A New Year/A New Start

[Dog]

Four years ago I rolled my cashed out pension and 401k to an IRA account managed by a local firm in Seattle. I pay a management fee just under 1%. I chose a conservative allocation 50% equities (actual stocks, not mutual funds) and 50% bonds/cash. My goal was to protect the balance with some growth to protect against inflation. I've read all the opinions about keeping expenses low and not paying someone to manage your money. However, the money rolled into this account represented a 28 year career and I didn't feel comfortable managing it myself. Fast forward to today. I just finished a 2 year term with my former employer and am now unemployed (it's okay...part of my plan). However, with the dreadful economic situation and the impact to my IRA, I'm reconsidering paying the 1%. It hurts to pay a fee while you see your balance decline. I reached out to Vanguard last month and they offered two options: A managed account (at about the same fee I'm paying today) or an unmanaged account (just the expense of the funds). I've read most of the books recommended on this site, but I'm still feeling uncomfortable with managing the account myself. I have the same basic goal with more of an emphasis on protecting my nest egg now that I'm unemployed. I turn 51 this month, so I'm thinking about moving my IRA to the Vanguard Wellesley Fund. Here is a snapshot of our financial situation.

My IRA: $950k
DH 401k: $200k
CDs & Savings: $65k
Mortgage: $219K (home valued at approx. $300k)
Retirement Home paid for and valued at $550k
No other debts

My husband's job is secure (post office), however our income has decreased about 60% with me unemployed (I'm working on starting my own personal training business and do expect a small income to help pay utility and grocery expenses). We plan to sell the home with the mortgage as soon as the market improves.

I'm curious if moving the IRA to Wellesley and leaving everything else as it is today provides adequate asset allocation?

 

[REWahoo]

Dog, what have you decided on for an asset allocation? If I understand correctly you are considering moving your entire $950k IRA to Wellesley? This would result in 78% of your non-real estate savings being in one fund and while I am a big fan of Wellesley and have ~40% of our nest egg in that fund, I don't recommend having that many of your eggs in one basket.

Have you considered perhaps placing half your IRA in Wellesley and half in Wellington? This would give you more diversity and slightly more exposure to equities, something I'd think would be important to someone so young and with so many years of retirement ahead of you. And how is your DW's 401k invested? You need to look at your entire nest egg to understand and set your overall asset allocation.

 

[ziggy29]

Well, it started out looking like a new year, but it's turning into the 13th month of 2008...

Congrats on having a very secure job in your household. That's gotta provide considerable comfort these days.

 

[travelover]

I agree with REW - you can invest it yourself and save most of that $9K you are paying now. I'm a slice and dicer and I have half my money at Fidelity in their Spartan funds (plus a bond fund) and half at Vanguard in index funds. I sleep a little better having it somewhat spread around.

 

[Bestwifeever]

You are sitting pretty imho!

You probably already have learned that if you move $500K or more to Vanguard you would be a "Voyager Select" customer and would get a complimentary financial plan with a certified financial planner as well as free consultations whenever the need arises (https://personal.vanguard.com/us/accounttypes/services/ATSVoySvcsSelectOVContent.jsp). And you could surely find investments through Vanguard that are comparable with those your current financial planner has your money invested in, if you are happy with those.

 

[Koolau]

Dog,

Can't help much with AA. (I'm more conservative than you are in any case.) I do suggest you think long and hard about turning over your fund management (besides the management of your individual MFs) to anyone else. They charge a fee (1% or so as you indicate) but they pay very little penalty if they are wrong or even incompetent - after all what is "incompetent"? So, since you are responsible for your own money, why pay someone else to manage it for you?

I suggest you pick an AA your are reasonably comfortable with and then manage it yourself with emphasis on low cost and an emphasis on using index funds. Sure, you'll still have losses from time to time, but at least you won't have the 1% drag on the whole thing.

If by management, you mean you need help with the discipline of rebalancing, I'd suggest a target-date fund or similar. Doesn't cost a lot extra and it takes the emotion out of the process.

I don't know what kind of FIRE you have in mind, but your assets are substantial already and will go a very long way toward funding whatever you have in mind - especially when you throw SS and DH's gummint pension. I do think you are right to "protect" it with a relatively conservative AA while still keeping sufficient equity position to head off inflation.

In any case, don't forget: YMMV

 

[Dog]

Thanks everyone for the quick responses and feedback. I received a packet of information from Vanguard. I'll be reading through the information this weekend. I am leaning towards self managing my IRA to minimize the expenses since I doubt I will see any growth in the near future - just want to minimize the bleeding at this point! I guess self managing means selecting my AA and then rebalancing as needed. I wish I had the confidence so many here seem to have about their AA choices!

REW - I agree that I don't want to have all my eggs in one basket. But, I am leaning towards being more conservative with the uncertainty of the market (60/40 or 65/35?). DH has his 401k in a target fund (TSP). While I was working he was maxing out his contribution. He just scaled it back to get the matching now that I won't have a steady paycheck.


I know we are still relatively young and have close to 9 years before we touch the money. But, I'm hearing it may take that long to recover the losses over the past year. Who really knows?

Thanks again for your support. This is definitely an interesting time to give up a regular paycheck and try to start my own small business!

Any other feedback out there?

 

[travelover]

.............. I guess self managing means selecting my AA and then rebalancing as needed. I wish I had the confidence so many here seem to have about their AA choices!..............

Have you considered choosing a target retirement fund with an asset allocation closer to your comfort level?

For example, if you think a target fund for retirement 10 years from now is too aggressive, you can choose one for 5 years from now. Using a target fund takes some of the angst out of it - they have selected the funds and allocation for you and adjust it automatically as time passes. Pretty nice for a small expense ratio. Additionally you can spread it around a bit - some at Vanguard, some at Fidelity, etc.

 

[Koolau]

Dog,

I'm sure some here do, indeed, have "confidence" in their AA. At best I have "courage" to work toward an AA. I'm not there yet, but, with fear and trepidation, I'm moving there. What with the market going down, my relatively low equity position just got lower. Believe me, I don't have much confidence in my decision to mover toward yet more equities. But, summoning courage, I'm going to do it! Best luck and YMMV.

 

[DblDoc]

Thanks everyone for the quick responses and feedback. I received a packet of information from Vanguard. I'll be reading through the information this weekend. I am leaning towards self managing my IRA to minimize the expenses since I doubt I will see any growth in the near future - just want to minimize the bleeding at this point! I guess self managing means selecting my AA and then rebalancing as needed. I wish I had the confidence so many here seem to have about their AA choices!

REW - I agree that I don't want to have all my eggs in one basket. But, I am leaning towards being more conservative with the uncertainty of the market (60/40 or 65/35?). DH has his 401k in a target fund (TSP). While I was working he was maxing out his contribution. He just scaled it back to get the matching now that I won't have a steady paycheck.


I know we are still relatively young and have close to 9 years before we touch the money. But, I'm hearing it may take that long to recover the losses over the past year. Who really knows?

Thanks again for your support. This is definitely an interesting time to give up a regular paycheck and try to start my own small business!

Any other feedback out there?

Since you should be considering your entire portfolio together why not just get a target fund that matches the one your husband has and forget about it.

DD