Another Financial Advisor Question

[pb4uski]

Yes they did. I ran another calculator and it came up with 15.4% YTD dividends re-invested.

Going back to pg 1, I'm at 17.9% (net after fees)

I agree, my FA is doing a sweet job -

Calculator might be a month off.... VOO is up 16.5% with dividends reinvested YTD (through 11/15/2017) and 16.9% through the end of October so your FA is doing good.

 

[SecondCor521]

Yes they did. I ran another calculator and it came up with 15.4% YTD dividends re-invested.

Going back to pg 1, I'm at 17.9% (net after fees)

I agree, my FA is doing a sweet job -

The calculator you listed only uses an average price for the month. Quote: "Let me say that again in a different way: other than the most recent month, which is tied to one closing price (and listed in the editor note at the top of the page), the month DOES NOT correspond to an individual day. It’s a guess at an average investor’s price basis (or sale price) if they bought (or sold) “at some point” in the month."

So we can compare apples to apples, and guessing that your statement you received on page 1 was through 10/31, I looked at VOO for YTD through 10/31 numbers and it looks to me like it returned about 18.1% (16.8% in price appreciation plus 1.3% in dividends paid so far) through 10/31.

https://personal.vanguard.com/us/funds/snapshot?FundId=0968&FundIntExt=INT#tab=1

So it looks to me like you're somewhat underperforming the market this year, taking higher risk (70 vs 500 stocks), and probably have a higher tax bill with those capital gains. But you sound happy and like you're having fun and probably have enough money.

 

[SecondCor521]

@pb4uski, did I calculate VOO performance through 10/31 incorrectly? I'm just a LTBH index fund guy, so all of this is tricky for me

I took the 16.8% from the bottom of the page I linked to where it says "Recent investment returns" and took the average of the first two numbers in the second column "YTD as of 10/31/2017". I then went to the distributions page here:

https://personal.vanguard.com/us/funds/snapshot?FundId=0968&FundIntExt=INT#tab=4

Added up the dividends per share, got $3.18, then divided that by the recent price of $237.54 to get a 1.3% dividend yield.

The total still seems conservative, because those dividends, if reinvested, would be doing better than the 1.3% because the market's been on a steady uphill climb this year.

(I also ignored the fact that there will be another dividend payout in December, because I'm guessing that is accounted for in the current price.)

 

[pb4uski]

SecondCor521, I'm pretty sure that the 16.8% includes dividends reinvested.

The price of one share on 12/30/2016 was $205.00 and on 10/31/2017 was $236.18... and increase of 15.2% return ignoring dividends... the 1.6% difference is atributable to dividends and growth of dividends reinvested seems sensible.

 

[RobbieB]

You have got me beat at 18.1%.

I give up. Obvious that my FA just can't hang with the pros at Vanguard.

 

[SecondCor521]

SecondCor521, I'm pretty sure that the 16.8% includes dividends reinvested.

The price of one share on 12/30/2016 was $205.00 and on 10/31/2017 was $236.18... and increase of 15.2% return ignoring dividends... the 1.6% difference is atributable to dividends and growth of dividends reinvested seems sensible.

Ah. Thanks.

You have got me beat at 18.1%.

I give up. Obvious that my FA just can't hang with the pros at Vanguard.

Don't give up yet! I was wrong; your FA guys are a full 1% ahead!

 

[RobbieB]

No, I'll just stay with what you came up with;

"So it looks to me like you're somewhat underperforming the market this year, taking higher risk (70 vs 500 stocks), and probably have a higher tax bill with those capital gains."

I know the "group opinion" here on FA's and no matter how good they are they are always going to be worse than Vanguard. Nothing will ever change this. I'll say again that the vitriol has decreased but the underlying feeling is still there. Not to be trusted. Better off doing it yourself. Save money, low fees. I see my FA in the mirror every morning.

Not a problem, doesn't bother me. Different strokes.

Have fun and Blow More Dough!

 

[braumeister]

There has to be some benefit to getting in tight with your FA. Does he ever invite you out on his yacht?

 

[ERD50]

...

I know the "group opinion" here on FA's and no matter how good they are they are always going to be worse than Vanguard. Nothing will ever change this. I'll say again that the vitriol has decreased but the underlying feeling is still there. Not to be trusted. Better off doing it yourself. Save money, low fees. I see my FA in the mirror every morning.

Not a problem, doesn't bother me. Different strokes.

Have fun and Blow More Dough!

Nahhh, I think that is just your interpretation/perception, maybe based on some of what you earlier perceived as 'vitriol'.


Let's break it down: "no matter how good they are they are always going to be worse than Vanguard"

The trouble is, can we really ever measure a particular FA? Well, we can make some short term measures, but at a minimum, we need to see how they performed in both up/down markets. And yes, we never really know what that means for future performance.

But we do know from studies that the FA that can outperform over a 5 year period is ~ 15%, and that those same 15% are unlikely to outperform the next 5 years. How to identify the small number of survivors ahead of time?

And then there are the tax considerations (which I'd like to follow up on, if you can provide those numbers).

But I do feel highly confident that the major, low cost, broad-based index funds/ETFs will track very closely to their indexes. I don't feel confident in my ability to pick an FA that can do better, and worry that they will do worse.

Is there any 'vitriol' in that? I think it is just prudent observation. And it is tough to defend against. But of course, you are free to do as you please, but the explanations so far just sort of cause me to shrug my shoulders. I don't really get it. But that's OK.

-ERD50

 

[RobbieB]

I had some of the same concerns with all the trading and the cap gains generated. I think you would get a lot of that in any managed fund as compared to straight index.

So I asked him about it and I bet you know what he said "Don't let the tax tail wag the investment dog"

I really couldn't disagree. And I think it's a good problem to have. I would rather have to pay more tax than less. Not to mention gains can always be adjusted end of year with unrealized losses. What was I going to tell him "Stop making me so much dough?"

My qualified dividends are high, about 3% and they get favored treatment.

I'm very happy with the people here and their performance. I get a team that knows me and my situation well, knows my voice and answers the phone. When I call my FA's assistant answers every time. No voice mail, no recorded message, no dial your extension at the beep. I like that very much, as now it's all but a memory of times gone by.

 

[harley]

There has to be some benefit to getting in tight with your FA. Does he ever invite you out on his yacht?

My former FA invited us out on his boat once. We were in the Chesapeake for the Naval Academy graduation including the Blue Angels. Had a great time until we got too close to a destroyer and they sent out a zodiac full of armed sailors to chase us off. But still, it was fun. I moved my money to VG a few weeks later so we never got invited back. But I was able to buy a kayak with the savings.

 

[braumeister]

I don't have an FA, but my dedicated FIDO guy enjoys shotgun sports so he occasionally takes a few of us out for a day of sporting clays at a local range. Beats an investment seminar hands down!

 

[travelover]

I don't have an FA, but my dedicated FIDO guy enjoys shotgun sports so he occasionally takes a few of us out for a day of sporting clays at a local range. Beats an investment seminar hands down!

You must have a ton of $$ with them. We've got about $1.3M with Fido and don't even get a Christmas card.

 

[braumeister]

You must have a ton of $$ with them. We've got about $1.3M with Fido and don't even get a Christmas card.

No, actually I don't even have that much there. He's just a nice guy.

 

[RobbieB]

Hey Rustward,

Don't let it get to you, let it run off your back. Life is too short.

That's the way it's always going to be here. FA's are evil and take all your dough.

 

[MRG]

Hey Rustward,

Don't let it get to you, let it run off your back. Life is too short.

That's the way it's always going to be here. FA's are evil and take all your dough.

I don't think so. You've obviously found a good one, they exist. I know other smart folks who do the same.

However there are fast Eddie's out there. It's wise to not outdrive your brakes and understand what your FA is doing for you.

 

[travelover]

Can we desist with the jokes about Christmas cards and yachts?...........

No. Braumeister gets free shooting trips and I want my damn Christmas card.

 

[RobbieB]

I get Birthday cards and Christmas cards and Christmas presents.

Your guy must be lame.

 

[LOL!]

The performance of VOO / VFIAX is a matter of historical record and shown right on the vanguard.com website: https://personal.vanguard.com/us/funds/performance?FundIntExt=INT&FundId=0540
So 16.9% through 10/31 and 16.5% through yesterday.

But international equities have bested US stocks in 2017, so almost any portfolio that added foreign stocks has bested the performance of large-cap US stocks. For instance VTIAX (total international) was up 24% through 10/31.

Thus everybody with a diversified equity portfolio should have beaten the S&P500 by at least a couple of percent so far in 2017. Perhaps only folks who overweighted US small-cap value have done less well.

And I wouldn't want to pay $20,000 or more for a few cards every year.

 

[RobbieB]

Well, how did you do?

And did you have big fun with the 20 grand you saved?

 

[LOL!]

I did have big fun with the more than $20,000 I saved. Or maybe I should say my college senior had big fun.

And I owned a lot of US small-cap value (they did great in 2016), but my equities still outperformed the S&P500 YTD by a couple of percent. Perhaps just as important, I didn't pay any capital gains taxes nor taxes on qualified dividends despite making more than $1,000 per day on my investments.

OTOH, the OP has a financial advisor and asked how they could determine if the FA was doing well. The answer is they need to calculate performance and compare to a benchmark themselves as I noted earlier in the thread. The S&P 500 is only a good benchmark for a portfolio of 100% US large-cap stocks. So it is not a good benchmark for my portfolio.

 

[RobbieB]

Yeah, I use the S&P 500, I don't have much international and zero small caps.

My biggest tax problem is that I'm single, but I'm gonna fix that real soon -

 

[Texas Proud]

No, I'll just stay with what you came up with;

"So it looks to me like you're somewhat underperforming the market this year, taking higher risk (70 vs 500 stocks), and probably have a higher tax bill with those capital gains."

I know the "group opinion" here on FA's and no matter how good they are they are always going to be worse than Vanguard. Nothing will ever change this. I'll say again that the vitriol has decreased but the underlying feeling is still there. Not to be trusted. Better off doing it yourself. Save money, low fees. I see my FA in the mirror every morning.

Not a problem, doesn't bother me. Different strokes.

Have fun and Blow More Dough!

Seems you have the vitriol here....

A managed MF can beat an index fund about 10 to 15% of the time in any single year... and sometimes I have read up to 25%.... but make that 5 years and that number drops dramatically.... go to 10 and it is very small....

So, what do FA do? Put you in managed MFs.... if the underlying investment is worse, buy a number of them can not improve the outcome...

If your FA is buying individual stocks, then your risk is higher... that can be calculated, but it is not worth it to me and I doubt they give you that info anyhow....

But I am like you... if you are happy that is all that matters to you... I am happy without a FA....

 

[Scuba]

Isn't it possible to construct a portfolio of individual stocks that is less risky than the overall market? I don't think it's always the case that 70 stocks are more risky than 500.

I think the missing piece in the arguments against FA's is how much one values service. There are some of us that are OK with not beating the market because we are paying for service. The service is not just picking investments. It's integrating several aspects of financial/life planning. There are many on this forum who don't feel they need third party help with that, which is fine. However that doesn't make those of us who do value that service wrong. If we have the money and feel we're getting good value, more power to us! Not everyone wants to DIY and that's OK.

 

[pb4uski]

Isn't it possible to construct a portfolio of individual stocks that is less risky than the overall market? I don't think it's always the case that 70 stocks are more risky than 500. ...

Very possible, just select 70 stocks with low betas.... but the weighted average return of the 70 stocks will be lower as well. TNSTAAFL.