pro managed or use vanguard?

[knucklehead 61]

so i fired one of my money managers friday.
some background:
my 401k is with merrill lynch. from jan 1 '09 to dec 30 '09 it returned 30.74% after fees, while my taxable account (the now ex manager) returned 16.12% for the same period. both are diversified holdings largely made up of mutual funds.
any way, i am wondering about where to put the money. part of me wants to give it to my merrill lynch guy to manage while part of me wants to keep it separate & perhaps put it into vanguard funds due to their low expenses. i still have other iras, annuities, reits, & real estate holdings, but the taxable account is my 2nd. largest bucket of bux.
anyone offering opinions on this dilemma? any suggested vanguard funds to look into?

[donheff]

Quote:

Originally Posted by knucklehead 61 my 401k is with merrill lynch. from jan 1 '09 to dec 30 '09 it returned 30.74% after fees, while my taxable account (the now ex manager) returned 16.12% for the same period. both are diversified holdings largely made up of mutual funds. any way, i am wondering about where to put the money. part of me wants to give it to my merrill lynch guy to manage while part of me wants to keep it separate & perhaps put it into vanguard funds due to their low expenses... anyone offering opinions on this dilemma? any suggested vanguard funds to look into?

You seem to be comparing you lousy earnings with one manager with better earnings with another manager. Why don't you evaluate what you would have done on your own had you fired the lousy manager a year ago (i.e. VG funds) and see how that portfolio would have done in the same period. That may reassure you that you are OK on your own. Also important is what kind of objectives your managers communicated to you about the makeup of your funds -- maybe their performance was in line with objectives - can't tell just from the numbers.

Edit: When I suggest evaluating how you would have done on your own I don't mean cherry picking funds with hind site. You should evaluate what allocation makes sense for you and then look at what that portfolio would have done last year.

[Bestwifeever]

In addition to DonHeff's excellent suggestions, you could also see how the funds your now-fired manager used performed vs. their category benchmark. Your funds, although losing value, may have outperformed similar funds. (I assume the manager was investing in the types of assets you agreed with.)

[73ss454]

Quote:

Originally Posted by Bestwifeever In addition to DonHeff's excellent suggestions, you could also see how the funds your now-fired manager used performed vs. their category benchmark. Your funds, although losing value, may have outperformed similar funds. (I assume the manager was investing in the types of assets you agreed with.)

I'm sure the manager was investing in the types of funds that paid the biggest commissions.

Get away from these people as fast as you can.

[knucklehead 61]

how do i compare my returns vs vanguard?
i would need to know the end of month gain / loss for all of 2009 to compare, right?
where can i find that info?

[73ss454]

Not enough info here to see what you need to do. 4 years ago I moved all my money to Vanguard except for some Pen Fed CD's. Depending on how much money you have Vanguard will give you a free investment plan and a planner to help you.

Here's the thing with ML, AG Edwards and the rest. Let's say you want to take 4% of your port to live on as a SWR. If you index with Vanguard and your ER is .25, and you invest with the others and your ER is 2% total. With Vanguard you get to spend 3.75% of what ever # you have invested. With the others you have about a 50% partner and they have no investment.

Even if you use managed funds with Vanguard you'll save a bunch of money. Now, it's been proven that no money manager can consistantly beat the averages. With that said, go with Vanguard and you'll get to enjoy more of your money in the long run.

[Bestwifeever]

Quote:

Originally Posted by knucklehead 61 how do i compare my returns vs vanguard? i would need to know the end of month gain / loss for all of 2009 to compare, right? where can i find that info?

Give Vanguard a call (if that's where you want to move these investments) and talk to them about it.

[73ss454]

If you decide to move your money, be carefull with your taxable $ as you can create a taxable event.

[Kabekew]

For what it's worth, 18 months ago I cashed out of my business and put it all into four different pots to run an experiment: I put 25% into a Fidelity Professional Wealth Management Account (85/15 stock/bond balance, with 1% annual fee) that is in about 40 different mutual funds; 25% into my own stock portfolio of about 20 stocks and ETF's selected from cable TV blowhards, free online articles, internet chat board hype, and my own amateur research; 25% into a couple of the 2008 "best performing mutual funds" that some news site reported once (JMCVX and AMAGX); and the rest into a simple low-cost Vanguard index fund (VFINX).

The performance so far:

1. Fidelity Professionally Managed Account, after fee: 47.6%

2. My own stock portfolio: 48.5%

3. The couple top-performing mutual funds: 51.8%

4. Vanguard index fund: 48.3%

It all seems pretty much the same, considering the minor differences in volatility. I kind of like Fidelity watching over everything so I don't have to, since they get almost the same results after their fees. Just a matter of personal comfort, I guess.

[donheff]

Quote:

Originally Posted by Kabekew For what it's worth, 18 months ago I cashed out of my business and put it all into four different pots to run an experiment: The performance so far: 1. Fidelity Professionally Managed Account, after fee: 47.6% 2. My own stock portfolio: 48.5% 3. The couple top-performing mutual funds: 51.8% 4. Vanguard index fund: 48.3% It all seems pretty much the same, considering the minor differences in volatility.

What we would all like you to do is to continue he experiment for another 10 years and keep us posted

[Bestwifeever]

Wow, Kabekew, your slice-and-dice personal mutual fund beat Fidelity's and outperformed the Vanguard index. Nice--I hope you charged yourself a fee

[Kabekew]

Quote:

Originally Posted by Bestwifeever Wow, Kabekew, your slice-and-dice personal mutual fund beat Fidelity's and outperformed the Vanguard index. Nice--I hope you charged yourself a fee

It would have to be more than 0.2% considering all the time and hassle it's been monitoring and trading everything (and who needs that when you're retired??). So yea, for me Vanguard index would have been better than doing it myself.

The Fidelity managed account was better than the index fund though. It's only 85% stock, and that net result reflects both stock and bond fund returns. Fidelity's stock-only results were around 55%. But I had them aim for aggressive growth, so their expected return should be a little higher than the broad index anyway. Go figure.

[clifp]

Quote:

Originally Posted by Kabekew The performance so far: 1. Fidelity Professionally Managed Account, after fee: 47.6% 2. My own stock portfolio: 48.5% 3. The couple top-performing mutual funds: 51.8% 4. Vanguard index fund: 48.3% It all seems pretty much the same, considering the minor differences in volatility. I kind of like Fidelity watching over everything so I don't have to, since they get almost the same results after their fees. Just a matter of personal comfort, I guess.

I think an important thing to keep in mind is these are obviously great returns coming as they did right after a badly oversold market due to the great recession.

Now hopefully we will live in in less interesting investing times in the future. While it probably statistically insignificant the difference between the worst 47.6% and 51.8% i.e. 4.2%. If we have a period of more average stock market returns of say 8% that 4.2% is a big deal and even the .7% difference between Vanguard and Fidelity is probably 10% decrease in your spending power.

[Texas Proud]

Quote:

Originally Posted by Kabekew For what it's worth, 18 months ago I cashed out of my business and put it all into four different pots to run an experiment: I put 25% into a Fidelity Professional Wealth Management Account (85/15 stock/bond balance, with 1% annual fee) that is in about 40 different mutual funds; 25% into my own stock portfolio of about 20 stocks and ETF's selected from cable TV blowhards, free online articles, internet chat board hype, and my own amateur research; 25% into a couple of the 2008 "best performing mutual funds" that some news site reported once (JMCVX and AMAGX); and the rest into a simple low-cost Vanguard index fund (VFINX). The performance so far: 1. Fidelity Professionally Managed Account, after fee: 47.6% 2. My own stock portfolio: 48.5% 3. The couple top-performing mutual funds: 51.8% 4. Vanguard index fund: 48.3% It all seems pretty much the same, considering the minor differences in volatility. I kind of like Fidelity watching over everything so I don't have to, since they get almost the same results after their fees. Just a matter of personal comfort, I guess.

Not a good way to do it..... but, what would you say if the market was not as good... SOOO, let's subtract 46% from your above number...

1 is now 1.6%

2 is now 2.5%

3 is now 5.8%

4 is now 2.3%


Do you now feel the same with the managed fund? They took 1% and you got 1.6%..

Now go and calculate how much this is OVER TIME... you will be surprised how much of your portfolio they take.

[DeborahB]

IMHO - stay away from Merrill Lynch and other similar companies. The salespeople (and that's what they are, even in the wealth management areas) do not do any research. They will only sell you what ML recommends for them. They will not advise. If ML doesn't follow a stock they won't give you any information.

I know this from personal experience. I asked about a NYSE-traded utility stock that pays a big dividend and the wealth mgt. VP I deal with said she couldn't tell me a thing about it. "They don't follow it." Something like that. She will not analyze anything herself.

There are reasons why I can't move this account but if I could, I would, in a heartbeat.

I'm a fairly aggressive investor but what I really like is working with an independent broker who will look into stocks for/with me. I've moved my own retirement money into a mix, a lot of utility stocks with big dividends and - lately - big capital gains.

[Kabekew]

Texas, that's not quite how the math works -- performance for a particular portfolio would have to be a multiple of the index, not something added or subtracted, because it reflects the underlying beta for that portfolio. So in your scenario where the underlying broad index had a 2.3% gain, and the portfolios had the same strategies, the expected returns would be more like:

1 is now 2.3% after fee (same 1.16 beta on the stocks, and 15% is in bonds)
2 is now 2.3%
3 is now 2.5%
4 is now 2.3%

As long as your money managers are making you more after their fee than you could have done yourself (including your own "consultant rate" for any hours you put in), it makes perfect money sense.

The problem with just putting it into index funds and walking away is you're stuck with a 1.0 beta; you have no way to tweak it upward if you're more risk tolerant and interested in maybe making money off the market instead of just matching inflation and minimizing your risk. It might be fine for some, but certainly not all!

[Texas Proud]

Quote:

Originally Posted by Kabekew Texas, that's not quite how the math works -- performance for a particular portfolio would have to be a multiple of the index, not something added or subtracted, because it reflects the underlying beta for that portfolio. So in your scenario where the underlying broad index had a 2.3% gain, and the portfolios had the same strategies, the expected returns would be more like: 1 is now 2.3% after fee (same 1.16 beta on the stocks, and 15% is in bonds) 2 is now 2.3% 3 is now 2.5% 4 is now 2.3% As long as your money managers are making you more after their fee than you could have done yourself (including your own "consultant rate" for any hours you put in), it makes perfect money sense. The problem with just putting it into index funds and walking away is you're stuck with a 1.0 beta; you have no way to tweak it upward if you're more risk tolerant and interested in maybe making money off the market instead of just matching inflation and minimizing your risk. It might be fine for some, but certainly not all!

I know mine was simplistic... and not the correct math... but I also think yours is simplistic (not as much as mine, but not 'real')... and not correct math.

How would you get the managed fund to get 2.3% after fees? Most managed funds do not match the basic index due to trading fees etc., and you have an additional 1% fee on top of that... I would suggest that the more appropriate number is more like 1.1% to 1.2% after fees.

Your buying stuff can be almost anywhere because you might have bought a winner (say gold this past year) or not... and your fees can be anywhere from a few bps to a couple of percent... all depending on how big a portfolio you have an how much you trade.


Now, you statement on paying the management fee is correct on its face. IF they are able to make you more money than you otherwise would have gotten they earned their money. But I will disagree just a bit. If they made more money WITHOUT PUTTING YOUR MONEY AT MORE RISK etc... then I would say OK... that is until they do not earn enough money and you still have to pay them their fee...


I do buy a lot of actively managed funds... because they do not buy 'the market'. They are specialty funds. Anyone who is buying the market is not making me enough over an index fund to pay them. And I think the Vanguard active managed funds are pretty cheap.

As always.... YMMV...

[Rustward]

Quote:

Originally Posted by Texas Proud Now, you statement on paying the management fee is correct on its face. IF they are able to make you more money than you otherwise would have gotten they earned their money. But I will disagree just a bit. If they made more money WITHOUT PUTTING YOUR MONEY AT MORE RISK etc... then I would say OK... that is until they do not earn enough money and you still have to pay them their fee...

Who is they? The fund manager, or the planner charging the 1% fee, or somebody else?

[Rustward]

TexasProud might not get back to me. That's OK.

I remain neutral on the professional management vs. diy but I did want to point out that anybody using a planner type of person should have an Investment Policy Statement that clearly documents the investor's expectations. One of the things you can do is specify a return as well as a risk level. If the planner cannot achieve that then he should not accept the business. I guess you could also add your fee expectations and limit the expense ratios on any funds.

Here is a little M* article on the subject: Creating Your Investment Policy Statement

and here is a link to a sample form: http://im.morningstar.com/im/InvestPolicyWS.pdf

Do it yourselfers might also benefit from having one of these. I suppose most diy'ers probably have this in their heads if not in writing.

[RonBoyd]

Quote:

Originally Posted by Rustward Here is a little M* article on the subject: Creating Your Investment Policy Statement and here is a link to a sample form: http://im.morningstar.com/im/InvestPolicyWS.pdf Do it yourselfers might also benefit from having one of these. I suppose most diy'ers probably have this in their heads if not in writing.

Excellent post.