A couple of simple and random questions

[Aiming_4_55]

1. Is there any value, in your opinion, to diversifying between two different fund families: such as opening accounts with both Vanguard and Fidelity, then running similar portfolios with both? A risk reduction?
....

1. For me, I've spent some time to consolidate as I get serious/closer to FIRE, still 5 - 7 years away (birthday soon) is my guess, then semi-ER as a landlord. Some things I considered:
a. I did this because I had 5 - 6 accounts and I'm down to 2 (Vanguard and Fido).
b. Account benefits with Vanguard, moving from Voyager to Voyager Select and closing in on Flagship services. Services to include free financial plan and reduced fees.
c. Ease for DW for future consideration.
d. Easier to do math on Asset Allocation (i'm getting lazy)
e. Risk of account lock/access delays

YMMV - no real particular order.

 

[Lsbcal]

...(snip)...
I was considering an 60-80k energency fund: but where to put it for best returns?

My biggest problem at the moment is that DW and I are at odds about whether to stay with an advisor her parents used: DW has helped her Mom with finances for 12 years, and is nervous about investing a large sum without an adviser. It's the typical fee-based setup with 12b-1 commissions.

Right now cash is earning a negative real rate of return. So I'd minimize that and maybe put some of the emergency fund into a short term bond fund like, for instance, VBIRX or VFSUX (ST index or ST investment grade). Both have around a 2 year duration. If rates go up rather suddenly you will loose a bit a first but over 2 years this should work out fine.

Eventually cash will yield a better real return and you can change that strategy. Maybe CD's or even Prime Money Market.

Regarding the advisor, maybe you should compute your annual ER (expense ratio) using them. If it's 1% and you are living on 4% of the portfolio, that is quite a hit. With Vanguard index funds you can get it down to 0.2% relatively easily. That will give you an additional 0.8% to spend every year. Maybe this line of reasoning will help with your DW. She may also be more reception to a low ER fund like Lifestrategy or Target Retirement offerings from Vanguard. Maybe check out the balanced fund offerings there.

 

[seraphim]

@LOL!

That's a bit too complicated for me at this stage *grin*. Mostly looking at simple indexing - a lazy portfolio - to keep costs down. Once I get things straightened out, I can learn more in-depth strategies and play around - if my wife will let me.

BTW, I started Bogles boo last night, as you recommended. The second chapter is getting very informative, with P/E ratios, etc. It's appreciated.

 

[seraphim]

Eventually cash will yield a better real return and you can change that strategy. Maybe CD's or even Prime Money Market.

Regarding the advisor, maybe you should compute your annual ER (expense ratio) using them. If it's 1% and you are living on 4% of the portfolio, that is quite a hit. With Vanguard index funds you can get it down to 0.2% relatively easily. That will give you an additional 0.8% to spend every year. Maybe this line of reasoning will help with your DW. She may also be more reception to a low ER fund like Lifestrategy or Target Retirement offerings from Vanguard. Maybe check out the balanced fund offerings there.

Thanks - I aprreciate the good advice. I've gone over the old accounts, and most of what he's selling has .75 to1.5 ERs. He also gets 1% based on the assets. As I've mentioned elsewhere, he's been involved in three FINRA disputes. I'm not sure of the severity of such disputes, but several people have advised it's something to be cautious about.

 

[Lsbcal]

Thanks - I aprreciate the good advice. I've gone over the old accounts, and most of what he's selling has .75 to1.5 ERs. He also gets 1% based on the assets. As I've mentioned elsewhere, he's been involved in three FINRA disputes. I'm not sure of the severity of such disputes, but several people have advised it's something to be cautious about.

This is a jaw dropping no-brainer. Sounds like a total ER = 2%. I'd personally get my assets out of his clutches as quick as possible.

 

[Nords]

Right now cash is earning a negative real rate of return. So I'd minimize that and maybe put some of the emergency fund into a short term bond fund like, for instance, VBIRX or VFSUX (ST index or ST investment grade). Both have around a 2 year duration. If rates go up rather suddenly you will loose a bit a first but over 2 years this should work out fine.
Eventually cash will yield a better real return and you can change that strategy. Maybe CD's or even Prime Money Market.

I'm not a fully-versed student of the markets or of investing, but I can only think of one period of modern history when cash had a positive real rate of return: the Great Depression.

So I'd never invest in cash for a rate of return. I'd invest in cash for liquidity.

 

[Lsbcal]

I'm not a fully-versed student of the markets or of investing, but I can only think of one period of modern history when cash had a positive real rate of return: the Great Depression.

So I'd never invest in cash for a rate of return. I'd invest in cash for liquidity.

I think you are right that the first job of cash is liquidity. If one is building up an emergency fund and stashing 1 year of spending in it I'd think it would be nice to get some decent return on it. I personally keep about 4 months in cash at the moment, mostly in a 0.3% interest rewards checking account (first $10k at 2.5% interest). The rest of my "liquid" money is in ST Investment Grade. My short term CD strategy has played out unfortunately (we could always do what-ifs) ... I did not anticipate such low rates for such a long period.

Right now inflation is running maybe 2.5% while cash in the form of Prime Money Market (Vanguard) is almost 0%. Back in 2007 Prime MM was paying out 5% or so, a bit ahead of inflation then, so not as painful to watch.

 

[seraphim]

Same thing I've notice: looking at the Blackrock MMs the old FA has been using, they haven't had a return for two years, but it appears he just used them for temporary holding until there was enough for another investment: mostly annuities at this point (MIL was in her mid-eighties and in special care). It seems to me I could get a better return from the credit union's savings account - on the taxable accounts.

I'd invest in cash for liquidity.

Yes, but I'm getting the impression I was thinking about too much liquidity. Asset allocation is the big thing on my mind at the moment: specifically, if I invest in - for a simple example - an index fund which is based on the entire market (equity and bonds) but want to draw 20K a year to supplement pensions, how should I draw that money each year? Dividends to a money market?

I'm learning theory like crazy lately, but haven't hit the practical nuts and bolts education, and I have about $120K taxable funds (disbursed in the past week) sitting in an 'investment account' MM at the moment. Even if I go ahead and use 68K to pay off the mortgage, I need to get something established soon.

 

[Finance Dave]

1. Is there any value, in your opinion, to diversifying between two different fund families: such as opening accounts with both Vanguard and Fidelity, then running similar portfolios with both? A risk reduction?

2. Just checking to see if I have a handle on basic reallocation: suppose I plan to draw 30k a year from a 1M portfolio. Keep 30k in a checking/MM and replenish yearly from stocks or bonds. About a 60/40 split between equities and bonds, drawing from bonds when stocks are low, through the bear markets, and reallocating from stocks to bonds when stocks are high?

I know my questions are jumping around, but I'm just trying to fill in the blanks lol.

I say yes, but it's kind of an "Armageddon" situation. Think of the very worst thing that could ever happen...let's say you have all your money in FIDO...and the CEO is found embezzling and running a ponzi scheme a-la Bernie Madoff...and they've been falsifying statements to customers (VERY unlikely). Your money may ALL be gone. If you split, you'd have half of it left.

The downside? Your doubling your chances that a company in which you have assets will suffer such an event...as you have it in TWO places rather than ONE.

I will keep mine together....but I do understand some people wanting to follow what you mention.

As far as AA, you are distinguishing between where you withdraw from and where you reallocate to...which I think is a bit overcomplicating it. The idea is that you withdraw at some point (makes no difference from where), and immediately after that, you rebalance to your target AA.

I suppose you could use your withdraws to accomplish your rebalancing if you like...there's nothing wrong with that...just remember your goal is to end up with a given AA.

 

[seraphim]

Thanks Dave. You've cleared up the issue on the withdrawal.

 

[Nords]

I say yes, but it's kind of an "Armageddon" situation. Think of the very worst thing that could ever happen...let's say you have all your money in FIDO...and the CEO is found embezzling and running a ponzi scheme a-la Bernie Madoff...and they've been falsifying statements to customers (VERY unlikely). Your money may ALL be gone. If you split, you'd have half of it left.

The "good" news is that SIPC would insure some of it. What's that these days, $500K per account, or total per person at that brokerage?