Financially Challenged and Seeking Elightenment

[lcyrmu]

Hello from suburban Chicago. I'm new to the forum, having stumbled accross it just today after reading my fee-only advisor's summary of my rate of return for investments under his guidance.

My spouse insists on being "conservative" so our portfolio is only invested 50% in equities (via mutual funds), the rest in MMF or bonds (insured ones). The time-weighted RoR from 12/31/2005-7/31/2008 (after deduction of the financial advisor's cut) is "actual=5.21 %" and "annual=2.01 %." Seems pretty poor, but since I am financially challenged I don't really know whether this is totally out of whack or not. I hope that, as a result of signing up here, maybe someone can enlighten me!

[crazy connie]

Yes you can learn! A 2 and 1/2 year ROR (rate of return) is not even keeping pace with inflation. Start the reading and come back with the questions. Share a bit more info so the awnsers are age and goal approriate. Age, home equity, pensions and health care coverage are important to know. Check out the retirement calculator (FIREcalc link at bottom of the page) and search out the recommended reading list. Knowledge is not an overnight thing but in a few months you can be making better financial decisions which are still reasonably safe!

Please tell us more about your situation and WELCOME!

[CybrMike]

Welcome,

A book that has helped me tremendously is called 4 pillars of investing. it will help you design a portfolio that fits your needs risk wise.

A major philosophy that this board supports (most of us anyways) is basically to use Vanguard (or other similar LOW COST funds) to build an index type portfolio that suits your risk profile.

The easiest way to accomplish this is Vanguard's Retirement Funds. Simply choose the date your going to retire and forget about it. Vanguard will automatically rebalance into more bonds as your grow older.

[lcyrmu]

Thanks for the welcome and advice. Here is some additional info:

I'm early 50's, married with two children (close to entering high school), single earner, and have a fair amount saved (low seven figures) in an IRA (at Schwab), 401K (at Fidelity) and in the Illinois 529 plan, and finally very little left on the mortgage -- not because of investments doing well but rather because I've worked long hours at a stressful job and get paid reasonably well. But the job takes a toll and I'm wondering how much longer I can do it. I never have had any acumen for financial things (my father was a passbook saver -- but he had the benefit of a retirement pension and healthcare -- I don't).

I thought that by hiring a fee-only planner I could avoid the additional stress of making investment decisions. I do realize that inflation is ahead of me over the last 2.5 years, but the advisor's philosophy is pretty much to stick it out when the market is down, rebalance periodically, and maybe once in a while tweak some things at the edges by selling/buying a particular fund or bond -- so I don't know whether the RoR over the last 2.5 years is way off given his philosophy and the way the market has performed, or not.

The advisor and I have had the "then why am I paying you" discussion, and his response -- not surprisingly -- was that he would do better than me by more than the 1% (actually a bit less because it ramps down as the portfolio balance increases) that he takes off the top.

The Vanguard approach seems like a reasonable one for the 50% that I have in the market, but what about the other 50%? E.g., what simple (or simple minded) vehicle is there on the bond/cash side of things?

Thanks so much for responding.

[travelover]

Icyrmu, you are asking good questions. I have become a Bogleheads fan and I found the Boglehead Guide to Investing a very worthwhile investment.

http://www.amazon.com/Bogleheads-Gui.../dp/0471730335

I also have learned a lot just by lurking at the Boglehead's site.

http://www.bogleheads.org/forum/viewforum.php?f=1

There is a good reference library and Wiki section and a nice archive of personalized replies to portfolio and investing questions. Find a few questioners like yourself and it will shine a light on their simple philosophy.

A target fund is not a bad way to go, either. You'll save your advisor's fee right off the top and you'll have access to a variable mixture of stocks and bonds according to which maturity year you choose.

[runchman]

Hello also from suburban chicago (Algonquin).

I ran your time period thru the ifa portfolio calculator with portfolio 40, which is 50% equities / 50% fixed. I come up with:

annualized: 3.83%
Total: 10.2%

This is for January 1, 2006 to 7/31/2008.

That is after deduction of the (maximum) .9% IFA fee.

So it appears you could do better without much effort.

Disclaimer: I am invested with IFA although I negotiated a lower mgmt fee.

The calculator is at:
http://www.ifa.com/portfolios/PortReturnCalc/index.aspx

- John

[lcyrmu]

Many thanks. I will indeed do some reading, per the recommendations by all the responses above. And, travelover, your comment re the target fund knocked some sense into me as to what CybrMike meant in referring to such a fund at Vanguard -- the bond/cash part is already inherent in the fund. Duh. Just an example of why I'm financially challenged.

[73ss454]

So if you have let's say 1M and your earning 2% (20K). Now your giving your advisor/partner 1% off the top (10K). He's doing pretty good for no investment of his own.

Now if he's putting you in funds like Oppenheimer he's/she's getting 12B1 fees and a % of the vig to get in.

Read the Bogleheads guide to investing and dump your partner ASAP.

Go to Vanguard or Fidelity where they will give you a free advisor with 1M and if you index you'll pay less than .09%. About $900 in fees on the port of 1M.

[FinanceDude]

Quote:

Originally Posted by 73ss454 So if you have let's say 1M and your earning 2% (20K). Now your giving your advisor/partner 1% off the top (10K). He's doing pretty good for no investment of his own. Now if he's putting you in funds like Oppenheimer he's/she's getting 12B1 fees and a % of the vig to get in. Read the Bogleheads guide to investing and dump your partner ASAP. Go to Vanguard or Fidelity where they will give you a free advisor with 1M and if you index you'll pay less than .09%. About $900 in fees on the port of 1M.

Oppenheimer is underperforming? The horror!!

[73ss454]

I can take a little underperformance, it's the fees that get me.

5.75% just to put the money in. Glad I'm not doing that anymore.

[FinanceDude]

Quote:

Originally Posted by 73ss454 I can take a little underperformance, it's the fees that get me. 5.75% just to put the money in. Glad I'm not doing that anymore.

That load drops to 5% at $25,001...........

[73ss454]

Then maybe I made a mistake moving to Vanguard.

[REWahoo]

Quote:

Originally Posted by FinanceDude That load drops to 5% at $25,001...........

Wow, great information.

Invest $25,000 and you pay $1,437.50 (5.75%) up front.
Invest $25,001 and you pay only $1,250 (5.0%) up front.
By investing an additional dollar you save $187.50 in load fees!

Keep feeding us hot investing tips like this and you may have a bunch people begging you to take the burden of managing their own portfolios off their hands.

[FinanceDude]

Quote:

Originally Posted by REWahoo Keep feeding us hot investing tips like this and you may have a bunch people begging you to take the burden of managing their own portfolios off their hands.

Sorry for bringing FACTS to this thread........

[REWahoo]

Quote:

Originally Posted by FinanceDude Sorry for bringing FACTS to this thread........

Hey, no apology necessary. We amateurs need all the help we can get!

[FinanceDude]

Quote:

Originally Posted by 73ss454 Then maybe I made a mistake moving to Vanguard.

Doubt it, you just had an advisor because you didn't want to deal with your own money at the time.........

At 99% of all fund companies, loads are 3.50% on $100,000 or above portfolios. I state facts like this because a LARGE number of people think that even if you have $1M to invest, they pay 5.75%. That's not true, at $1M, folks buy for NAV........

[73ss454]

No, I had an advisor because I was a dummy and didn't know any better.

[REWahoo]

Quote:

Originally Posted by 73ss454 No, I had an advisor because I was a dummy and didn't know any better.

Don't be so hard on yourself. You weren't a dummy, you were just ignorant and uneducated.

[73ss454]

Yeah, that too.

[FinanceDude]

Quote:

Originally Posted by 73ss454 No, I had an advisor because I was a dummy and didn't know any better.

Your advisor brought you NO value, that's a shame.........