Move from managed to self-directed investments

[RetiredHappy]

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!

 

[TheWizard]

I had a seven year span from start of retirement until I started SS.
I just withdrew $3000/month (In lieu of SS) pro rata from my tax deferred account, which was around 60% stock funds.

(I had additional pension/annuity income as well.)

Recommend you do similar, unless you're scared about what the market could do...

 

[RetiredHappy]

I had a seven year span from start of retirement until I started SS.
I just withdrew $3000/month (In lieu of SS) pro rata from my tax deferred account, which was around 60% stock funds.

(I had additional pension/annuity income as well.)

Recommend you do similar, unless you're scared about what the market could do...

Why did you pull from your tax deferred account? We have equal amount in taxable and tax deferred and we are already at 22% to 24% tax bracket.

We have been retired for 5 years already and had set aside about $1M cash to fund 10 years but have blown through that amount and more. We will try to be good to stick to our budget.

We are not nervous about the market but wanting to compartmentalize about 100K liquid/cash separately in tax deferred and taxable accounts.

 

[mrfeh]

I need veterans here to help critique our strategy.

Start by reading this: https://www.bogleheads.org/wiki/Bogleheads®_investing_start-up_kit

 

[Out-to-Lunch]

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.

In general, I am a big advocate for learning to DIY. But may I ask why you had that reaction to the Vanguard FA? What was off-putting?

Based on this and other posts, I am not sure you are (yet) a good DIY candidate. Maybe a stripped-down, Vanguard PAS would be best for you at this point?

 

[Hermit]

I spent $200 for a Vanguard financial plan a couple years after I retired. It included allocations and recommended Vanguard funds because that is what I told them I wanted to use. It gave me another data point along with Firecalc and other such tools. My plan is somewhere around 60/40 and I use Vanguard Index funds. I don't think the ratios you pick is as important as rebalancing on some basis either periodically or when the balance is off by a defined percentage, etc.

 

[RetiredHappy]

In general, I am a big advocate for learning to DIY. But may I ask why you had that reaction to the Vanguard FA? What was off-putting?

Based on this and other posts, I am not sure you are (yet) a good DIY candidate. Maybe a stripped-down, Vanguard PAS would be best for you at this point?

This particular Vanguard FA was extremely vague with his answers. He either did not understand our questions or was deliberately evasive with his answers. For instance we explained to him exactly how our current managed investments work, pros and cons. He would not or could not explain whether Vanguard's model is similar or not.

On a separate non-investment related question, we asked how accessible he would be since we had to wait for 2 weeks to get this meeting today. He said "Like all professionals, you cannot get on my calendar for the following day. You will have access to my calendar to schedule a meeting with me."

 

[RetiredHappy]

I spent $200 for a Vanguard financial plan a couple years after I retired. It included allocations and recommended Vanguard funds because that is what I told them I wanted to use. It gave me another data point along with Firecalc and other such tools. My plan is somewhere around 60/40 and I use Vanguard Index funds. I don't think the ratios you pick is as important as rebalancing on some basis either periodically or when the balance is off by a defined percentage, etc.

Was this Vanguard financial plan with an independent FA or with someone in Vanguard? I did not see this option with Vanguard looking through their site and talking to their help desk.

 

[gcgang]

You need to be aware of tax consequences. Index ETFs are great, but if you have to liquidate a portfolio of individual stocks to do so…

You might just want to hold the equities, reducing gradually to avoid a big cap gain hit.

0.8% is below the standard 1.0% (used to be as high as 3.0% back in the day), but I think you’ve answered the question of if they are providing value for what you pay.

Go for DIY! Plenty of help here, worth every cent of what you pay.

 

[DrRoy]

You need to be aware of tax consequences. Index ETFs are great, but if you have to liquidate a portfolio of individual stocks to do so…

You might just want to hold the equities, reducing gradually to avoid a big cap gain hit.

Go for DIY!

+1 above.

I agree with your general plan to go self directed and save the fees. However, if you are 85-90% stock ETF's, plus some stocks in the balanced, you are likely 90+% stocks. That is way too high for my comfort. I am overfunded and at 58% equities.

 

[Golden sunsets]

+1 above.



I agree with your general plan to go self directed and save the fees. However, if you are 85-90% stock ETF's, plus some stocks in the balanced, you are likely 90+% stocks. That is way too high for my comfort. I am overfunded and at 58% equities.

+1 on the AA tilting so heavily toward equities.

 

[Whisper66]

FYI - See attached screenshot from the FAQ's of Ref :https://investor.vanguard.com/advice/financial-advisor/ . VG will make an initial financial plan for you that you can consider before making an obligation to go with their Financial Services. If you don't like what you see, I expect Schwab or Fidelity will do same so you can test if you like them better. BTW - I would expect Vanguard plan to be a simple mixture of their total market ETF ( https://investor.vanguard.com/etf/list#/select-etfs/asset-class/month-end-returns ) to stay in line with their general low cost philosophy. And I also would expect that you could execute the plan as a DIY plan so won't really need to pay the 0.3% fee for the FA. This stuff isn't rocket science so you will find it's not complicated at all once you have a little experience self managing. And you can always pay the 0.3% for a year to let VG manage it for a year before you totally free yourself of FA fees. Some on this board have gone that path.

 

[Whisper66]

.......On a separate non-investment related question, we asked how accessible he would be since we had to wait for 2 weeks to get this meeting today. He said "Like all professionals, you cannot get on my calendar for the following day. You will have access to my calendar to schedule a meeting with me."

On accessibility of a Vanguard rep. I do not use their FA services but apparently have enough money with them that there is a specific rep assigned to my account. He doesn't provide investment advice like a FA would but helps in many ways and is accessible with a direct phone call. If he's not there, I get a call back quite quickly. I can also see an online calendar and can set up an appointment with him in any open slot he has. I have never had a call I made not returned that day or at least by the following day. I've used his help to get accounts transferred to VG, tax questions answered, issues with a 401k transfer worked through, getting cost basis adjustments made, and just general support on how VG works.

I've also just called the general help number many times. Normally I wait 2-8 minutes to get a real person on that line .... if I wait. Instead, I often use their call back service. I leave my number and the recording tells you how many minutes later to expect a callback. Typically <10 minutes in my experience and the call backs always seem to be within a minute or so of when they said it would be.

You will find varied experiences on this board. The above are mine. It is nice to know that there are three well recommended companies out there (VG, Schwab and Fidelity). So if one doesn't meet your needs, the others might. Here's one of the better comparisons of the three that I've seen.....

 

[Whisper66]

On VBIAX - This is a 60% equities / 40% fixed assets balanced mutual fund with 0.07% fee. Nothing wrong with that choice but here's another idea.... FWIW, I like to keep my equity and fixed assets in separate funds so I can sell some of either one I wish without paying taxes on sale of gains on the other. For example, using 60% of the assets to buy VSTAX (0.04% fee) and 40% to buy VBTLX (0.05% fee) would be my choice to get a similar result. If I want to sell some fixed assets for living expenses, I sell VBTLX. That allows me to sell and pay capital gains only the assets I wanted to sell.

 

[RetiredHappy]

On VBIAX - This is a 60% equities / 40% fixed assets balanced mutual fund with 0.07% fee. Nothing wrong with that choice but here's another idea.... FWIW, I like to keep my equity and fixed assets in separate funds so I can sell some of either one I wish without paying taxes on sale of gains on the other. For example, using 60% of the assets to buy VSTAX (0.04% fee) and 40% to buy VBTLX (0.05% fee) would be my choice to get a similar result. If I want to sell some fixed assets for living expenses, I sell VBTLX. That allows me to sell and pay capital gains only the assets I wanted to sell.

Thank you very much, it makes alot of sense. Do you know what is a ballpark minimum for VG to assign a rep as you have described or if you are comfortable in sharing, how much you have with VG?

 

[RetiredHappy]

You need to be aware of tax consequences. Index ETFs are great, but if you have to liquidate a portfolio of individual stocks to do so…

You might just want to hold the equities, reducing gradually to avoid a big cap gain hit.

0.8% is below the standard 1.0% (used to be as high as 3.0% back in the day), but I think you’ve answered the question of if they are providing value for what you pay.

Go for DIY! Plenty of help here, worth every cent of what you pay.

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.

 

[RetiredHappy]

+1 above.

I agree with your general plan to go self directed and save the fees. However, if you are 85-90% stock ETF's, plus some stocks in the balanced, you are likely 90+% stocks. That is way too high for my comfort. I am overfunded and at 58% equities.

Even if you don't forsee that you will need the money for another 30 years before the money goes to my estate? Note that I already have 18% funds converted to annuities, that forms part of the fixed income portion.

 

[Hermit]

Was this Vanguard financial plan with an independent FA or with someone in Vanguard? I did not see this option with Vanguard looking through their site and talking to their help desk.

FYI - See attached screenshot from the FAQ's of Ref :https://investor.vanguard.com/advice/financial-advisor/ . VG will make an initial financial plan for you that you can consider before making an obligation to go with their Financial Services. If you don't like what you see, I expect Schwab or Fidelity will do same so you can test if you like them better. BTW - I would expect Vanguard plan to be a simple mixture of their total market ETF ( https://investor.vanguard.com/etf/list#/select-etfs/asset-class/month-end-returns ) to stay in line with their general low cost philosophy. And I also would expect that you could execute the plan as a DIY plan so won't really need to pay the 0.3% fee for the FA. This stuff isn't rocket science so you will find it's not complicated at all once you have a little experience self managing. And you can always pay the 0.3% for a year to let VG manage it for a year before you totally free yourself of FA fees. Some on this board have gone that path.

It was offered through Vanguard. That was in 2012. The initial financial plan referenced above sounds like about the same thing. Vanguard also has a robo advisor service that you can use for 90 days for free if you want to put your info in and see what it provides. I have not done that.

 

[RetiredHappy]

It was offered through Vanguard. That was in 2012. The initial financial plan referenced above sounds like about the same thing. Vanguard also has a robo advisor service that you can use for 90 days for free if you want to put your info in and see what it provides. I have not done that.

Thanks! The VA guy yesterday claimed that things have changed over the years that they no longer have an in-between model. Pay nothing and do it yourself, or pay 0.03% and they do them all. He danced around and we did not get clear answers to our questions but concluded that if we go with the VA FA service, they will take control of our portfolio and decide what they will invest on depending on our equities-fixed income mix. He backtracked many times in the discussion and was very vague in his answers.

 

[Whisper66]

.... Do you know what is a ballpark minimum for VG to assign a rep as you have described ....

We were assigned a rep back in 2016. Had the same rep ever since. Back then, an account with over $1M of vanguard funds was assigned a rep. That used to be clear from their info published on their web site. Today, it's not clear to me.

https://investor.vanguard.com/investing/benefits/flagship says for investors with $1 million to $5 million .... "You're a Flagship client at Vanguard, which means you get personalized services reserved for our high-net-worth investors."

I don't know if "personalized service" is their wording for assigning a specific rep or not. They have grown so much they may be wishy washy with their wording to give them flexibility. Or it may be a purposely vague to encourage folks to move to the 0.3% FA managed role. I don't know. Suggest you call and ask. And if you want a personal rep assigned, just tell them it's a requirement if they wish you to bring your funds to VG rather than you go to Schwab or Fidelity. Alternatively if you really want to go with VG and they won't promise a rep, pay the 0.3% for 1 year and see how much you really need a rep. Drop it if you don't use the FA much.

 

[braumeister]

We were assigned a rep back in 2016. Had the same rep ever since. Back then, an account with over $1M of vanguard funds was assigned a rep. That used to be clear from their info published on their web site. Today, it's not clear to me.

One of the things that confused me when I first looked at this was that the amount to get to one of their upper levels had to be invested in Vanguard funds, not just the total you have at their brokerage.

 

[38Chevy454]

It sounds like with your total assets, being over $1M, you can get Fidelity Private Client services.
Private Client is free advisor, but the advisor won't give you specific investments like your fee based guy does. The advisor will give guidance to help with planning and general investments, but ultimately as a self directed you make the final decisions and execution of trades or withdrawals. The fidelity advisor can help you transfer funds from your current fee based advisor. Fidelity doesn't charge for the advisor, they gain by getting your money under their umbrella, and especially if you invest in Fidelity mutual funds or ETFs. Fidelity has many good low cost funds, some even zero fees.
Another advantage to Fidelity is they have more physical locations than some others. A lot if people also like Fidelity's website better.

 

[Whisper66]

.... The VA guy yesterday claimed that things have changed over the years that they no longer have an in-between model. Pay nothing and do it yourself, or pay 0.03% and they do them all....

Sounds like you got someone who either didn't know what he was doing or was purposely trying to push you into the 0.3% FA managed program. If either is true, not a good selling point for VG.

The robo advisor (or "digital advisor") costs 0.15% but can be tried for 90 days free. https://investor.vanguard.com/advice/digital-advisor/ I have not used this service.

 

[OldShooter]

@RetiredHappy, you're taking the right course here and you're getting some good advice. Some comments:

In any business situation that is relational rather than transactional, the specific person you're dealing with is much more important than the company name on the sign outside. VG is, by plan, a low cost, low touch, business but it sounds like you got a dud. I don't recommend going back, but would suggest that you not confuse one dud with the whole business.

@Whisper66 recommends against VTIAX for tax reaons, which is wise. I recommend against almost all blended funds for another reason: Performance is opaque. All you can see is the blended performance of the whole, with the details of equity performance vs fixed income performance well obscured. Better to have one equity fund that you can compare to benchmarks and one fixed income fund that you can also examine in detail.

The link that @mrfeh provided is good. I'll recommend a little more reading:

"If You Can" by William Bernstein https://www.etf.com/docs/IfYouCan.pdf (free 16 page download)

"The Coffee House Investor" by Bill Schultheis https://www.coffeehouseinvestor.com/ (This is Bills first book; read it before reading his second one.)

"The Bogleheads Guide to Investing" by Taylor Larimore et al https://www.amazon.com/Bogleheads-Guide-Investing-Taylor-Larimore/dp/0470067365
​

Finally, no one can be sure what is the right AA for you, even you. The best you can do is to read and study various arguments for AA. Ignore the idiot ones relating to your age, but consider your total assets, your goal for those assets, and your risk tolerance. On the latter subject, one can only determine the hardness of steel by testing it. Same-o, you will not know your real risk tolerance until it is tested by a sudden market downturn. DW and I have been riding out market downturns since 1986 and after 35 years of it they don't bother us any more at all. When you hit your first big bump, bite your lip until it bleeds but DO NOT sell equities. When the market recovers, which it always does, you will congratulate yourself and be better prepared to ride out the next one.

 

[Whisper66]

One of the things that confused me when I first looked at this was that the amount to get to one of their upper levels had to be invested in Vanguard funds, not just the total you have at their brokerage.

Good point. That is definably confusing. The screenshot below is the criteria they use....

Ref: https://investor.vanguard.com/investing/benefits/flagship