Did I make a mistake with a managed Vanguard portfolio?

[Hskrfan]

I’m new to the FI and investing overall. I’m 34, active duty military w/ 16 years of service. I’m looking for an honest answer from the experts, did I make a mistake with the managed option from Vanguard? Should i opt out, and what are the consequences if I do?

I opened the account with Vanguard in May 2021. The advisor I was assigned picked the funds for me. At the time I invested 50k in a brokerage account and also moved my Roth IRA over from Victory Capital.

My brokerage account and Roth IRA are both in the exact same 4 ETFs: BND, BNDX, VTI, VXUS.

My Vanguard Roth is 90/10 stock/bonds split. My Vanguard brokerage is 60/40 stocks/bonds.

My goal is to FIRE in the next 10 years at age 44. I currently have a appx $240k net worth, no credit card debt, no students loans, and no mortgage. I’m maxing my and DWs Roth IRAs each year and contributing $12000 to my Roth TSP each year.

Currently breakdown of assets:
Emergency Fund (savings): $25,000
Vanguard Brokerage: $53,500
Vanguard Roth IRA: $93,500
Spouse Roth IRA: $13,500
Roth TSP: $47,000
529: $14,000

 

[OldShooter]

Why do you ask? Good investing is simple and boring. Looks like you're there.

 

[Aerides]

Does the managed option mean fees? If so, can you let us know what you are paying? Most folks here would advocate for self-managed, but you can do that with VG, Fido, etc. You can probably opt out of a paid managed version, keep much of the same, and then let it ride.

But what part of the above do you think is your mistake exactly?

 

[Bigdawg]

I’m new to the FI and investing overall. I’m 34, active duty military w/ 16 years of service. I’m looking for an honest answer from the experts, did I make a mistake with the managed option from Vanguard? Should i opt out, and what are the consequences if I do?

Experts? There are some smart folks on here but few if any experts. Our advice will be worth exactly what you are paying us. Zero. LOL. Aerides asked are you paying extra to Vanguard for the special service? My guess is yes. You don't need it. Many on here use Vanguard. I do. Many retired military folks on here along with a few active duty. We have a resident military expert ("Nords"). He checks in from time to time. My DW and I are both retired from active duty. You are on the right track. My advice: TSP up until match. Max out your ROTH IRA. Use your tuition assistance to get some college while you are in. Do everything you can to make the next rank. A few years before your 20, start living on what your retirement check will be.
Document ALL of your ailments for future VA dis rating. Save your GI Bill for dependents. Both of my kids went to college for free using my (and DW's) GI bill. Good luck and welcome.

 

[Hskrfan]

For the managed option I’m paying .30% in annual fees ($3 in fees for every $1000).

I just checked and I paid $336.84 in management fees for the last 12 months to Vanguard because they are managing both my brokerage and Roth IRA.

Looking for advice to see the pros/cons to keeping it the way it is or opting out and managing my accounts myself.

 

[OldShooter]

... Looking for advice to see the pros/cons to keeping it the way it is or opting out and managing my accounts myself.

Vanguard is inexpensive for assistance in management but your instincts are correct -- it is not hard to manage for yourself. Read a couple of books, then decide:

"The Coffee House Investor" by Bill Schultheis https://www.coffeehouseinvestor.com/ (This is Bill's first book; read it before reading his second one.)

"The Bogleheads Guide to Investing" by Taylor Larimore et al https://www.amazon.com/Bogleheads-Guide-Investing-Taylor-Larimore/dp/0470067365

FWIW, DW and I were 100% stocks until close to retirement. The bond positions that VG put you in are quite conventional though. They dampen portfolio value changes in turbulent times at the cost of dampening portfolio returns as well. People here talk about "being able to sleep at night" during market excitement. The more excitement you can tolerate while sleeping well, the smaller bond tranche you need (at your age) and the better returns you will get. The Larimore book will help you understand this and yourself.

 

[HawkeyeNFO]

Well, at least you're done with Victory Capital. I'm not too impressed with them.

One thing to think about is the fact that you will have retirement pay from day 1 after you retire from the military. To me, that is even more secure than having bonds. So, I decided that due to the COLA adjusted pay every month from the DoD, I can take more risks with the rest of my income source. Specifically that means no bonds or bond funds, just equities and some real estate for me. I'm very comfortable with that risk/reward scenario, and even with the latest downturn in the market, it has been a very good financial strategy.

 

[Rianne]

We've been with Vanguard for 30 years or so. They used to give you an advisor for free if your portfolio was over a certain amount. Now they charge that .3%. You're already in 60/40. Our Roths are similar to 90% stock index funds.

As the above posts, you really don't need to have an actively managed acct.

 

[pb4uski]

For the managed option I’m paying .30% in annual fees ($3 in fees for every $1000).

I just checked and I paid $336.84 in management fees for the last 12 months to Vanguard because they are managing both my brokerage and Roth IRA.

Looking for advice to see the pros/cons to keeping it the way it is or opting out and managing my accounts myself.

The tickers that they have you in seem reasonable for someone in your circumstances and 0.30% in fees is very resonable, so I would not call it a mistake. At worst only slightly suboptimal.

At the same time, you could easily drop the managed account and stay in the same tickers in the same proportions and save yourself 0.30% annually.

 

[travelover]

I'd keep the same funds and ditch the advisor. The crops have been planted, come back in ten years to harvest.

 

[target2019]

I’m new to the FI and investing overall. I’m 34, active duty military w/ 16 years of service. I’m looking for an honest answer from the experts, did I make a mistake with the managed option from Vanguard? Should i opt out, and what are the consequences if I do?

I opened the account with Vanguard in May 2021. The advisor I was assigned picked the funds for me. At the time I invested 50k in a brokerage account and also moved my Roth IRA over from Victory Capital.

My brokerage account and Roth IRA are both in the exact same 4 ETFs: BND, BNDX, VTI, VXUS.

My Vanguard Roth is 90/10 stock/bonds split. My Vanguard brokerage is 60/40 stocks/bonds.

My goal is to FIRE in the next 10 years at age 44. I currently have a appx $240k net worth, no credit card debt, no students loans, and no mortgage. I’m maxing my and DWs Roth IRAs each year and contributing $12000 to my Roth TSP each year.

Currently breakdown of assets:
Emergency Fund (savings): $25,000
Vanguard Brokerage: $53,500
Vanguard Roth IRA: $93,500
Spouse Roth IRA: $13,500
Roth TSP: $47,000
529: $14,000

Good move to ditch the Victory Capital crap.

If you had asked me before the move I'd have said to hire Schwab, Fidelity or Vanguard to set up the intitial asset allocation, even pay a smaller additional fee, and learn more for yourself. You are capable of managing this IMO.

If you were my son or daughter I'd advise you to ditch the advisor fee and squeeze everything possible out of the index funds' performance. My opinion is that BND and BNDX are wrong for you. My children are 35-40 and don't use bonds funds. I recommend to them that they buy the broad index funds VTI and VXUS (or similar) in a ratio like 3:1. Some investors, and John Bogle in particular, are not fans of int'l investing. I am ok with it, though.

Bond index funds shouldn't be in your taxable brokerage. Below is my cheat sheet for tax-efficiency. Hope you stick around and pick our brains. After you read the recommended books by others you'll be in great shap with additional knowledge.

 

[38Chevy454]

At the same time, you could easily drop the managed account and stay in the same tickers in the same proportions and save yourself 0.30% annually.

This above for OP. The only thing you might evaluate is your risk tolerance and whether at your young age you want to make the 60/40 brokerage account more aggressive in stock allocation. I was 100% stocks up until few years before retiring.

 

[Animorph]

Everything looks OK to me. Start managing it yourself when you get tired of paying for it. At 0.3% there's no big rush, but you'll probably see that they aren't doing much after the initial setup.

 

[Retire52]

Another retired military member here. I will echo most of the feedback above, manage your money yourself and save the fee. If your reluctant to cut the cord until you feel you know more before you DIY, educate yourself, I would advise reading the "Stock Series" from a blogger that I thought gave some great advise in an entertaining and easily digestible set of articles.

https://jlcollinsnh.com/stock-series/

As far as your asset allocation, I too think bonds for a military retiree, or a 34 year old active duty SM is sub optimal. As Nords, a long time member of this forum advised is an unnecessary drag on your investments and redundant as your stable, COLA'd pension acts as your bond position. Nords writes about this and his mili retirement story

https://militaryfinancialindependence.com/

Best of luck to you

 

[braumeister]

Nords writes about this and his mili retirement story
https://militaryfinancialindependence.com/

As another military retiree I agree. You would definitely benefit from spending some quality time there. Nords is a smart and resourceful guy (also a long time member here) and his advice is solid.

 

[NomDeER]

I have twice had free telephone meetings with Vanguard personal advisors. The point, of course, was for them to convince me to let them manage my Vanguard accounts for the .3% rate. The first advisor about five years ago was a waste of my time because he didn't listen to me at all and was adamant that I transfer everything I had to Vanguard.

The second one was more recently and I did like her. She did listen to me and understands that I do not want to have the percentage Vanguard recommends for bonds and international and would have worked with that. I think I would have benefitted from someone like her when I was investing early on. Right now it doesn't make sense to pay her because there is not much that I am willing to do right now because of tax and penalty consequences and a desire not to lock in losses right now. She understood that. If I had talked to her at the beginning of the year, I would have made some of the changes.

If you've already learned what you could from the FA and you know what you're doing going forward, then there's not much point in paying them.

 

[VanWinkle]

The fee is very low and I would wait a couple years and learn everything I could in the meantime. The funds are fine and appropriate for a low cost portfolio. I am doing the same funds and I read extensively before choosing them. Once you feel confident enough to take over, just leave it in the same funds and re-balance once a year. Boring is good!!

Best to you,

VW

 

[yakers]

You can do it yourself but Vanguard is good and can be worth the fee. (https://www.morningstar.com/articles/1088193/the-best-robo-advisors-of-2022)
When I worked (civilian) for the navy overseas I had a financial advisor and it was good for me, now I don't need them.
Just stay away from First Command, my AF (ret) career brother uses them (and they use him!) he can't see what they cost him. Still, saving and investing and LBYM is the key.

 

[travelover]

I'm curious as to what the advisor needs to do for you in the next ten years. Now that you have an asset allocation, all you really need to do is balance it yearly or so. Hopefully you have your bonds in a tax deferred account and only stocks and cash in a non-deferred account, but that is not an ongoing task.

 

[friar1610]

You can do it yourself but Vanguard is good and can be worth the fee. (https://www.morningstar.com/articles/1088193/the-best-robo-advisors-of-2022)
When I worked (civilian) for the navy overseas I had a financial advisor and it was good for me, now I don't need them.
Just stay away from First Command, my AF (ret) career brother uses them (and they use him!) he can't see what they cost him. Still, saving and investing and LBYM is the key.

You’ve been getting good advice here. You don’t really need the .3% advisor but no harm in sticking with it until you feel more comfortable as a DIY’er. Follow the bolded advice above no matter what!

 

[target2019]

This calculator can show the impact of fees over time.
https://www.buyupside.com/calculators/feesdec07.htm

For the next year .3 additional is acceptable, but I personally wouldn't go much further in time.

Bogle mentioned Social security as a possible bond substitute (maybe not his exact words), and others may say pension too. But I know in other threads this has been discussed at length. SS and pension are cash streams, and reduce how much income you need your investments to generate at some future time. YMMV.

 

[pb4uski]

This calculator can show the impact of fees over time.
https://www.buyupside.com/calculators/feesdec07.htm

For the next year .3 additional is acceptable, but I personally wouldn't go much further in time. ...

OP has $147k with Vanguard. If those assets grow at 7% per annum over the next 10 years that would be $289,171 before fees and $281,165 after a 0.3% per annum fee... so the cost of the 0.3% advisory fee is $8,006.

$147k * (1+7%)^10 vs $147k * (1+7%-0.3%)^10

 

[Markola]

I’m new to the FI and investing overall. ….I’m looking for an honest answer from the experts, did I make a mistake with the managed option from Vanguard? Should i opt out, and what are the consequences if I do?

You did not make a mistake. You made a very wise choice.

Everyone has to start somewhere and you’ve made a fine choice. VG has set you up well. Going forward, you’re paying them for “mistake prevention insurance”, ie keeping your emotional mitts off of of the steering wheel and wrecking the long term power of the ideal diversification they have given you. You are too new to investing to know yourself yet, specifically, how you will react in a bear market. Everyone is a genius during a bull market bear markets are when the mistakes are made. You’ve done the best thing you can do for your goal to retire at 44 (with your military pension, too) which is to put the steering wheel in the hands of a proven partner. Now, leave it alone no matter what, and let them drive. Your 44 year old self will be glad you did.

I say all of this as someone who lets Vanguard Personal Advisor Services drive for my family, and we retired at age 54. .30 for mistake prevention insurance is dirt cheap. Best wishes.

 

[Koolau]

I agree with most of the advice here that you can manage your funds yourself. I've been with Vanguard for many years and have rarely needed to "DO" anything - other than rebalancing (well, Roth conversions.)

Additionally, keep in mind that no matter the advice you receive and take (or don't take) YOU deal with any fall out (such as poor results while others do well.) You pay the money but you also take any losses - not your advisor.

Try to look up the effect of fees on total return. It may surprise you what 0.30% can do in the long run. It may be worth the cost and only you can decide that.

I'm not offering advice. But I'm just convinced I've done better since consolidating most of my holdings at Vanguard and all but ignoring them. When the advisor services have contacted me I've politely said "No, thanks." I know better than to ask if they share in any of my losses because I already know the answer. YMMV

 

[travelover]

......... It may surprise you what 0.30% can do in the long run.........

Yup the miracle of compound interest works the other way when you are paying it.