financial manager

[urn2bfree]

Quote:

Originally Posted by Don46 What would it cost to manage 2.3 million using mutual fund managers? I suspect it is about the same and not tax deductible.

$1000 or $250 per quarter. And that does not increase with the size of the portfolio...because you are paying for the time it takes to manage the portfolio, which can be done in the same amount of time whether $5 million or $2 million when you are a passive investor using low cost index funds.

[Animorph]

Don46, if you are going to use a manager, then one that picks individual stocks and bonds rather than just another layer of managers is the way to go. Make sure your turnover rate is low to minimize trading costs. Benchmark your returns, even if it's just checking to see how you would have done in your favorite Vanguard Target Retirement fund. Then you'll know if it's worth it.

[Don46]

Quote:

Originally Posted by travelover Now see, you are going for the high expense funds. I use the Total Stock Market Admiral fund at 0.06%, but again, sadly, no birthday card.

That is great for stocks. But what about bonds and other investment vehicles? I think that is where I felt more at sea.
I realize I let myself in for ridicule by alluding to this friendship, but I am buying some expertise and access to markets that I don't possess. What do the smart people on this forum do besides put all their assets into stock funds?

[Don46]

Quote:

Originally Posted by urn2bfree $1000 or $250 per quarter. And that does not increase with the size of the portfolio...because you are paying for the time it takes to manage the portfolio, which can be done in the same amount of time whether $5 million or $2 million when you are a passive investor using low cost index funds.

I'm not sure I understand this. Who gets paid $1000 to manage 2.3 million? And is this the only commission? No mutual fund management fees?

[target2019]

2.3 million x .06% = $1380 per year. I think the concept is that you put it into one fund and take what the market will give you.

Don, your method is valid. For comparison, my in-laws have an AUM on three accounts. They are paying about $2K per year for management of funds with underlying expense ratios of 1%. They say management, but it is a really a computer program.

Your later post about adding the advisor fees to your Schedule A is a valid one.

If you don't mind me asking, how does the advisor rate his performance. For instance, does he baseline to a 60/40 portfolio or maybe the S&P500?

[travelover]

Quote:

Originally Posted by Don46 That is great for stocks. But what about bonds and other investment vehicles? I think that is where I felt more at sea. I realize I let myself in for ridicule by alluding to this friendship, but I am buying some expertise and access to markets that I don't possess. What do the smart people on this forum do besides put all their assets into stock funds?

Sorry, Don. We were having a bit of fun at your expense. For bonds I just use Vanguard Total Bond and TIPS

https://personal.vanguard.com/us/fun...FundIntExt=INT

[urn2bfree]

Quote:

Originally Posted by Don46 I'm not sure I understand this. Who gets paid $1000 to manage 2.3 million? And is this the only commission? No mutual fund management fees?

I did not include mutual fund fees, because they are common to whatever you do. Just talking about the cost of advising. And my advisors do NOT make it up on having me in loaded funds or high cost funds or any of that stuff. All of my funds aggregated which include only NO LOAD index funds -no active management funds-average to 0.35% fees. For emerging markets the fees are higher, for bond funds the fees are much lower...the weighted average is 0.35%. I own Vanguard and DFA funds. The DFA funds are academically based on FamaFrench Unof Chicago research. DFA funds are still low cost and in some analyses have a superior return (by several percentage points and with lower volatility) to other index funds by weighting toward value and smaller cap, DFA offers coverage of some markets not otherwise available thru any other index funds. They have low turnover and low cap gains pass thrus because they are only accessible thru advisors and therefore less prone to the jumping in and out seen in more widely available funds. When you have people in and out they have to sell stuff to liquidate positions which generates the cap gains. You cannot buy DFA FUNDS WITHOUT AN ADVISOR. Finally, unlike many DFA advisors, my advisor Evanson Asset Management- charges a flat rate- which varies by account-but it is based on hours -none of that assets under management percent nonsense. and that is the only charge--there are no commissions on DFA or on Vanguard funds. the quarterly charges may be a little higher, but never based on the size of the portfolio. Evanson pioneered this approach but are not the only ones. They might be one of the bigger ones, as they manage over $2.7 billion in assets.

[Huston55]

Quote:

Originally Posted by target2019 2.3 million x .06% = $1380 per year. I think the concept is that you put it into one fund and take what the market will give you. Don, your method is valid. For comparison, my in-laws have an AUM on three accounts. They are paying about $2K per year for management of funds with underlying expense ratios of 1%. They say management, but it is a really a computer program. Your later post about adding the advisor fees to your Schedule A is a valid one. If you don't mind me asking, how does the advisor rate his performance. For instance, does he baseline to a 60/40 portfolio or maybe the S&P500?

Don-

Same question. What benchmark do you measure your advisor against, and how's he done for you?

[Don46]

I'm not annoyed by your questions or even the suggestions that I am wasting my money. On the contrary, I'm giving this some serious thought. Once I roll over my current IRA accounts, and sell a piece of commercial property I own, I'm going to have close to 3.8 million to manage. I'm giving the DIY scheme some serious thought. I don't want to spend much time managing money, but I would be willing to set up an initial plan on flat fee program, then maybe do it again in 10 years as situations change. I'd like to learn more about the flat fee advisory services just to get started.

[travelover]

Quote:

Originally Posted by Don46 I'm not annoyed by your questions or even the suggestions that I am wasting my money. On the contrary, I'm giving this some serious thought. Once I roll over my current IRA accounts, and sell a piece of commercial property I own, I'm going to have close to 3.8 million to manage. I'm giving the DIY scheme some serious thought. I don't want to spend much time managing money, but I would be willing to set up an initial plan on flat fee program, then maybe do it again in 10 years as situations change. I'd like to learn more about the flat fee advisory services just to get started.

Good for you - seriously. You seem like a smart guy. I think that you might find a few of these books interesting and give you a whole different perspective. Even investing dummies like Warren Buffet recommend that the average person just invest in index funds.

Investment Books

[target2019]

For my in-laws who are 80, I guess I should use Vanguard Target Retirement Income Fund (VTINX) as a benchmark. The e/r is 0.16% for acquired funds.

"The Target Retirement Income Fund is designed for investors already in retirement. The fund seeks to provide current income and some capital appreciation by investing in three Vanguard index funds, the Inflation-Protected Securities Fund, and the Prime Money Market Fund. The fund holds approximately 30% of assets in equities, 65% in bonds, and 5% in short-term reserves. This is also the allocation that all Target Retirement Funds are expected to assume within seven years after their designated retirement dates. Investors in this fund should be willing to accept modest movement in share price and be able to tolerate the market risk that comes from the volatility of the stock and bond markets."

The statement of 30/65/5 seems about right for those deep into retirement. I'm sure Fidelity and TRP have similar funds, just not that familiar with their lineups.

If just going into retirement I would use VG's 2010 Fund (also 0.16% e/r) as a benchmark. This holds 45% in equities and 55% in bonds.

[travelover]

Quote:

Originally Posted by target2019 .......... If just going into retirement I would use VG's 2010 Fund (also 0.16% e/r) as a benchmark. This holds 45% in equities and 55% in bonds.

Of course, if you have both taxable and tax deferred accounts, it is worthwhile to keep your bonds in tax deferred to the extent possible.

[target2019]

Quote:

Originally Posted by travelover Of course, if you have both taxable and tax deferred accounts, it is worthwhile to keep your bonds in tax deferred to the extent possible.

Good point to make. But answer may depend on type of bonds. For instance, we hold about 5% of our portfolio in tax-free muni fund. Here's one tax-efficiency list:

15 Hi-Yield bonds (least tax-efficient)
14 TIPS
13 Taxable bonds
12 REIT stocks
11 Stock trading accounts
10 Balanced funds
9 Small-Value stocks
8 Small-Cap stocks
7 Large Value stocks
6 International stocks
5 Large Growth stocks
4 Most stock index funds
3 Tax-Managed funds
2 EE and I-Bonds
1 Tax-Exempt bonds ( most tax-efficient)


For now I was just commenting on what benchmark to use to evaluate an advisor. But tax-efficiency should definitely be in the strategy.

[DeborahB]

I know this seems to go against the general trend in this group, but I use a regular stockbroker (who doesn't charge me the full commission because he's a friend) and mostly manage my own money. I have very little in bonds right now because they are paying almost nothing, and will go down if interest rates go up.

I don't in general like mutual funds although there are always exceptions. I'm averaging a 6% return and could get more if I took on more risk. I did a lot of buying when the market went way down but there are still utility stocks out there paying excellent dividends. But I don't pay a fee, just a commission on trades. It works for me - I have a lot of financial background, which helps I guess. And I'm not risk-averse - but I'm careful about it. I don't do options trading at all.

[travelover]

Quote:

Originally Posted by target2019 Good point to make. But answer may depend on type of bonds. For instance, we hold about 5% of our portfolio in tax-free muni fund. ........

But this wouldn't be a case with a Target fund - the bonds would not all be tax free municipal bonds.

[target2019]

Quote:

Originally Posted by travelover But this wouldn't be a case with a Target fund - the bonds would not all be tax free municipal bonds.

The target fund was proposed as a baseline for comparison to what results you may get from an advisor.

[Animorph]

Quote:

Originally Posted by thinker25 I know this seems to go against the general trend in this group, but I use a regular stockbroker (who doesn't charge me the full commission because he's a friend) and mostly manage my own money. I have very little in bonds right now because they are paying almost nothing, and will go down if interest rates go up. I don't in general like mutual funds although there are always exceptions. I'm averaging a 6% return and could get more if I took on more risk. I did a lot of buying when the market went way down but there are still utility stocks out there paying excellent dividends. But I don't pay a fee, just a commission on trades. It works for me - I have a lot of financial background, which helps I guess. And I'm not risk-averse - but I'm careful about it. I don't do options trading at all.

I was in individual stocks for a while, but when I wanted international diversity including emerging markets and frontier markets with small/large and growth/value allocations it just wasn't feasible for me. I went all funds then.

[travelover]

Quote:

Originally Posted by target2019 The target fund was proposed as a baseline for comparison to what results you may get from an advisor.

I fear this may have confused the person we were trying to help.

To summarize:

A Target fund can be a low cost replacement for an ongoing adviser.

In general, bonds should be held in a tax deferred account for tax efficiency. Target funds hold both stocks and bonds, so holding a target fund in a taxable account is not tax efficient.

If one must hold bonds in a taxable account, holding municipal bonds get around this tax inefficiency.

[target2019]

Quote:

Originally Posted by travelover I fear this may have confused the person we were trying to help. To summarize: A Target fund can be a low cost replacement for an ongoing adviser. In general, bonds should be held in a tax deferred account for tax efficiency. Target funds hold both stocks and bonds, so holding a target fund in a taxable account is not tax efficient. If one must hold bonds in a taxable account, holding municipal bonds get around this tax inefficiency.

I believe you're summarizing what I posted. If not, then I apologize.

The ONLY point I was trying to make was that the e/r of a Target fund could be used for comparison sake. For example, an investor has an advisor that charges X% for funds held under an AUM. A target fund also makes changes to investments over time to maintain an allocation and charges Y%. Does advisor outperform the target fund? If so, then a case can be argued that the advisor may have earned the extra e/r.

[youbet]

Quote:

Originally Posted by travelover A Target fund can be a low cost replacement for an ongoing adviser. .

It could be. But you must be satisfied with blindly following the algorithm their computer is using for customers your age. If your particular situation is not typical or average for your age, then the target algorithm might not be optimum for you.

My order of preference would be:

1. DIY (Strongly my preference)

2. Advisor

3. Target Fund

Some folks have suggested to me that a target fund could be used but that you should know what AA they're using and monitor that against your current situation and desires. But heck, if you're going to do that, why not just DIY with a simple 3 - 5 fund approach?