks 9.1% annual 30.7% Worst Year
80% stocks 10.2% annual 34.9% Worst Year
99% stocks 10.2% annual 43.4% Worst Year

 

[joeea]

I guess that would be in the eye of the beholder. Nobel prize winner Eugene Fama says it very simply: "You have to hold the market portfolio." IOW, everything. To me, that's pretty simple.

Hold everything is simple I guess. So no bonds, no cash. Okay.

Sounds like you have found your one true way. Good luck with that.

 

[OldShooter]

Hold everything is simple I guess. So no bonds, no cash. Okay.

No. Fama's statement is with respect to equities. So you can read it as pertaining to the equity tranche of a portfolio that probably also has a fixed income tranche as well.

Sounds like you have found your one true way. Good luck with that.

Yes, serious seven figures worth, although it does not involve a lot of luck. It's just arithmetic, as Nobel prize winner Dr. William Sharpe explains: https://web.stanford.edu/~wfsharpe/art/active/active.htm

It is stock-pickers that need good luck to succeed. In fact stock picking is basically all luck.

@GMfitter, history says you will not go far wrong following @Running_Man's advice, and he did not even charge you a fee for it. It is the rare FA who will beat that portfolio net of fees. I might quibble about the 100% home country bias, but as he implies, it would be second-order optimization.

 

[joeea]

No. Fama's statement is with respect to equities. So you can read it as pertaining to the equity tranche of a portfolio that probably also has a fixed income tranche as well.

Got it.

So you don't need an adviser because passive investing is the one and only answer you need - as long as you are only concerned with equities.

 

[OldShooter]

... So you don't need an adviser because passive investing is the one and only answer you need - as long as you are only concerned with equities.

Pretty much. I'll refer you to @Running_Man's post for details.

One of the last points I make in my investing class is this: Investing is boring. If you're not bored, you're doing it wrong.

I spent about 30 years doing it wrong, so probably I am a slow learner.

 

[SnowBound]

My company doesn't match our 401k and I am not a very savvy investor. I should have gotten professional help years ago, but, water under the bridge.
I am retiring this October. My 401k is just under 400k. How should I go about finding a good FA? Are they willing to help people with small accounts? Is it financially prudent to pay for advice?

GMfitter: Could a few more details be provided? Any debt, rentals, extra house, etc. If you have a pension with with a COLA, you probably can manage this yourself (Vanguard S&P500 fund with 0.05% fee). But everyone here likes:

1) Providing (mostly great) advice.

2) Saying not so great things about FA's.

 

[24601NoMore]

1. Not prudent to pay.
2. Spend 5 hours reading at https://www.bogleheads.org/forum/viewforum.php?f=10
3. Rollover your 401k to an IRA at Fidelity, Schwab or Vanguard. Take control of your money.
4. Edward Jones is evil.

Respectfully disagree with (1) - it's absolutely reasonable to pay a FEE ONLY FA for help. That might be $1-2K in fees for invaluable advice and an actual plan that you can follow independently. Sure, you can spend a lot of time (dozens and dozens of hours) trying to figure things out on your own, but the Fee-Only FA is likely to have decades of experience that you won't be able to quickly replicate/replace. (That said, the trick is finding one that is truly Fee Only - and that uses Vanguard or other low cost funds..that's the other part that's often somewhat challenging to do..)

I've studied markets and investing for 30+ years, and most FO advisors are similar or even more. You just can't replicate that type of knowledge reading forums or books for a few hours..

(FWIW, I know the response to this will likely be "put everything in a combination of VG Total Market and Total Bond according to your AA based on age", but I think there is far more to successful Portfolio Management and Financial Planning than that).

I'd never, under any circumstances, pay a "Assets Under Management" (AUM) fee to anyone. That's simply highway robbery, but far too many people (IMHO) are willing to do so - in many cases because they simple do not know any better.

 

[24601NoMore]

Use the standard 60% Stocks 40% bonds and cash putting two years cash in short term instruments (CD's Money market etc) Re-balance once a year subtracting 1% from the stock portion and add one percent to the bond portion and adding one years inflation adjusted of the $15,000 as the original withdrawal, this is a 3.75% withdrawal rate (if inflation was 2% first year take $15,300). Rinse repeat until you are too old to remember how to do this.

Hmmm..not sure a 60/40 AA is right for everyone. Circumstances (and age) vary.

My own AA is less than 30% stocks..mid 50s.

 

[24601NoMore]

It may also be interesting to note that there is NO MONEY in being a Fee-Only Advisor. Getting $1-3K for a comprehensive plan is not even covering core costs for most who do it well, but that's the max the market will bear.

So, most FA's want to do AUM (Assets Under Management) at 1-2% of your portfolio value.

Let's say you have a $1M portfolio. AUM advisors will want $10-20K YEARLY to "manage" your portfolio, which generally involves..not doing that much once the initial AA is set. Maybe quarterly reports...Christmas and Birthday cards. That's pretty much it. And for that, they get $10-20K PER YEAR, EVERY YEAR?

You'd be much better off finding a Fee-Only Advisory, paying $1-3K for a good plan, and following it.

Problem is..there's no money in being a FO Advisor ($1-3K per client is horrible compared to $20K/year per client), so finding a good one is like tracking down a purple unicorn. The only TRULY good ones do it for the love of doing it - they don't / can't do it for the money.

 

[Bir48die]

I'd never, under any circumstances, pay a "Assets Under Management" (AUM) fee to anyone. That's simply highway robbery, but far too many people (IMHO) are willing to do so - in many cases because they simple do not know any better.[/QUOTE]

Dang! Uh huh uh huh. I guess I just don't know any better. Duh. I must be a moron. If I just would have studied harder.

Nice blanket statement.