High Net Worth - Is Your Asset Allocation Acceptable?

[Surewhitey]

One thing I should make clear is we were never deprived and never felt we couldn't afford necessities in life. We drove old cars, did not eat out expensively much and lived a typical middle class life even though we had an upper middle class income level that was being maxed out in retirement account saving, ESPP withholding and we never leveraged ourself (i.e. borrow serious amounts of money). We paid credit cards in full every month and if we couldn't afford to pay cash for something we usually waited until we saved enough to pay for it.

I would venture to say you are mostly "normal" around here. I enjoy the discussions with the diversity of subjects that are typically related to the game. Learning new details and applying some of them makes life more interesting (& sometimes irritating). Unfortunately tax law is so complicated sometimes...

 

[Healthy Lifestyle]

I don't consider us HNW, and I'm the opposite. Our passive income is very high on treasuries & MMFs so I am tempted to up our equity allocation to reduce taxes, but we've won the game so I don't want more volatility. Fortunately tax rates are lower now than when/if TCJA is allowed to lapse. All our equity allocation is in mutual funds.

I am in a similar position but need to come up with a way to reduce taxes.? What are our choices?

 

[RetiredHappy]

If you're willing, I'd like to know the dollar figure.

Our ML Wealth Management FA who is also head of the branch, used to charge us 0.8%. When we decided to part ways after 10 years to manage on our own, he was willing to go down to 0.6%. It's negotiable. The "normal" going rate is 1 to 2%.

 

[mrfeh]

Our ML Wealth Management FA who is also head of the branch, used to charge us 0.8%. When we decided to part ways after 10 years to manage on our own, he was willing to go down to 0.6%. It's negotiable. The "normal" going rate is 1 to 2%.

I guess you're not willing to answer the question, which is fine, of course, but makes me think it's a very large annual amount.

It puzzles me why people are willing to pay so much, every year, for something that one can do for themselves.

I'm sure he's very happy to get the "reduced" amount.

 

[RetiredHappy]

I guess you're not willing to answer the question, which is fine, of course, but makes me think it's a very large annual amount.

It puzzles me why people are willing to pay so much, every year, for something that one can do for themselves.

I'm sure he's very happy to get the "reduced" amount.

We didn't stay with him in the end. When we first started we were only at a million and it was still only 0.8% then, but we were in a different state with another ML wealth management branch. We retired and transferred over to him. One of the first thing he said to us was that none of his clients were charged 0.8% as it was very low. Yeah, we had forked over hundreds of thousands of dollars over the 10 years.

 

[TheWizard]

We didn't stay with him in the end. When we first started we were only at a million and it was still only 0.8% then, but we were in a different state with another ML wealth management branch. We retired and transferred over to him. One of the first thing he said to us was that none of his clients were charged 0.8% as it was very low. Yeah, we had forked over hundreds of thousands of dollars over the 10 years.

I'm sorry you got took...

 

[Lorenzo]

Our ML Wealth Management FA who is also head of the branch, used to charge us 0.8%. When we decided to part ways after 10 years to manage on our own, he was willing to go down to 0.6%. It's negotiable. The "normal" going rate is 1 to 2%.

I parted ways with my "wealth management" FA recently. He is a partner in a small firm and was not willing to negotiate.

 

[Beachcomber]

If you're willing, I'd like to know the dollar figure.

I have only had him since September. I interviewed 4 other local brokers, most of which followed the same investment strategies. and charged over .8. Also looked at the robo investment option. I have read about Bogleheads, watched many advisors on youtube such as Joe Kuhn, Rob Berger, and others. I feel that the charges for the $5M I have invested is reasonable. And, if anything happens to me, my wife will have some help. That provides me with some peace of mind. I am also too conservative and will miss many opportunities. Maybe you prefer to save the $25k per year, but one mistake can cost much more than that.

 

[mrfeh]

I have only had him since September. I interviewed 4 other local brokers, most of which followed the same investment strategies. and charged over .8. Also looked at the robo investment option. I have read about Bogleheads, watched many advisors on youtube such as Joe Kuhn, Rob Berger, and others. I feel that the charges for the $5M I have invested is reasonable. And, if anything happens to me, my wife will have some help. That provides me with some peace of mind. I am also too conservative and will miss many opportunities. Maybe you prefer to save the $25k per year, but one mistake can cost much more than that.

You can get financial help for much, much, much less than $25K per year.

I strongly suggest you reconsider.

 

[RetiredHappy]

I'm sorry you got took...

Not really. We were busy working and didn't have time to worry about our investments. Several years after we retired and came across this forum. I told my husband that we should manage our investments on our own and he agreed. That was at end of 2021. We have been doing it ourselves for 2.5 years now. Unfortunately each of our account still has more than 20 legacy etfs. To simplify and sell from our taxable brokerage accounts means incurring capital gains.

 

[marko]

Someone touched on the real issue with HNW (especially in the 1 to 5 mil definition range.) Namely, that the 4% rule suggests that the numbers only generate $40K to $200K per year. That's somewhere in the near-poverty to solidly upper-middle class range.

This is a good point. Depending on where you live, $2MM or $3MM isn't living large unless you have an additional income point beyond SS. Nice to have of course versus the alternative, but still.

Around here, $40k a year easily qualifies you for affordable housing!

 

[Dtail]

You can get financial help for much, much, much less than $25K per year.

I strongly suggest you reconsider.

With many folks outside this forum and some inside it, it is just hard to fathom that one can DYI. If I studied every aspect of removing one's gallstone, no one would still let me do it. So many folks figure how can I do better than Fidelity if I don't have that specific background?
This concept was possibly truer many years ago, but it just isn't so currently with of course one can find the exception at one point in time.

 

[mrfeh]

With many folks outside this forum and some inside it, it is just hard to fathom that one can DYI. If I studied every aspect of removing one's gallstone, no one would still let me do it. So many folks figure how can I do better than Fidelity if I don't have that specific background?
This concept was possibly truer many years ago, but it just isn't so currently with of course one can find the exception at one point in time.

The solution doesn't even need to be DIY. A fee-only financial advisor is an option.

Spending tens of thousands of dollars per year is something I just can't fathom.

 

[jazz4cash]

Someone touched on the real issue with HNW (especially in the 1 to 5 mil definition range.) Namely, that the 4% rule suggests that the numbers only generate $40K to $200K per year. That's somewhere in the near-poverty to solidly upper-middle class range.

..

Almost everyone has more than just the nestegg. Many have 1 or 2 SS benefits that could be 25-50k or more. I too was surprised that it only takes 1mil to be HNWI. What I find more puzzling is the range of 1 to 5mil. One of these is not like the other.

 

[TheWizard]

With many folks outside this forum and some inside it, it is just hard to fathom that one can DYI. If I studied every aspect of removing one's gallstone, no one would still let me do it. So many folks figure how can I do better than Fidelity if I don't have that specific background?
This concept was possibly truer many years ago, but it just isn't so currently with of course one can find the exception at one point in time.

With a modest amount of online learning, starting with forums like this one and BH, one can do just as well, or better, than "Fidelity" or your standard FA.

This assumes you have approximately the right AA for your risk tolerance and don't do ill advised things like market timing.

Many FAs try to make investing seem like a complex task that only the skilled can manage. Hence the 20 ETFs that RH and husband got into...

 

[ncbill]

No need to pay an AUM for financial planning.

Plenty of fee-based advisors at a fraction of the cost of AUM...e.g.1% of $1 million = $10,000 a year, forever.

Better to pick a RIA from this paid ($200 for a year) database (no affiliation):

"The advisor does NOT offer to manage your money for a recurring fee either as a percentage of your asset value or on a monthly or annual retainer. Charging a recurring fee for financial planning is OK.

The advisor does NOT, for revenue sharing or markup, refer you to someone else who will manage your money for a recurring fee. Recommending unaffiliated financial institutions is OK."

Advice-only financial firms

 

[ut2sua]

I too was surprised that it only takes 1mil to be HNWI. What I find more puzzling is the range of 1 to 5mil. One of these is not like the other.

I think the $1M figure was "set" awhile back for HNW. There was a time when 1M sounded much more to me than today 10M. Outside of FIRE and Boglehead's circle, 1M still sounds very impressive to most folks. The translation (correctly so) to $40k of yearly spending makes the 1M much less significant. I also think the 1M to 5M is an attempt to make up for inflation and other effects.

 

[MarieIG]

I don't consider myself a high net worth individual. Those high worth individuals that I know/ knew held a lot of their wealth both directly and indirectly via trusts and and LLCs in their (various) businesses and real estate (mostly commercial).

 

[audreyh1]

The funny thing for me was that I was never impressed with a couple of stockbroker types DF used when I was younger. They just didn’t seem that savvy. Encouraged me to DYI as I got older. That plus knowing that someone else would never be as careful with our money as I was. And if you take the couch potato type simplest investing approach it’s quite easy and hard for “professionals” to beat. I guess you just have to figure out that that last sentence is true.

As others have pointed out on this forum once you learn enough to screen out the bad financial advisors you already know enough to DYI. Otherwise you are vulnerable to bad or not so great actors.

 

[RetiredHappy]

I don't consider myself a high net worth individual. Those high worth individuals that I know/ knew held a lot of their wealth both directly and indirectly via trusts and and LLCs in their (various) businesses and real estate (mostly commercial).

Those would be called ultra high net worth, $30M and over.

 

[RetMD21]

With a modest amount of online learning, starting with forums like this one and BH, one can do just as well, or better, than "Fidelity" or your standard FA.

This assumes you have approximately the right AA for your risk tolerance and don't do ill advised things like market timing.

Many FAs try to make investing seem like a complex task that only the skilled can manage. Hence the 20 ETFs that RH and husband got into...

Rick Ferri CFA says that complexity is job security for financial advisors

 

[Letj]

This is a good point. Depending on where you live, $2MM or $3MM isn't living large unless you have an additional income point beyond SS. Nice to have of course versus the alternative, but still.

Around here, $40k a year easily qualifies you for affordable housing!

Unless you plan to leave a legacy, you can always withdraw more and still end up with more than you can spend as you approach the end of your life. Remember Imoldernu?

 

[TheWizard]

Rick Ferri CFA says that complexity is job security for financial advisors

Exactly right...

 

[TheWizard]

Those would be called ultra high net worth, $30M and over.

Actually, I think those $1M, $5M, $10M, $30M boundaries refer to Investible Assets, not true Net Worth.
So my $700k principal residence doesn't "count".

And while it's true that $1M in Investible Assets (per person, not per couple) is a rather modest accumulation nowadays, there are LOTS of folks age 65 and older who don't have that much.
I'll make a wild guess that less than 10% of individuals 65+ have $1M or more invested...

 

[Onda]

Not really. We were busy working and didn't have time to worry about our investments. Several years after we retired and came across this forum. I told my husband that we should manage our investments on our own and he agreed. That was at end of 2021. We have been doing it ourselves for 2.5 years now. Unfortunately each of our account still has more than 20 legacy etfs. To simplify and sell from our taxable brokerage accounts means incurring capital gains.

Hmm so your ultra smart and valuable FA charging "discounted" rate of 0.8% told you to buy 10s and 10s of different ETFs?