My first meeting with a Certified Financial Planner

[doushioukanaa]

I just did a phone call with my Vanguard financial planner today, a certified financial planner. The process is I answer a few questions online, schedule the appointment, receive a report, and then get to discuss it for 45 minutes. You get this service for free if you are a "Flagship" client.

Some observations:

- He recommended a SWR of just under 4%, reinforcing that magic number

- We own mostly Capital Income Builder and Capital World Growth and Income because they beat the crap out of the indexes while being a lot less volatile. For example, Capital Income Builder actually went UP in 2002, when the total market went down 21%. Both funds include US investments without any fixed proportion in the US. The mix of the two places 67% of our equity exposure in international stocks. We also like that they are team managed which is better than having somebody like Peter Lynch who does a great job and then could leave at any moment. In short, we are happy with our fund choice and are unlikely to make drastic changes.

- He suggested the following portfolio:

Vanguard Total Stock Market Index 31.7%
Vanguard Total International Stock Index 16.0%
Vanguard Morgan Growth Fund 11.1%
Vanguard Intermediate Term Tax Exempt Bond Fund 15.6%
Vanguard US Value Fund 11.1%
Vanguard Extended Market Index Fund 10.2%
Vanguard Total Bond Market Index Fund 4.4%

- His recommendation was to go with 16% non-US exposure which seemed low especially since we already have a lot of US dollar exposure via real estate and the dollar is heading down the toilet.

- It struck me as funny that he recommended tax exempt bonds without really probing into our income levels or marginal tax rates. At what marginal tax rate do munis make sense?

- He didn't come up with a recommendation to recharacterize my IRA into a Roth which I thought was an oversight, something I intend to do this year if my income allows it.

- I personally think we need a good, small, well managed small cap fund to round things out a bit. The one from American Funds is just too big. He recommended the Vanguard Small Cap Value Index Fund, natch.

Any thoughts on this? Did he do a good job? I think it was okay for cookie cutter, mass advising, but I wasn't blown away.

 

[ERD50]

Any thoughts on this? Did he do a good job? I think it was okay for cookie cutter, mass advising, but I wasn't blown away.

I'll assume that figuring taxable vs tax free and the amount of Roth to convert is probably more work than he could put into it in the time they allow. A few changes in your deduction or tax credits can change it all anyhow.

Cookie cutter is probably all you can expect for free. Still a lot better than a shark attack.

-ERD50

 

[yakers]

Sounds OK in that nothing inappropriate was recommended, better than a lot of places but still not the optimal advice I would be looking for. AFAIK there is no consensus about % of foreign. US companies do a lot of foreign business and the $ going down will help some companies. My basic retirement fund is a Lifecycle type fund but I have added 5% small cap and 10% foreign indexes and that suits me.

 

[Telly]

At last look, I'm running about 23% international.  All equities, no world bonds.  CWGI is part of my international allocation.  I used the latest CWGI stat of 71% of the fund is equity outside the US, in the calculation.

I have no complaints about CWGI.  However, Morningstar has been banging the drum for about the past year in their monthly fund reports about the ever-increasing XXL size of many of the American Funds.  Some of them are so big that when A/F makes adjustments, it affects the market! 
Morningstar suggests that future returns of many of the A/F will be more middle of the road, than in the past.

So... I should probably encourage you to get out of CWGI 

 

[brewer12345]

Sounds OK in that nothing inappropriate was recommended, better than a lot of places but still not the optimal advice I would be looking for. AFAIK there is no consensus about % of foreign. US companies do a lot of foreign business and the $ going down will help some companies. My basic retirement fund is a Lifecycle type fund but I have added 5% small cap and 10% foreign indexes and that suits me.

Yeah, the amount of foreign equity is open to interpretation and sometimes it is a bit squishy to determine what is international. For example, EGLE happens to be US-based, but their ships are registered in the Marshall islands, most of their business is in the Pacific basin, and most of their customers are Asian charterers. Is this a US exposure? How about something like Aegon, the mammoth Dutch life insurer. Based in Holland, but with 2/3 or so of their business in the US and (at least at one point) even had a US CEO. Is this an international exposure?

 

[riskadverse]

It looks like he could have taken a few pointers from you.

 

[youbet]

I just did a phone call with my Vanguard financial planner today, a certified financial planner.  The process is I answer a few questions online, schedule the appointment, receive a report, and then get to discuss it for 45 minutes.  You get this service for free if you are a "Flagship" client.  

I'm impressed.  You actually received advise to invest in a diversified package of low cost, no-load funds and apparently no hint of a shark attack.  Hats off to Vanguard.

The recent widow of a longtime close personal friend asked me to look at a plan she received after doing something similar with Fidelity.  Same results you got.  A reasonable allocation of low cost, no-load funds appropriate to her age and circumstances.

If you or my friend's widow had paid big bux for what you received, I'd be disappointed.  But for free.........  I'm impressed.  Reasonable, logical advise without trying to rip you off.  Nice, very, very nice.  My normal suspicious outlook on the companies selling financial services stands slightly uplifted! 

 

[REWahoo]

Reasonable, logical advise without trying to rip you off. Nice, very, very nice. My normal suspicious outlook on the companies selling financial services stands slightly uplifted!

This example is the reason you will see Fidelity and Vanguard financial services recommended on the forum far more than any others.

 

[Poundkey]

I just filled out the online form for VG's complimentary financial plan. Scheduled to have my phone discussion May 24. I'll be interested to hear what they recommend. I feel pretty comfortable with my allocation although I have too much in cash (MM and CD's). Also have some overlap in some of my funds so I expect them to suggest some consolidation.

..#......

 

[brewer12345]

The advice looks OK, just very conventional. The sort of thing you would get sued for, but not exactly cutting edge or reflecting the latest research. Typical of VG, as a matter of fact, since they are slow to introduce new asset classes. So no commodities, foreiign bonds, etc.

The only thing that looks really weird to me is the munis. Wy would they recommend both munis and taxable bonds? Were the taxables supposed to go in a tax deferred account?

 

[doushioukanaa]

The only thing that looks really weird to me is the munis.  Wy would they recommend both munis and taxable bonds?  Were the taxables supposed to go in a tax deferred account?

Yes, that's correct. Taxable bonds in the tax deferred accounts.

 

[Peter]

.._. / .. / ._. / .

F/I/R/E


Peter

 

[MasterBlaster]

As I recall Vanguard charges $1000 if you aren't a "flagship" client.

Do you feel like you received $1000 worth of value from your financial planner ?

 

[doushioukanaa]

As I recall Vanguard charges $1000 if you aren't a "flagship" client.

Do you feel like you received $1000 worth of value from your financial planner ?

That is correct.  I don't think it would have been worth $1,000 because all I really got was a sanity check.  I hope the other person who now has an appointment with their CFP reports back with their suggested allocation. If I were more of a novice it could easily pay for itself though.   I'm not sure whether the value for the money is there versus an in-person consultation which would inevitably cost more, but perhaps would be more valuable and/or detailed.

 

[rs0460a]

Interesting thread.

While I (& DW) have our respective IRA's with Vanguard (and are eligible for a "portfolio review" which we have yet to execute), we are meeting with Fidelity next week to go over our total retirement plan.

Both of us have Fidelity through our respective workplace 401K's (however, she is beating me by 3% due to her company's "offerings").

I'm hoping that Fidelity will "validate" our assumptions (and confirmed through their online tool) that we are F.I. but more important, be eligible for R.E. status.

If anyone's interested, I report back on our "freebee"...

- Ron

 

[Poundkey]

  I hope the other person who now has an appointment with their CFP reports back with their suggested allocation. 

That would be me I think.......and yes I will report back sometime after the 24th.

......#....

 

[youbet]

Peter - Yep, that's it.

rs0460a - Yes, please report back with what they say.

 

[MJ]

I did mine several days ago. I realize that this is a fairly new service but the questionaire was a bit limited. If you indicate you are retired and include SS payments, it assumes you will begin to collect at 62, without telling you. Again, if you include a pension, I don't know when it expects you to begin collecting it. I wanted a 30/70 equity/bond mix, they offered 20/80 or 40/60.
The phone session is scheduled for 45 minutes although I extended it for another 10 minutes.

This what they recommend based on a 30/70 mix.

non-IRA
22% total stock market index
4% total international stock index
3% wellington
64% total bond market index

IRA
15% total bond market index
2% morgan growth fund

The plan has me blindly selling all my individual stocks (8.9%) and all my CDs as well as wellesley (4.6%), wellington (1.3%), target 2015 (1.3%)

I have scheduled another call to discuss their plan further.

 

[Maximillion]

My Brother has been paying an Advisor over $10,000 a year, neverr hears from him, has a seven figure portfolio, is 60 and Diabetic, fully paid house, is the millionaire next Door(97 Pontiac, 4 cylinder), and this advisor has him 60% Stocks, 40 % bonds.

My Brother is retiring, he and his wife will get $30,000 in Indexed Government pensions.

I showed him how at 6, 7, or 8% , indexed at 2% for 25 years, he would not run out of money.

25 years from now he would be drawing out over $100,000 a year, even at 6%

I told him, I.M.O, he should be at least 70 % Bonds, laddered, to take advantage of higher rates, and the rest should be in Dividend paying Stocks, preferably an ETF.

They are very frugal, they will not spend $60,000 a year, they are moving to the country, they have travelled so much, they have no desire to visit anywhere, a holiday is towing a camper trailer.

I am of the belief that you do not necesarily have to own stocks, if a Bond will give you your income, then stay with the least risk.

One daughter, I pointed out there is no guarantee she will survive them,give her $150,000, 0% interest, ripped up at their death, she can buy her first condo(she is married).

I would appreciate any challenges to my rationale?

Health care insurance is not an issue.

 

[Brat]

One daughter, I pointed out there is no guarantee she will survive them,give her $150,000, 0% interest, ripped up at their death, she can buy her first condo(she is married).

I would appreciate any challenges to my rationale?

The 'loan' won't pass IRS's sniff test.  How about a loan at the minimum interest ok'd by IRS, payable annually.  Then forgive the interest and principal the max for a non-taxable gift each year.  Their wills can direct that loans to the daughter will be considered paid in full.

 

[doushioukanaa]

I told him, I.M.O, he should be at least 70 % Bonds, laddered, to take advantage of higher rates, and the rest should be in Dividend paying Stocks, preferably an ETF.

I am of the belief that you do not necesarily have to own stocks, if a Bond will give you your income, then stay with the least risk.

One daughter, I pointed out there is no guarantee she will survive them,give her $150,000, 0% interest, ripped up at their death, she can buy her first condo(she is married).

I believe long term bonds will go down in value because the trade deficit and national debt will continue to grow, thereby spooking the bond markets and causing long term rates to go up.  Plus the dollar is going down the toilet -- the lowest level since 1997 and decreasing.   http://news.yahoo.com/s/ft/20060512/bs_ft/fto051220061929327968

Bonds still have inflation, interest rate, currency devaluation, and default risk. I agree that since short term rates are looking attractive (and likely to go up) it might make sense to add more weight to that end of the scale.   No magic answer on the portfolio allocation, but he could live to be in his 90s, so it's not exactly short term. 

The legal limit for gifts without any gift tax consequences is $12K per year per person.  Have your brother and his wife each give the daughter 12K +12K in 2006 and 12K+12K in 2007.  She's married, so give her husband 12K +12K in 2006 and 12K+12K in 2007.  That gives them $96K to work with.  Have her buy the house with a regular loan, but then have him pay down the principal in the same way in subsequent years.  Or have him buy half the house with his own money, she buys her half with her money, and then he can give her rights of survivorship. 

 

[MJ]

As I recall Vanguard charges $1000 if you aren't a "flagship" client.
Do you feel like you received $1000 worth of value from your financial planner ?

I would have felt ripped off if I had to pay $1000 for this very limited boiler plate advice.

 

[doushioukanaa]

There was a WSJ article about the offering today comparing it to Fidelity's.  It looks like more of a retention device for the investors who already invest quite a bit and don't have to pay.   It's not something they market it a great deal as an unbundled product.  I agree you could probably get more value for your $1,000 elsewhere, but it is a savvy move by Vanguard.  I am now less likely to go outside Vanguard for a financial plan or at least delay such a decision, but if I had done so, I might have been persuaded to yank my funds from Vanguard.