Whether to stay with Advisor or DIY...

mikes425 said:
More important, the single largest way an advisor can add value - up to 1.5% per year of increased returns - is 'behavioral coaching." i.e., the best advisors are those who can keep their clients’ fears and emotions in check by providing steady, fact-based advice and reassurance when the markets get wobbly or crazy.
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This statement just isn't true IMHO.... there is no "added" value here just protection against lost value by not sticking to your plan. Maybe the "behavioral coaching" you speak of could possibly save you from losing value---1.5% or whatever in returns as the result of churning your account. If you do go the DIY route, an extremely valuable read IMO is "Your Money and Your Brain" by Jason Zweig. As Bill Bernstein put it "If Jason can't save you from yourself, nobody can"
 
WhenIsItTime said:
Ease up a bit folks. Your opinions are turning nasty.
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Haha, yeah! I feel like i hit a nerve (for no apparent reason). OP here, and I know for a fact that I never 'advocated' an AUM adviser in this thread.

I think i'll hang with the AUM plan for a little while and propose reverting to an hourly or maybe a quarterly flat fee in line with our past arrangement. If that doesn't fly with him i'll move to a DIY approach.

I actually have done well with him over ten years so we have had a good relationship. Frankly the biggest issue for me is how to diplomatically ask to return to the hourly rate without looking like a total jerk.
 
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Markola said:
Who says that’s the goal? The great majority of professional managers would not recommend a 100% stock allocation.
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Well majority of US *equity* fund managers are not able to beat S&P 500. To extrapolate if individual manager
recommends 70% equity allocation that 70% allocation likely does not beat simple S&P 500 index. :)

What is their goal? To underperform most basic Index?
 
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Wow. Child's garden of misinformation. The very old news is that the average professional manager cannot beat his benchmark. The S&P is often not the correct benchmark though. Here is Nobel winner Dr. William Sharpe explaining the situation 30 years ago: https://web.stanford.edu/~wfsharpe/art/active/active.htm

Regarding old news, anyone familiar with 50+ years of history knows that the average active manager turns in results that are even worse than Dr. Sharpe hypothesizes. Further, it is not possible to identify the outperforming managers ahead of time. Here is Eugene Fama's research partner, Ken French, explaining the reasons: https://famafrench.dimensional.com/videos/identifying-superior-managers.aspx

But people still hire managers for many reasons, and that appears to be what the OP is struggling with. Beating him up with old news is not particularly helpful IMO.

From the OP's results, he's almost certainly looking at a blended portfolio and (as I observed earlier) it's impossible to separate out the equity performance. Looking at the FA, I would say that if he is within 2% of an appropriate benchmark he is doing well for the OP. That is a fairly low cost all-in for an FA, including trading cost, mutual fund fees, etc. So the OP is trying to figure out how to judge value of continuing with the AUM approach vs his old hourly fee arrangement.
 
TechLead said:
Well majority of US *equity* fund managers are not able to beat S&P 500. To extrapolate if individual manager
recommends 70% equity allocation that 70% allocation likely does not beat simple S&P 500 index. :)

What is their goal? To underperform most basic Index?
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This is a conservative allocation - 40/60. Average over 10 yrs, abt. 5-6% ..
 
WhenIsItTime said:
Ease up a bit folks. Your opinions are turning nasty.
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Yup. It's why I don't frequent bogelheads anymore. Something about financial planners. Everybody is a DIY expert. Seems to be more than any other profession. The reality is, in my opinion, financial planners (if good) do way more than select your fund diversification.
 
mikes425 said:
This is a conservative allocation - 40/60. Average over 10 yrs, abt. 5-6% ..
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That sounds pretty awful. Your high end would be 1.06^10 = 1.79x. Starting with $100K, that's $179,085.

A 40/60 of VTI/BND, annual re-bal, gets you $210,388.

https://bit.ly/2DQsWZ0 << short link to portfoliovisualizer

And $223,879 w/o re-bal. (That's 8.32% CAGR)

$30K ~ $40K short of doing near nothing.

edit - ooops, cross posted with others....

-ERD50
 
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mikes425 said:
This is a conservative allocation - 40/60. Average over 10 yrs, abt. 5-6% ..
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It is interesting that US Broad Index of equities returned 13.6% during this period.
https://dqydj.com/wilshire-5000-return-calculator/

I don't expect more than 6% in next decade and in your case not more than 2-3%.

Those are not inflation adjusted numbers. So after inflation and taxes you may be looking 0% returns before you pay 0.55% to FA.
 
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CaliKid said:
Yup. It's why I don't frequent bogelheads anymore. Something about financial planners. Everybody is a DIY expert. Seems to be more than any other profession. The reality is, in my opinion, financial planners (if good) do way more than select your fund diversification.
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Agree. The truth is, everyone COULD be a DIY expert. However, not everyone is interested to read about investments, has the cast iron constitution required to do exactly nothing when their portfolio falls 40%, or a partner willing to leave 100% of money matters to the other.
 
Markola said:
Agree. The truth is, everyone COULD be a DIY expert. However, not everyone is interested to read about investments, has the cast iron constitution required to do exactly nothing when their portfolio falls 40%, or a partner willing to leave 100% of money matters to the other.
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Would be interesting poll to see for everyone on this forum who despises FA's, how many built their own house, service their home/car/appliances, mow their own lawn, self medicate, handle their own legal matters, grow their own food, homeschool their kids, etc. Certainly can DIY cheaper than paying the guy.

To be clear, I am not promoting FA's and happen to do many of the things I mentioned by myself. However, from time to time I pay for technical expertise or muscle.
 
Tough crowd!
I need to double check that 10 year return. Looks like Schwab took away all but the taxable portfolio in my portfolio performance calculator so the 5-6% only applied to the taxable. I have a Roth and I-401k that weren't factored in.

I don't expect more than 6% in next decade and in your case not more than 2-3%.

Those are not inflation adjusted numbers. So after inflation and taxes you may be looking 0% returns before you pay 0.55% to FA.

Well with all due respect, terms such as "I don't expect" and "may be" are only speculation. : )
 
CaliKid said:
Yup. It's why I don't frequent bogelheads anymore. Something about financial planners. Everybody is a DIY expert. Seems to be more than any other profession. The reality is, in my opinion, financial planners (if good) do way more than select your fund diversification.
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edit/add: I missed this post, and my response applies as well -
WhenIsItTime said:
Would be interesting poll to see for everyone on this forum who despises FA's, how many built their own house, service their home/car/appliances, mow their own lawn, self medicate, handle their own legal matters, grow their own food, homeschool their kids, etc. Certainly can DIY cheaper than paying the guy.

To be clear, I am not promoting FA's and happen to do many of the things I mentioned by myself. However, from time to time I pay for technical expertise or muscle.
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But when it comes to the investing part, it makes sense that a DIY would be an investing 'expert' more than in any other profession.

Other professions are generally dependent upon skill, experience, specialized tools, and sometimes just plain hard work. Hiring a pro versus DIY can be a very rational decision.

But when it comes to investing (not the other decision-making stuff), the data says that skill, experience, specialized tools, and hard work are not a factor. The only specialized tool that would help is a functioning crystal ball. Otherwise, you pick an AA, invest in a few broad based index funds/ETFs, and get on with your life. You are an expert, and probably better than an expert due to likely lower ER, simplicity, and no other fees.

That said, maybe I've missed it, but it seems to me people have had trouble finding an FA to do a real professional analysis on those other things, like optimizing Roth conversions, SS timing, and other subjects that get tossed around here regularly.

another add: Also, language like "for everyone on this forum who despises FA's," is not helpful Many/most of us are presenting facts about what an FA can/cannot do, and their likely negative effect on your portfolio. That's not "hating" it's facts. Challenge the assertion, not the motivation. That kind of language gets the thread heated and sometimes shut down (like the recent Tesla thread, where anyone presenting certain facts is labeled a "hater" or "anti-Tesla")

-ERD50
 
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mikes425 said:
Tough crowd!
I need to double check that 10 year return. Looks like Schwab took away all but the taxable portfolio in my portfolio performance calculator so the 5-6% only applied to the taxable. I have a Roth and I-401k that weren't factored in.

I don't expect more than 6% in next decade and in your case not more than 2-3%.

Those are not inflation adjusted numbers. So after inflation and taxes you may be looking 0% returns before you pay 0.55% to FA.

Well with all due respect, terms such as "I don't expect" and "may be" are only speculation. : )
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Yup it is speculation. Given that we have highest public debt since 1945 (and skyrocketing) , that Fed rate is hitting 0, highest unemployment since Great Depression, populism, Trade Wars, City and State pensions running low, Fed printing money at never seen numbers, etc. Next decade does not look very good.

Everybody speculates so they can prepare for a future.
 
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TechLead said:
Yup it is speculation. Given that we have highest public debt since 1945 (and skyrocketing) , that Fed rate is hitting 0, highest unemployment since Great Depression, populism, Trade Wars, City and State pensions running low, Fed printing money at never seen numbers, etc.

Everybody speculates so they can prepare for a future.
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I've been cleaning out my files lately, I found some notes from 2005 regarding Bernstein's "Four Pillars" book (2002 edition).

I noted that he felt that while stocks have historically outpaced bonds, he wasn't expecting that over the next 2 decades. Well, he was pretty correct for the next 10 years, but from 2013 to present, stocks climbed way ahead.

CAGR of 4.48% for VBMFX-Vanguard Total Bond Market Index Inv vs 7.54% for VFINX-Vanguard 500 Index Investor. JAN 2002 to present JUN2020.

-ERD50
 
Anyone can go back and view the 10-year predictions of major institutions. For example, search "vanguard prediction next ten years" without quotes, and you can see the modifications of forecast as 2019 progressed. Even though we'd like to believe these are static predictors, they are not. Sh*t happens and the crystal ball gets cloudier.

My guess is that seasoned investors know this, and refer to future returns being lower in the next ten. It's a better way to think of the future than taking a stab at the returns of last ten years (maybe it was 5-6%) and thinking an advisor can add 2-3% to that, justifying their fee(s) going forward.

1) We prefer to stick with DIY and an asset allocation we can live with.

2) If anyone wants to pay an advisor, it is probably ok with most on the forum. At times the comments get more passionate, but that is how everyone is on a forum.
 
ERD50 said:
Facts are facts. Ignore them at your own peril. IMO, the "tough" thing is to ignore facts. That can really hurt a person.
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@ERD50, you are correct in your posts advising how to optimize total investment return. That is a fact.

But let me offer you another fact that, IMHO, you are ignoring: Not everyone is interested in optimizing investment return at the expense of other life optimizations, like not worrying about their investments. I know many smart people who know that they do not get and cannot get optimum total returns because they are using an FA. I'd suggest that you not ignore this fact. Life is a multivariable optimization problem and the best we can do is the best we can do.

Speaking personally, we do not use an FA because for me running the money and participating here is a nice hobby and for DW, running the money is simply an extension of what she did professionally. So no big deal for us. But if we made the tradeoff the other way and used an FA, the impact on our lifestyle and ability to spend would be zero. No "hurt" IOW. To the extent this suboptimal approach had any impact at all it would be on our heirs. But if we did that, you might also be excoriating us for ignoring facts.
 
What I tried to say is do not expect 4% withdrawal rate in next 10 years. Expect maybe 3%, even less with FA managed accounts (since those underperform)

If you can afford to give 1/6th to 1/3rd of that money to FA and it makes you feel safer/better then go for it.
 
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TechLead said:
Yup it is speculation. Given that we have highest public debt since 1945 (and skyrocketing) , that Fed rate is hitting 0, highest unemployment since Great Depression, populism, Trade Wars, City and State pensions running low, Fed printing money at never seen numbers, etc. Next decade does not look very good.

Everybody speculates so they can prepare for a future.
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Ok, kinda relates to my apprehension about being completely on my own specifically within the next year or so and the impulsive choice to ask to become an AUM client so I could have more active oversight of my portfolio. Extraordinary uncertainty and confluence of once-in-a-century/lifetime events, a thorougly unpredicatable and unstable (not political, simply observational) 'leader' and myriad other variables at the very point at which I want to transition from work to retirement.

So ok, I've already resolved that I'll do this AUM thing for maybe a year - maybe less - and then revert to either the hourly advice model or DIY. The change of arrangement was exclusively mine and without any provocation by the adviser whatsoever. As i also said i never proclaimed support for the AUM mgt approach for all reasons already presented.

I've established a rapport with this guy over 11 years, strictly on an hourly rate basis. Few advisors - in this case a former fund manager - are willing to go this route. Ergo his advice is objective - albeit underperforming similar portfolio models.. I'm not even sure those return figures are really accurate because there are underlying variables with use of a number of closed-end funds, dividend income of 55-60k /year and other aspects that aren't necessarily reflected in a general 3-5-10 year performance calculation. Alot of that was my own risk-aversion. My bad. Tho preservation when you're approaching retirement becomes an important consideration.

I am a fan of hourly planning vs AUM. I see no great harm when we're talking at most, a few grand, vs even a discounted .55/year of assets. Switching was an impulsive move. I am virtually certain I'll convert back to the original deal or move elsewhere and get an initial and maybe periodic consult after revamping a 'mostly' DIY plan built on a simple well diversified vs needlessly micro-diversified (read, too many funds with small positions) PF composition. Telling the advisor i want to change back will be a little awkward but obviously in ten years time i've favored the hourly model and now that i have more time to devote to DIY, it should be understandable if i want to go that route.
 
I use Vanguard Advisory for half of my portfolio, which essentially provides me access at half price. They still coach me on the other half in broad strokes I can easily apply.

The main reason I stick with it is that I enjoy the “behavioral coaching” and can get sound advice any time I want. I’m also about to quit working and plan to have them vet my withdrawal strategy.

It sounds like you enjoy a little hand holding. If that makes you feel better I’d say it’s worth the peace of mind.
 
tmitchell said:
I use Vanguard Advisory for half of my portfolio, which essentially provides me access at half price. They still coach me on the other half in broad strokes I can easily apply.

The main reason I stick with it is that I enjoy the “behavioral coaching” and can get sound advice any time I want. I’m also about to quit working and plan to have them vet my withdrawal strategy.

It sounds like you enjoy a little hand holding. If that makes you feel better I’d say it’s worth the peace of mind.
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Yes, that's true..and I think that is a very reasonable approach. Interesting that you can tailor their advisory to just a certain fraction vs the whole portfolio and still get general guidance on the rest of your holdings, particularly if includes ongoing rebalancing advice.

I planned on arranging a Vanguard review some time in the future. I do favor the user-friendliness of my Schwab vs Vanguard's interface so that'd take some getting used to.
I'm assuming if I were to do a total conversion from Schwab, VG would advise on the most tax-efficient strategy. Do they also allow use of managed funds if i
have a preference over index funds in some categories? (I guess if I insist, they'd be obligated to go along with me in any event).
 
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