Portfolio Makeover - Sold 2/3 on Friday, May 3

[karluk]

Yep. agreed. I've done lots of reading over past six months and know enough so no one can take me for a ride. I just want a second pair of eyes and someone neutral/independent advising me during rough market without him having any financial interest(kickback/commission) - mainly save me from emotional selling.

And yet you've just emotionally sold your entire portfolio without bothering to consult with your FA at all. Not sure exactly where you're getting your money's worth by hiring someone to save you from your emotions, and then impulsively giving into your emotions anyway. Maybe it will work out this time, but of course the danger is that you may make a small profit from a move into 100% cash right now, but then use the current example of successful market timing to justify additional market timing in the future.

I guess you need to decide whether you're calling the shots, or whether your FA is. Right now your FA seems like an expensive front man for you to justify any impulsive move you decide to make.

 

[nun]

Why do you assume that way? I'm paying FA 625/quarter or 2500/year - which'll give me advice, second pair of eyes looking after my investment and access to DFA funds.

I can see how a second pair of eyes can be comforting, but you're paying $2.5k for one pair when you get multiple pairs on here for free.

DFA are a lot better than many funds, but they talk up their passive nature and then go on to emphasise how they "out perform" a benchmark without going into the greater risk than you assume with many of their funds. Also having to pay an FA to get access to them just annoys me when you can mimic DFA strategies with funds from Vanguard or Fidleity and save a bit on ER and avoid the FA fees completely.

 

[retire2020]

karluk: That was just one time deal. I wanted to start fresh and I did inform my FA that I'll be selling most of it and he did not have any issue with it. Obviously, FA will be managing once he comes up with AA and target funds. He'll then periodically review and rebalance it after discussing with me. I'll not be selling on my own once he starts managing. Thanks for your feedback.

 

[nun]

Obviously, FA will be managing once he comes up with AA and target funds. He'll then periodically review and rebalance it after discussing with me. I'll not be selling on my own once he starts managing. Thanks for your feedback.

Many people choose to use an FA, but "managing" some passive funds and rebalancing isn't worth $2.5k IMHO, but I have this thing against FAs. Now if he is also providing some tax planning and doing rollovers to ROTHs and coming up with strategies to minimize your MRD it would be a better deal.

 

[urn2bfree]

Many people choose to use an FA, but "managing" some passive funds and rebalancing isn't worth $2.5k IMHO, but I have this thing against FAs. Now if he is also providing some tax planning and doing rollovers to ROTHs and coming up with strategies to minimize your MRD it would be a better deal.

0.125% to manage (and of course they consider taxes) and get access to arguably the best family of funds? And that percent will go down as the portfolio grows? There is a lot of research showing that DFA can deliver returns 1-2% better than any mimic and with no increase in volatility. There are those who argue otherwise but at that low and shrinking fee schedule along with DFA's low expenses and tax savvy investing--it is not a very risk bet of $2500....and it is a non binding arrangement. I get the skepticism about financial advisors, but the one he has chosen is far different from the skimmers and scammers who have given them such a bad reputation.

 

[photoguy]

Also having to pay an FA to get access to them just annoys me when you can mimic DFA strategies with funds from Vanguard or Fidleity and save a bit on ER and avoid the FA fees completely.

While I totally believe in factor loadings as the prime determinant of returns I don't think you can completely mimic a DFA portfolio with vanguard funds. Vanguard doesn't have funds in certain segments (int small cap value, etc.) and
typically their funds are not as pure as dfa (not sure if fidelity can fill the gap but I would guess not at a reasonable expense ratio).

That said I have almost everything with vanguard + a few ishares/bridgeway funds. However, if I could get access to dfa for a very small er (maybe 0.2% or less) I might consider them.

 

[nun]

While I totally believe in factor loadings as the prime determinant of returns I don't think you can completely mimic a DFA portfolio with vanguard funds. Vanguard doesn't have funds in certain segments (int small cap value, etc.) and typically their funds are not as pure as dfa (not sure if fidelity can fill the gap but I would guess not at a reasonable expense ratio).

You might not be able to slice a dice exactly with Vanguard, but you could come close.

As I said DFA has low fees and good performance, I just wish they were a bit more forthright in the risk/reward department. Also I've never liked "gatekeepers", but it is a good marketing strategy for them as it gives them an air of exclusivity and I'm sure people have gone to certain FAs just to get access to DFA funds so the FAs that DFA approves also do well out of it.

 

[dmpi]

Can't complain about selling high. I made a big transaction like that a few years ago. Not quite as big as yours. I was surprised that Schwab charges you more than $9.00 for commission. I thought it was a flat rate.

 

[steelyman]

Can't complain about selling high. I made a big transaction like that a few years ago. Not quite as big as yours. I was surprised that Schwab charges you more than $9.00 for commission. I thought it was a flat rate.

Right. I've been selling this year too. I'll be happy to kneel behind someone who advises you to buy annuities, and you can do the rest.

 

[clifp]

0.125% to manage (and of course they consider taxes) and get access to arguably the best family of funds? And that percent will go down as the portfolio grows? There is a lot of research showing that DFA can deliver returns 1-2% better than any mimic and with no increase in volatility. There are those who argue otherwise but at that low and shrinking fee schedule along with DFA's low expenses and tax savvy investing--it is not a very risk bet of $2500....and it is a non binding arrangement. I get the skepticism about financial advisors, but the one he has chosen is far different from the skimmers and scammers who have given them such a bad reputation.

+1

I share the skepticism of most FA, but DFA adviser are a different breed.

14 years ago when I first got serious about retirement, I would have gladly paid someone $2,500 who knows as much as I currently do about retirement (or at least 30 other board members), to come up with a detailed plan. I also did a large portfolio makeover when I first retired rolling over my 401K into an IRA, and selling a bunch of company stock and other tech stocks. It was somewhat scary process and second pair of smart eyes would have been valuable.

It is all fine for us to say put ~70% in total stock market and ~30% in total bond market, while educating yourself. That is fine advice but there are tax implication, and other opportunities, that you won't pick up by reading a few books and calling Vanguard.

 

[Shanky]

Just avoid the temptation to time the market. You will be buying back in to a more expensive market, so that can be tough.

I see the market is up a little over 4% since you did this. Did you buy back into a more expensive market, or are you standing by for a pull back. This is why I try to reallocate in the same day, or I delude myself that I can time the market.

 

[heirloom]

What did you make the highest % of profits on?
SC, LCG, LCV, INT'L......just wondering because I have never been a "buy and hold forever" type of person and wonder what my portfolio would have looked at if I was.

Problem is I did HOLD during last crash until I couldn't take it any longer. When mkt started to recover I purchased company stock and recovered my losses, then purchased PTTRX and I feel safe though this yr it isn,t so hot yet..

 

[karluk]

I see the market is up a little over 4% since you did this. Did you buy back into a more expensive market, or are you standing by for a pull back. This is why I try to reallocate in the same day, or I delude myself that I can time the market.

I was thinking the same thing. This thread didn't start out as a market timing discussion, but circumstances have certainly conspired to make it a perfect illustration of the dangers of making wild deviations from one's target asset allocation, however temporary. The extremely large amount of money converted to cash plus the unusually sharp increase in the stock market since OP sold his equities have combined to generate a rather painful missed opportunity. We would have to know more details of what was actually sold and for what price, but it seems likely that the losses from this ill-timed move to cash are somewhere in the mid to high five figures. Ouch!

So OP is paying thousands of dollars for advice from a financial advisor who has already cost him tens of thousands in missed profits. As you say, the only choices now are to bite the bullet and repurchase equities at a higher price, or sit with a large cash position and hope for a correction. But holding all that cash for an indefinite period creates additional risk that the market will continue to rise while OP is on the sidelines.

 

[Surewhitey]

We sold 1/3 over the past month too. Making a loan to DD for her 2nd home. We call it our 30 year annuity...

 

[Sun456]

Retire2020,

If your willing to share I am very interested in your experience, both positives and negatives with your new financial adviser.

Thanks!

 

[urn2bfree]

I was thinking the same thing. This thread didn't start out as a market timing discussion, but circumstances have certainly conspired to make it a perfect illustration of the dangers of making wild deviations from one's target asset allocation, however temporary. The extremely large amount of money converted to cash plus the unusually sharp increase in the stock market since OP sold his equities have combined to generate a rather painful missed opportunity. We would have to know more details of what was actually sold and for what price, but it seems likely that the losses from this ill-timed move to cash are somewhere in the mid to high five figures. Ouch!

So OP is paying thousands of dollars for advice from a financial advisor who has already cost him tens of thousands in missed profits. As you say, the only choices now are to bite the bullet and repurchase equities at a higher price, or sit with a large cash position and hope for a correction. But holding all that cash for an indefinite period creates additional risk that the market will continue to rise while OP is on the sidelines.

Who says the advisor advised sitting in cash during this time? I don't think you can put that on the advisor, nor do,we know that is what even happened.

 

[karluk]

Who says the advisor advised sitting in cash during this time? I don't think you can put that on the advisor, nor do,we know that is what even happened.

I am simply taking OP at his word. Retire2020 wrote

I did inform my FA that I'll be selling most of it and he did not have any issue with it.

A competent financial advisor would have both known and taken the initiative to point out to a new client that this move to cash greatly increased OP's risk without increasing his expected return at all. Instead, based on OP's own account of the conversation, the FA at best passively acquiesced and perhaps tacitly approved this foolish move to cash as a convenient way to get his hands on a large account without having to take the time and effort to design a transition plan to get OP's money into DFA funds without going to an entirely cash position for a couple of weeks.

 

[urn2bfree]

I am simply taking OP at his word. Retire2020 wrote

A competent financial advisor would have both known and taken the initiative to point out to a new client that this move to cash greatly increased OP's risk without increasing his expected return at all. Instead, based on OP's own account of the conversation, the FA at best passively acquiesced and perhaps tacitly approved this foolish move to cash as a convenient way to get his hands on a large account without having to take the time and effort to design a transition plan to get OP's money into DFA funds without going to an entirely cash position for a couple of weeks.

Actually worrying about a couple of weeks of returns sounds more like market timing to me. In the long run, missing out on one episode of a couple weeks up before a likely correction and the next run up should be meaningless. It would be different if there were repeated trips in and out of the market, but that is not this situation. And we have no idea how long the time is between the liquidation and the DFA purchase. Also the comment about the size of the portfolio shows a key point appears to have been missed. THIS advisor does not get paid a percentage of the portfolio. The fee is hourly or quarterly at a flat rate--the same for large or small portfolios.

 

[karluk]

In the long run, missing out on one episode of a couple weeks up before a likely correction and the next run up should be meaningless.

You might think so, but you would be wrong. If OP buys back into the stock market right now at, let's say, an average price 3% higher than when he sold, he will permanently be stuck with a portfolio that is worth 3% less than if he or his FA had had the good sense to avoid this two week excursion to cash. The only way this FA can recoup the loss is to promise market beating returns going forward. But I will assume that he has enough common sense not to do that. He would only be setting himself up for lawsuits when he fails to deliver.

And we have no idea how long the time is between the liquidation and the DFA purchase.

We don't know the exact day, but we DO know the time frame - two weeks - based on OP's earlier posts. That's last Friday, so if he hasn't already purchased he is either about to do so, or he has completely changed his plans and now intends to stay in cash until the market starts to cooperate with his opinion of how it should behave. Good luck with that.

Also the comment about the size of the portfolio shows a key point appears to have been missed. THIS advisor does not get paid a percentage of the portfolio. The fee is hourly or quarterly at a flat rate--the same for large or small portfolios.

I did not miss that point at all, but I'm not sure exactly how it is relevant. The FA has given tacit approval for this two week exercise in market timing that has now gone badly wrong and cost OP tens of thousands of dollars. If I were in the market for a FA, I would not exactly find it reassuring to have one described to me as "This guy's advice is terrible,but at least his fees are reasonable." But that's an accurate description of the FA based on the facts as we know them.

 

[Gatordoc50]

I sold about 150k around the same time to get my AA in line with my goals. Cost me about 4500 bucks so far. In theory, anyone who rebalanced in the past few years made a similar " blunder " as the OP. However, I don't see any advantage to using DFA funds anymore. There isn't any guarantee that all the slicing and dicing is going to improve returns. And you can get access to all the market segments now anyway thru vanguard and or ETFs.

 

[ESRwannabe]

I wouldn't worry about selling. You decided to redo your portfolio. So it is what it is. I wouldn't second guess it.

I've only read the first post so far, maybe this is answered latter on. Are you sure you need a financial adviser? If you are just going to by index funds it should be pretty trivial to manage it yourself. I also would not buy into any hype that DFA funds are better than any other index fund. I believe DFA makes you use an adviser. So I would dump them.

If I was going the index route I would use whatever is cheapest in terms of ER and any fees. I would manage it myself and probably use Vanguard.

Honestly if you are going the index fund route there is no reason why you can't just use the same balanced fund in all of your accounts, and that way you don't have to mess with it at all.

 

[urn2bfree]

This is all Monday morning quarterbacking. If the usual sell in May and go away had happened this year then the timing would have been favorable. This is beyond silly, it is just knee jerk criticism. The OP said his FA had no idea he was selling, he did it on his own. We do not know how much his particular portfolio "missed out" on the last few weeks run up. He says he was in 80 different funds. We do not know how out of balance the original portfolio is or was, or whether new fund investments are going to all be up as much as the broader market has been these few weeks. And we don't know what will happen tomorrow or whenever. In the long run this little difference will be a tiny drop in the bucket of what one hopes is a much larger portfolio. Speculating that tens of thousands have been missed out on is just hating on advisors.

As for the comments about DFA being no better than other funds, that is an opinion. Not based on any facts or numbers, but it is an opinion. The Indexes are often changing, stocks are added or subtracted and pure index funds must immediately sell and buy to reconstitute their make up to match the index committees NEW definition of an asset class. This has cost an estimated 0.6% cost just doing reconstitution...a cost DFA index funds largely can avoid. They also leverage their size in beneficial ways not available to other passive approaches. It is much more than strategic slice and dice that has made them the success that they are. The facts show that the DFA approach in the past has been consistently more tax efficient and lower cost and with higher returns than many other approaches including Vanguard. Whether that will hold in the future is unknown but with a low cost advisor adding a tiny fraction of a percent to the cost, that is a gamble many are willing to take based on prior results and belief in their method of indexing. If you use a higher cost advisor then all bets are off and that probably cancels out even theoretical DFA advantages.

 

[Gatordoc50]

This is all Monday morning quarterbacking. If the usual sell in May and go away had happened this year then the timing would have been favorable. This is beyond silly, it is just knee jerk criticism. The OP said his FA had no idea he was selling, he did it on his own. We do not know how much his particular portfolio "missed out" on the last few weeks run up. He says he was in 80 different funds. We do not know how out of balance the original portfolio is or was, or whether new fund investments are going to all be up as much as the broader market has been these few weeks. And we don't know what will happen tomorrow or whenever. In the long run this little difference will be a tiny drop in the bucket of what one hopes is a much larger portfolio. Speculating that tens of thousands have been missed out on is just hating on advisors.

As for the comments about DFA being no better than other funds, that is an opinion. Not based on any facts or numbers, but it is an opinion. The Indexes are often changing, stocks are added or subtracted and pure index funds must immediately sell and buy to reconstitute their make up to match the index committees NEW definition of an asset class. This has cost an estimated 0.6% cost just doing reconstitution...a cost DFA index funds largely can avoid. They also leverage their size in beneficial ways not available to other passive approaches. It is much more than strategic slice and dice that has made them the success that they are. The facts show that the DFA approach in the past has been consistently more tax efficient and lower cost and with higher returns than many other approaches including Vanguard. Whether that will hold in the future is unknown but with a low cost advisor adding a tiny fraction of a percent to the cost, that is a gamble many are willing to take based on prior results and belief in their method of indexing. If you use a higher cost advisor then all bets are off and that probably cancels out even theoretical DFA advantages.

I've looked into DFA before but at the time couldn't justify the cost of the advisor. There wasnt anyone offering access for a tiny fraction of a percent. I think it was IFA and more like 1.5% at the time. Can you provide info on that. I'd like to look into it. Thanks

 

[retire2020]

karluk:
It was my call and not FA's. When did I say that FA gave me two week's tactics? It was all my thinking what I wanted to do. You've read in bits and peaces and drawn your own conclusion. I've already mentioned in this thread how much I'm paying to FA -- it's not % based or into thousands. I also mentioned how messed up and out of balance my previous portfolio was and I wanted to start fresh. I also mentioned that market could go either way when I buy back but who can time the market?

 

[haha]

This is all Monday morning quarterbacking.

+1 Assuming what just happened had to happen is an interesting mental quirk. When you get out of the stock market, if there are no taxes or fees, all you do is get out of the stock market. You certainly reduce risk, if you keep the proceeds in cash. You may reduce return, depending on how the wheel spins.

Ha