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Looking for mutual fund advice
Old 08-12-2013, 01:28 PM   #1
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Looking for mutual fund advice

My wife and and are looking to retire in January. We will have about $520k to invest from our 401ks. I am looking at the following funds:
FSCHX, FAGIX, SPHIX, VGSLX, VTMSX, VEIPX, VTGLX, VWINX, PRFDX, NSEIX, and WHIYX. I would distribute fairly evenly between the funds. Would it be reasonable to expect these funds to produce $35,000 a year in income? We do plan to consult an advisor soon, but I would like to hear any opinions from here.
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Old 08-12-2013, 01:35 PM   #2
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Welcome. I think that you may have the cart before the horse. First you will probably want to decide on an asset allocation, then decide how much you can safely withdraw each year.

Great reading selection here: Investment Books

My favorite is the Boglehead's Book.
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Old 08-12-2013, 01:39 PM   #3
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Without knowing your age and other info, hard to tell. But based on those two numbers, I doubt you can safely get a 6.7% income return. Even high yield debt can't get you there. You better learn more risk and reward before even talking to an adviser, otherwise you may get pitch on some high fee annuity that will "guarantee" 7 or 8% return.
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Old 08-12-2013, 02:15 PM   #4
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Would it be reasonable to expect these funds to produce $35,000 a year in income?
Sure, for about 10 years, then you might be broke.

As others have said, age, SS, pensions (when, cola'd, not-cola'd)? Get a bit informed before you talk to an advisor. With a little bit of info, you will probably decide you don't need an advisor. You'll get plenty of feedback once you post those numbers.

Going to an advisor w/o first knowing some basics is like going to a car dealer before you know anything about the kinds of cars that might fit your needs. Go to a Ford dealer, and you will be sold a Ford, regardless if a Chevy/Honda/whatever would have been a better match for you.

An consider inflation.

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Old 08-12-2013, 02:49 PM   #5
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I entered these into Morningstar's instant x-ray tool, assuming equal parts of each of these funds, and the yield calculated is 3.15% so the short answer appears to be no. If you are asking about a total return stream then I'm with everyone else. We'd need more info before we could say.

I agree that you'll get plenty of feedback from this group once you provide that info.
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Old 08-12-2013, 03:07 PM   #6
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That's a lot of funds to spread across. I see at least three different companies; Vanguard, T. Rowe Price and Fidelity. Lots of companies give breaks on things like fees and extra perks for having certain balances in the fund or under the companies management. Are you really looking at spreading a half million across 11 funds with 3 companies or are you still checking them out? I very strongly advise more research on your part before talking to a financial adviser. Far too many are sales people, that will sell you something that benefits them more than you. You have to know enough to tell the difference if you are going that route. If your adviser tries to sell you a variable annuity you probably want to run.
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Old 08-12-2013, 03:26 PM   #7
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Sign nothing with an advisor until you throughly understand fees. Front end loads still exist(and people pay them), rear end loads and deffered sales charges. Oh yea my favorite 12b1 fees.

MRG
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Old 08-12-2013, 03:38 PM   #8
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Originally Posted by allsmiles View Post
Would it be reasonable to expect these funds to produce $35,000 a year in income?
At a nominal 3% return you'll be down to zero in less than 20 years.

5% and you'll be down to zero in about 27 years.

And that does not include inflation, sequence of returns, or that you'll even have all positive return years.
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Old 08-12-2013, 03:47 PM   #9
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Are you going to roll over the 401k's to IRAs (rather than take the tax hit on >$500,000 if you were to cash the 401k's out)? A couple of your Vanguard choices are tax-managed (VTMSX, VTGLX) which I am not sure but I would think is not necessary if the money will stay inside the IRA?
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Old 08-12-2013, 03:52 PM   #10
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Good question Bestwife, also the OP didn't mention age. Some 401k allow for penelty free withdrawls after 55, the 591/2 applies to some 401k and all IRAs.

I'm keeping some in my 401k, as plan B. from 56 to 59.5.

MRG
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Old 08-12-2013, 07:26 PM   #11
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It fairly easy to get a sense as to whether $35k a year is possible. Look at the weighted average return of your proposed portfolio for the last 1, 3, 5 and 10 year periods. I'm guessing that the longer periods are well below the 6.7% you desire.
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Old 08-13-2013, 06:47 AM   #12
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Good question Bestwife, also the OP didn't mention age. Some 401k allow for penelty free withdrawls after 55, the 591/2 applies to some 401k and all IRAs.

I'm keeping some in my 401k, as plan B. from 56 to 59.5.

MRG
I thought about doing that, but it seems you have to actually work up to the year in which you turn 55 to qualify to pull money out of a 401k with no penalties. Since I am pulling the plug at 48, this option was not available to me.
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Old 08-13-2013, 12:11 PM   #13
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That is a 6.7% withdrawal rate which would seem very risky unless both your time horizon is very short. Do some searches on SWR (safe withdrawal rate) to get more information on choosing a reasonable withdrawal rate.

As mentioned - assuming you are rolling the 401ks to IRAs - why do you need tax managed funds in an IRA?

Also, you need to decide your asset allocation before determining what specifically you want to invest in. It doesn't seem like you have done that.

Also, run Firecalc.

As far as talking to an advisor, read some of threads here about advisors. Vanguard will do a free financial plan for you if you invest $500,000 with them.
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Old 08-14-2013, 01:16 AM   #14
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Well your financial situation is similar to mine. I factored in Social Security as I plan to retire at 60, file early for SS at 62, and use the income from my 401K and small pension to get me by at first and then supplement that income with the SS at 62 so I don't draw down as fast.

I have something to fall back on as we have a small farm and if we draw down too fast we can sell out and move to a rental or retirement home. So I think it is doable but there is not much room for error.
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Old 11-28-2013, 10:10 PM   #15
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Use etf instead of mutual funds. The management fees on mutual funds will make sure you can't live off it. I had 100k in good funds In ten years my adviser made 40 k. After paying their fees I made 15k.
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Old 11-29-2013, 09:50 AM   #16
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Use etf instead of mutual funds. The management fees on mutual funds will make sure you can't live off it. I had 100k in good funds In ten years my adviser made 40 k. After paying their fees I made 15k.
So who made the money, the advisor or the fund? I must be misunderstanding your numbers.

Not sure about head to head ER., funds vs. ETFs

MRG
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Old 11-29-2013, 10:20 AM   #17
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So who made the money, the advisor or the fund? I must be misunderstanding your numbers.

Not sure about head to head ER., funds vs. ETFs

MRG
They split it. Advisors get from .5 to 1 % depending on the fund. The fund takes the rest. With EFTs you can get funds with no adviser charge other than brokerage to buy and sell which would be very little and management fees of .6to .2%. There is a lot left in your pocket. You also have control and don't pay front or rear loads which with mutual funds penalize you when you move the
The free advisers with their business plans are really fund salesman working for fees from the funds they direct you into. They get nothing if you buy ETFs or money market funds.
If you choose broadly traded ETF's based on indexes like the S&P 500 The Nasdaq or various other funds which track sector indexes and a good balance of money market and bond funds you can build a good safe portfolio with low risk.
You need to become educated but the good news is that all the info is on the internet? Read multiple sources and decide which makes spence to you.
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Old 11-29-2013, 01:26 PM   #18
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Sounds like you had an advisor that 'took you to the woodshed'. I understand mutual fund fees. Can't see how you could add up 40k expenses and fees on 100k, even over 10 years. Well I guess anythings possible, most likely me misunderstanding.

Been in funds over 30 years, never paid a 12b1 fee, front end load, or deffered sales charge. I can get index funds at .07 ER. I do agree some free fund advisors will try to sell you on actively managed funds instead of indexed funds.

To me the discussion about funds vs. ETFs is more about how they're bought and sold. Am I contributing every paycheck? A good index fund may be a better choice. Do I feel the need to put a stop loss on? An ETF, would be the only choice.

Best wishes,

MRG
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Old 12-01-2013, 08:31 AM   #19
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Be careful. You can make a simple portfolio: 20% BNDX +20% BND +60% VT. This port will give you a long term real total return of 5% minus expense and tax ratios.

Our ER = 0.2% and TR = 0.4%. So we can expect our port to gain a real 4.4% long term.

Paying high expenses and treating the markets like a casino are the two worst things an investor can do.
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AA = 60/40. AWR = 3.0%. TER = 0.5%. Port Yield = 1.5%. Term = 39 yr. FI Duration = 4.1 yr.
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Old 12-01-2013, 09:05 PM   #20
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Be careful. You can make a simple portfolio: 20% BNDX +20% BND +60% VT. This port will give you a long term real total return of 5% minus expense and tax ratios. Our ER = 0.2% and TR = 0.4%. So we can expect our port to gain a real 4.4% long term. Paying high expenses and treating the markets like a casino are the two worst things an investor can do.
That depends on who you ask. Whereas that portfolio has returned that in the last 50 years, I remember some time back looking at Schwabs retirement calculator and their assumptions were about half that.


http://hgtools.schwab.com/rcal/html/RSCHelp.html

See the section on long term portfolio expectations
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