Here's what my 1% fee Fidelity Portfolio Advisors have me in

[dex]

The OP is getting a lot of great research and insights into investing from posters.

 

[clifp]

The OP is getting a lot of great research and insights into investing from posters.

Yes he is. Some non-investing insights may also be valuable.
"[FONT=Arial, Helvetica, sans-serif]Experience is a dear teacher, but fools will learn at no other"
Ben Franklin
[/FONT]"It is necessary for us to learn from others' mistakes. You will not live long enough to make them all yourself."
Hyman Rickover
There is only one thing more painful than learning from experience and that is not learning from experience."
Archibald McLeish

 

[ERD50]

OK REWahoo. Sarcasm/humor/ribbing - fine and overlapping line, but I'll dispense with all that in an attempt to move more directly to the "learn something" area...

Hmmm, had something typed up, but changed my mind. I'll cut right to the second part of Kabekew's post:

And why the antagonism here? You guys seem really bitter about something.

Kabekew - go back and read your first few posts. Had you said something to the effect:

"Hey, I decided to pay these guys 1% to manage this money - what do you think versus DIY? Would it be hard to duplicate this? How can I determine if I'm getting my money's worth or not?" I suspect you would have gotten some good replies w/o the ribbing.

But, the way you came across was:

"Hey, I decided to pay these guys 1% to manage this money and I put together a portfolio based on nothing I'm going to share, and these guys beat the crap out if recently. So I know I'm right and there is nothing you can say to make me think otherwise".

It's not realistic to come here with an attitude, and not expect a little in return. You've already got a lot of good info from the previous posts. If you don't want to avail yourself of it, and chose to ignore the studies/books that many of us have spent time pouring over, that's your choice.

But why ask in the first place?

-ERD50

 

[Kabekew]

But why ask in the first place?

Hmmmm, maybe that's the misunderstanding here. I wasn't asking for anything, I was contributing a sample portfolio of what "professionals" are currently putting a near-retiree in, who wants to pay no taxes or only minimal long term capital gains rates instead of paying higher ordinay income rate on dividends like from an income fund.

If you don't like my free contribution, don't read it!

How about we just agree to disagree, you continue doing everything yourself while I use professional advisors, let's not worry about each other, and just move on to the next thread?

And sorry for any earlier sarcasm, I'm not here to make enemies.

 

[ERD50]

Hmmmm, maybe that's the misunderstanding here. I wasn't asking for anything, I was contributing a sample portfolio of what "professionals" are currently putting a near-retiree in, who wants to pay no taxes or only minimal long term capital gains rates instead of paying higher ordinay income rate on dividends like from an income fund.

If you don't like my free contribution, don't read it!

How about we just agree to disagree, you continue doing everything yourself while I use professional advisors, let's not worry about each other, and just move on to the next thread?

And sorry for any earlier sarcasm, I'm not here to make enemies.

OK, a misunderstanding then. It happens. Sorry.

I can see the "contributing a sample portfolio of what "professionals" are currently putting a near-retiree in", but I guess I (and others) lost that and went on the other track when you brought up your proxy portfolio for comparison. Unless it's apples-to-apples, it just doesn't do anything for us, so I didn't get the point. Went downhill from there.

So anyway. For this example, the pros will put us in 42 funds with somewhat higher exp ratios than index funds, and charge an added 1% on top of that. In return, we would hope for some combination of improved tax efficiency and/or improved market returns, such that the net is a higher after-tax return than a simple DIY. And for an $800K account, that would need to be north of $8,000/year advantage, to overcome the fees to come out ahead.

However, w/o a reasonable proxy DIY portfolio, we will probably never know if they provided an advantage or not.

Does that sum it up?

If so, let's just leave it a that, and recognize that this forum isn't too supportive of the idea that the "pros" are able to consistently outperform a relatively simple DIY strategy, largely due to the extra fee/expense drag down. Those people either collectively have their head in the sand, or maybe there is something to it. Hang around, and maybe you'll get a sense of why that is.

So, welcome to the forum - see ya' in the next thread.

-ERD50

 

[dex]

If so, let's just leave it a that, and recognize that this forum isn't too supportive of the idea that the "pros" are able to consistently outperform a relatively simple DIY strategy, largely due to the extra fee/expense drag down. Those people either collectively have their head in the sand, or maybe there is something to it. Hang around, and maybe you'll get a sense of why that is.

So, welcome to the forum - see ya' in the next thread.

-ERD50

I was just reminded of what Dale Carnagie said in his book "How to Win Friends and Influence People"

When a man asks how you like his tie, after he bought it, he is not looking for your true opinion, he is looking for your approval. After all, he went to the store, made his choice and paid his money. So, for you to tell him you don't like his tie is to tell him he made several bad decisions.

 

[ERD50]

I was just reminded of what Dale Carnagie said in his book "How to Win Friends and Influence People"

When a man asks how you like his tie, after he bought it, he is not looking for your true opinion, he is looking for your approval. After all, he went to the store, made his choice and paid his money. So, for you to tell him you don't like his tie is to tell him he made several bad decisions.

You are correct dex. I took the first posts as someone looking for an evaluation. That apparently was not the case, and I was slow to pick up on it, or blind to it once I joined the debate.

But that's OK, I often find a silver lining in these things. It reminded me that we should all do an occasional review of the tax efficiency of our portfolios. I have to look at that in the reverse of the usual, and try to move liabilities up rather than defer them - looks like my Fed taxes this year are about $100 total. Between Education and Child credits and deductions, that's all I owe (in total, not the flaky "refund/due" accounting) despite some income from DW part-year job, and a $3,000 Trad-to-Roth conversion.

-ERD50

 

[FinanceDude]

Hmmmm, maybe that's the misunderstanding here. I wasn't asking for anything, I was contributing a sample portfolio of what "professionals" are currently putting a near-retiree in, who wants to pay no taxes or only minimal long term capital gains rates instead of paying higher ordinay income rate on dividends like from an income fund.

If you don't like my free contribution, don't read it!

Well, as a professional advisor, I think 42 funds are way too many. Find out WHOM put this portfolio together, your advisors or someone else?

You could probably duplicate this portfolio with ETF's and a couple funds. If you are getting good results and like the advisor, noone's going to change your mind. However, you DID ask if you should be doing things yourself.........

 

[saluki9]

Well, as a professional advisor, I think 42 funds are way too many. Find out WHOM put this portfolio together, your advisors or someone else?

You could probably duplicate this portfolio with ETF's and a couple funds. If you are getting good results and like the advisor, noone's going to change your mind. However, you DID ask if you should be doing things yourself.........

As another person here in the business I will add this.

I have looked at the statements of hundreds of individual investors over the last 11 years with portfolios from the low six figures to the high 8 figures.

If the biggest problem most of them had was that they had index like performance minus 2% in fees it would have been AN ABSOLUTE GIFT for most of them. The average investor does a TERRIBLE job with their investments. It's nice to tell people to read a book, compile a portfolio of index funds and wait, but most people don't have the stomach for it and they bail before ever seeing anything even close to index returns.

If the OP is anything like the typical retail investor he will do better having some hand holding, and possibly other services from Fido.

 

[Kabekew]

You could probably duplicate this portfolio with ETF's and a couple funds.

I could, but I think the idea is to spread everything out, with some funds performing flat or negative, some at market average, and some above market average. Then when I withdraw my annual retirement payments, I take it out of the lowest-performing funds and pay lower taxes versus cashing out a straight index fund.

 

[harley]

I could, but I think the idea is to spread everything out, with some funds performing flat or negative, some at market average, and some above market average. Then when I withdraw my annual retirement payments, I take it out of the lowest-performing funds and pay lower taxes versus cashing out a straight index fund.

Just because a fund is performing poorly is no guarantee it won't throw off a ton of capital gains, both short and long term. As a matter of fact, it's often the case since the managers are freaking out trying to trade into something that makes them look good. This strategy might work with individual stocks, though.

 

[Grep]

I could, but I think the idea is to spread everything out, with some funds performing flat or negative, some at market average, and some above market average. Then when I withdraw my annual retirement payments, I take it out of the lowest-performing funds and pay lower taxes versus cashing out a straight index fund.

Is that what Fidelity told you? It sounded to me like your CPA was postulating excuses for them.

By the way, if your portfolio did better by 2% per year (that is, the approximate overhead of your management fees), for say 8-10% instead of 6-8% returns on average, wouldn't the extra 25% or more per year cover an awful lot of taxes, especially after compounding?

 

[Grep]

If the biggest problem most of them had was that they had index like performance minus 2% in fees it would have been AN ABSOLUTE GIFT for most of them.

I agree. But one problem is that many "hand-holders" won't stop at even 2%. My friend was the victim of 8% front-end loads on some of her funds, which she wasn't even aware [-]had been stolen from her[/-] she had paid.

 

[target2019]

Hmmmm, maybe that's the misunderstanding here. I wasn't asking for anything, I was contributing a sample portfolio of what "professionals" are currently putting a near-retiree in, who wants to pay no taxes or only minimal long term capital gains rates instead of paying higher ordinay income rate on dividends like from an income fund.

Interesting thread, have been reading on and off for a few days.
Kabekew, if you don't mind my asking, how did you come to choose Fidelity? Did you pick them because of advertising, or on the recommendation of someone else, or for several reasons? Where there other candidates you investigated?

 

[ERD50]

As another person here in the business I will add this.

I have looked at the statements of hundreds of individual investors over the last 11 years with portfolios from the low six figures to the high 8 figures.

... The average investor does a TERRIBLE job with their investments. ...

If the OP is anything like the typical retail investor he will do better having some hand holding, and possibly other services from Fido.

OK, but just because the average person you have observed *has* done poorly, there is no reason that they *need* to do poorly.

Especially if they come to this forum for some advice, resources, and perspective. It's easy to do it wrong, but I don't think it is hard to do it right. You just need to get the basics.

-ERD50

PS - That is just a general comment, not directed at the OP in any way.

 

[ERD50]

This thread got me thinking about the tax efficiency aspect that the OP brought up. Not trying to change any minds here, just trying to understand if I'm looking at this correctly. If I am, I fail to see how paying 1% to gain tax efficiency can be beneficial.

Take the case of a retiree following the typical 4% SWR plan, and investing in index or other funds that don't kick off a lot of annual capital gains (until you decide to sell some). That person shouldn't have any more realized gains than what they withdraw.

So, let's make the generous* assumption that the entire 4% withdraw from this portfolio is taxable at a 25% marginal rate (the average tax rate would likely be much lower). 25% of 4% is.... 1%. So, it would seem like the best they could do is break even if they eliminated all taxes - and that would also imply no dividends or taxable interest from that portfolio, since those are not offset by capital losses.

And of course, harvesting losses now tends to increase the unrealized gains in the portfolio, which just delays the inevitable. It may help, but it's still no "free lunch", it could even possibly work against you, depending on future tax rates.


Does that sound about right?

* - I say "generous" because any equities sold (maybe to rebalance a portfolio) would not be fully taxable unless their cost basis was essentially zero.

-ERD50

 

[FinanceDude]

I agree. But one problem is that many "hand-holders" won't stop at even 2%. My friend was the victim of 8% front-end loads on some of her funds, which she wasn't even aware [-]had been stolen from her[/-] she had paid.

Who charges 8% on funds? I haven't heard of that since the 70's.........

 

[FinanceDude]

This thread got me thinking about the tax efficiency aspect that the OP brought up. Not trying to change any minds here, just trying to understand if I'm looking at this correctly. If I am, I fail to see how paying 1% to gain tax efficiency can be beneficial.

Take the case of a retiree following the typical 4% SWR plan, and investing in index or other funds that don't kick off a lot of annual capital gains (until you decide to sell some). That person shouldn't have any more realized gains than what they withdraw.

So, let's make the generous* assumption that the entire 4% withdraw from this portfolio is taxable at a 25% marginal rate (the average tax rate would likely be much lower). 25% of 4% is.... 1%. So, it would seem like the best they could do is break even if they eliminated all taxes - and that would also imply no dividends or taxable interest from that portfolio, since those are not offset by capital losses.

And of course, harvesting losses now tends to increase the unrealized gains in the portfolio, which just delays the inevitable. It may help, but it's still no "free lunch", it could even possibly work against you, depending on future tax rates.


Does that sound about right?

* - I say "generous" because any equities sold (maybe to rebalance a portfolio) would not be fully taxable unless their cost basis was essentially zero.

-ERD50

Hey, at least OP can get a deduction for investment management off his taxes.........

 

[Grep]

Who charges 8% on funds? I haven't heard of that since the 70's.........

I don't recall the fund name, if she told me at all. She was embarrassed that she had been so taken or gullible. She was sold the funds by her local bank. I wonder why they sold her into these particular egregiously-expensive funds? Could it be that her friendly local bank cared more about collecting its fat sales fees than about her financial health, and merely chose the most expensive funds? Say it ain't so! This was 5 or 10 years ago, and she's doing much better now.

But it's still easy to find funds with very high loads. American Funds, at 5.5% or so (last time I heard), is one well-known example. I'm sure there are worse.

 

[FinanceDude]

But it's still easy to find funds with very high loads. American Funds, at 5.5% or so (last time I heard), is one well-known example. I'm sure there are worse.

American Funds equity funds:

$1- $24,999 - 5.75%

$25,000-$49,999 - 5.0%

$50,000-$99,999 - 4.5%

$100,000-$249,999 - 3.5%

$250,000 - $499,999 - 2.5%

$500,000 - $749,999 - 2.0%

$750,000 - $999,999 - 1.5%

$1 million plus - NAV

Just to be precise.........

 

[Grep]

So, let's make the generous* assumption that the entire 4% withdraw from this portfolio is taxable at a 25% marginal rate (the average tax rate would likely be much lower). 25% of 4% is.... 1%. So, it would seem like the best they could do is break even if they eliminated all taxes - and that would also imply no dividends or taxable interest from that portfolio, since those are not offset by capital losses.
...
Does that sound about right?

-ERD50

Yes, just my point. The notion of paying 1.85% instead of ~0.15% for "tax awareness" falls apart when it's recognized that the 1.6% difference itself would likely cover all of the taxes on withdrawals. Indeed, it would be very easy for the active-management scenario to come out behind.

 

[Grep]

American Funds equity funds:

Just to be precise.........

Great. Or, actually, astoundingly horrible!

But hey, convince an extra pensioner to put her CD in the fund and you've got your boat payment for the month! If you smile enough as you promise the sky, the old lady is none the wiser, and everyone else is happy!

 

[ERD50]

American Funds equity funds:

$1- $24,999 - 5.75%

$25,000-$49,999 - 5.0%

$50,000-$99,999 - 4.5%

$100,000-$249,999 - 3.5%

$250,000 - $499,999 - 2.5%

$500,000 - $749,999 - 2.0%

$750,000 - $999,999 - 1.5%

$1 million plus - NAV

Just to be precise.........

Of course, *if* one were to split a $800,000 portfolio across 42 funds, that would be about $20,000 in each fund, getting into that 5% range.

-ERD50

 

[samclem]

Interesting discussion regarding the fees overwhelming any potential tax benefit. "25%" just sounds so much greater "1%", I think many folks probably miss the picture on the relative total, cumulative costs of taxes and investment expenses. The only way the fees can make any sense is if an investor believes the manager will somehow increase his/her total returns by at least the same amount.

 

[saluki9]

Of course, *if* one were to split a $800,000 portfolio across 42 funds, that would be about $20,000 in each fund, getting into that 5% range.

-ERD50

Uhh not quite

The aggregate purchases are considered together for the load.