Move from managed to self-directed investments

[a60dan]

I moved my profit sharing to Vanguard in 4/2020.

0.3% to manage that one account. With his concurrence, I implemented same asset allocation across all our accounts so the cost is lower than had we moved everything to Vanguard.

I calculated this year I made 100x the fees we paid.

Maybe after I retire I can handle it, but it sure was worth having someone to discuss it all with.

I almost quit over the negligence around COVID last December and he met on short notice a few times to reassure us that I was good to go.

 

[RetiredHappy]

What I have not shared is my annoyance with the way our portfolio is currently managed, especially in the taxable accounts. It is generating ridiculous amount of realized capital gains and their inability to hold dividend reinvestments. I have a spreadsheet which projects income taxes for the next few years and the capital gains are unpredictable year-to-year. I looked at this year's capital gains todate and the amount of taxes which we will need to pay on those gains will mean more withdrawals next year, which then will generate even more capital gains. If they could hold dividends, at least we can use the dividends to pay part of the capital gains. Vanguard said the same thing to us, that they cannot hold dividends and they will automatically be re-invested. Next year I have a 5-year market-linked note which is going to mature which is going to incur a huge amount of capital gains, unless the market collapses. It is both a good and bad investment because I don't need it to mature. I bought this through the FA because I did not know better - there is no fee commission on this. If I had bought something like VTSAX, there is no maturity date which would avoid the lumpy capital gains.

 

[SecondCor521]

I would not expect a Vanguard FA to explain precisely how a non-Vanguard investment works. But instead of vague answers I would prefer they refer me to the people who created the investment and/or explain well how the Vanguard replacements would work (post #7 here).

Like others I think you got a dud. Perhaps try calling back a few times and talk with a few different Vanguard advisors. They certainly vary in quality but most who are in the "assigned rep" category are average to good. I'd encourage you not to think poorly of Vanguard based on one dud. Although I've read here that their quality has declined recently and have seen some evidence myself to support it. But I am very much a DIY, so I rarely if ever need their help.

If you have enough in Vanguard assets ($1M?), you'll get a personal rep regardless of whether you are self managed or have them manage it for you. Even if you have a personal rep, you're not required to talk to them - you can call in on the Flagship phone line and talk to the next person available and get whatever help you need. Or make an appointment with your own rep if that's what you prefer.

I'm not 100% certain, and things may have changed, but I'd be willing to bet that if you have Vanguard manage things for you, they'll put you at 60/40 stocks/bonds and 60/40 US/international. That has been their recommended AA for about a decade, and is about what they recommended to me when I did a consult with them many years ago. If you can do basic percentages and addition and subtraction, you can create the same thing for yourself with minimal effort. Vanguard won't do tax stuff and I think they shy away from estate planning as well, so I'm not really sure what people are getting for the management fee other than offloading some of the paperwork and (minimal) management/tracking. Maybe the Vanguard pros avoid basic mistakes as well, like selling a ST lot instead of a LT lot when raising cash.

ETA: As mentioned, I'm a Vanguard DIY, and I know for certain that I have the ability to set dividend reinvestment on a per-account, per-investment basis - I can go into a screen for each holding and set it individually. So for example if I had CAT and KO in my taxable account, I could reinvest the CAT dividends but not the KO dividends. Or if I had CAT in my taxable and my Roth, I could reinvest the CAT dividends in my Roth but not in my taxable. So if you don't want them reinvesting dividends and DIY is OK with you, that should work.

 

[ERhoosier]

Start by reading this: https://www.bogleheads.org/wiki/Bogleheads®_investing_start-up_kit

This. Should be required reading for ALL investors, self-directed or not.
Especially the section on Lazy Portfolios. A combo of 3-4 solid funds diversified across asset classes historically beat the performance of the VAST majority of FAs (especially after fees). Decide on your ACTUAL risk tolerance (asset allocation), then set it and forget it. NO reason you cannot self-direct after some objective homework.

I've been self-directing for decades after realizing that 3% FA fee (yes, 'back in the day') was nuts. The only demonstrable value over a 'Lazy Portfolio' was "hand holding" and a few "free" dinners (a small rebate of my own fee $$$). I did buy a fee-based financial plan about 8 yrs ago before I retired (the 1st time) just to get the reassurance of a qualified (or at least certified) 2nd opinion (yes, a bit of "hand holding").

I am on the conservative side (~55% equities, mostly in funds of solid dividend payers), stick to a 3% WD rate, and feel I could weather a prolonged bear market without critical lifestyle disruption. Market has had a great run. But the "all equities all the time" crowd seem to forget that if you need to keep selling equities for income during a downturn, you cannot "buy the dips" & will have less capital participating in the next bull market. Largely forgotten is the '65-'82 cycle where the Dow lost ~3/4th of its inflation-adjusted value (including the nasty stagflation of the 70's). Statistically unusual time period for sure, but if a similar market happens to be in the rest of YOUR lifetime.....

Good luck whatever direction you decide!

 

[RetiredHappy]

I would not expect a Vanguard FA to explain precisely how a non-Vanguard investment works. But instead of vague answers I would prefer they refer me to the people who created the investment and/or explain well how the Vanguard replacements would work (post #7 here).

Like others I think you got a dud. Perhaps try calling back a few times and talk with a few different Vanguard advisors. They certainly vary in quality but most who are in the "assigned rep" category are average to good. I'd encourage you not to think poorly of Vanguard based on one dud. Although I've read here that their quality has declined recently and have seen some evidence myself to support it. But I am very much a DIY, so I rarely if ever need their help.

If you have enough in Vanguard assets ($1M?), you'll get a personal rep regardless of whether you are self managed or have them manage it for you. Even if you have a personal rep, you're not required to talk to them - you can call in on the Flagship phone line and talk to the next person available and get whatever help you need. Or make an appointment with your own rep if that's what you prefer.

I'm not 100% certain, and things may have changed, but I'd be willing to bet that if you have Vanguard manage things for you, they'll put you at 60/40 stocks/bonds and 60/40 US/international. That has been their recommended AA for about a decade, and is about what they recommended to me when I did a consult with them many years ago. If you can do basic percentages and addition and subtraction, you can create the same thing for yourself with minimal effort. Vanguard won't do tax stuff and I think they shy away from estate planning as well, so I'm not really sure what people are getting for the management fee other than offloading some of the paperwork and (minimal) management/tracking. Maybe the Vanguard pros avoid basic mistakes as well, like selling a ST lot instead of a LT lot when raising cash.

ETA: As mentioned, I'm a Vanguard DIY, and I know for certain that I have the ability to set dividend reinvestment on a per-account, per-investment basis - I can go into a screen for each holding and set it individually. So for example if I had CAT and KO in my taxable account, I could reinvest the CAT dividends but not the KO dividends. Or if I had CAT in my taxable and my Roth, I could reinvest the CAT dividends in my Roth but not in my taxable. So if you don't want them reinvesting dividends and DIY is OK with you, that should work.

Thank you. We definitely think that we spoke with a dud. We will call tomorrow and ask to get a different FA to explore the managed portfolio and for now it would only be for tax deferred investments. It will also put us under Flagship because we will go 100% Vanguard in that account. The taxable investments will not be managed simply because we do not want to liquidate and move to pure Vanguard funds as it would incur tremendous amount of capital gains. The Vanguard FA was very clear, if you self-manage, you can hold the dividends and if they manage they will automatically reinvest dividends and there is not a way to hold. We have several numbers to call tomorrow, including the "onboarding" to start the process of transferring investments over.

 

[RetiredHappy]

This. Should be required reading for ALL investors, self-directed or not.
Especially the section on Lazy Portfolios. A combo of 3-4 solid funds diversified across asset classes historically beat the performance of the VAST majority of FAs (especially after fees). Decide on your ACTUAL risk tolerance (asset allocation), then set it and forget it. NO reason you cannot self-direct after some objective homework.

I've been self-directing for decades after realizing that 3% FA fee (yes, 'back in the day') was nuts. The only demonstrable value over a 'Lazy Portfolio' was "hand holding" and a few "free" dinners (a small rebate of my own fee $$$). I did buy a fee-based financial plan about 8 yrs ago before I retired (the 1st time) just to get the reassurance of a qualified (or at least certified) 2nd opinion (yes, a bit of "hand holding").

I am on the conservative side (~55% equities, mostly in funds of solid dividend payers), stick to a 3% WD rate, and feel I could weather a prolonged bear market without critical lifestyle disruption. Market has had a great run. But the "all equities all the time" crowd seem to forget that if you need to keep selling equities for income during a downturn, you cannot "buy the dips" & will have less capital participating in the next bull market. Largely forgotten is the '65-'82 cycle where the Dow lost ~3/4th of its inflation-adjusted value (including the nasty stagflation of the 70's). Statistically unusual time period for sure, but if a similar market happens to be in the rest of YOUR lifetime.....

Good luck whatever direction you decide!

Thank you. We are digging in and learning more each day.

 

[indiajust]

Thank you. I am aware of the huge tax consequence on sale with our taxable accounts. If we bail from our current investment firm, we will do a straight move of the taxable account assets and decide on how to change out some of the positions through time. With tax deferred accounts, we sell off most of the positions and select a few VG funds and let it ride.

I read an RIA newsfeed. There is a way you can avoid some of the tax hit. You provide the stocks as part of a setup in forming a mutual fund. To the extent your assets match the fund profile, they are swept in with your existing cost basis. Essentially, you get a mutual fund provider to allow you to be a direct seller of assets in exchange for mutual fund shares. Complicated. Not cheap in either time or effort. Of course, you cannot do this with Vanguard. But it can be done.

Anything you own that is not accepted as transfer in kind for mutual fund shares is sold outright and taxes paid. This would allow you to slowly sell the fund down later if you still want a VG only solution.

 

[RetiredHappy]

I read an RIA newsfeed. There is a way you can avoid some of the tax hit. You provide the stocks as part of a setup in forming a mutual fund. To the extent your assets match the fund profile, they are swept in with your existing cost basis. Essentially, you get a mutual fund provider to allow you to be a direct seller of assets in exchange for mutual fund shares. Complicated. Not cheap in either time or effort. Of course, you cannot do this with Vanguard. But it can be done.

Anything you own that is not accepted as transfer in kind for mutual fund shares is sold outright and taxes paid. This would allow you to slowly sell the fund down later if you still want a VG only solution.

Fortunately all our holdings can be moved directly over to Vanguard. We don't hold individual stocks.

 

[Scuba]

Thank you. We are digging in and learning more each day.

Are you even considering Fidelity or Schwab? I only have experience with Fidelity and Vanguard but I would not hire a Vanguard rep. Their entire business model is low cost which means a lower level of service. You can still benefit from low fee Vanguard ETF’s or funds by holding them in a Fidelity or Schwab portfolio. The free Fidelity advisor we have is pretty good, and definitely helpful in managing taxes.

 

[ychuck46]

"You can do it"!

Go the DIY route. Besides the savings you would accrue from not paying an "adviser", you will understand your investments and investing in general much better if you do it yourself. Don't overthink the allocation too much, particularly on the stock side. For example, the following ETFs would likely take care of many/most people's stock market needs (I prefer ETFs over funds since their costs are lower than funds, although both are very low under a firm like Vanguard) and be tax-efficient at the same time:

VTI - Vanguard Total Market
VOO - Vanguard S&P 500

If you feel more comfortable over time you could begin to add other ETFs if that floats your boat, such as with more international exposure, or high dividend exposure, or REITs, and so forth. Best wishes, and welcome to the club!

 

[TheWizard]

I agree with the others on self managing your investments.
In your taxable account specifically, you want to do two things:
1) set your cost basis method for each fund to Specific ID.
2) set your dividends from each fund to go to your settlement fund (MM fund) rather than immediately reinvesting in the same fund.

Also make sure to have the Vanguard app on your smart phone so you can check things daily, transfer new money into your settlement fund, and setup market orders (or even better, limit orders)...

 

[RetiredHappy]

Are you even considering Fidelity or Schwab? I only have experience with Fidelity and Vanguard but I would not hire a Vanguard rep. Their entire business model is low cost which means a lower level of service. You can still benefit from low fee Vanguard ETF’s or funds by holding them in a Fidelity or Schwab portfolio. The free Fidelity advisor we have is pretty good, and definitely helpful in managing taxes.

I was with Fidelity for about 20 years, with the last 5 years using their fee-based portfolio management service. Their local reps were good but their managed service was thoroughly bad. That poor experience caused such bad memories which make us not want to go back.

 

[RetMD21]

I like simplicity. I think you could do worse than VASGX an index "lifestyle fund" with 80% stock allocation, international diversification and 5 underlying funds.

https://investor.vanguard.com/mutual-funds/profile/VASGX

Sure you could buy the underlying funds and tinker or re-balance but why bother. In my totally uninformed opinion this is about what you would get from a financial advisor at Vanguard.

In most of my Vanguard funds I have never sold shares. I think that setting the cost basis for HIFO (high in first out) would work fine in taxable accounts. You get the tax benefit of selling the highest cost without bothering to specify individual lots. It doesn't matter in tax deferred.

This is not what I do since I have a collection of funds and stocks with embedded gains in our taxable account and our IRAs are full of our most tax inefficient investments.

 

[OldShooter]

... Sure you could buy the underlying funds and tinker or re-balance but why bother. ...

Because rebalancing and SORR moves are very difficult when it involves blended funds and because tax optimizations in taxable accounts can also be difficult or impossible.

If you continue to never sell your funds then you will not realize this.

 

[Scuba]

I was with Fidelity for about 20 years, with the last 5 years using their fee-based portfolio management service. Their local reps were good but their managed service was thoroughly bad. That poor experience caused such bad memories which make us not want to go back.

I don’t use their professional management. Just DIY and their free advisor. Really like their website and appreciate their 24/7 service. Obviously YMMV.

 

[RetMD21]

Because rebalancing and SORR moves are very difficult when it involves blended funds and because tax optimizations in taxable accounts can also be difficult or impossible.

If you continue to never sell your funds then you will not realize this.

You realize that Vanguard would keep the balanced fund allocated as advertised, right?

 

[mrfeh]

You realize that Vanguard would keep the balanced fund allocated as advertised, right?

I don't think that's his/her point.

Keeping equities and fixed income in separate funds gives you more control for rebalancing and tax efficiency.

 

[OldShooter]

You realize that Vanguard would keep the balanced fund allocated as advertised, right?

Sure, and that is better than the target date funds that make changes somewhat randomly, but we have changed our overall AA a couple of times in the past few years and other posters here often talk about changes they made, are making, or want to make. A blended fund is just a clumsy investing tool except for fire-and-forget investors. IMO anyway.

Another problem with some blended funds is that the equity tranche is actively managed but its performance is camouflaged by being mixed in with the FI performance. The VG fund you mentioned at least doesn't have that problem so much because the equity money is invested in index funds, hence is transparent.

 

[2177V]

Many of you have posted the reduced cost of managing your own investments.

We are thinking of going with 85% to 90% equities for both taxable and tax deferred investments, with the remainder in a balanced fund like VBIAX and $100K in VTIP or something like that which acts like cash. We need help in understanding how VTIP works. We figure that $100K in VTIP in taxable account will cover the next 7 years, plus always funding it at about $100K to cover emergency needs. In tax deferred accounts, we will turn off dividend reinvesting and also keep another $100K in VTIP (2 to 3 years of withdrawal) to make up for the difference in RMD and dividends.

I need veterans here to help critique our strategy.

Thanks!

I personally do not like balanced funds in retirement because when you liquidate a balanced fund you are liquidating 50% equities and 50% bonds at the same time. Remember buy low sell high. Equities or bonds can be relatively low so you may be selling low.

I suggest separating the balanced funds into equities and bond funds so you have a choice which fund to liquidate. Balanced funds are OK before retirement but during retirement you may be forced to sell low. Diversifying your balance fund is my recommendation.

I know someone who is retired and his retirement is diversified into 12 asset classes: high caps, low caps, corp bonds, treasuries, junk bonds, high tech equities so that he can pick and choose which fund to liquidate. He has 12 options to sell high relative to the other asset classes. Not many investors think about developing a withdrawal strategy. When you get close to retirement, I recommend that you think about a withdrawal strategy.

 

[target2019]

Just wondering how this will turn out without a solid plan? I would want a guarantee that the assets can be transferred in kind. It could be that you need to liquidate all and take a tax hit, but perhaps that is not necessary.

I recommend that you walk into a Schwab office as well as Fidelity, and speak with a person who has credentials and authority.

 

[RetMD21]

Sure, and that is better than the target date funds that make changes somewhat randomly, but we have changed our overall AA a couple of times in the past few years and other posters here often talk about changes they made, are making, or want to make. A blended fund is just a clumsy investing tool except for fire-and-forget investors. IMO anyway.

A Vanguard advisor and I have my MIL invested in blended funds with dividends reinvested. She has zero interest in investing and doesn't need the money. This solution keeps her invested without requiring ongoing effort. OP seems to be looking for simple self management.

 

[youbet]

On accessibility of a Vanguard rep. I do not use their FA services but apparently have enough money with them that there is a specific rep assigned to my account. He doesn't provide investment advice like a FA would but helps in many ways and is accessible with a direct phone call. If he's not there, I get a call back quite quickly. I can also see an online calendar and can set up an appointment with him in any open slot he has. I have never had a call I made not returned that day or at least by the following day. I've used his help to get accounts transferred to VG, tax questions answered, issues with a 401k transfer worked through, getting cost basis adjustments made, and just general support on how VG works.

I've also just called the general help number many times. Normally I wait 2-8 minutes to get a real person on that line .... if I wait. Instead, I often use their call back service. I leave my number and the recording tells you how many minutes later to expect a callback. Typically <10 minutes in my experience and the call backs always seem to be within a minute or so of when they said it would be.

You will find varied experiences on this board. The above are mine. It is nice to know that there are three well recommended companies out there (VG, Schwab and Fidelity). So if one doesn't meet your needs, the others might. Here's one of the better comparisons of the three that I've seen.....

Thanks for posting the video! Very informative.

 

[joeprintz]

I don’t understand sometimes. If one doesn’t like/want/is comfortable self investing than the fact that the investment advisor made them so much more money that the percentage fees are way up so bad. A long as objectives are met by the advisor firm- why does one necessarily care how much money they make( assuming the percentage does not increase and probably goes down the more they manage.). As long as one is aware of options than paying for a service is just another option as one gets older. Sometimes planning for the ultimate ending of our life/abilities involves a financial cost.

 

[Exchme]

It’s clear that RetiredHappy has the mental faculties to self-manage the accounts. I have no problem with the proposed high stock allocation as RH already has an annuity and little need for cash, so the investing horizon is decades.

I would use a Total Stock Market ETF for the stock portion and Total Bond Market for the Bond portion. Rebalance annually or if things get way off track, like in March 2020. Total Stock Market has super low turnover, which helps minimize the capital gains distributions.

I saw discussion of RMDs being more than enough to cover the needs, so RH should also think the bond holding preferentially in tax deferred to slow that account growth and minimize the RMDs. Also, with seemingly plenty of assets, RH should consider Roth conversions. It sounds like there will be plenty of cash to pay for the taxes and conversions now may avoid higher taxes in the future, so RH may be a prime candidate to benefit there.

 

[FloridaJim57]

I would look closely at Wellington and Wellesley from Vanguard. A mix of the two is excellent.