Please Review this Portfolio Proposal

[bUU]

I apologize if you've seen this message on other forums, but I'm seeking feedback from various sources.

I recently received a proposal from a financial adviser. Putting aside that he didn't map out how we'd get from where we are to where he proposed we go, could you please assess his recommendations based on:

a) placement of each investment for tax efficiency
b) the quality of the funds he's proposing
c) overall asset allocation for folks 5-10 years from retiring

Non-Retirement Accounts
2% Artisan Small Cap Fund Investor Shares
3% Baron Partners Fund Retail Shares
2% Baron Small Cap Fund
2% Calvert Short Duration Income Fund Class Y
2% Hartford Capital Appreciation Fund Class I
3% Hartford Dividend and Growth Fund Class I
1% Hartford Small Company Fund Class A
3% Loomis Sayles Strategic Income Fund Class A
4% Nuveen High Yield Municipal Bond Fund Class I
3% Pioneer Mid-Cap Value Fund Class Y
2% Royce Dividend Value Fund Service Class
1% Royce Global Dividend Value Fund Service Class
4% Royce Opportunity Fund Investment Class
3% Third Avenue Focused Credit Fund Institutional Class
3% Third Avenue Real Estate Value Fund Institutional Class
1% Wasatch Long/Short Fund Investor Class
2% Wasatch World Innovators
39% TOTAL Non-Retirement Accounts

Retirement Accounts
1% ALPS | Red Rocks Listed Private Equity Fund Class I
1% Artisan Mid Cap Fund Investor Class
2% Artisan Mid Cap Value Fund Investor Shares
1% Baron Partners Fund Retail Shares
1% Baron Real Estate Fund Retail Class
3% BlackRock Equity Dividend Fund Investor A Shares
1% Bridgeway Small Cap Growth Fund
2% Bridgeway Small Cap Value Fund
3% Delaware Small Cap Value Fund Class A
2% Dodge & Cox International Stock Fund
1% Dodge & Cox Stock Fund
0% Fidelity Contrafund Fund
4% Goldman Sachs Growth Opportunities
3% Hartford Growth Opportunities Fund Class I
1% Hennessy Gas Utility Index Fund Investor Class
2% ING Corporate Leaders Trust Series B
1% ING Senior Income Fund Class A
3% Invesco Charter Fund Class A
3% Invesco Convertible Securities Fund Class Y
3% Ivy Small Cap Growth Fund Class A
2% Matthews Asia Dividend Fund Investor Class
4% Prudential Jennison Utility Fund Class A
2% Putnam Voyager Fund Class Y
1% T. Rowe Price Health Sciences Fund
2% The Hartford Healthcare Fund Institutional Class
3% Third Avenue Focused Credit Fund Institutional Class
1% Vanguard Developed Markets Index Fund Investor Shares
2% Wasatch Emerging Markets Small Cap
2% Wasatch International Growth Fund
1% Wells Fargo Advantage Discovery Fund Class A
61% TOTAL Retirement Accounts

 

[dm]

Seams like a lot to keep track of to me.

 

[Physiorob]

I Also think these are too much Stocks too keep track, I should consider 1/3 of it

 

[travelover]

All these less than 5% accounts sound silly to me, but then I favor a simple portfolio like total Stock Market, Total Bond and maybe a Small Cap fund.

Lazy Portfolios - Bogleheads

 

[Midpack]

Far too many funds, all with such small allocations, making the portfolio unnecessarily complex. If you're advisor recommended all those funds, he/she is wasting your time IMO. There is nothing at all wrong with the 3/4/5 fund lazy portfolios, and more than 10-12 max is overkill. Lazy Portfolios - Bogleheads

Some are more esoteric than they're worth IMO - Asia Dividend !!!

You really don't need more than one fund for any asset class, maybe two. Worthwhile funds will have plenty of diversification within their asset class.

And I'd hesitate to buy any fund that I wasn't confident enough in to invest at least 5% except maybe the most volatile sectors/classes - most people don't own/need such funds.

If you didn't have so many I'd look up tax efficiency on M*and comment but there are just too many. So I'd encourage you to look them up on M * and that will answer the placement questions for you. Best of luck...

 

[redduck]

You mentioned that you have posted this portfolio proposal on other forums. Could you please list those other forums? And, was their take on this proposed portfolio much different than the first few responses that you have received here?

 

[RockyMtn]

way too many funds if you ask me.

 

[redduck]

You might be a bit underweight on the Fidelity Contrafund.

 

[jollystomper]

way too many funds if you ask me.

+1

Its almost like the FA is treating mutual funds as individual stocks when you have that many. The fund expenses and content overlap may not be that efficient.

 

[enjoyinglife102]

I just see one big hassle with zero benefit to holding this many funds. Worse than that, I'd bet the performance is less than a simple diversified index portfolio.

 

[braumeister]

They mostly seem to have pretty hefty expense ratios. I would also want to ask him to show me the M* x-ray views, since I'm guessing there is some serious duplication in that bunch.

 

[comicbookgujy]

Did you ask him why so many funds? What's your investment objectives?

 

[KingB]

Do you know your target AA with these funds? Did your FA tell you? Just curious.

 

[killingme]

WOW that is a lot to have to track! Is the firm actively managing these and re balancing regularly or is their diversification strategy their hedge? Unless each fund is the best of breed there has to be a simpler approach.

 

[panacea]

That looks like a big 'ol mess to me. Do you know what the asset allocation is for each account and/or as a whole? You should be able to hit every important asset class with about 14 low cost mutual funds. There's no good reason to have multiple funds in the same class... for example I think I saw at least 7 small cap funds in there and there's likely quite a bit of overlap with funds that cover multiple market caps. Simplification is good; complexity makes it hard for you to keep track of your asset allocation and what your advisor is doing.

 

[clifp]

Silly nonsense for the reasons everyone said, if these were individual stocks than having a 1 or 2% allocation would fine but for mutual funds. In a word don't hire the guy.

Ok a couple of specific example. It is a pain in the butt to claim foreign tax credit in IRA. So generally speaking you want to have international fund in a taxable account, as opposed to having in a tax deferred. Yet he has international funds somewhat randomly distributed in both taxable and tax deferred. Now the amount of money is small perhaps a basis point or 3. But still if you are starting from scratch might as well do it right.

The long/short fund is another example. Leaving aside the idiocy of why a one percent allocation to a long/short fund will make a difference, this is clearly the type of fund that belongs in a IRA. Short positions are always treated as short term loses or gains.

 

[LOL!]

The proposed portfolio is just plain stupid. It really shows the incompentency of the FA.

Or maybe is it really good for them since they would probably charge you per transaction and when you left, you would have to pay a per fund fee as well.

I don't know why lots of responders are being polite about this portfolio. It plainly sucks and is something only an idiot would come up with. A real idiot.

 

[Animorph]

I think that exceeds even my slice and dice. I do like a lot of the fund companies, though there are many I don't use as well. Although your AA is probably to keep these percentages where they are, you should have a higher level AA that describes what the heck each of them is doing in your portfolio. That should also allow you to compare each of them with an appropriate ETF or index fund.

 

[cardude]

Dumbest thing I have ever seen. Fire that "advisor".

 

[pb4uski]

way too many funds if you ask me.

+1 ridiculous number of funds

 

[ERD50]

You mentioned that you have posted this portfolio proposal on other forums. Could you please list those other forums? And, was their take on this proposed portfolio much different than the first few responses that you have received here?

If you google an excerpt of the text of this post with those first 3 funds (copy/paste), you'll find the other places (fat wallet, savingadvice, and financeforumsee). Some entertaining replies there since the moderation appears to be a bit more freewheeling at some of those places.

You might be a bit underweight on the Fidelity Contrafund.

I was wondering why we aren't down to fractions of percents. I mean, 1, 2, and 3 % increments are pretty coarse. Should you really have 50% more of fund X than fund Y? Maybe 37.5% more would be 'better'?


To the OP: What did your FA say? What data and reasoning did he give for this many funds? After all, he's the one getting paid for this.

I don't think you'll find anyone that is going to evaluate:

a) placement of each investment for tax efficiency
b) the quality of the funds he's proposing
c) overall asset allocation for folks 5-10 years from retiring​

on dozens of funds for free (I won't even take the time to count them, that is too much work!). To even attempt it would be a mind-numbing task, and as others have said, a worthless proposition anyhow. Putting them into M* X-Ray would be a LOT of work, and it would show you just how ridiculous the overlap would be. But why didn't your FA do this for you?

Are you familiar with a saying that has the words " If you can't dazzle them with brilliance, then baffle them with ...."? Your FA is baffling you.

This is nuts, just plain nuts. Soup to nuts level nuts. Is this a joke?


-ERD50

 

[REWahoo]

Is this a joke?

If not, the joke is on the OP if he takes the FA's advice...

 

[aja8888]

"0% Fidelity Contrafund Fund".............now that's a small percentage of that fund! What is this FA smoking?

 

[bUU]

And, was their take on this proposed portfolio much different than the first few responses that you have received here?

I haven't read the others yet. (You mean you read other forums before you read Early Retirement? Not me! )

They mostly seem to have pretty hefty expense ratios. I would also want to ask him to show me the M* x-ray views, since I'm guessing there is some serious duplication in that bunch.

Not significant. One thing I didn't make clear is that the retirement account list includes what is necessarily four separate accounts: My current employer 401k, my spouse's current employer 401k, and then IRAs. Still, I think the comments remain valid, since in the FA's own words, we should be managing our entire portfolio as a single portfolio.

Did you ask him why so many funds? What's your investment objectives?

I have started that conversation (and am aiming to use these threads as source for further down that conversation). I wrote him an email over the weekend saying, among other things: "The proposal is such a complex and voluminous approach that it seems like it would take a very long time for you to explain each choice you made, clearly and completely enough so that we could understand and concur with it."

Do you know your target AA with these funds? Did your FA tell you? Just curious.

He didn't tell me... I had to plug the whole thing into a new Quicken file to tell myself. This is something else I included in my email: "The proposed investments drive our portfolio to an extreme level of risk for our ages – from a 65/35 split to what is effectively an 80/20 split (see pie charts, below), which seems more suitable for young investors just starting out. We probably need to start with a discussion of what asset allocation we should be pursuing."

WOW that is a lot to have to track! Is the firm actively managing these and re balancing regularly or is their diversification strategy their hedge? Unless each fund is the best of breed there has to be a simpler approach.

Two more points I made in my email to him: "Something else we outlined from the start was that we would not consider changing our brokerage to yours." And: "(See a comparison of just-the-non-retirement suggestions to possible alternatives, in a chart, below.)" In most cases, I readily (okay - it took me a few hours) came up with what I would consider better funds.

You should be able to hit every important asset class with about 14 low cost mutual funds.

Some folks would say three or four.

If you google an excerpt of the text of this post with those first 3 funds (copy/paste), you'll find the other places (fat wallet, savingadvice, and financeforumsee). Some entertaining replies there since the moderation appears to be a bit more freewheeling at some of those places.

Oh joy... I cannot wait.

I was wondering why we aren't down to fractions of percents.

Of course, the Contrafund is fractional, which is why it shows as 0% in that list.

To the OP: What did your FA say? What data and reasoning did he give for this many funds?

We haven't had the follow-up conversation yet, but I believe he'll make the point that this puts a fund in every single one of the nine blocks (value, core, growth -by- small, medium, large) plus covering both international equities and bond, and covering a few "other" categories. He probably will make some disparaging remarks about funds that cover total markets, etc.

 

[Idnar7]

Looks like a shotgun approach. Diversification by number of funds.