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Old 08-20-2021, 12:39 PM   #41
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In a taxable account it is different because each dividend reinvestment results in a lot with a different tax basis. Not a big deal to fool with when selling from the account, but IMO an unnecessary complication.
Right.
So what I do is have taxable account dividends go to my settlement fund. And then I typically put additional new money in there as well and do a purchase or limit order of whichever fund strikes my fancy -- one good sized lot...
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Old 08-20-2021, 01:18 PM   #42
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I completely agree on what constitutes a proper Emergency Fund.

And the most significant emergency folks should be targeting is Job Loss and the resulting loss of most income for a while.
But job loss isn't an issue for Retired Folks.

So, with decent insurance coverage, along with a modest bank account balance, Retired Folks no longer need an E Fund...
Well said. For us, I should have better phrased it. Instead of Emergency Funds, maybe I should have used something like unplanned expenses fund, and in our case it is typically for discretionary spending. We are well funded by various income sources for our annual budget, although there is a small shortfall until I reach 65.
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Old 08-20-2021, 01:20 PM   #43
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In a taxable account it is different because each dividend reinvestment results in a lot with a different tax basis. Not a big deal to fool with when selling from the account, but IMO an unnecessary complication.
Don't the brokerage firms automatically keep track of cost basis?
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Old 08-20-2021, 02:25 PM   #44
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Well said. For us, I should have better phrased it. Instead of Emergency Funds, maybe I should have used something like unplanned expenses fund, and in our case it is typically for discretionary spending. We are well funded by various income sources for our annual budget, although there is a small shortfall until I reach 65.
I've been doing something similar in retirement, aiming to keep my checking account balance around $10,000 or so, which is quite higher than in my bad old working days.
This has proven adequate to fund past and future travel expenses on top of other expenses.

Excess income beyond that $10k gets tossed into my taxable investment account...
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Old 08-20-2021, 02:25 PM   #45
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Don't the brokerage firms automatically keep track of cost basis?
They are required by law to track cost basis for mutual funds bought after 1/1/12 and stocks after 1/1/11.
You can direct them to keep track of the cost of each individual lot purchased or just keep track of the average cost. The former is done if you wish to choose which lots to sell to better control how much tax you incur with each sale.
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Old 08-24-2021, 06:23 PM   #46
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OP,, Im a big advocate of DIY but at your level of wealth I would be more or at least equally concerned with the possibility of declining faculties over the years and less about paying 80 basis points to a trusted FA.
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Old 08-24-2021, 06:35 PM   #47
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OP,, Im a big advocate of DIY but at your level of wealth I would be more or at least equally concerned with the possibility of declining faculties over the years and less about paying 80 basis points to a trusted FA.
It is a good point. I know what you are saying but since there are 2 of us, if mental capacity of one declines, I figure the other can go back to some sort of auto pilot managed portfoilio before it becomes an issue. I think the whole investment management fee model is changing quickly. The younger generation does not want to go with a fee-based model. The older generation who use this service is reducing, either dying off or deciding to go with cheaper alternatives.
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Old 08-24-2021, 06:53 PM   #48
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It is a good point. I know what you are saying but since there are 2 of us, if mental capacity of one declines, I figure the other can go back to some sort of auto pilot managed portfoilio before it becomes an issue. I think the whole investment management fee model is changing quickly. The younger generation does not want to go with a fee-based model. The older generation who use this service is reducing, either dying off or deciding to go with cheaper alternatives.
I’m retiring at age 55 next Spring and I’m working a much tighter plan in terms of withdrawal rate so DIY is more of a necessity to optimize returns. My point with your situation is that you can afford a higher level of care so to speak. The extra return on those 80 bps won’t make much difference in terms of outcomes.
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Old 08-24-2021, 07:01 PM   #49
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Many of you have posted the reduced cost of managing your own investments. We have our investments managed since 2008. The fees are getting so large that it is hard to ignore even though we pay "only" 0.8%. The fees are enough to support a person's living expenses! Remember the advertisement, we make more when your investments grow more? Well, they have grown to a level that we no longer feel that we should continue to spend the money.

We have been thinking of moving to a lower cost investment management fee company like Vanguard. We also spent some time to research Vanguard ETFs which we are liking what we see.

We interviewed a Vanguard FA today and we definitely came away with why the hell do we want Vanguard FA to manage our portfolio. At this point we are leaning towards the self-directed route unless our current wealth management company comes back with much reduced fees.

Anyway, here is a rough investment strategy that we are thinking of going with. Our understanding of various ETFs is still very elementary at this point and hence the question.

Currently we have annuities which make up 18% of our investments. We consider those as part of fixed income. We need a total of about $100K of funds from our taxable investments to cover the next 7 years until all income streams kick in. Besides the $100K, our income needs will be met by SS, annuities and RMD.

We have equal amount of taxable investments and tax deferred investments, not counting the annuities. We are at the 22% to 24% tax bracket.

We are thinking of going with 85% to 90% equities for both taxable and tax deferred investments, with the remainder in a balanced fund like VBIAX and $100K in VTIP or something like that which acts like cash. We need help in understanding how VTIP works. We figure that $100K in VTIP in taxable account will cover the next 7 years, plus always funding it at about $100K to cover emergency needs. In tax deferred accounts, we will turn off dividend reinvesting and also keep another $100K in VTIP (2 to 3 years of withdrawal) to make up for the difference in RMD and dividends.

I need veterans here to help critique our strategy.

Thanks!
I've been using Vanguard FA for years. Not sure who you talked to, but it does not sound right. They manage 1/2 of my assets...mainly my ROTH AND TRADITIONAL IRA. I manage the other half, mainly taxable accounts.Since I'm not a pro, they should do as well or better than I do. I'm more "aggressive" in that I manage individual stocks, they manage Vanguard EFTs. They concentrate on asset allocation, maintaining my net worth, some tax advice, planning ahead. But since I've retired in 2017, I've been able to get by on SS, dividends from my stocks, and some stock sales and have continued to increase my net worth...the market has been good. I have never had a problem getting hold of my advisor when I had a question. We do have scheduled meetings quarterly.

Vanguard does assign an advisor or contact person if you have self managed accounts, so I actually have 2, but I just usually ask the one that is paid, I've never contacted the other one.

So you do not have to have everything managed. All your Vanguard investments are on one screen that the advisor can see whether he manages them or not. You can also list other non-Vanguard assets in a separate area that they can also consider, ie. I have a Fidelity HSA and some savings bonds.

My main reason for having managed accounts is protection. If I start getting senile or have someone pressuring me for money, he knows to start investigating if suddenly I'm wanting to cash out or move big sums. He knows my long term plans, how much I'm budgeted for each year and that I am not considering moving the money. With the quarterly meetings, he knows what my kids are doing, and asks about potential big expenses. I don't anticipate needing what he manages, but will have them do my RMD, when I'm that age. I'm not doing any further ROTH conversions. This may sound like a crazy reason to have an advisor, but perhaps I watch too much American Greed on TV.

Plus, all other financial planners I tried to work with always wanted to take over my stocks and I always said no. It started as a "fun group" of DRIPS when I first started investing and basically has become my own mutual fund. I recently discussed gifting some of my stocks to my son, who also has a Vanguard account. My advisor said just call and we will get both advisors on phone and set up the gift transfer. I have found them very easy to work with. One huge feat they helped with was getting all my individual DRIP stocks transfered to a Vanguard brokerage account. So we can both follow how I'm managing.
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Old 08-24-2021, 07:46 PM   #50
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I've been using Vanguard FA for years. Not sure who you talked to, but it does not sound right. They manage 1/2 of my assets...mainly my ROTH AND TRADITIONAL IRA. I manage the other half, mainly taxable accounts.Since I'm not a pro, they should do as well or better than I do. I'm more "aggressive" in that I manage individual stocks, they manage Vanguard EFTs. They concentrate on asset allocation, maintaining my net worth, some tax advice, planning ahead. But since I've retired in 2017, I've been able to get by on SS, dividends from my stocks, and some stock sales and have continued to increase my net worth...the market has been good. I have never had a problem getting hold of my advisor when I had a question. We do have scheduled meetings quarterly.

Vanguard does assign an advisor or contact person if you have self managed accounts, so I actually have 2, but I just usually ask the one that is paid, I've never contacted the other one.

So you do not have to have everything managed. All your Vanguard investments are on one screen that the advisor can see whether he manages them or not. You can also list other non-Vanguard assets in a separate area that they can also consider, ie. I have a Fidelity HSA and some savings bonds.

My main reason for having managed accounts is protection. If I start getting senile or have someone pressuring me for money, he knows to start investigating if suddenly I'm wanting to cash out or move big sums. He knows my long term plans, how much I'm budgeted for each year and that I am not considering moving the money. With the quarterly meetings, he knows what my kids are doing, and asks about potential big expenses. I don't anticipate needing what he manages, but will have them do my RMD, when I'm that age. I'm not doing any further ROTH conversions. This may sound like a crazy reason to have an advisor, but perhaps I watch too much American Greed on TV.

Plus, all other financial planners I tried to work with always wanted to take over my stocks and I always said no. It started as a "fun group" of DRIPS when I first started investing and basically has become my own mutual fund. I recently discussed gifting some of my stocks to my son, who also has a Vanguard account. My advisor said just call and we will get both advisors on phone and set up the gift transfer. I have found them very easy to work with. One huge feat they helped with was getting all my individual DRIP stocks transfered to a Vanguard brokerage account. So we can both follow how I'm managing.
Thank you for sharing your experience with Vanguard. We have spoken to several reps on the phone and they are telling me something different for sure. We will start the ball rolling tomorrow with transfers and see where it takes us.
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Old 08-24-2021, 07:52 PM   #51
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I moved my profit sharing to Vanguard in 4/2020.

0.3% to manage that one account. With his concurrence, I implemented same asset allocation across all our accounts so the cost is lower than had we moved everything to Vanguard.

I calculated this year I made 100x the fees we paid.

Maybe after I retire I can handle it, but it sure was worth having someone to discuss it all with.

I almost quit over the negligence around COVID last December and he met on short notice a few times to reassure us that I was good to go.
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Old 08-24-2021, 07:57 PM   #52
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What I have not shared is my annoyance with the way our portfolio is currently managed, especially in the taxable accounts. It is generating ridiculous amount of realized capital gains and their inability to hold dividend reinvestments. I have a spreadsheet which projects income taxes for the next few years and the capital gains are unpredictable year-to-year. I looked at this year's capital gains todate and the amount of taxes which we will need to pay on those gains will mean more withdrawals next year, which then will generate even more capital gains. If they could hold dividends, at least we can use the dividends to pay part of the capital gains. Vanguard said the same thing to us, that they cannot hold dividends and they will automatically be re-invested. Next year I have a 5-year market-linked note which is going to mature which is going to incur a huge amount of capital gains, unless the market collapses. It is both a good and bad investment because I don't need it to mature. I bought this through the FA because I did not know better - there is no fee commission on this. If I had bought something like VTSAX, there is no maturity date which would avoid the lumpy capital gains.
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Old 08-24-2021, 08:07 PM   #53
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I would not expect a Vanguard FA to explain precisely how a non-Vanguard investment works. But instead of vague answers I would prefer they refer me to the people who created the investment and/or explain well how the Vanguard replacements would work (post #7 here).

Like others I think you got a dud. Perhaps try calling back a few times and talk with a few different Vanguard advisors. They certainly vary in quality but most who are in the "assigned rep" category are average to good. I'd encourage you not to think poorly of Vanguard based on one dud. Although I've read here that their quality has declined recently and have seen some evidence myself to support it. But I am very much a DIY, so I rarely if ever need their help.

If you have enough in Vanguard assets ($1M?), you'll get a personal rep regardless of whether you are self managed or have them manage it for you. Even if you have a personal rep, you're not required to talk to them - you can call in on the Flagship phone line and talk to the next person available and get whatever help you need. Or make an appointment with your own rep if that's what you prefer.

I'm not 100% certain, and things may have changed, but I'd be willing to bet that if you have Vanguard manage things for you, they'll put you at 60/40 stocks/bonds and 60/40 US/international. That has been their recommended AA for about a decade, and is about what they recommended to me when I did a consult with them many years ago. If you can do basic percentages and addition and subtraction, you can create the same thing for yourself with minimal effort. Vanguard won't do tax stuff and I think they shy away from estate planning as well, so I'm not really sure what people are getting for the management fee other than offloading some of the paperwork and (minimal) management/tracking. Maybe the Vanguard pros avoid basic mistakes as well, like selling a ST lot instead of a LT lot when raising cash.

ETA: As mentioned, I'm a Vanguard DIY, and I know for certain that I have the ability to set dividend reinvestment on a per-account, per-investment basis - I can go into a screen for each holding and set it individually. So for example if I had CAT and KO in my taxable account, I could reinvest the CAT dividends but not the KO dividends. Or if I had CAT in my taxable and my Roth, I could reinvest the CAT dividends in my Roth but not in my taxable. So if you don't want them reinvesting dividends and DIY is OK with you, that should work.
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Old 08-24-2021, 08:22 PM   #54
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This. Should be required reading for ALL investors, self-directed or not.
Especially the section on Lazy Portfolios. A combo of 3-4 solid funds diversified across asset classes historically beat the performance of the VAST majority of FAs (especially after fees). Decide on your ACTUAL risk tolerance (asset allocation), then set it and forget it. NO reason you cannot self-direct after some objective homework.

I've been self-directing for decades after realizing that 3% FA fee (yes, 'back in the day') was nuts. The only demonstrable value over a 'Lazy Portfolio' was "hand holding" and a few "free" dinners (a small rebate of my own fee $$$). I did buy a fee-based financial plan about 8 yrs ago before I retired (the 1st time) just to get the reassurance of a qualified (or at least certified) 2nd opinion (yes, a bit of "hand holding").

I am on the conservative side (~55% equities, mostly in funds of solid dividend payers), stick to a 3% WD rate, and feel I could weather a prolonged bear market without critical lifestyle disruption. Market has had a great run. But the "all equities all the time" crowd seem to forget that if you need to keep selling equities for income during a downturn, you cannot "buy the dips" & will have less capital participating in the next bull market. Largely forgotten is the '65-'82 cycle where the Dow lost ~3/4th of its inflation-adjusted value (including the nasty stagflation of the 70's). Statistically unusual time period for sure, but if a similar market happens to be in the rest of YOUR lifetime.....

Good luck whatever direction you decide!
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Old 08-24-2021, 09:39 PM   #55
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I would not expect a Vanguard FA to explain precisely how a non-Vanguard investment works. But instead of vague answers I would prefer they refer me to the people who created the investment and/or explain well how the Vanguard replacements would work (post #7 here).

Like others I think you got a dud. Perhaps try calling back a few times and talk with a few different Vanguard advisors. They certainly vary in quality but most who are in the "assigned rep" category are average to good. I'd encourage you not to think poorly of Vanguard based on one dud. Although I've read here that their quality has declined recently and have seen some evidence myself to support it. But I am very much a DIY, so I rarely if ever need their help.

If you have enough in Vanguard assets ($1M?), you'll get a personal rep regardless of whether you are self managed or have them manage it for you. Even if you have a personal rep, you're not required to talk to them - you can call in on the Flagship phone line and talk to the next person available and get whatever help you need. Or make an appointment with your own rep if that's what you prefer.

I'm not 100% certain, and things may have changed, but I'd be willing to bet that if you have Vanguard manage things for you, they'll put you at 60/40 stocks/bonds and 60/40 US/international. That has been their recommended AA for about a decade, and is about what they recommended to me when I did a consult with them many years ago. If you can do basic percentages and addition and subtraction, you can create the same thing for yourself with minimal effort. Vanguard won't do tax stuff and I think they shy away from estate planning as well, so I'm not really sure what people are getting for the management fee other than offloading some of the paperwork and (minimal) management/tracking. Maybe the Vanguard pros avoid basic mistakes as well, like selling a ST lot instead of a LT lot when raising cash.

ETA: As mentioned, I'm a Vanguard DIY, and I know for certain that I have the ability to set dividend reinvestment on a per-account, per-investment basis - I can go into a screen for each holding and set it individually. So for example if I had CAT and KO in my taxable account, I could reinvest the CAT dividends but not the KO dividends. Or if I had CAT in my taxable and my Roth, I could reinvest the CAT dividends in my Roth but not in my taxable. So if you don't want them reinvesting dividends and DIY is OK with you, that should work.
Thank you. We definitely think that we spoke with a dud. We will call tomorrow and ask to get a different FA to explore the managed portfolio and for now it would only be for tax deferred investments. It will also put us under Flagship because we will go 100% Vanguard in that account. The taxable investments will not be managed simply because we do not want to liquidate and move to pure Vanguard funds as it would incur tremendous amount of capital gains. The Vanguard FA was very clear, if you self-manage, you can hold the dividends and if they manage they will automatically reinvest dividends and there is not a way to hold. We have several numbers to call tomorrow, including the "onboarding" to start the process of transferring investments over.
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Old 08-24-2021, 09:51 PM   #56
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This. Should be required reading for ALL investors, self-directed or not.
Especially the section on Lazy Portfolios. A combo of 3-4 solid funds diversified across asset classes historically beat the performance of the VAST majority of FAs (especially after fees). Decide on your ACTUAL risk tolerance (asset allocation), then set it and forget it. NO reason you cannot self-direct after some objective homework.

I've been self-directing for decades after realizing that 3% FA fee (yes, 'back in the day') was nuts. The only demonstrable value over a 'Lazy Portfolio' was "hand holding" and a few "free" dinners (a small rebate of my own fee $$$). I did buy a fee-based financial plan about 8 yrs ago before I retired (the 1st time) just to get the reassurance of a qualified (or at least certified) 2nd opinion (yes, a bit of "hand holding").

I am on the conservative side (~55% equities, mostly in funds of solid dividend payers), stick to a 3% WD rate, and feel I could weather a prolonged bear market without critical lifestyle disruption. Market has had a great run. But the "all equities all the time" crowd seem to forget that if you need to keep selling equities for income during a downturn, you cannot "buy the dips" & will have less capital participating in the next bull market. Largely forgotten is the '65-'82 cycle where the Dow lost ~3/4th of its inflation-adjusted value (including the nasty stagflation of the 70's). Statistically unusual time period for sure, but if a similar market happens to be in the rest of YOUR lifetime.....

Good luck whatever direction you decide!
Thank you. We are digging in and learning more each day.
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Old 08-24-2021, 10:37 PM   #57
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Thank you. I am aware of the huge tax consequence on sale with our taxable accounts. If we bail from our current investment firm, we will do a straight move of the taxable account assets and decide on how to change out some of the positions through time. With tax deferred accounts, we sell off most of the positions and select a few VG funds and let it ride.

I read an RIA newsfeed. There is a way you can avoid some of the tax hit. You provide the stocks as part of a setup in forming a mutual fund. To the extent your assets match the fund profile, they are swept in with your existing cost basis. Essentially, you get a mutual fund provider to allow you to be a direct seller of assets in exchange for mutual fund shares. Complicated. Not cheap in either time or effort. Of course, you cannot do this with Vanguard. But it can be done.

Anything you own that is not accepted as transfer in kind for mutual fund shares is sold outright and taxes paid. This would allow you to slowly sell the fund down later if you still want a VG only solution.
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Old 08-24-2021, 10:42 PM   #58
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I read an RIA newsfeed. There is a way you can avoid some of the tax hit. You provide the stocks as part of a setup in forming a mutual fund. To the extent your assets match the fund profile, they are swept in with your existing cost basis. Essentially, you get a mutual fund provider to allow you to be a direct seller of assets in exchange for mutual fund shares. Complicated. Not cheap in either time or effort. Of course, you cannot do this with Vanguard. But it can be done.

Anything you own that is not accepted as transfer in kind for mutual fund shares is sold outright and taxes paid. This would allow you to slowly sell the fund down later if you still want a VG only solution.
Fortunately all our holdings can be moved directly over to Vanguard. We don't hold individual stocks.
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Old 08-24-2021, 11:57 PM   #59
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Thank you. We are digging in and learning more each day.


Are you even considering Fidelity or Schwab? I only have experience with Fidelity and Vanguard but I would not hire a Vanguard rep. Their entire business model is low cost which means a lower level of service. You can still benefit from low fee Vanguard ETFs or funds by holding them in a Fidelity or Schwab portfolio. The free Fidelity advisor we have is pretty good, and definitely helpful in managing taxes.
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Old 08-25-2021, 06:47 AM   #60
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"You can do it"!

Go the DIY route. Besides the savings you would accrue from not paying an "adviser", you will understand your investments and investing in general much better if you do it yourself. Don't overthink the allocation too much, particularly on the stock side. For example, the following ETFs would likely take care of many/most people's stock market needs (I prefer ETFs over funds since their costs are lower than funds, although both are very low under a firm like Vanguard) and be tax-efficient at the same time:

VTI - Vanguard Total Market
VOO - Vanguard S&P 500

If you feel more comfortable over time you could begin to add other ETFs if that floats your boat, such as with more international exposure, or high dividend exposure, or REITs, and so forth. Best wishes, and welcome to the club!
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