Did I make a mistake with a managed Vanguard portfolio?

[Nords]

Thanks for the tags, everyone!

And yes, my “new” blog is at MilitaryFinancialIndependence. It’s the 250+ posts about my lifestyle and our family’s personal finances that were left after combining the military personal finance posts of The-Military-Guide and TheMilitaryWallet. The-Military-Guide is essentially invisible because the posts with that domain name now have 301 redirects to TheMilitaryWallet.

MilitaryFinancialIndependence is my original blog (from 2010) on WordPress’ free hosting (themilitaryguide.WordPress .com). I’ve kept it ever since I first put The-Military-Guide on its own host in 2012, and now I’ve spent the big bucks for WordPress’s domain name and the advertising-free user experience. I still have to clean up the sidebar widgets and the images, and then I’ll tweak some of the content.

I’m new to the FI and investing overall. I’m 34, active duty military w/ 16 years of service. I’m looking for an honest answer from the experts, did I make a mistake with the managed option from Vanguard? Should i opt out, and what are the consequences if I do?

You’re heading in the right direction, @Hskrfan, and now you can keep going.

Paying 0.30% to Vanguard is better than doing nothing or being paralyzed by analysis. You’re off to a good start.

The next step, should feel ready for it, is to ditch the Vanguard advisor and keep adding to your accounts. As others have written, you could maximize your TSP and IRA contributions, then put even more into your taxable account.

If you expect to get a military pension (either active-duty or Reserves) then mathematically you do not need bond funds in your asset allocation. You’ll already have the world’s most reliable inflation-adjusted annuity from the equivalent of a portfolio of TIPS or I bonds.

Emotionally, if a 60/40 stock/bond helps you sleep more comfortably at night, then do that. If you want higher returns (with higher volatility) and can get used to the stock market’s roller-coaster swings of 20%-30% paper losses (and paper gains) then you could to to 80/20 or even 90/10.

Whichever asset allocation you choose, your funds are good choices. They have low expense ratios (passively-managed index funds) and as ETFs (unlike mutual funds) they won’t surprise you with any large capital gains distributions. It used to cost more to buy ETF shares with every paycheck (as opposed to mutual funds) but these days many brokerages will execute buy orders for minimal fees.

At this point you can get rid of the advisor.

Your next step would be maximizing your TSP contributions (in addition to maximizing your IRA contributions)— you’ll only be able to add to the military TSP account while you’re getting a military paycheck.

At some point you should decide on your asset allocation, but there’s no urgency.

Personally, my spouse just started her Reserve pension (in addition to my active-duty pension). We’ve become accustomed to stock-market volatility (after 40 years of experience) so because of those factors our asset allocation is now >95% equities— and it’s all in VTI. We only keep enough cash in our accounts to pay the bills.

 

[mathjak107]

This calculator can show the impact of fees over time.
https://www.buyupside.com/calculators/feesdec07.htm

For the next year .3 additional is acceptable, but I personally wouldn't go much further in time.

Bogle mentioned Social security as a possible bond substitute (maybe not his exact words), and others may say pension too. But I know in other threads this has been discussed at length. SS and pension are cash streams, and reduce how much income you need your investments to generate at some future time. YMMV.

It can be a bad idea mixing income sources with bonds in a portfolio.

You cant rebalance a pension or social security or change durations.

Income sources should have nothing to do with a portfolio allocation .

Income sources get subtracted off of what a portfolio needs to provide but that has nothing to do with a portfolio allocation that provides the shortfall in income

 

[OldShooter]

... Income sources should have nothing to do with a portfolio allocation ...

I would disagree with this as, I think, would most of the people here.

As @nords and @Reture52 point out, the OP's expected, guaranteed and COLA-ed, pension allows (practically argues for) a reduced bond allocation. The exception might be if the pension alone were woefully inadequate as an SORR defense, which is almost certainly not the case with the OP.

If you want to look at it a little more analytically: Combine a zero variance asset with other more volatile assets and the variance of the total is reduced. The way most of us have to do it is to combine low variance bonds with higher variance equities to get a stew that satisfies us. The OP's pension is an asset with essentially zero variance, so he needs fewer bond assets to achieve the same stew.

 

[SnowballCamper]

For the OP I'll just add that you should think about, and look into how to supplement your pension from age 44 to 59.5. There are hoops you have to work through to get the IRA money before age 59.5. It just takes a little planning.

 

[MrsHaloFIRE]

I think youre too heavy on bonds. We view the govt backed military pension as a bond. So we only do equities otherwise. Mostly vtsax/vti.

 

[DrRoy]

I always recommend “Your Money and Your Brain” by Jason Zweig. If you like what Vanguard did, you can maintain the asset allocation yourself going forward with no fees, with an annual reallocation.

 

[Markola]

^^^^^^ Yes, you can if you are the rare investor who can leave their portfolio allocation alone through the ups, downs and all arounds over the long haul without panicking, fiddling with it or “optimizing” it. If you aren’t rare, or don’t know yet because you haven’t been tested, .30 is cheap protection.

 

[Texas Proud]

The fee is very low and I would wait a couple years and learn everything I could in the meantime. The funds are fine and appropriate for a low cost portfolio. I am doing the same funds and I read extensively before choosing them. Once you feel confident enough to take over, just leave it in the same funds and re-balance once a year. Boring is good!!

Best to you,

VW

I will kinda go with this post.... learn a bit more and find out what they do any why... then decide if you want to do it yourself... some people do not and that is fine...


Another option is Fidelity.... you can use an advisor at Fido that is free but you have to make all the trade options etc... I do not know how much time they will devote to you for free but my sister went in recently and she said it was a very good visit and he gave some good options...


As you can see, you can get by with only a few different funds... I have one of my sisters in 5 or 6 and we do not do anything except RMDs and sometimes a withdrawal for an expensive vacation or a car purchase... so NO trading otherwise for 6 years...

 

[stygz]

Experts? There are some smart folks on here but few if any experts. Our advice will be worth exactly what you are paying us. Zero. LOL. Aerides asked are you paying extra to Vanguard for the special service? My guess is yes. You don't need it. Many on here use Vanguard. I do. Many retired military folks on here along with a few active duty. We have a resident military expert ("Nords"). He checks in from time to time. My DW and I are both retired from active duty. You are on the right track. My advice: TSP up until match. Max out your ROTH IRA. Use your tuition assistance to get some college while you are in. Do everything you can to make the next rank. A few years before your 20, start living on what your retirement check will be.
Document ALL of your ailments for future VA dis rating. Save your GI Bill for dependents. Both of my kids went to college for free using my (and DW's) GI bill. Good luck and welcome.

While I am not retired military, I am a Vet and now a Fed. My wife is AD. This advice is exactly on point.

 

[HI Bill]

Welcome! I say ditch the advisor, and for the brokerage portfolio, given your age, I'd recommend switching to 90/10 or 100/0 stocks/bonds. Especially with your emergency fund in place and future pension. Those pesky 0.3% feels will add up over the decades.

 

[viking111]

I’m new to the FI and investing overall. I’m 34, active duty military w/ 16 years of service. I’m looking for an honest answer from the experts, did I make a mistake with the managed option from Vanguard? Should i opt out, and what are the consequences if I do?

I opened the account with Vanguard in May 2021. The advisor I was assigned picked the funds for me. At the time I invested 50k in a brokerage account and also moved my Roth IRA over from Victory Capital.

My brokerage account and Roth IRA are both in the exact same 4 ETFs: BND, BNDX, VTI, VXUS.

My Vanguard Roth is 90/10 stock/bonds split. My Vanguard brokerage is 60/40 stocks/bonds.

My goal is to FIRE in the next 10 years at age 44. I currently have a appx $240k net worth, no credit card debt, no students loans, and no mortgage. I’m maxing my and DWs Roth IRAs each year and contributing $12000 to my Roth TSP each year.

Currently breakdown of assets:
Emergency Fund (savings): $25,000
Vanguard Brokerage: $53,500
Vanguard Roth IRA: $93,500
Spouse Roth IRA: $13,500
Roth TSP: $47,000
529: $14,000

First, No, you didn't make a mistake with Vanguard active management.
My guess is you switched from the other company because they were charging you high rates.
If you don't want to use the managed service but still don't want to rebalance, tax loss harvest etc yourself you can choose to use the life strategy all in one funds. You can use them in both roth and taxable accounts. It will save you some money in managed fees and take away the work. They are slightly less tax efficient in taxable but if you are paying someone to manage your account it may not matter.