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Old 07-29-2021, 06:46 AM   #61
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The lowest cost place to invest is Vanguard.
Not to start a tangent, but I don't think this statement is true.

Vanguard is still excellent, but if somebody were looking for a broker to begin their investing journey, they wouldn't be my first choice.
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Old 07-29-2021, 06:55 AM   #62
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One last small point, if the market makes a big move so that you are more than 5% absolute or 25% relative from the stock/bond allocation you wanted, then rebalance, buying the one that has too much and selling the one with too little.
Isn't that backwards in two ways - logic and order? One should be selling the one that has too much and, then, buying the one with too little.
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Old 07-29-2021, 07:02 AM   #63
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Iím such a noob. I have a financial advisor now and he says 1.55% is the going rate and thatís what their fee would be for handling our IRA and 401K. Is this true.



Any advice/comments are appreciated.


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Old 07-29-2021, 07:19 AM   #64
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Reminds me of my neighbor touting how nice his FA was. FA gave nice gifts on neighbor's kids' birthdays. I tried to explain that the gifts were paid for by his money but he couldn't understand my logic.
And THIS reminds me of the response of a prospective brokerage customer, which later became the title for a book. She was taken to a marina and shown the splendid yachts belonging to their advisors. Her response:

"But where are the customers' yachts?"
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Old 07-29-2021, 08:20 AM   #65
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Not to start a tangent, but I don't think this statement is true.

Vanguard is still excellent, but if somebody were looking for a broker to begin their investing journey, they wouldn't be my first choice.
I guess it would be helpful if you were to explain why Vanguard wouldn't be your first choice.

I have accounts at Vanguard, Fido and Schwab... these days they are all good and all cheap (mostly free). I think Vanguard is a fine choice.
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Old 07-29-2021, 08:28 AM   #66
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I guess it would be helpful if you were to explain why Vanguard wouldn't be your first choice.

I have accounts at Vanguard, Fido and Schwab... these days they are all good and all cheap (mostly free). I think Vanguard is a fine choice.
I would choose Fido. Main reasons: 0% ER index funds and customer support/web site.
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Old 07-29-2021, 08:56 AM   #67
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And I am very satisfied with Schwab after over 30 years' experience.

@Kayzmum, this is not something that you need to worry about now. Take the few months to learn more about investing, then plan your moves and execute. Schwab, Fido, and Vanguard are well-liked around here and you cannot make a wrong choice among them. In each case, their principal business is catering to small investors like ourselves and they are quite good at it.
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Old 07-29-2021, 08:59 AM   #68
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This is what I meant about a 1% fee actually equating to at least a 25% loss in your spending money each year in retirement. If you plan to withdraw 4% of your assets each year in retirement, you've got to account for that 1.55% fee from your advisor. So if you've saved $1,000,000 to live off, the 4% rule says you could withdraw $40,000 each year. But with your FA dipping into 1.55% of that 1 million each year, your cut of the 4% drops to 2.45%...meaning your $40,000 income drops to $24,500. Eeek.
While I absolutely agree with Math here, the difference in performance of investments between self-managed and firm-managed is missing from this picture.

Let's assume that the FA fee is 1% AUM. For a 70-30 equities-fixed income mix portfolio, the self-managed investments gain 10% but FA-managed funds gain 11%, then it is a wash after the 1% AUM fees. If FA-managed funds gain 12%, then it performs 1% better than self-managed funds after FA commission is paid.
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Old 07-29-2021, 09:20 AM   #69
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While I absolutely agree with Math here, the difference in performance of investments between self-managed and firm-managed is missing from this picture.

Let's assume that the FA fee is 1% AUM. For a 70-30 equities-fixed income mix portfolio, the self-managed investments gain 10% but FA-managed funds gain 11%, then it is a wash after the 1% AUM fees. If FA-managed funds gain 12%, then it performs 1% better than self-managed funds after FA commission is paid.
If.

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Old 07-29-2021, 09:25 AM   #70
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While I absolutely agree with Math here, the difference in performance of investments between self-managed and firm-managed is missing from this picture.

Let's assume that the FA fee is 1% AUM. For a 70-30 equities-fixed income mix portfolio, the self-managed investments gain 10% but FA-managed funds gain 11%, then it is a wash after the 1% AUM fees. If FA-managed funds gain 12%, then it performs 1% better than self-managed funds after FA commission is paid.
Again the math is correct but the premise is not. The difference between FA-managed investments and intelligently self-managed investments is a net loss, not a 1% gain.

Over the last decade I have monitored FA-managed equity results for several non-profit organizations, benchmarking them against a simple set-and-forget two fund index portfolio. In no case have the "professionals" beat the index portfolio. Shortfalls have ranged from maybe 1.5% to almost 20%. The professional portfolios have ranged from complex to hideously complex, the result of their need to make investing look difficult and hence intimidate their customer into staying and paying the fees.

Bonds are another matter because yield is highly correlated with risk and the market is very efficient. The only way an FA could pick up another 1% is by taking on more risk. So I don't even try to benchmark them, just monitor the bond ratings that the FA is buying. For FAs using bond funds you get the worst of worlds, with the FA skimming his fee and then passing the remainder to the bond fund manager who then extracts his fees. The worst are US government bond funds for which, because the govvies have no risk, a good portfolio could be selected by a monkey with a dartboard. Much cheaper than hiring monkeys in business suits.
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Old 07-29-2021, 09:34 AM   #71
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Thank you so much for your reply! My balance is about 500,000 including assets like paid off house (Worth at least 250,000, it hasnít been appraised ) and vehicles The total 26,000 worth. And that is their only fee the 1.55% of earnings. They say theyíre a fiduciary company and that the percentage based fee give them incentive for my accounts to grow. Should I move forward and negotiate them down to at least one percent?

This doesnít seem like a lot, but my husband is already retired has pensions and annuities coming in that arenít included in this. I have some survivor benefits they come along with this.
Some more analysis wil help you decide how much risk to take with your 200K.

Some math for you...

If the FA takes 1.5% of just the earnings, they are extracting valueable income from you, and it becomes very painful to watch in a "down" year.

A point that is made in many threads is that 1.5% is 30% of an average 4% expected from investments. If you look at it in that light it is obvious that you would be giving away a lot, in UP and DOWN years.

I am glad to read that you are not going forward with the deal!
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Old 07-29-2021, 09:47 AM   #72
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Again the math is correct but the premise is not. The difference between FA-managed investments and intelligently self-managed investments is a net loss, not a 1% gain.

Over the last decade I have monitored FA-managed equity results for several non-profit organizations, benchmarking them against a simple set-and-forget two fund index portfolio. In no case have the "professionals" beat the index portfolio. Shortfalls have ranged from maybe 1.5% to almost 20%. The professional portfolios have ranged from complex to hideously complex, the result of their need to make investing look difficult and hence intimidate their customer into staying and paying the fees.
Yes, IF.

This is a broad stroke of the brush with no specifics. No two invididuals or FA-firm manage funds in the same way. Individuals can make a ton more than the market or lose a ton of their money, depending on what they choose to invest.

Similarly, FA firms can perform differently.

The big advantage to having FA manage investments is to avoid the knee jerk reactions of the individual in selling low and buying high. If you are disciplined investors, then doing it yourself is a no-brainer.

As an example, my husband was a very good self-managed investor. He no longer has the stomach for stock market roller coaster as he has gotten older. Last March when the market was down he was anxious but I was not. Our FA called us to find out how we were doing emotionally, and I said that we were fine and not at all concerned because when we retired we had turned about 15% of our portfolio into deferred income annuities so that we did not need to rely on the stock market for a good retirement. My husband would have been tempted to sell off in March if not for our funds being managed by a third party.
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Old 07-29-2021, 10:21 AM   #73
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I think this is a good article for OP to read.

https://money.usnews.com/financial-a...fees-and-costs
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Old 07-29-2021, 10:22 AM   #74
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Yes, IF.

This is a broad stroke of the brush with no specifics. No two invididuals or FA-firm manage funds in the same way. Individuals can make a ton more than the market or lose a ton of their money, depending on what they choose to invest.

Similarly, FA firms can perform differently.

The big advantage to having FA manage investments is to avoid the knee jerk reactions of the individual in selling low and buying high. If you are disciplined investors, then doing it yourself is a no-brainer.

As an example, my husband was a very good self-managed investor. He no longer has the stomach for stock market roller coaster as he has gotten older. Last March when the market was down he was anxious but I was not. Our FA called us to find out how we were doing emotionally, and I said that we were fine and not at all concerned because when we retired we had turned about 15% of our portfolio into deferred income annuities so that we did not need to rely on the stock market for a good retirement. My husband would have been tempted to sell off in March if not for our funds being managed by a third party.
In your post, the FA can potentially stop, or at least coach a client from doing knee jerk reactions. I agree, IF that client actually follows the FA's advice. IF that person is not feeling the knee jerk reactions to fluctuations in the market, such as yourself last March, then the FA didn't really add value in that instance.

Since we are talking examples I had one FA review my financials/ He was wanting to handle my account and gave me some advice. He told me that the market is changing and will not continue to go up, There will soon be a correction. I should reduce my equity holdings to reduce my impact from that downturn. He could manage that for me. That was about 5 years ago. The downturn never really happened So much for this FA's expert advice.

I do agree that not all FA's are like that. But I will add that each and every one of them cannot predict the future. They do not know with certainty what will happen tomorrow, let alone next month or next year. I will ask this: If a person or their FA compares their personal annual performance against some index, like DJI or SPX for how they did good or bad, why not just buy that index fund(s) and let the anxiety stop?
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Old 07-29-2021, 10:34 AM   #75
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In your post, the FA can potentially stop, or at least coach a client from doing knee jerk reactions. I agree, IF that client actually follows the FA's advice. IF that person is not feeling the knee jerk reactions to fluctuations in the market, such as yourself last March, then the FA didn't really add value in that instance.

Since we are talking examples I had one FA review my financials/ He was wanting to handle my account and gave me some advice. He told me that the market is changing and will not continue to go up, There will soon be a correction. I should reduce my equity holdings to reduce my impact from that downturn. He could manage that for me. That was about 5 years ago. The downturn never really happened So much for this FA's expert advice.

I do agree that not all FA's are like that. But I will add that each and every one of them cannot predict the future. They do not know with certainty what will happen tomorrow, let alone next month or next year. I will ask this: If a person or their FA compares their personal annual performance against some index, like DJI or SPX for how they did good or bad, why not just buy that index fund(s) and let the anxiety stop?
I agree with what you have said. It is a question which I ask myself sometimes. Because we retired early, we have spent a significant amount of cash which we had set aside plus unplanned liquidation of some investments to pay for our expenses, i.e. blow our budget, while waiting for SS and annuities to kick in. Still, our investments have grown significantly from when we retired 5 years ago. That is what a bull market does. Would we have done better if we had self-managed? Possibly, but my husband is happy and I am happy hence the status quo.
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Old 07-29-2021, 10:48 AM   #76
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Emphasis added.

Good overall post. It does seem to me that the bolded above is backwards. I know what you meant, but OP is a newbie so I think it'd be wise to correct it.
You are of course correct, I wrote that backwards.
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Old 07-29-2021, 10:55 AM   #77
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One more quick point. Fee compounding is very deceptive math. Let's say OP needs the money in 40 years (he's young and maybe won't need this bit until mid retirement). If his portfolio return over that time prior to fees was 7%, it would be 15X as much as today. After paying the 1.55% to the adviser all that time, OP only gets 5.8X as much as today - the advisor has the rest! The advisor would take over 60% of your starting money over a lifetime - that's why they are so nice to you!
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Old 07-29-2021, 11:10 AM   #78
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Late to the thread and a bit confused.
Would be good if OP Kaysmum could tell us where their various investment accounts are located right now.
By "located" I mean with which fund company (like Fidelity) if self managed or with which FA/shark company (like Edward Jones) if not self managed.

Reason for confusion is that it seems like OP has just been thinking about using this FA, bit I'm not sure...
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Old 07-29-2021, 11:10 AM   #79
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One more quick point. Fee compounding is very deceptive math. ...
Yes... let's say that one has $100,000 invested for 20 years... in the first case DIY with an 8% return and in the second case with an 8% return less a 1.5% FA AUM fee:

$100,000*(1+8%)^20 = $466,096
$100,000*(1+(8%-1.5%))^20 = $352,365

Or alternatively, someone saves $15,000 a year for 35 years....
at 8% =FV(8%,35,-15000) = $2,584,752
at 8% less 1.5% AUM fee = FV(8%-1.5%,35,-15000) = $1,860,520
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Old 07-29-2021, 11:14 AM   #80
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I agree with what you have said. It is a question which I ask myself sometimes. Because we retired early, we have spent a significant amount of cash which we had set aside plus unplanned liquidation of some investments to pay for our expenses, i.e. blow our budget, while waiting for SS and annuities to kick in. Still, our investments have grown significantly from when we retired 5 years ago. That is what a bull market does. Would we have done better if we had self-managed? Possibly, but my husband is happy and I am happy hence the status quo.
But now I am genuinely confused. If, as it appears, you use a FA for emotional reasons, why did you focus initially on performance? And, in particular, why did you NOT write (with my bolding to emphasize the differences):

"For a 70-30 equities-fixed income mix portfolio, if the self-managed investments gain 10% but FA-managed funds gain 9%, then you are down 2% after the 1% AUM fees. If FA-managed funds gain 8%, then it performs 3% worse than self-managed funds after FA commission is paid."

This illustrates the math just as well, and is equally likely, IMHO.
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