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Old 07-15-2020, 11:45 AM   #41
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This is a blended portfolio, right? Some equity, some fixed income.

Blended portfolios have what I call the "Kool-Aid" problem: When you pour the red Kool-Aid and the green Kool-Aid together in a glass, you really don't know what caused the resulting color. Same-o, when you mix the returns on both parts of the portfolio you don't know what was responsible for the result. Brokers love this because it makes it impossible to evaluate their performance against other portfolios; everything is apples and oranges.

My recommendation to a couple of nonprofits has been to separate the red and the green into different accounts. Then it is easy to benchmark the equity account against indices like the Russell 3000 or the ACWI. On the fixed income side, you can benchmark against various govvies, against investment grade corporates, etc. You have to look at both return and bond ratings though. If you are getting govvie return from a portfolio of unrated bonds, you may have a problem.

Last week I was talking to the board chair of a nonprofit and he said: "What if they say they can't split the account?" I told him that he should then say "I'm sorry to hear that. Can you recommend an advisor who will be able to handle this as two accounts?" His nonprofit is running a bit over $22M, so not a lot, but it is enough to justify some flexibility from the advisors. I'm sure he will get it.
I've simply decided to use a couple of Vanguard funds as a benchmark, i.e., approximately mirroring my allocation (conservative by most standards) - looking at say, VSCGX, (Life Strategy Conservative Growth) - the 3 yr, 5 yr and 10-yr are pretty much in line with this PF (5-6%) ... of course that argues the point that one fund with similar goal accomplished the same return as a semi-managed portfolio of 15 to 20 funds. Soo...the case for DIY with a few VG funds (for example) isn't lost on me. I don't see this as an urgent thing but in due time, likely after the election and other uncertainties play out, i'll probably make the move to a self-managed simple 3-5 fund port., and exit the FA relationship or revert to an occasional hourly consult format. I think it's a pretty reasonable decision, having evaluated opinions here and elsewhere.
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Old 07-15-2020, 12:37 PM   #42
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Agreed, there is no definitive 'promise' - only speculation that it "could" result in higher return. The thing I mainly took from it was in regard to the theoretical added value from an 'emotional' standpoint of an FA being able to help an investor avoid losses (and in effect improve performance) simply in their role as a behavioral psychologist, preventing clients who might otherwise be prone to impulsive kneejerk selling in volatile times.

My formerly-hourly FA has definitely been helpful in that regard but i think i've learned enough now to be able to handle that myself. That said, as mentioned, i was able to get a qualified estimate that it'd be reasonable to expect about 5% returns net-of-fees with him on the AUM basis, which is in line with our portfolio return over 10 years.
Your return will come from the returns of investments chosen (your Asset Allocation) less fund fees and advisor fees.

You've grabbed a study and taken a WAG and placed it in your crystal ball to predict the advisor can beat a simple Bogleheads index. It won't happen over ten years IMO.

You do have enough to give away 10K to an advisor each year, so we're beating a dead horse. Whether you proceed as DIY or FA is your business.
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Old 07-15-2020, 01:17 PM   #43
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Your return will come from the returns of investments chosen (your Asset Allocation) less fund fees and advisor fees.

You've grabbed a study and taken a WAG and placed it in your crystal ball to predict the advisor can beat a simple Bogleheads index. It won't happen over ten years IMO.

You do have enough to give away 10K to an advisor each year, so we're beating a dead horse. Whether you proceed as DIY or FA is your business.
"tell me how you really feel" -

opinion duly noted.
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Old 07-15-2020, 03:08 PM   #44
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I have 10% with an AUM advisor. He occasionally collects my other 90% data and gives me some thoughts on the overall portfolio. This has worked for me and I think the advisor understands as well.
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Old 07-15-2020, 03:43 PM   #45
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I have 10% with an AUM advisor. He occasionally collects my other 90% data and gives me some thoughts on the overall portfolio. This has worked for me and I think the advisor understands as well.
That is a generous arrangement on his part. Rare to find any FA users on these forums...I guess understandable given the overwhelming consensus for DIY investing. I actually am not particularly advocating advisers, simply a preference for the hourly model. With so many robo-advice options i can see a place for the as-needed adviser, if only to help transition tax/cost-efficiently to a newly designed simple PF from a needlessly micro-diversified one...and maybe a quarterly review in the 200-300/hr range. Far cheaper than AUM. Seems i've seen a few IA's offering a flat monthly fee regardless of one's amt. of assets.
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Old 07-15-2020, 05:22 PM   #46
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10% of portfolio at 0.7% fee.
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Old 07-15-2020, 05:25 PM   #47
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yep, got it...i misunderstood, and revised my reply
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Old 07-16-2020, 05:06 AM   #48
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"tell me how you really feel" -

opinion duly noted.
I did tell you my opinion. It is based on 15-year involvement with investing boards (M*, E-R, and Bogleheads). You've been around long enough to know that if you ask for opinions (and that is what you're asking) you'll get opinions.

But you seem to be looking for assurance through studies and conversations that your going back and forth over the years between strategies and asset allocations is ok. Alright then, it's ok. But you would better serve your future (my opinion) by getting Boglehead direction and just sticking with it. Three funds, set the allocation, and enjoy life. Maybe you need more funds than that, I can't say for sure.

I don't have three funds because my Spouse and I have inherited monies, and over the years just ended up with multiple accounts. I work at simplifying on a consistent basis. I download balance information once a month and save it (data goes back to 1990). If AA is out of wack, I re-tune it.

Good luck with your search. I hope you can stick with a single approach whether it's paying the FA or DIY. Or maybe a hybrid approach like mentioned by others is better for you.
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Old 07-16-2020, 05:48 AM   #49
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Hi and thanks for your perspectives. I just re-read a research report by Vanguard where they address the question, “Why on Earth hire an advisor when I can manage my own money?" It concludes that there is a quanitifiable increase in return which VG called 'the Advisor's Alpha' - that is, a good FA can increase investor returns by 3-4%. More important, the single largest way an advisor can add value - up to 1.5% per year of increased returns - is 'behavioral coaching." i.e., the best advisors are those who can keep their clients’ fears and emotions in check by providing steady, fact-based advice and reassurance when the markets get wobbly or crazy.

This change from hourly to AUM for me has only been in place since April; almost 4 months. I don't see how anyone could argue that we're experiencing the most extraordinary and unpredictable market conditions in a lifetime.
As such I'm pretty much settled on looking at this as a "trial run." I figure I'll give it another 6-8 months, and revert to an hourly or, self-managed approach in early 2021.

I figure that with as much as I have at stake, in the name of principal preservation the trade-off for having someone else's active oversight - even if only during a period of continued volatilty and uncertainty, isn't all that much for some degree of peace of mind in the grand scheme of things.
And you're predicting the market will cease to be volatile and uncertain exactly when?
With that mindset, perhaps an FA is in you're best interest.
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Old 07-16-2020, 06:33 AM   #50
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Ease up a bit folks. Your opinions are turning nasty.
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Old 07-16-2020, 08:08 AM   #51
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More important, the single largest way an advisor can add value - up to 1.5% per year of increased returns - is 'behavioral coaching." i.e., the best advisors are those who can keep their clients’ fears and emotions in check by providing steady, fact-based advice and reassurance when the markets get wobbly or crazy.

This statement just isn't true IMHO.... there is no "added" value here just protection against lost value by not sticking to your plan. Maybe the "behavioral coaching" you speak of could possibly save you from losing value---1.5% or whatever in returns as the result of churning your account. If you do go the DIY route, an extremely valuable read IMO is "Your Money and Your Brain" by Jason Zweig. As Bill Bernstein put it "If Jason can't save you from yourself, nobody can"
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Old 07-16-2020, 10:37 AM   #52
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Ease up a bit folks. Your opinions are turning nasty.
Haha, yeah! I feel like i hit a nerve (for no apparent reason). OP here, and I know for a fact that I never 'advocated' an AUM adviser in this thread.

I think i'll hang with the AUM plan for a little while and propose reverting to an hourly or maybe a quarterly flat fee in line with our past arrangement. If that doesn't fly with him i'll move to a DIY approach.

I actually have done well with him over ten years so we have had a good relationship. Frankly the biggest issue for me is how to diplomatically ask to return to the hourly rate without looking like a total jerk.
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Old 07-16-2020, 11:29 AM   #53
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I actually have done well with him over ten years so we have had a good relationship. Frankly the biggest issue for me is how to diplomatically ask to return to the hourly rate without looking like a total jerk.
What were your returns compared to S&P 500? Great majority of professional managers can't beat S&P index over such time.

https://www.barrons.com/articles/s-p...de-51574698136
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Old 07-16-2020, 11:44 AM   #54
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What were your returns compared to S&P 500? Great majority of professional managers can't beat S&P index over such time.



https://www.barrons.com/articles/s-p...de-51574698136


Who says thatís the goal? The great majority of professional managers would not recommend a 100% stock allocation.
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Old 07-16-2020, 11:49 AM   #55
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Who says that’s the goal? The great majority of professional managers would not recommend a 100% stock allocation.
Well majority of US *equity* fund managers are not able to beat S&P 500. To extrapolate if individual manager
recommends 70% equity allocation that 70% allocation likely does not beat simple S&P 500 index.

What is their goal? To underperform most basic Index?
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Old 07-16-2020, 12:11 PM   #56
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Wow. Child's garden of misinformation. The very old news is that the average professional manager cannot beat his benchmark. The S&P is often not the correct benchmark though. Here is Nobel winner Dr. William Sharpe explaining the situation 30 years ago: https://web.stanford.edu/~wfsharpe/a...ive/active.htm

Regarding old news, anyone familiar with 50+ years of history knows that the average active manager turns in results that are even worse than Dr. Sharpe hypothesizes. Further, it is not possible to identify the outperforming managers ahead of time. Here is Eugene Fama's research partner, Ken French, explaining the reasons: https://famafrench.dimensional.com/v...-managers.aspx

But people still hire managers for many reasons, and that appears to be what the OP is struggling with. Beating him up with old news is not particularly helpful IMO.

From the OP's results, he's almost certainly looking at a blended portfolio and (as I observed earlier) it's impossible to separate out the equity performance. Looking at the FA, I would say that if he is within 2% of an appropriate benchmark he is doing well for the OP. That is a fairly low cost all-in for an FA, including trading cost, mutual fund fees, etc. So the OP is trying to figure out how to judge value of continuing with the AUM approach vs his old hourly fee arrangement.
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Old 07-16-2020, 02:42 PM   #57
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Well majority of US *equity* fund managers are not able to beat S&P 500. To extrapolate if individual manager
recommends 70% equity allocation that 70% allocation likely does not beat simple S&P 500 index.

What is their goal? To underperform most basic Index?
This is a conservative allocation - 40/60. Average over 10 yrs, abt. 5-6% ..
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Old 07-16-2020, 08:11 PM   #58
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This is a conservative allocation - 40/60. Average over 10 yrs, abt. 5-6% ..
If that's the case, I think you can do better on your own. Here is the last 10 years of returns for a 40% VTSAX, 60% VBTLX allocation. 7.71% CAGR according to Portfolio Visualizer.

https://www.portfoliovisualizer.com/...location2_1=60
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Old 07-16-2020, 08:30 PM   #59
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Ease up a bit folks. Your opinions are turning nasty.
Yup. It's why I don't frequent bogelheads anymore. Something about financial planners. Everybody is a DIY expert. Seems to be more than any other profession. The reality is, in my opinion, financial planners (if good) do way more than select your fund diversification.
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Old 07-16-2020, 08:51 PM   #60
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If that's the case, I think you can do better on your own. Here is the last 10 years of returns for a 40% VTSAX, 60% VBTLX allocation. 7.71% CAGR according to Portfolio Visualizer.

https://www.portfoliovisualizer.com/...location2_1=60
Yes, giving up 2.0% CAGR minimum is nasty IMO. Here's 95 years of data broken out in various asset allocations.

https://personal.vanguard.com/us/ins...io-allocations
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