Active vs Passive investing can probably be learned about better than I can explain with a simple Google Search, but In a nutshell this is how I understand it:
ACTIVE INVESTOR tries to pick which stocks or funds or sectors will be the best investment on an ongoing basis.
PASSIVE INVESTOR accepts that the market will go up and down but over the long run if you just track the overall market you will go up. This means buying funds or ETF that are just baskets full of lots of stocks that will closely track the indexes like the S&P 500 or the Dow Jones or whatever index you are trying to track.
The key to both is diversity and getting that diversity right. ACTIVE REQUIRES MORE RESEARCH and therefore is more costly in expenses. Fidelity and Vanguard will help you set up a mix for free.
There are some very good inexpensive advisors who will charge you a lot less to run a Passive portfolio for you if you feel picking out the right mix of ETF and Index funds is too much for you.
Thank you I'll Google it as you advised, but that was terrific explanation, Very helpful.
There's a bit to educate yourself about investing principles. So a good book is first on the list. Next, check out the online access to your accounts to gain more understanding of what is there. Select one space (e.g. your IRA) and complete the form to initiate a move of that account to Vanguard or IRA. They can invest your funds in a similar way, if you desire.
What will really help you out is to open a spreadsheet and get serious about the project. Enter every account and fund. Fill in additional columns with type of investment, expenses, and other data. Then try to define the future state. For instance, you may have 100 funds and stocks scattered over several investment spaces. Take your time and develop a plan to move from the past to future state.
The tax implications sound like they will be considerable, so be careful with the non-tax-advantaged accounts.
You mentioned a “good book” and suggestions. I'm not sure if you are familiar with the book
Work Less, Live More: The New Way to Retire Early by Bob Clyatt. In his book about achieving early or semi-retirement, Bob speaks to a form of investing he calls the Rational Investing approach. His portfolio is comprised mostly of mutual funds and I believe if memory serves many of which are Vangard funds. This seems to fall directly in line with your explanation of passive investing as it requires balancing about every one or two years and that's about it.
I'm completely intrigued by the concept, but I've felt to ignorant to pull the trigger. Thanks to everyone's help I'm beginning to feel a lot less overwhelmed.
About a month ago, using a spreadsheet from his companion workbook my wife and I went through the numerous stocks, ETFs and Bond funds to determine their proper allocations, Large, Mid, Small Cap, Growth, Domestic, foreign, etc. That was quite a chore, but we have that done at least.
Thanks for alert on the tax consequences that could be incurred by making substantial moves. Very good advice to keep in mind. Thinking about it, I'm pretty sure I could end the WF management fees asap by just canceling their management service. Naturally at that point I'd be responsible for all trade charges, etc. and I'm not what else, but I plan to look into this.
The churning is built-in.
My in-laws have partial management with a company of "integrity." However, the number of funds in three accounts is excessive. There are 16 funds, the same 16 in each account. To meet their conservative investment goals, the adviser (directed by a computer program) sells and buys in each account. The transactions are mostly un-necessary. In this case the transactions cost nothing, as they are all in-house funds, and covered by the yearly fee on the total in all accounts.
Yes we've seen the same duplication in all of our accounts.
In prep for my ER, we will be transferring all of DW's 403B into a rollover iRA, thereby saving the 403B administrator fees of 1%. The 403B rep tried everything to convince me otherwise - first he talked about what a good job he does, and when that didn't work he actually tried to lay a guilt trip on me.
Along the same lines, I don't see where OP's advisor is worth $11,000 a year.
My advice, before you change anything, is to determine how to calculate the value of your portfolio from your statement. A simple question to ask your advisor is "If I liquidated everything on 11/30/2012 how much money would there be? And how do I find that number on my 11/30 statement?"
Once you can calculate the value of your holdings you can then move on to your returns.
Because your account is actively managed and you may be taking withdrawals and making contributions throughout the year, the return calculation is a bit more complicated. A very good explanation on how to calculate a return in excel can be found at
How to use XIRR in Excel to calculate annualized returns | Experiments in Finance
Personally, I am less concerned with management fees and advisor fees than many other people. Here is my reasoning, you have been with this advisor for many years and presumably you could calculate your return for each of these years. For example, if you calculated your average return for the last 10 years with him and it comes out to be 10% annually (after all fees) and looking at a similar portfolio of Vanguard index funds over the same 10 years that basket has a return of 5%, I would say your advisor is doing a hell of a job. If that basket of index funds returned 15% you should be firing your advisor.
Is the value different than the one they post or appears on the opening and ending balances of my statements?
I've also found an “Activity” tab on my WF account page. On this form I can see all of my account activity for the past 12 months, including management fees. Now I feel dumb for not having looked harder before hand. Now I just need to figure the estimated earnings.
As for doing it for the last 10 years, I'll probably need to have WF provide me that information, it's not available online.
One question would be whether the 1.25% fee is included in earned income or value change or is entirely separate. If it is not included in earned income or value change then your return would be 1.25% lower than the amount calculated above. The best way to make sure you have everything is to have a rollforward analysis for each account that shows the progression of the beginning value + contributions - withdrawals - fees + interest + dividends reinvested +/- unrealized gains, etc to the ending value.
If you have mutual funds you can look up the expense ratio on the internet if you have the ticker for the fund. What is a reasonable expense ratio depends on the nature of the fund - index funds would have lower expense ratios (0.25% or less) and actively managed funds would be higher (1.0% or more).
If it were me, I would be curious why the SEP IRA accounts are still all in cash and haven't been invested, though I'm sure you will probably get some song and dance.
Yes, your "Income Earned" is your amount of dividends and income you portfolio has created, and "Change in value" is your unrealized gain in your portfolio. Combined will tell you how much your actual gain or loss was.
But you have to take into consideration your withdrawals and contributions to determine your true return.
Yes, the fees are figured on a separate line and no they are not subtracted from the earnings. I had to do that. I guess I also have to then take the period opening amount and subtract any cash from it before I divide it into the total estimated earnings, correct? Also, what would be the math for determining the percentage of the year thus far? (No. of months / 12) ?
Pete
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