Bond Funds in Retirement

[MichaelB]

Goldenmom is asking for advice. It might help if we alert her that many (not all) forum members achieved financial independence without the help of financial advisors and believe others can do the same. They believe the costs of professional help are not offset by the portfolio design or fund selection. The advice they give is “how to DIY”, or invest without paying for an FA.

Other members feel not everyone is geared up to be a successful investor, and for them FA’s play a meaningful role. Their advice in this thread would be how to choose the FA, and how to manage the relationship and how to measure their helpfulness.

Both of these views are legitimate, right for some folks and not for others. Goldenmom, and others, are best served by people advocating the positive aspects of one of these views and providing specific suggestions to implement. There is no one right view, so let’s not get into a [-]catfight[/-] unnecessary dispute that does not help the OP. Let's instead focus on giving the advice each of us feels most appropriate for her situation.

 

[karluk]

There is no one right view, so let’s not get into a catfight.

I am completely at a loss to see how you characterize anything in this thread as a "catfight". The question is simply what is the responsibility of the moderators. This thread contains frequent posts slandering the integrity of a CFP who is not here to defend himself. I find it hard to believe that the moderators would tolerate similar remarks if they were directed towards a forum member. But somehow slander directed at the CFP seems to be perfectly ok. I say that's wrong, and am disappointed in er.org for tolerating it.

 

[Sarah in SC]

Whoa, whoa, whoa, Karluk.
I'm a CFP...and a moderator.
I'm okay with the occasional defending of my life's work, mildly, but I'm not trying to convert the world.
Thanks for the backup, but as a mod, and a CFP, I promise, I'm just looking to keep an open mind. As are so many of the folks who come to our little corner of the internet.
They haven't slandered me and mine to the point of outrage...yet.

 

[karluk]

They haven't slandered me and mine to the point of outrage...yet.

Moderators need not, and in fact shouldn't, be required to feel "outrage" in order to enforce policy. In my view, if a post is slanderous it should be removed, or edited. Are you saying that slander is now ok on er.org? Or do you think that none of the posts in this thread contain any slanderous comments directed at the CFP?

Just trying to clarify what the mods are thinking, so I won't participate in future threads with such high expectations about the civility of discourse on er.org.

 

[samclem]

Goldenmom is asking for advice. It might help if we alert her that many (not all) forum members achieved financial independence without the help of financial advisors and believe others can do the same. They believe the costs of professional help are not offset by the portfolio design or fund selection. The advice they give is “how to DIY”, or invest without paying for an FA.

Other members feel not everyone is geared up to be a successful investor, and for them FA’s play a meaningful role. Their advice in this thread would be how to choose the FA, and how to manage the relationship and how to measure their helpfulness.

I agree, and think that Goldenmom has gotten some of both in this thread. Others that come to this site similarly get a wide range of opinions. While I would not characterize Goldenmom's CFP as a "thief" or a "charlatain", I would say that >nobody< is best served by going to a CFP with fees that are this high and who deliberately chooses high-fee funds when lower-cost alternatives are available. The later practice, in particular, is a breech of the trust the client has placed in the CFP.

Yes, I believe most people can handle the mechanics of investing without paid assistance if they will take some time to read appropriate materials, educate themselves online, and bounce their questions off the folks here. For the few who cannot/won't do that, then there are lower-cost advisory services that also come with fewer (apparent) conflicts of interest than the relationship the OP has with her CFP. IMO, it does a lot of damage to the OP and others if folks here just assure her that everything is fine with what this CFP has proposed. It's far more productive to take a few minutes to expose her to a way to 1) prevent from being victimized now and in the future and 2) increase the annual take-home from her investments by 30% (plus).
But I'm sure her "advisor" would disagree with me. His life is made better if clients are not exposed to information like this.
Disclaimer: I'm not a CFP and have no vested interest in making happy talk about CFPs who don't put the interests of their clients first. Quite the opposite.

About Schwab: I agree they are a good company, and were leaders (decades ago) in reducing the cost of stock trading for retail investors. Their brokerage has a good reputation. But Goldenmom does not sound like she'll be making tons of trades. She needs either a few MFs or ETFs--that's it. Vanguard can do that well, and their corporate structure (unlike Schwab or anybody else) assures account holders benefit when the company makes money. Vanguard's low cost advisory service is there if she needs it (maybe she will at first--I doubt it) and will be out of the way when she doesn't. Her present CFP's relationship with Schwab only muddies the waters, and Schwab's less-than-transparent fees and costs incorporated into their "free" "Intelligent Portfolios" (ha!!) lead me to believe they aren't the best choice for her, and that she'd be better off to simply move the funds to Vanguard and then set off on the right foot without any unneeded additional players.

 

[W2R]

Moderators need not, and in fact shouldn't, be required to feel "outrage" in order to enforce policy. In my view, if a post is slanderous it should be removed, or edited. Are you saying that slander is now ok on er.org? Or do you think that none of the posts in this thread contain any slanderous comments directed at the CFP?

Just trying to clarify what the mods are thinking, so I won't participate in future threads with such high expectations about the civility of discourse on er.org.

Just to clarify, in case you are seriously asking about what is permitted and what is not on this forum, there is a link to our Community Rules at the bottom of every page. Our moderator team bases our decisions upon these rules. Every member agrees to read and follow these rules when registering their username on this forum.

Any one individual member can draw the attention of the mod team to any post that they feel is not in compliance with the Community Rules, by clicking on the little red and white triangular icon at the lower left of that post that looks like this: As the Community Rules explain, this is the way to handle such complaints rather than debating moderator decisions on the public forum. Thanks for helping us to make this forum a good place for free and lively debate, within the framework provided by our Community Rules.

 

[MRG]

ICI is the Investment Company Institute, they collection data from all the 250 fund families in the US. This is a link to their website: https://www.ici.org

They publish a yearly Factbook that has all kinds of fund facts, including ER rates. The 2015 Factbook says the average ER of bond funds is .57. How many of the proposed bond funds are less than average ER? None. As said prior what about any of these expensive bond funds says buy me? I don't find any reason to give my money away to an expensive fund (either active or passive) for returns that after expenses are subpar. Just MHO.

 

[Goldenmom]

I did raise the concern about their portfolio complexity and expense but they were not forthcoming. We have left them.

 

[mathjak107]

I was using bnd as a total bond fund which is a vanguard etf but got rid of it and went back to fidelty total bond.

Better performance most time frames despite a tad higher fees.

 

[Goldenmom]

Glad I made the earlier mistake about the fund since I got the benefit of your very informative reply on dividends, bonds, and the different approaches. I will be following and rereading your posts. Thanks so much!

 

[Goldenmom]

If I just wanted a simplified, hands-off approach to investments, I'd go with a single low-cost balanced fund (Vanguard Balanced, Wellington, Wellesley, LifeStrategy, Target Retirement or Managed Payout) instead of paying 1% AUM to a financial advisor on top of fund expenses.

Can you explain more about the specific funds in your post? Why would they be good in a retiree's portfolio? I have seen more than one of you mention the Wellington and Wellesley Funds. What kinds of funds are they and which do you have the most confidence in?

 

[Animorph]

Here is a real portfolio I use for my mom. I may switch to it in about 10 years:

25% S&P 500
25% U.S. total stock market ex-S&P 500 (this overweights mid and small cap stocks)
25% All world ex-U.S. (includes emerging markets)
25% Total U.S. bonds (adjust the percentage to whatever you feel comfortable with)

The Vanguard ETF's are: VOO, VXF, VEU, and BND. However I would recommend the mutual fund versions, Admiral class if your account is large enough. That will make it easier for you to buy and sell your shares.

Once you set it up you just have to check once a year to make sure you are staying close to your target percentages. In Mom's case we have targeted 20% to 30% as an acceptable range, so we shouldn't have to do much.

You can look at what's in the Vanguard Target Retirement mutual funds to get some examples of what funds and percentages they use. Or just use one of them yourself.

VTXVX is Target Retirement 2015 and has this mix:
29.77% Total U.S. Stock Market
19.33% Total International Stock Market
29.79% Total Bond Market
12.75% Total International Bond Market
8.35% Short-Term Inflation Protected Securities
VTXVX Vanguard Target Retirement 2015 Inv Fund VTXVX Quote Price News

That would be quite reasonable, and all you would have to do is sell shares when necessary. In that case you give up the ability to sell only bonds during a big stock market downturn, for example, which is one reason why the flexibility of separate bond, stock, and international funds is nice.

Within an IRA you will be able buy and sell without tax consequences, so if you start simple with one or three funds it won't cost you anything in taxes if you want to move to a more complex portfolio later on.

 

[Animorph]

Can you explain more about the specific funds in your post? Why would they be good in a retiree's portfolio? I have seen more than one of you mention the Wellington and Wellesley Funds. What kinds of funds are they and which do you have the most confidence in?

Wellesley (VWINX) and Wellington (VWELX) are "balanced" funds, containing both bonds and stocks. Wellington tends to have more stocks than Wellesley. They are actively managed, but at relatively low cost, and have had exceptional performance in the past. They are not as diversified as a "Target Retirement" index fund or the simple portfolios mentioned previously. But they are solid choices if you want to try to beat the indexes.

VWINX Vanguard Wellesley® Income Inv Fund VWINX Quote Price News
VWELX Vanguard Wellingtonâ„¢ Inv Fund VWELX Quote Price News

 

[Goldenmom]

Before you meet with your planners next week you really need to educate yourself about funds, fees, and expenses. Vanguard has a good model portfolio selection tool, based on your needs, that you can start with. Try this first, it is very easy to use and will give you specific recommendations of low cost funds you can use on your own without an expensive "adviser."
https://personal.vanguard.com/us/funds/tools/recommendation

You can then click on the recommendations for the specific information on that fund, including the expense ratio.

An overview of portfolio allocations models are given here:
https://personal.vanguard.com/us/insights/saving-investing/model-portfolio-allocations

Then do some probing with them to see why they want to put you into higher expense funds in addition to charging you the 1% fee. You can report what they tell you here if you want feedback. Good Luck!

I used the model portfolio selection tool at Vanguard. Thanks for the link. The overview link, however, did not open for me. I have now left my CFP and sent my application and transfer paperwork to Vanguard. Now, I am reading and re-reading forum contributors and looking up recommended books and websites. I may try to manage the index funds myself with support from you and other members of the 3 forums I have joined (MS, ER, and Bogleheads).

 

[Goldenmom]

I may not be adding much to the excellent opinions here. To answer the question: Bond funds in retirement, bond funds should be a part of asset allocation and the main reason is not to make as much as stocks, but to stabilize your portfolio in volatile situation, like the coming recession and or bear market(if it comes). When the bear market comes and the S&P is losing 35%, the BF may be losing just a tiny fraction or may be gaining 1%.
I've read in WSJ, to put some in Vanguard Intermediate term BF.

Tell me more about the Van. Intermediate BF. What is the term? (How liquid?) What did the WSJ say about this fund? Sounds up my alley. Thanks for mentioning it.

 

[pb4uski]

Goldenmom, as I recall this is essentially one or two IRAs. If it is all IRA/tax-deferred and you don't have any other significant investments, then your easiest option would be a target date fund that has an asset allocation commensurate with your risk appetite. The next easiest alternative would be to buy the four index funds that comprise the target date funds (Total Stock, Total International Stock, Total Bond and Total International Bond) in proportions that you feel comfortable with.

Where things can get more complicated is if you have significant taxable or tax-free investments in addition to the IRA because for tax efficiency you want to have different funds in different places, but if my recollection of your situation is correct then you can avoid that particular complication.

 

[Goldenmom]

rayinpenn, enjoyed your post a lot. The resources at Transparent Investing are really helpful and I recommend them to others who are new to investing. I have watched two of the three movies you mentioned, but still need to watch Boiler Room. I have also watched Chasing Madoff and the documentaries on Enron--scary stuff. Thanks again for the great post!

 

[Goldenmom]

A good, and short, book that gives a good foundation in managing your investments is "The Investment Answer" by Daniel C. Goldie and Gordon S. Murray. You can get it on Amazon. It's a quick read and, by giving you solid background on investing in an organized fashion, would prep you to go through the many good recommendations already put forth in this thread and apply them to your situation. Don't be rushed into making these big investment decisions until you are ready and feel comfortable with the path you are taking. A little study may help you feel much more confident in your choices.

Found The Investment Answer on Audible and ordered it. Thanks for your advice and the recommendation!

 

[hnzw_rui]

Goldenmom, as I recall this is essentially one or two IRAs. If it is all IRA/tax-deferred and you don't have any other significant investments, then your easiest option would be a target date fund that has an asset allocation commensurate with your risk appetite. The next easiest alternative would be to buy the four index funds that comprise the target date funds (Total Stock, Total International Stock, Total Bond and Total International Bond) in proportions that you feel comfortable with.

Instead of a Target Retirement fund which follows a glide path, another option is to choose a Vanguard LifeStrategy fund based on one's risk tolerance. It's composed of the same component funds as the Target Retirement funds but uses fixed allocations.

LifeStrategy
Income VASIX: 20/80
Conservative Growth VSCGX: 40/60
Moderate Growth VSMGX: 60/40
Growth VASGX: 80/20

Granted, Target Retirement funds do include TIPS in the portfolio.

 

[Goldenmom]

If all your funds are at Schwab now, you could call them and modify the account so that the CFP is no longer authorized to trade on your account, see balances, act as your agent, etc. He has no need to do any of that at this point, and it's just a bad idea to allow >any< person to have access to your funds without good reason. He doesn't have a reason any more.

You'll want to arrange the transfer to Vanguard so that they "pull" the money from Schwab, not so that Schwab (or your CFP, especially) "pushes" the money to Vanguard. Neither your CFP nor Schwab has any particular interest in seeing your money leave, and so sometimes it seems to take a while to get these things done if a person arranges things so that the "losing" party has to move the money.

BTW, since all your funds are in IRAs, it will make arranging your asset allocation simpler. If you had a mix of IRAs and "regular" after tax accounts, there would be some value in preferentially putting "tax inefficient" assets (e.g. bonds) in your IRA and putting more tax efficient assets (e.g. stocks) in your regular accounts. But, all your accounts are in IRAs, so this won't be a further complication. (If what I wrote above doesn't make sense to you now, don't worry about it. There's a quick primer at this link. But the "takeaway" is that the simplicity of your situation is one more thing that argues for your ability to handle all the management of these funds by yourself--soon).

Another thing: Will you be wanting/needing to see your husband's Vanguard accounts, set up automatic bank transfers on his accounts, etc? If so, talk to Vanguard about sending the paperwork so that you can do this (and so that he can do the same in your accounts, if desired). Yes, as a practical matter you could just share passwords to your online accounts with your husband, but if you get appointed as his "agent" everything is "legit" and if you need to call and ask for help over the phone about his money, Vanguard will talk to you.

Good advice, as usual. I will definitely need to see my husband's Vanguard account (and vice versa), so I will ask about being his agent. I will be managing the investments with support from the forum communities and what I am learning in books and the media. My husband and I are powers-of-attorney for each other already, but being his agent (and he mine) will simplify things if one of us is incapacitated. Our CFP can still access our account at present. I asked him to liquidate the one asset Vanguard said they could not accept in the transfer and this was done this week to simplify the transfer. It is possible that I may want to repeat that--not sure. I believe Vanguard will be doing a "pull" from Schwab, but I will confirm that. The 5 Ameriprise assets we "carried over" to the new CFP are currently below the purchase price, so I thought we'd hold onto them while we are sorting things out. One of the Ameriprise assets we carried over, (LFMAX - LoCorr Managed Futures Strategy A) had an ER of 2.62--13x the average according to the Vanguard concierge rep helping us open our account, and even our CFP found this remarkable when he liquidated it for us. I hope anyone still with Ameriprise will study their statements and get a second opinion, especially if you have a variable annuity. You may have to be persistent.

 

[Goldenmom]

Thanks everyone for all you have taught me on this thread. I will be starting a new thread as I get my Vanguard account open and hope you will continue my education. I will check back to catch up on your comments when I get an e-mail alerts, and hope I will see you at the Bogleheads forum. I am grateful to you for saving us thousands of dollars in fees and fund expenses with your financial coaching. You're the best, Goldenmom

 

[wolf]

Good luck Golden Mom. Glad you followed Sam Clem''s and Michael B's and others advice. This is a helpful forum.

 

[LOL!]

Here is an article is AARP Magazine written by Allan Roth about financial planners. How to Choose a Financial Planner, Adviser - Annual Fees, Your Investm... - AARP

Beware the good adviser who does bad things with your money

 

[rayinpenn]

"A widow just shy of her 90th birthday recently asked me to review her investment portfolio. This happens a lot: Much of my practice involves giving second opinions to other financial planners' clients.

This widow had a reason to worry. She had been sold two expensive annuities — just about the last thing a 90-year-old needs — and the rest of her portfolio consisted mostly of risky stock funds and junk bond funds. The planner was making a fortune as the widow's nest egg dwindled."

This has been my experience as well...


Sent from my iPad using Early Retirement Forum.

 

[rayinpenn]

"A widow just shy of her 90th birthday recently asked me to review her investment portfolio. This happens a lot: Much of my practice involves giving second opinions to other financial planners' clients.

This widow had a reason to worry. She had been sold two expensive annuities — just about the last thing a 90-year-old needs — and the rest of her portfolio consisted mostly of risky stock funds and junk bond funds. The planner was making a fortune as the widow's nest egg dwindled."

An troubling excerpt from LOL cite.... Thanks LOL.

I've been asked to look at people's portfolios over the years - (I am not a CFP but friends, relatives, colleagues respect my investing style. Turtle slow, simple, dividend centered, minimal intervention. Oh and Not too heavy on the rebalancing).... Every time it is the same an inefficient portfolio with costly and often inappropriate investment vehicles...

It kills me.



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