The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: tacocat on April 09, 2015, 09:36:18 PM
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Assets: $137,000 in various American Funds through Financial Advisor at Morgan Stanley - Mostly AWSHX and AIVSX. Smaller amounts of SMCWX, ITSLX, ILLLX, SMCWX, ANWPX, CWGIX
Hello Mustachians –
I was fortunate to have some money put away for me many years ago by my grandfather with a financial advisor. Since that time, the financial advisor has managed this money for me. He also manages some of my family's money. He has grown the account my grandpa opened for me many years ago through the American Funds listed above.
As I've started to learn a bit about the stock market, I was able to see that this account with our advisor is at Morgan Stanley. Almost all of the funds in my account (all of them, actually) are American Fund mutual funds.
After doing some digging, I've read some less than favorable things about American Funds, including their outpouring of assets over the last few years. I've also read that they tend to offer some nice kickbacks for the advisors who recommend them to their clients. On top of this, I've read that the American Funds have a large upfront fee which many index funds don't require.
So this leaves me in a strange place. I'm fortunate enough to have the assistance of this advisor and whether I like it or not – I've already paid that upfront fee on the American Funds. Now that I've already had to pay it, where does it leave me in standing with my advisor? On MorningStar, the funds we're in are mostly 3 and 4 star funds, though there is one fund with only 2 stars (ITSLX). My advisor told me that this one we'll have to keep an eye on, though it's cheap and still shows a lot of potential. Further, he pushed me to NOT make any moves as that would only ring up costs for me. To his credit, he's barely done anything with the fund in the last few years in order to save me costs – he seems confident in his choices and doesn't want to ring up fees for me by constantly churning the account.
With all that said, I'm not sure what to think of American Funds now. A lot of what I read about them says that their upfont fees are indeed a bit steep, but since I've already been forced into paying them, maybe they're alright. Even MorningStar seems to rate most of them pretty favorably.
On top of that, I can't but help feeling weary of this advisor who has watched out for my family for many years now. He's constantly pushing us to sit tight and not do anything dumb and also not to panic in the downturns but to keep investing. He seems to have a very level and informed head on his shoulders.
What do you guys think? Is this enough info to determine his motives? Is he acting in my best interest, or too hard to tell from what I know? Like I said, I'm still pretty new to all this and am definitely still very green. I appreciate any advice you guys can share based on my limited knowledge of the situation.
Thanks so much in advance for any help!
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Here's one perspective on this: http://montesolcapital.com/patience/ (http://montesolcapital.com/patience/)
It's unreasonable to expect lots of action from an investment manager. Too many people think you gotta keep making moves to make money, and fail to approach investing with a long-term perspective. More activity =/ more returns.
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Thanks for the great link, JoJoK.
I totally agree with the importance of patience and only making wise investments, which is why I respect my advisor telling me to be patient with ITSLX. This seems wise.
My concern grows from the fact that my portfolio is made up of entirely American Funds. Is this reason for concern, or am I wrong to think this is bad? Because of the things I've dug up online about American Funds mutual funds, (Heavy front fees, kickbacks to advisors, large outpouring of assets recently) I now question my advisor who otherwise seems very well informed and passionate about helping me.
Or should I relax? For all I know, this guy is a genius and we're gonna be in the money because the American Funds are about to have a great future. It's just the dirt I found online that's made me question them and my advisor.
Thanks again for the help and great link.
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You're being robbed. For comparison, most Vanguard funds are 0.10%-0.30%, so you're paying 3 to 10 times more than you should be.
Take the time to learn about a better way to invest: http://www.bogleheads.org/wiki/Bogleheads%C2%AE_investment_philosophy (http://www.bogleheads.org/wiki/Bogleheads%C2%AE_investment_philosophy)
You're going to be fine, you found the right website!
It could be argued that he is providing some value in coaching you to save and not sell, but is that worth the cost? You could pay someone to advise you to put down the fork before you become fat, but is that necessary?
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>>On MorningStar, the funds we're in are mostly 3 and 4 star funds, though there is one fund with only 2 stars (ITSLX).
Morningstar fund ratings have little to no correlation with performance. Fund expense ratios are often a better predictor of performance.
American Funds SMALLCAP World A SMCWX Expense 1.09%
Transamerica Growth Opportunities C ITSLX Expense 2.14%
Transamerica Capital Growth C ILLLX Expense 1.95%
American Funds SMALLCAP World A SMCWX Expense 1.07%
...
Just based on expenses alone I would want to move to index funds with expense rations of 0.25% or less.
For example, Vanguard Total Market Index (VTI) has a ratio of just 0.05%!
You just need to decide your risk tolerance and you can build a simple portfolio of just 3 funds. Total Market + Total Bond Market + International.
More information on a simple 3 fund portfolio or more complex versions if you like: https://www.bogleheads.org/wiki/How_to_build_a_lazy_portfolio (https://www.bogleheads.org/wiki/How_to_build_a_lazy_portfolio)
Bogleheads.org is the better place to ask. Be sure to use the https://www.bogleheads.org/forum/viewtopic.php?f=1&t=6212 Link to give the right information for the best help.
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Quite simple..
1) Take each of your funds and compare the yearly growth with the stock market index.. if it is a large cap fund compare it with the DOW.. if you have broad stock market fund compare with the S&P500.... (if they are amix of stock and bond funds you'll have to take an aggregate growth)
2) The from that yearly growth subject the ongoing fee.
Here is what I think you will find (although I know nothing about American funds)..
1) The rate of growth will be less in each case. 2) the fees will be high (by high I mean over 0.25%)
If what I suspect to be true turns out to be correct, then you have to ask.. 1) why dont I simply invest in the index I am comparing to? 2) why don't I pay a fee of about 0.08% instead of what I am paying.
When you have come to that conclusion .. move all the funds to Vanguard or Fidelity ETF type funds with the fees listed above.
Watch out for taxes.. If these are after tax funds you'll get a capital gains hit when you sell them.. If your AGI is less than about $75k then you won't pay any capital gains tax.. be careful!
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ITSLX. My advisor told me that this one we'll have to keep an eye on, though it's cheap and still shows a lot of potential. Further, he pushed me to NOT make any moves as that would only ring up costs for me. To his credit, he's barely done anything with the fund in the last few years in order to save me costs – he seems confident in his choices and doesn't want to ring up fees for me by constantly churning the account.
Maybe save you a few dollars in transaction costs - all the while ITSLX is charging you a 2.14% fee.
Type ITSLX into a search engine, then click on the Morningstar link (it should be this one: http://quotes.morningstar.com/fund/ITSLX/f?t=ITSLX). That won't look too bad.
Then, to the right of "Growth of 10K ITSLX" click "More...". When the screen updates, type VMGRX into the "Compare to Symbol" box and click on the fund description.
The awkwardness should be on the advisor trying to explain why $10K going to $23,144 and putting 2.14% into someone else's pocket is better than $10K going to $28,236 with only 0.46% going to Vanguard. Even better (worse?) would be explaining the 0.09% fee for VMGMX.
It's not personal, it's just your money. Move it to Vanguard and write the Morgan Stanley guy a check every so often...just because he's a nice guy. ;)
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I agree with everyone, those fees are crazy. Best to stick with an index fund or ETF. There are many public conglomerates and asset management firms too, like Berkshire, Fairfax, Markel, Oaktree, Gabelli, etc.
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Thank you, everyone, for the great responses.
@exflyboy - Thanks so much for the reply. With each fund, how do I know what the fair fund to compare it is to? Sorry for my stupidity! Still very new to this. I don't want to be comparing to funds that aren't a fair competitor but I've no way of knowing what a good comparison for each is.
In terms of taxes, I make about 102k per year gross income, but a lot of that is from bonuses my company gives. Without the bonuses I'm at about 84k gross for the year. What would be a good way for me to know if it's going to be worth my while to move these funds or if the taxes will be too much? Most of the funds are in normal funds, ("normal" being the only term I know for NON IRA and 401k account...just plain old mutual funds. What do u call that? Ugh, sorry again for my stupidity. Hopefully I'm making some sort of sense. Apologies. )
@MDM - Thank you so much for your helpful info. Is VMGRX a fair fund to compare with ITSLX? How did you come to choose that one to compare? I don't ever know what a fair comparison to make is with the funds my advisor currently has me in. Again, apologies for my rookie questions on here.
And finally, if I do summon muster the courage to move this money, would a robo advisor place like Betterment really be a suitable replacement for my advisor? It seems scary to me to think that there won't be a guy holding my hand and doing whatever sort of rebalancing or stock navigating he is theoretically doing. Betterment is my favorite alternate option with my limited knowledge, but would love to hear any suggestions or advice you can all offer to me.
Again, thank you all for the great help and advice.
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I nearly fell out of my chair when I saw the 2.14% yearly fee!! Of course he doesn't want you moving from that fund!
If you had all your money there, and it got the same 11.5% yearly returns as the last 30 years...Let's see what this looks like graphed vs VTSAX (the total stock market index), and it's 0.05% fee.
(http://i.imgur.com/Fee8ir4.png)
Source: http://www.begintoinvest.com/expense-ratio-calculator/
Here's another way to look at it. If you hold for 25 years, and get a 7% yearly return, your "friend" the financial advisor, will have pocketed half of your returns. He's taking 0% of the risk, and taking 50% of the reward. The reward earned from your money.
(http://i.imgur.com/hvgh7FA.png)
Source: https://personal.vanguard.com/us/insights/investingtruths/investing-truth-about-cost
Honest questions for you to ponder:
1. Now that you know the numbers of how much money he's taking from you, do you still consider him your friend?
2. Now that you understand the financial incentive he has to keeping you invested with him, do you see his attempts to be your friend and "take care of you" in a new light?
The truth of the matter is, he's a salesman. He's not "taking care of you". He's not doing you any favors. He's taking advantage of your ignorance. Run.
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With each fund, how do I know what the fair fund to compare it is to?
On the Morningstar page, look for the "Investment Style". Then google that investment style +Vanguard.
E.g.,
Is VMGRX a fair fund to compare with ITSLX? How did you come to choose that one to compare?
Yes, because both are "Mid Cap Growth" funds - that's how I picked VMGRX.
What would be a good way for me to know if it's going to be worth my while to move these funds or if the taxes will be too much?
You have to know your basis - does that make sense, and do you know it?
And finally, if I do summon muster the courage to move this money, would a robo advisor place like Betterment really be a suitable replacement for my advisor? It seems scary to me to think that there won't be a guy holding my hand and doing whatever sort of rebalancing or stock navigating he is theoretically doing. Betterment is my favorite alternate option with my limited knowledge, but would love to hear any suggestions or advice you can all offer to me.
Betterment would be better than your current situation. My default "set it and forget it" recommendation is to avoid Betterment (and any other robo-advisor) - instead, put it all into a Vanguard Target Date fund, e.g. https://personal.vanguard.com/us/funds/snapshot?FundId=0699&FundIntExt=INT.
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Thank you, everyone, for the great responses.
@exflyboy - Thanks so much for the reply. With each fund, how do I know what the fair fund to compare it is to? Sorry for my stupidity! Still very new to this. I don't want to be comparing to funds that aren't a fair competitor but I've no way of knowing what a good comparison for each is.
In terms of taxes, I make about 102k per year gross income, but a lot of that is from bonuses my company gives. Without the bonuses I'm at about 84k gross for the year. What would be a good way for me to know if it's going to be worth my while to move these funds or if the taxes will be too much? Most of the funds are in normal funds, ("normal" being the only term I know for NON IRA and 401k account...just plain old mutual funds. What do u call that? Ugh, sorry again for my stupidity. Hopefully I'm making some sort of sense. Apologies. )
@MDM - Thank you so much for your helpful info. Is VMGRX a fair fund to compare with ITSLX? How did you come to choose that one to compare? I don't ever know what a fair comparison to make is with the funds my advisor currently has me in. Again, apologies for my rookie questions on here.
And finally, if I do summon muster the courage to move this money, would a robo advisor place like Betterment really be a suitable replacement for my advisor? It seems scary to me to think that there won't be a guy holding my hand and doing whatever sort of rebalancing or stock navigating he is theoretically doing. Betterment is my favorite alternate option with my limited knowledge, but would love to hear any suggestions or advice you can all offer to me.
Again, thank you all for the great help and advice.
The tax question can't be answered without knowing the cost basis, or how much the funds have grown since buying them. Despite that, I'm pretty sure those fees will make keeping those funds a losing decision, no matter how high the taxes are.
According to Morningstar, ITSLX is a Mid Cap Growth fund (the portfolio tab)
(http://i.imgur.com/9O9bm3V.png)
Vanguard's Mid Cap Growth fund is VMGMX, with a 0.09% yearly fee. But that's a useless comparison, unless you explicitly want a Mid Cap Growth fund. You don't. You can't, because you don't know what that is. Based on that information, I'd be more inclined to compare it to VTSAX, which is a Total Stock Market Index fund. This fund holds 3798 stocks across the country, with a 0.05% yearly fee. This is the default USA stock holding fund.
Forget Betterment. Betterment is a middle man. They take your money, charge their fee, and put it in Vanguard funds for you. Skip the middle man. Choose from one of these Vanguard automatic "robo" funds:
https://investor.vanguard.com/mutual-funds/lifestrategy/#/
They take care of everything, you just choose how risky you want to be. If you want a fully automatic fund for retirement, use a Target Retirement fund. Simply choose the year you wish to retire, and Vanguard will handle everything for you, including how much risk you should take:
https://investor.vanguard.com/mutual-funds/target-retirement/#/
The total fee Vanguard will charge for these automatic "robo" funds? About 0.16%. With Betterment they take that 0.16% and add their own fee on top. Stick with Vanguard I say.
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Thanks again, to everyone for the great information.
@MDM - Thank you again for the information. I'm embarrassed to admit that I don't know what you mean by knowing my basis. Any guidance on learning what you mean is appreciated. As for the Vanguard Target Date, would this be an ok option to move to and then continue to funnel extra bonus money or cash laying around if I come across it?
@Dodge - Thanks for these amazing (and depressing) graphs. What I'm wondering now is if he sees any of that money included in the 2.15% fee. I'm not sure if he continues to profit off of these funds or if they're something he made money from long ago when he bought them for me. Still confused where and when he actually gets paid.
Does anybody else have any experiences with American Funds?
In relation to ITSLX, my advisor says that that whole sector is cheap and getting stronger, and he wants to stay patient with it. What do you guys make of that?
Thanks again, everyone.
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I feel the need to chime in with a dissenting viewpoint. As a former financial adviser, I might be able to offer some insight that might be beneficial.
Index funds are great investment vehicles. Their low expense ratios mean that you get to keep more of your returns and they are generally easy to understand, making them good for the typical everyday investor who doesn't want to spend a lot of time or effort learning about the stock market and the ins and outs of investing.
Ask yourself this question though: Am I absolutely sure that I have the willpower to ride out the next major market crash without reacting to the sudden and dramatic drop in my net worth and doing something stupid with my money?
If the answer is yes, you are certain that you can see a 20-30% decline in the value of your investments and still maintain your long term investment strategy, pull your money out and put it in index funds.
If there is any doubt in your mind that you will be able to stomach this blow, you might want to consider sticking with your adviser. The value that they provide is that they will help prevent you from making serious mistakes during the inevitable market downturns by offering their professional advice and keeping you invested. When it comes to investing, the emotional factor is often your worst enemy. A financial adviser might be able to help mitigate the effect that your emotions have on your returns.
Financial advisers are not crooks. They are not pocketing your money and laughing all the way to the bank while you miss out on potential returns. They provide a service, they set the price of that service, and it is up to you to decide whether that service is valuable enough for you to justify paying that price.
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@bfeingerts631 - thank you for chiming in. Being such a newcomer to investing, I'm first to admit that I could very well poop my pants when the portfolio suddenly drops 30% one day. I think you bring up a very good point for me to consider – thanks so much for chiming in.
With that said, what do you make of the funds my advisor has set me up with? Judging from some of the reactions I've gotten thus far, I can't help but question my advisor's motives with some of my fund's fees. Lemme know what you think and what direction you'd consider going (even if it's just stick the course). Thanks again for chiming in with the wisdom and advice.
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Thanks again, to everyone for the great information.
@MDM - Thank you again for the information. I'm embarrassed to admit that I don't know what you mean by knowing my basis. Any guidance on learning what you mean is appreciated. As for the Vanguard Target Date, would this be an ok option to move to and then continue to funnel extra bonus money or cash laying around if I come across it?
@Dodge - Thanks for these amazing (and depressing) graphs. What I'm wondering now is if he sees any of that money included in the 2.15% fee. I'm not sure if he continues to profit off of these funds or if they're something he made money from long ago when he bought them for me. Still confused where and when he actually gets paid.
Does anybody else have any experiences with American Funds?
In relation to ITSLX, my advisor says that that whole sector is cheap and getting stronger, and he wants to stay patient with it. What do you guys make of that?
Thanks again, everyone.
Really? That's his argument? That Mid Cap Growth is cheap??
Mid Cap Growth (blue line) has been consistently more expensive than the market (orange line) for the last 10 years:
(http://i.imgur.com/59Skmyu.png)
It is likely that he gets some sort of kickback by putting you, and keeping you in, these high-fee funds. No need to ask us though, just ask him.
Yes, the Target Date fund would be an amazing place to put your money for the long haul. You'll never have to think about it, Vanguard will take care of everything for you. Vanguard is owned by the people who own their funds (almost like a credit union), they are literally one of the only companies in the investing world, whose interests align with yours. In fact, research has shown that passive indexes like that Target Date fund, beat over 99% of all funds (like the ones you're currently in) over time. Mostly because of the lower fees:
(http://i.imgur.com/rVFlM1n.png)
Seriously, if you want to learn about this, dedicate 30 minutes or so, and watch the short video series on the Bogleheads site:
http://www.bogleheads.org/wiki/Video:Bogleheads®_investment_philosophy (http://www.bogleheads.org/wiki/Video:Bogleheads®_investment_philosophy)
Yes, this guy is over-the-top silly, but the information is sound, and explained very clearly for someone new to the subject. The best part is, you don't even have to talk to the advisor if you want to leave. Simply call up Vanguard, tell them you'd like to switch, and they will take care of all the paperwork for you. No need to even notify the old advisor. Investing isn't hard. Your financial advisor's entire business model is predicated on convincing you how hard it is to invest. It's not. It is almost a statistical certainty that your Target Date fund will outperform your current portfolio, and anything else this advisor tries to put you in, over the long haul.
Don't give up such a large % of the portfolio to your advisor, just to watch him underperform the index like everyone else.
(http://im.ft-static.com/content/images/d6d02358-aadf-4d56-bc27-3e62e5f5691c.img)
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I don't know what you mean by knowing my basis. Any guidance on learning what you mean is appreciated.
Here is your reading assignment, arranged more or less from simpler to more detailed:
http://www.groco.com/readingroom/fin_capitalgains.aspx
http://www.investopedia.com/terms/c/costbasis.asp
https://www.fidelity.com/taxes/tax-topics/capital-gains-cost-basis
http://www.irs.gov/taxtopics/tc409.html
As for the Vanguard Target Date, would this be an ok option to move to and then continue to funnel extra bonus money or cash laying around if I come across it?
Yes. And if you don't believe me, ask Dodge. ;)
What I'm wondering now is if he sees any of that money included in the 2.15% fee. I'm not sure if he continues to profit off of these funds or if they're something he made money from long ago when he bought them for me. Still confused where and when he actually gets paid.
There is a 1% front end load on ITSLX so he was paid out of that when the fund was purchased. He likely gets paid on an ongoing basis as part of the 2.15% annual fee. See the SEC's explanation (http://www.sec.gov/answers/mffees.htm) "...include fees paid for marketing and selling fund shares, such as compensating brokers and others who sell fund shares"
In relation to ITSLX, my advisor says that that whole sector is cheap and getting stronger, and he wants to stay patient with it. What do you guys make of that?
Wonderful. No idea if it is/will be true. It might or might not be. But you can make the same sector bet with Vanguard for a much lower cost....
@bfeingerts631 - thank you for chiming in. Being such a newcomer to investing, I'm first to admit that I could very well poop my pants when the portfolio suddenly drops 30% one day. I think you bring up a very good point for me to consider – thanks so much for chiming in.
Yes, that's a fair point. But as long as the damage is contained within your pants (i.e., you don't actually "sell low"), then all is well. I had this (staying the course) in mind when saying "set it and forget it" but bfeingerts631's comment is much more explicit - and it is correct.
That doesn't mean you need an advisor - just don't panic and sell low. Yes, perhaps easier said than done, but still eminently doable.
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To further answer some of your concerns:
-American funds is one of the most respected mutual fund companies in the industry. There are hundreds of mutual fund companies, more than any one person can ever keep track of, so most financial advisers narrow down their choices to a few and build their clients portfolios from those options.
- Your financial adviser likely still gets a small amount of income from those funds, but we are talking very small. Something like .25% goes to Morgan Stanley and your FA is likely paid a commission of about 40% of this. I am not familiar with Morgan Stanleys compensation program, but that is fairly standard. On a $100,000 investment, that is about $100 per year. The bulk of the financial incentive that your adviser received came at the beginning, when these investments were purchased.
If you are unclear about how your financial adviser gets paid, set up a meeting with him and ask him to go over it with you. He is legally obligated to disclose this information. In fact, since the up front fees have already been paid and there is nothing you can do about that now, hit him up with any question you have. Get the most bang for your buck!
And one last note just for clarity. Your portfolio will never drop 30% in one day. All trading stops if there is a 20% drop in a single day. Your portfolio can, however, drop 30% or more in a year. Statistically this is very rare, but it happened in 2008 and will likely happen again in our lifetimes. No one, not even professional investors, can predict when.
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I feel the need to chime in with a dissenting viewpoint. As a former financial adviser, I might be able to offer some insight that might be beneficial.
Index funds are great investment vehicles. Their low expense ratios mean that you get to keep more of your returns and they are generally easy to understand, making them good for the typical everyday investor who doesn't want to spend a lot of time or effort learning about the stock market and the ins and outs of investing.
Ask yourself this question though: Am I absolutely sure that I have the willpower to ride out the next major market crash without reacting to the sudden and dramatic drop in my net worth and doing something stupid with my money?
If the answer is yes, you are certain that you can see a 20-30% decline in the value of your investments and still maintain your long term investment strategy, pull your money out and put it in index funds.
If there is any doubt in your mind that you will be able to stomach this blow, you might want to consider sticking with your adviser. The value that they provide is that they will help prevent you from making serious mistakes during the inevitable market downturns by offering their professional advice and keeping you invested. When it comes to investing, the emotional factor is often your worst enemy. A financial adviser might be able to help mitigate to the effect that your emotions have on your returns.
Financial advisers are not crooks. They are not pocketing your money and laughing all the way to the bank while you miss out on potential returns. They provide a service, they set the price of that service, and it is up to you to decide whether that service is valuable enough for you to justify paying that price.
This is such crap. I watched as people called their financial advisor around the March 2009 low, and had them sell all their stocks. I know other people whose financial advisors were calling THEM at around the March 2009 low, and PUSHING them to sell all their stocks.
If you feel you need that type of service, Vanguard has advisors you can talk to for free.
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This is such crap. I watched as people called their financial advisor around the March 2009 low, and had them sell all their stocks. I know other people whose financial advisors were calling THEM at around the March 2009 low, and PUSHING them to sell all their stocks.
If that is true those financial advisers need to be fired.
Keep in mind the internet has equalized the playing field for a lot of people. 10-15 years ago there was not the volume of easy investing information available online as now, and it is crazy hard for people to really understand the basics of investing.
In this regard, for an uninformed investor, a good financial adviser is probably better.
However, if you are informed these days and have a good working knowledge of how markets work, it is cheaper to go to Vanguard.
Investing is a psychological activity. For most people a financial adviser probably did more good than harm, as they would have probably speculated in individual stocks or gambled rather than invested. Times are changing though and the financial adviser as we know them today may be a dying breed as people become smarter... but probably will always be needed somewhere for those too timid to be comfortable with these topics.
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10-15 years ago there was not the volume of easy investing information available online as now, and it is crazy hard for people to really understand the basics of investing.
In this regard, for an uninformed investor, a good financial adviser is probably better.
However, if you are informed these days and have a good working knowledge of how markets work, it is cheaper to go to Vanguard.
Investing is a psychological activity. For most people a financial adviser probably did more good than harm, as they would have probably speculated in individual stocks or gambled rather than invested. Times are changing though and the financial adviser as we know them today may be a dying breed as people become smarter... but probably will always be needed somewhere for those too timid to be comfortable with these topics.
Working on educating myself, but it is taking a while. How does one find a good advisor? I am struggling with this right now for myself as well as for a non-profit I founded. (check out my post on non profit investing if you want details. I am trying to use those awesome calculators posted above, but having a hard time knowing what to plug in).
http://forum.mrmoneymustache.com/investor-alley/non-profit-and-socially-responsible-investing/msg621962/#msg621962 (http://forum.mrmoneymustache.com/investor-alley/non-profit-and-socially-responsible-investing/msg621962/#msg621962)
But seriously, evaluating if someone is A) competent B)honest/fiduciary relationship C) still worth the money is really hard. And the people that most need it (newbies like me and I am assuming OP) are the ones who are easiest to take advantage of.
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If I were in your shoes, I'd set up an account at Vanguard and move my assets into a few select index funds immediately.
Many people think being successful in the market requires special expertise or the "hand holding" of an expert. I disagree. You need to understand the basics, and be bold enough to simply buy and hold, without worrying about being an active trader. If you feel you need someone to guide you, fee-only financial advisors (who are paid for their EXPERTISE, by the hour, and not by the commissions of the things they SELL you) have been my favored approach.
The upside of managing your own investments? You get empowered knowing that you are making the decisions for your financial future, so you learn more and explore more.
I really hope you can break free of this advisor. You may have a good relationship with this person, but you don't "owe" them anything (particularly your financial future). And, knowing the industry well - the advisor would be much angrier at losing a $1.3M account versus a $133k account. I am not meaning to pooh - pooh your account size (it is a nice healthy amount!) but to put it in context.
Take charge of your financial future!!!
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10-15 years ago there was not the volume of easy investing information available online as now, and it is crazy hard for people to really understand the basics of investing.
In this regard, for an uninformed investor, a good financial adviser is probably better.
However, if you are informed these days and have a good working knowledge of how markets work, it is cheaper to go to Vanguard.
Investing is a psychological activity. For most people a financial adviser probably did more good than harm, as they would have probably speculated in individual stocks or gambled rather than invested. Times are changing though and the financial adviser as we know them today may be a dying breed as people become smarter... but probably will always be needed somewhere for those too timid to be comfortable with these topics.
Working on educating myself, but it is taking a while. How does one find a good advisor? I am struggling with this right now for myself as well as for a non-profit I founded. (check out my post on non profit investing if you want details. I am trying to use those awesome calculators posted above, but having a hard time knowing what to plug in).
http://forum.mrmoneymustache.com/investor-alley/non-profit-and-socially-responsible-investing/msg621962/#msg621962 (http://forum.mrmoneymustache.com/investor-alley/non-profit-and-socially-responsible-investing/msg621962/#msg621962)
But seriously, evaluating if someone is A) competent B)honest/fiduciary relationship C) still worth the money is really hard. And the people that most need it (newbies like me and I am assuming OP) are the ones who are easiest to take advantage of.
The amount of effort required to pick a good "financial advisor", is higher than the amount of work required to be a hot-shot stock picker...with similar success rates. Like I said above, put the money in a Vanguard LifeStrategy, and talk to their financial advisors (for FREE) if you feel you need someone to talk to. Don't know if LifeStrategy is the best choice for you? Call Vanguard and talk to their financial advisors. For free. No charge. Why would you pay a percentage fee of your assets each year, to a financial advisor who personally benefits from recommending high-fee investments, when Vanguard's advisors are available for free?
Here's a fun article for you to read:
http://jlcollinsnh.com/2012/06/06/why-i-dont-like-investment-advisors/
I personally know someone who lost over 10 million by picking the wrong financial advisor. Lost, as in it went down to $0. Then there's the story of all the people who let Canarsie Capital manage their money a few months ago:
"Owen Li, the founder of Canarsie Capital in New York, said Tuesday he had lost all but $200,000 of the firm's capital—down from the roughly $100 million it ran as of late March."
Source: http://www.cnbc.com/id/102356275
Is this really a game you want to play?
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Another item the OP may have been paying his adviser that I didn't see mentioned......a yearly account maintenance fee. My Morgan Stanley/Smith Barney adviser was charging me between $75 and $95 a year per account depending on account type I believe. This was on top of the front loaded fees and high expense ratios of the American, Calamos, First Eagle, Franklin, etc funds that he selected as investments for me.
I have no idea what the scale was for these account maintenance fees. My total account balance was less than $40K the entire time. I'm sure my particular adviser was making quite a bit more than $100 a year off of fees on my account and the OP's account as well. I'm glad I'm no longer a client.
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Tacocat,
From someone who was in your position and has come out on the other side with lots of shiny new Vanguard funds, I can tell you that I'm happy with my decision to break up with my financial advisor, take on the capital gains tax burden, and move everything to Vanguard.
Like you, I had lots of American Funds with extremely high front loads. Most of the expense ratios on my funds were 0.8-2.0%. Yikes!
Having parted ways with my financial advisor, all of my new Vanguard funds are outperforming her recommendations, and I'm making so much more money just by NOT PAYING HER DAMN FEES AND ALL OF THOSE LOADS.
I haven't been able to sell all of my old mutual funds with high expense ratios, because they won't hit their first birthdays until June or so. But I'll be phasing them out eventually (they make up about 40% of my total assets at the moment).
Last year, when the S&P returned what...13%? My financial advisor made me 2% at best. My husband did much better with his Vanguard funds. So yeah, I was pissed.
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This is such crap. I watched as people called their financial advisor around the March 2009 low, and had them sell all their stocks. I know other people whose financial advisors were calling THEM at around the March 2009 low, and PUSHING them to sell all their stocks.
If that is true those financial advisers need to be fired.
If the investor wants all their stocks sold because of poor performance, the advisor has no choice. This increases the importance of having a portfolio that doesn't underperform. Once you realize that 99% of all financial advisors underperform...the choice is easy.
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Big thanks to everyone for the advice. I've got some reading to do.
The Bogleheads line of thinking definitely seems justified and Vanguard sure does seem pretty great. One of the concerns that this presents, however, is if I need funds with multiple firms. Isn't going with Vanguard exclusively the equivalent of putting all eggs in one basket, even if you've got a mix of fund types with them? Still a bit unsure in that regard.
In other news, I wrote my financial advisor asking about our choice of funds with 2.0% expense ratios vs Vanguard funds. Will update when I hear back.
Again, assuming I get the courage to move my money, here's a few other questions -
1.) Can Vanguard rebalance my portfolio automatically when the gains I make change my risk allocation?
2.) Do Vanguard funds have automatic Tax-harvesting like Betterment?
@palladiumVI - How are your experiences with Vanguard so far? Also, how have your taxes been since switching to them? I owed about $700 this year and am curious how much potential I might have to save if I'm in index funds instead of the mutual funds @ American Funds.
@bfeingerts631 - thanks again for chiming in with the great info. So nice to hear from your side of the coin. Now it just seems the question is why would my advisor have put me in funds with 2.0 expense rate? Seems pretty not-cool, right?
@Dodge - thanks for all that great info. Working my way through the videos, currently, and am really enjoying what I'm learning.
@little_owl - thanks for chiming in. Really appreciate the words of encouragement.
@Melf - The thing that has always freaked me out is that my advisor NEVER speaks of fees and to this day I have no idea how he's compensated. When I look at my quarterly statements from MorganStanley, I see no sign of fees. I also can't find any trace of fees on the website. Any idea where Morgan Stanley will have this information available? Thanks for the advice!!
@MDM - thank you so much! I have some reading to do.
Thanks again to everyone for chiming in with the helpful words. Much appreciated.
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One of the concerns that this presents, however, is if I need funds with multiple firms. Isn't going with Vanguard exclusively the equivalent of putting all eggs in one basket, even if you've got a mix of fund types with them? Still a bit unsure in that regard.
See http://jlcollinsnh.com/2012/09/07/stocks-part-x-what-if-vanguard-gets-nuked/. Good question, but the answer is "it's ok."
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Big thanks to everyone for the advice. I've got some reading to do.
The Bogleheads line of thinking definitely seems justified and Vanguard sure does seem pretty great. One of the concerns that this presents, however, is if I need funds with multiple firms. Isn't going with Vanguard exclusively the equivalent of putting all eggs in one basket, even if you've got a mix of fund types with them? Still a bit unsure in that regard.
In other news, I wrote my financial advisor asking about our choice of funds with 2.0% expense ratios vs Vanguard funds. Will update when I hear back.
Again, assuming I get the courage to move my money, here's a few other questions -
1.) Can Vanguard rebalance my portfolio automatically when the gains I make change my risk allocation?
2.) Do Vanguard funds have automatic Tax-harvesting like Betterment?
@palladiumVI - How are your experiences with Vanguard so far? Also, how have your taxes been since switching to them? I owed about $700 this year and am curious how much potential I might have to save if I'm in index funds instead of the mutual funds @ American Funds.
@bfeingerts631 - thanks again for chiming in with the great info. So nice to hear from your side of the coin. Now it just seems the question is why would my advisor have put me in funds with 2.0 expense rate? Seems pretty not-cool, right?
@Dodge - thanks for all that great info. Working my way through the videos, currently, and am really enjoying what I'm learning.
@little_owl - thanks for chiming in. Really appreciate the words of encouragement.
@Melf - The thing that has always freaked me out is that my advisor NEVER speaks of fees and to this day I have no idea how he's compensated. When I look at my quarterly statements from MorganStanley, I see no sign of fees. I also can't find any trace of fees on the website. Any idea where Morgan Stanley will have this information available? Thanks for the advice!!
@MDM - thank you so much! I have some reading to do.
Thanks again to everyone for chiming in with the helpful words. Much appreciated.
The "What if Vanguard gets nuked" article should help with the "multiple firms" question.
When the financial advisor gets back to you, remember, he is a salesman. Keep that in mind while reading the response, I suspect you will see who he is really "taking care of" (himself). This isn't a debate, it's an observable fact. Active funds as a whole cannot outperform the index. It is mathematically impossible. And the higher your fee, the worse the underperformance. Here are some fun quotes for you:
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"A low-cost index fund is the most sensible equity investment for the great majority of investors. My mentor, Ben Graham, took this position many years ago, and everything I have seen since convinces me of its truth." Warren Buffet
"Of the 355 equity funds in 1970, fully 233 of those funds have gone out of business. Only 24 oupaced the market by more than 1% a year. These are terrible odds." Jack Bogle (2007)
"Most investors would be better off in an index fund." Peter Lynch
"Only about one out of every four equity funds outperforms the stock market. That's why I'm a firm believer in the power of indexing." Charles Schwab
"The fund industry's dirty little secret: most actively managed funds never do as well as their benchmark." Arthur Levitt, Chairman, SEC
"Indexing virtually guarantees you superior performance." Bill Bernstein, author, financial adviser
"With the market beating 91% of surviving managers since the beginning of 1982, it looks pretty efficient to me." Bill Miller, portfolio manager
-----------------------------------------------
Unless he disproves mathematical law in his response to you, I expect him to play on your emotions to keep you. Hopefully you can see through this.
1. Yes, if you choose one of the LifeStrategy, or Target Date funds, literally everything will be taken care of for you. Including rebalancing, and automatically getting less risky as you get closer to retirement (the Target Date funds).
2. I've written a lot about Tax Loss Harvesting. Specifically, paying an extra fee to get it:
http://forum.mrmoneymustache.com/investor-alley/betterment-$50k-'safety-net'/msg487232/#msg487232 (http://forum.mrmoneymustache.com/investor-alley/betterment-$50k-'safety-net'/msg487232/#msg487232)
http://forum.mrmoneymustache.com/investor-alley/betterment-for-taxable-holdings/msg550033/#msg550033
I'll spare you the details. Long story short, it is inevitable that you will end up paying more in extra fees to Betterment, than you will receive in Tax Loss Harvesting, for the simple reason that the fees are both percentage based (so they get higher as your account grows), and forever (each and every year, for the rest of your life), while the tax loss harvesting benefit on each individual deposit is temporary.
Regarding your taxes question, let's look again at your ITSLX fund, the one he says you need to be "patient" with:
(http://i.imgur.com/Yicu3x6.png)
When you compare the Pretax return to the Tax-Adjusted return, it's consistently about a 1-2% difference. You're losing 1-2% of your return to taxes with this fund. This isn't surprising, as the fund as a ridiculous 53% turnover! A fund's turnover rate represents the percentage of a fund's holdings that have changed over the past year, and it gives an idea of how long a manager holds on to a stock. So this fund is swapping out half of your holdings each year...not very tax efficient. I'm honestly shocked this fund was recommended for a taxable account...or at least I would be shocked, if it weren't for the huge fees...
Let's compare this to VTSAX:
(http://i.imgur.com/EW0Em3f.png)
It's usually a 0.2% loss to taxes, besides the jump to 1% at the one year mark, then it drops back down. What's the turnover ratio for VTSAX? 3%. Hopefully you're also comparing the total returns to that of ITSLX, just to see how hard it is for a fund to perform well with a huge 2% fee.
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Just heard back from advisor –
He reasons that American funds and active management is far superior to passive.
Further, he let me know that Vanguard likes to ride the wave of bull markets and passive management and low fees but tend not to mention their poor performance in bear markets . He says he has illustrations that are telling of the whole story.
He's also not a fan of ETF’s because he says he can't go along with low fees making something better. To him, it should be the rate of return after fees that is what's truly important .
And on top of this, he has concerns with all the “weak money” in no load indexes and Vanguard funds and how fast they'll empty out when times get tough. He claims that if they would time weight the returns they would not show as well.
Finally, he advises me to not "dwell so deeply into the weeds" because this is why I employ him. He tells me to let him guide me and to follow his lead and then I'll be quite successful and rewarded.
His advice ends by telling me that taxes are part of the equation and a necessary evil. But that there is always money left over after taxes are paid. Finally, he tells me that there's too much emphasis in media about taxes and fees, that it's all they want to talk about rather than long term returns and the BEST managers. Everything "cannot and should not be Walmart", according to him.
Anyway, I'd be interested to see these illustrations he has that show how poorly Vanguard does in the bear markets.
You guys think there's some good truth in what he's saying?
Thanks, as always, for the help.
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Just heard back from advisor –
He reasons that American funds and active management is "far superior to passive".
Further, let me know that Vanguard tends to ride the wave of bull markets and passive management and low fees but never mention how bad they do in bear markets . He says he has illustrations that are telling of the whole story.
He's also not a fan of ETF’s because he says he can't go along with low fees making something better. To him, it should be the rate of return after fees that is what's truly important .
And on top of this, he has a serious concern of all the “weak money” in no load indexes and Vanguard funds and how fast they'll clear out when times get tough because this happened in 2008 and 2009 and performance was bad . "If they would time weight the returns they would not show nearly as well."
Finally, he advises me to not "dwell so deeply into the weeds" because this is why I employ him. He tells me to let him guide me and to follow his lead and then I'll be quite successful and rewarded .
He closes by telling me that taxes are part of the equation and are a necessary evil. But that there is always money left over after taxes are paid. Finally, he tells me that "there is simply too much emphasis in media about taxes and fees , that all they want to talk about rather than long term returns and the BEST managers . Everything cannot and should not be Walmart."
Anyway, I'd be interested to see these "illustrations" he has that show how poorly Vanguard does in the bear markets.
You guys think there's some good truth in what he's saying?
Thanks, as always, for the help.
He's basically patting you on the head and telling you to leave the big scary investing stuff to the "professionals" and throwing double speak financial stuff at you to further show that it's much too complicated for you. At least I hope he's doing it with a kind tone, but he's being patronizing about what you've asked him, and honestly I'd be done as soon as he started doing that crap. I've had that same sort of treatment with a financial adviser when I fired him, and it is infuriating.
Of course Vanguard's index funds ride the wave in bull markets - that's what they do in a bear market too, because indexes follow the market ups and downs - that's the very definition of how an index fund works.
American Funds are known to give nice kickbacks to advisers that push them... so of course he's going to say they are superior.
Stop talking to the guy, just call up Vanguard's concierge service and get the ball rolling on transferring your accounts out of his hands. You don't have to speak to him again - just let Vanguard set it all up and you won't have to deal with this guy again.
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*Sits next to Frankies Girl*
I'm really not impressed with the advisors responses to your inquiries. These feel scripted, aren't thoughtful, and really...lose out to good old MATH.
Don't let something new intimidate you. Trust the collective experience of the Mustachian forums and Mr. Bogle! YOU CAN DO IT!!!!!
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He's also not a fan of ETF’s because he says he can't go along with low fees making something better. To him, it should be the rate of return after fees that is what's truly important .
I am a total newbie here, but even the SEC says to pay attention to fees because it can make or break you (I'm paraphrasing).
A Word About Mutual Fund Fees and Expenses
As you might expect, fees and expenses vary from fund to fund. A fund with high costs must perform better than a low-cost fund to generate the same returns for you. Even small differences in fees can translate into large differences in returns over time. For example, if you invested $10,000 in a fund that produced a 10% annual return before expenses and had annual operating expenses of 1.5%, then after 20 years you would have roughly $49,725. But if the fund had expenses of only 0.5%, then you would end up with $60,858. It takes only minutes to use a mutual fund cost calculator to compute how the costs of different mutual funds add up over time and eat into your returns.
Here is the link http://www.sec.gov/answers/mffees.htm (http://www.sec.gov/answers/mffees.htm)
Finally, he advises me to not "dwell so deeply into the weeds" because this is why I employ him. He tells me to let him guide me and to follow his lead and then I'll be quite successful and rewarded.
This is very rude and patronizing. I would be livid if someone said this to me. I have been dealing with some possible industry double speak, but nothing like this. wow! just wow!
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Just heard back from advisor –
He reasons that American funds and active management is far superior to passive.
Further, he let me know that Vanguard likes to ride the wave of bull markets and passive management and low fees but tend not to mention their poor performance in bear markets . He says he has illustrations that are telling of the whole story.
He's also not a fan of ETF’s because he says he can't go along with low fees making something better. To him, it should be the rate of return after fees that is what's truly important .
And on top of this, he has concerns with all the “weak money” in no load indexes and Vanguard funds and how fast they'll empty out when times get tough. He claims that if they would time weight the returns they would not show as well.
Finally, he advises me to not "dwell so deeply into the weeds" because this is why I employ him. He tells me to let him guide me and to follow his lead and then I'll be quite successful and rewarded.
His advice ends by telling me that taxes are part of the equation and a necessary evil. But that there is always money left over after taxes are paid. Finally, he tells me that there's too much emphasis in media about taxes and fees, that it's all they want to talk about rather than long term returns and the BEST managers. Everything "cannot and should not be Walmart", according to him.
Anyway, I'd be interested to see these illustrations he has that show how poorly Vanguard does in the bear markets.
You guys think there's some good truth in what he's saying?
Thanks, as always, for the help.
Here is a chart of how your funds fared during the 2008-2009 crash, vs VTSAX, the index:
(http://i.imgur.com/z8NUk4d.png)
Literally every single one of your funds fell harder than VTSAX. And these charts don't include the ridiculous loads he has you on. One of your funds has a 5.75% load!! Do you not see the BS? I agree, the rate of return after fees is what's truly important...which is why you should leave him...because your portfolio is underperforming the index. All the returns I've shown you so far are time-weighted. That's the standard measurement for showing returns...he's just trying to confuse you. Seriously, he's treating you like an idiot. Vanguard owns the biggest mutual fund in the world (VTSAX), is his claim that no one publishes time-weighted returns for VTSAX? You can get the public return data from morningstar.com, here's a time-weighted return calculator, try it yourself:
http://www.rateofreturnexpert.com/time-weighted-return-calculator/
Is his claim that the over 400 billion investor dollars invested in VTSAX alone, is "weak money", but the 0.8 billion investor dollars in your 2.14% fee ITSLX is stronger than VTSAX? I think we've said all we can say here. We can give you the information, but we can't force you to not be sold on his blatantly incorrect statements. I suspect he will throw a lot of at you if you ask for charts.
I've quoted the experts, I've shown you the evidence, and I've run the hard numbers. You now know how much the decision to stay will cost you. Good luck with your decision! (http://forum.mrmoneymustache.com/investor-alley/survivorship-bias-the-single-greatest-fallacy-in-investing-35417/[/url)
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Further, he let me know that Vanguard likes to ride the wave of bull markets and passive management and low fees but tend not to mention their poor performance in bear markets . He says he has illustrations that are telling of the whole story.
One could pick on the other points as well, but here are a few comments on this one:
http://www.uexpress.com/scott-burns/2014/10/9/managed-funds-tend-to-do-better
http://www.obliviousinvestor.com/index-funds-work-in-bull-and-bear-markets/
https://www.ifa.com/articles/persistent_myth_active_funds_bear_markets/
One quote I particularly like:
"If your adviser was so convinced of the index fund advantage during bull markets, you might ask him why wasn't he committed to index funds over the last five years? My bet is that he will be a bit tongue-tied."
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I have invested in American Funds Wash Mutual for years. Over the long haul, it's done well. Pays quarterly dividends and has so for many, many years.
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I have invested in American Funds Wash Mutual for years. Over the long haul, it's done well. Pays quarterly dividends and has so for many, many years.
Is it your assertion that it's not normal for funds to pay quarterly dividends? Do you have any evidence contrary to that presented in this thread, which shows that Vanguard's indexes have done better over the long haul, without the extra fees?
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ETFs perform just as well, if not better, than American Funds. Most of these funds are closet indexers. An advisor that gets management fees no matter what tends to be very promotional, but rarely post the numbers to back up their sales pitch. Ask him what % of his net worth is in American Funds and I bet he'd be talking his ass off.
The best investment managers I've seen aren't very active, don't charge management fees if they don't beat their hurdle rate, and eat their own cooking. I only know of one "active" management that does well: Turtle Creek in Canada (a very impressive 26% CAGR since November '98).
Just heard back from advisor –
He reasons that American funds and active management is far superior to passive.
Further, he let me know that Vanguard likes to ride the wave of bull markets and passive management and low fees but tend not to mention their poor performance in bear markets . He says he has illustrations that are telling of the whole story.
He's also not a fan of ETF’s because he says he can't go along with low fees making something better. To him, it should be the rate of return after fees that is what's truly important .
And on top of this, he has concerns with all the “weak money” in no load indexes and Vanguard funds and how fast they'll empty out when times get tough. He claims that if they would time weight the returns they would not show as well.
Finally, he advises me to not "dwell so deeply into the weeds" because this is why I employ him. He tells me to let him guide me and to follow his lead and then I'll be quite successful and rewarded.
His advice ends by telling me that taxes are part of the equation and a necessary evil. But that there is always money left over after taxes are paid. Finally, he tells me that there's too much emphasis in media about taxes and fees, that it's all they want to talk about rather than long term returns and the BEST managers. Everything "cannot and should not be Walmart", according to him.
Anyway, I'd be interested to see these illustrations he has that show how poorly Vanguard does in the bear markets.
You guys think there's some good truth in what he's saying?
Thanks, as always, for the help.
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I was in American Funds the last few years. This forum showed me the light, and I switched to Vanguard in January. No regrets.
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Tacocat, why does it have to be all or nothing moving your money? Why not move a portion to Betterment if you're interested, a portion to Vanguard, and the rest in your managed fund? Then start an account with Personal Capital (personalcapital.com) or another site where you can compare how your investments are doing. Personal Capital will also show how much you're paying in fees for each account.
I was in your exact same shoes last year, and was insecure about taking the leap away until I read John Bogle's book "The Little Book of Common Sense Investing." It took about 2 hours to read and left me with NO doubt that I could handle my portfolio as well as any advisor. If an advisor could guarantee improved performance, then it might be worth the cost, but we really essentially paying 2% for peace of mind (when you can do for .05% and learn to trust yourself).
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You seem uncertain and uncomfortable. Of course people on the MMM (or Bogleheads) forum will kneejerk say "OMG VANGUARD NOW!" - because taking the emotion out, that's the sensible choice.
But it's not super easy to take the emotion out. So here's what I suggest if you can't pull the trigger:
1. Sell some of the funds you don't like, moderately, each year. Move that amount to Vanguard. Be up front - tell him that you're concerned about fees and you want to increase your comfort level with managing your own investments.
2. Negotiate his AUM fee down.
This concerns me:
Finally, he advises me to not "dwell so deeply into the weeds" because this is why I employ him. He tells me to let him guide me and to follow his lead and then I'll be quite successful and rewarded.
Back before I was a CPA, I had an accountant who told me something similar when I started asking questions and trying to understand my tax situation. I ended up having to sue her over the mess the she made and the trouble she got us into. Then I became a CPA, because I felt like I'd never be able to trust another accountant again.
"Don't worry your pretty little head about that" is terrible advice.
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I agree with CPA Cat's sentiment (cutest avatar ever, btw), that we are all able to leave the emotion & set it aside because of the vantage point we have.
However, in your situation, where the Advisor seems to be more than slightly patronizing and disingenuous, I don't agree that a slow departure over time from this advisor is adviseable. Since your hurdle seems to be around being comfortable asserting yourself, its likely that a slow departure will simply make the breakup harder!
Pull the bandaid off all at once - remember, if you really love those American Funds, you can invest in them through other discount brokerages.
I hope you update us with what you do!
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I'm going to make this really, really simple.
If you need an investment therapist, keep the adviser.
If you want to educate yourself and figure this out on your own, Vanguard will be much cheaper than your current adviser.
You don't have enough money to need help with complex wealth management issues, get $5mil together then consider paying for advice that's more than just "therapy".
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Your advisor is right not to make wild and frequent changes in your portfolio. Too much action will screw up your returns.
However, I am assuming you are over 18 and this money is in your total control. Can you move it? Or is it in some sort of trust that you do not control?
You can fire your advisor and move your money elsewhere. It is not that painful to do. Make a plan for how you want to invest and then you can work your plan.
Added: You will pay taxes on capital gains. That is a cost that you will pay one time. It might be a lot if the money has been growing a long time. Find out your cost basis and investment returns.
Also, if you want to try out a low cost advisory service, you can go with Vanguard. If you are interested in active stock investing, I get advice from Motley Fool Pro (a conservative service). Your advisor is protecting his interests by telling you to stay the course. And he is right, you don't want to flail around with your money without a plan and without fortitude to stick to investing.
The number one thing is that you keep saving. Keep saving and adding to your investments.
Your advisor is investing in funds. Funds go up and down just like indexes do. There is no magic protection (unless you are going to learn to hedge, an advanced strategy and you are going to need a coach for that.) Otherwise, ride the ups and downs. Keep learning about the market but be slow to trade. Patience is key.
It is your money and your decision to make. You control the money. You are being sold on the status quo. But you may learn more from taking control of your own investments.
If you keep saving you will be fine no matter what.
P.S. Personally, I have had some inherited money at Vanguard for years, invested in a mix of total stock market, mid cap and small cap indexes. It is parked there and will sit and grow for years and years to come.
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Are all the American Funds in non-retirement accounts?
Asking because I had a job once where the 401k was through American Funds, with enormous loads, but they were waived because of the fact of being held through the 401k. Didn't affect the high fees though.
When I left that job I immediately rolled over that entire account into a Vanguard IRA. IMHO American Funds just wasnt at all competitive.
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I'm going to make this even simpler. If you need an investment therapist, go with Vanguard. You can talk to their advisors for free, and they won't have a conflict of interest.
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Paying a financial advisor is for the insanely wealthy for estate planning.
Everyone else, on average, would be way, way way better off in the 3 fund portfolio.
Financial advisors are an anachronism. Hopefully heading the same way as car dealers and insurance agents.
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Oh, and this isn't 'awkward.' This is a business relationship that you should end immediately as its parasitic towards you.
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And on top of this, he has concerns with all the “weak money” in no load indexes and Vanguard funds and how fast they'll empty out when times get tough. He claims that if they would time weight the returns they would not show as well.
Again, complete BS. The facts do not support his statements. Look at which funds "emptied out" during the last bear market...
(http://im.morningstar.com/content/CMSImages/2065.jpg)
He's ignorant, or he's lying to you. Either way, is this really the type of person you want controlling your money?
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He doesn't even understand the concept of index funds if he thinks cash outflows matter. They'd just liquidate the underlying securities....
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Alright! Well I spoke with Renee at Vanguard for my initial assessment of what I'd like to do and where I currently stand with my advisor @ Morgan Stanley. I also let my parents know that I was questioning my relationship with our advisor and they were totally encouraging for me to do whatever I thought was best with the money. So I'm making baby steps.
After talking with Renee at Vanguard, I'm now wondering about their .3% advisor service. Renee confirmed that with my assets being under 500k, but over 100k, that .3% fees would get me quarterly checkups from an advisor (not always the same one, unfortunately). For somebody like myself who still has very little knowledge of how this all works, do you guys think that's a service that would be beneficial to me?
Other than that, I've got another appointment setup with Kevin at Vanguard who will try to paint a more specific picture for me of our options to limit the taxes I'll be paying if we move the money to Vanguard and into different funds.
I think I now need to read up on how complex I want my setup to be, right? I can't just dump it all in VTSAX...i think. I'm hoping Kevin will help me with this but please let me know if you guys can point me to any good reading.
Thanks, as always, for all the help!
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Tacocat, I also work in the financial industry and see investment management from the advisors side too.
Advisors are paid by fees, whether upfront or ongoing. After 13 years of working with lots of advisors, I can tell you with experience that most are not worth the fee. Here are the services they should be providing to justify those fees:
-AT LEAST yearly meetings to review your portfolio, your financial situation and the general state of the economy.
-Reports showing how your portfolio is performing in relation to achieving your goals. For example, if these funds are going to provide your income for early retirement in ten years, and need to grow an average of 6% during that time, how often are your funds hitting or exceeding that number?
-Advice on how much risk you are taking vs your goals. Using the above example, if you need an average return of 6% to retire in 10 years, but you’ve been earning 12%, perhaps you are invested too aggressively and could benefit from dialing down your risk by moving funds from stocks to less volatile asset classes (this may not be a popular opinion here). When you retire in 10 years will you be able to afford a 40% drop in the value of your investments?
-Advice on tax consequences of any investment strategies or changes.
-Advice on estate planning (who will handle your finances if you are in a coma? Who will take care of your kids if you die? Who will get your money when you die?).
-General financial advice and guidance.
If you are NOT getting these services, then you are paying your advisor for nothing and will definitely be better off moving the funds to Vanguard. There is no justification for your advisor putting your into American Funds versus ETFs without providing other services. As others here have ably pointed out, Vanguard will kick the crap out of all your funds when using the “buy and hold” strategy that you have been.
If you ARE getting these services, then you need to ask yourself whether or not the 2%+ fee you are paying is worth it. You can certainly learn enough about each of those areas on your own to be able to do it yourself, however it will not be easy, and you will need to constantly stay on top of them, as there will be lots of changes over time.
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tacocat good for you! This is definitely moving in the right direction. I was planning on telling you to look at moving a portion each year to avoid the penalties, but it sounds like Vanguard has you covered to figure out a plan for that. Congratulations!
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Just heard back from advisor –
He reasons that American funds and active management is far superior to passive.
Further, he let me know that Vanguard likes to ride the wave of bull markets and passive management and low fees but tend not to mention their poor performance in bear markets . He says he has illustrations that are telling of the whole story.
He's also not a fan of ETF’s because he says he can't go along with low fees making something better. To him, it should be the rate of return after fees that is what's truly important .
And on top of this, he has concerns with all the “weak money” in no load indexes and Vanguard funds and how fast they'll empty out when times get tough. He claims that if they would time weight the returns they would not show as well.
Finally, he advises me to not "dwell so deeply into the weeds" because this is why I employ him. He tells me to let him guide me and to follow his lead and then I'll be quite successful and rewarded.
His advice ends by telling me that taxes are part of the equation and a necessary evil. But that there is always money left over after taxes are paid. Finally, he tells me that there's too much emphasis in media about taxes and fees, that it's all they want to talk about rather than long term returns and the BEST managers. Everything "cannot and should not be Walmart", according to him.
Anyway, I'd be interested to see these illustrations he has that show how poorly Vanguard does in the bear markets.
You guys think there's some good truth in what he's saying?
Thanks, as always, for the help.
That's bullshit. All of it.
I hate being the bearer of bad news, but you're being fleeced. You deserve better.
Take Dodge/MDM/others' advice upthread and consider a low-cost index fund, or a basket of them.
Edited to add:
intellectsucks' point is well taken. A financial advisor worth his/her fee will provide a number of services that are peripheral or external to the money itself. To the extent that they can help you plan, coach you to avoid panic-selling or other destructive behavior, help with estate/tax planning, their fees can be totally worth it.
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Further, he let me know that Vanguard likes to ride the wave of bull markets and passive management and low fees but tend not to mention their poor performance in bear markets . He says he has illustrations that are telling of the whole story.
The adviser is trying to illustrate that index funds go up in bull markets and down in bear markets?
Captain Bright Spark, come on down to accept your award for pointing out the obvious...
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Finally, he advises me to not "dwell so deeply into the weeds" because this is why I employ him.
How marvelously circuitous is that! You employ him - rather reluctantly - because you inherited him and you feel uncomfortable about asserting authority over Grandpa's Pet Accountant and the long term family relationship he represents, you did not chose this based on his ability to protect you from the Big Bad Weeds, and he knows it. Come on Red Riding Hood, it's time to take a walk on the wild side.
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Again, thanks to everyone for the informative and supportive replies.
At this point, I am really liking Betterment as an alternative. With the amount of money I have, my fees would only be .15% on top of the Vanguard account expenses. For the services they provide in tax harvesting and automatic rebalancing, this fee seems fair to me right now. It's also cheaper than Vanguard's fee for their own advisors (.3%) while offering what looks to me like a better set of tools for my current value of around $140k.
Now I'm just struggling with how I can get all these American Funds into Betterment easiest. Here's what I've got:
~$81k in a "Basic Securities Account" with about $20k of that in unrealized gains - $20,134.57 Long term, $80.38 Short term. This account has AWSHX, SMCWX, ANWPX, and AIVSX.
~$48k in a Roth IRA with about $10k of that in unrealized gains - $10,304.52 Long Term, $47.82 Short Term. This account has CWGIX, AIVSX, and AWSHX.
~$6k in a Traditional IRA with about 1k of that in unrealized gains - $1,085.87 Long term, $11.11 Short Term. This account has ITSLX and ILLLX.
I think this is the information I need to start to assess what would type of taxes I'd pay to move this money, right?
Like I said, Betterment is very appealing to me for the low fee of .15%, but I'm very scared of what taxes I'll pay to move this money around now.
Any help or tips you guys might have about moving this around, or where to head with it, are very much appreciated.
Also, if anybody has any way of giving me a ballpark of preparing how much money i might be paying in taxes on this, or a way for me to figure it out, I'd sure would appreciate it.
Thanks as always for the help.
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Also, if anybody has any way of giving me a ballpark of preparing how much money i might be paying in taxes on this, or a way for me to figure it out, I'd sure would appreciate it.
Many pertinent links in http://forum.mrmoneymustache.com/ask-a-mustachian/help-moving-between-funds/.
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Again, thanks to everyone for the informative and supportive replies.
At this point, I am really liking Betterment as an alternative. With the amount of money I have, my fees would only be .15% on top of the Vanguard account expenses. For the services they provide in tax harvesting and automatic rebalancing, this fee seems fair to me right now. It's also cheaper than Vanguard's fee for their own advisors (.3%) while offering what looks to me like a better set of tools for my current value of around $140k.
Now I'm just struggling with how I can get all these American Funds into Betterment easiest. Here's what I've got:
~$81k in a "Basic Securities Account" with about $20k of that in unrealized gains - $20,134.57 Long term, $80.38 Short term. This account has AWSHX, SMCWX, ANWPX, and AIVSX.
~$48k in a Roth IRA with about $10k of that in unrealized gains - $10,304.52 Long Term, $47.82 Short Term. This account has CWGIX, AIVSX, and AWSHX.
~$6k in a Traditional IRA with about 1k of that in unrealized gains - $1,085.87 Long term, $11.11 Short Term. This account has ITSLX and ILLLX.
I think this is the information I need to start to asses what would type of taxes I'd pay to move this money, right?
Like I said, Betterment is very appealing to me for the low fee of .15%, but I'm very scared of what taxes I'll pay to move this money around now.
Any help or tips you guys might have about moving this around, or where to head with it, are very much appreciated.
Also, if anybody has any way of giving me a ballpark of preparing how much money i might be paying in taxes on this, or a way for me to figure it out, I'd sure would appreciate it.
Thanks as always for the help.
1. Betterment is not the equivalent of Vanguard's 0.3% advisor. Betterment is the equivalent of Vanguard's LifeStrategy funds (https://investor.vanguard.com/mutual-funds/lifestrategy/#/), for double the fee. The math I pointed to in my earlier reply (http://forum.mrmoneymustache.com/ask-a-mustachian/awkward-questions-with-family-wealth-manager-morgan-stanley/msg622828/#msg622828) unequivocally details how the extra fee will inevitably dwarf any possible gains from tax loss harvesting. This is simple math, no opinion involved. Going with them for tax loss harvesting is demonstrably a losing move. And I didn't even get into the part where every single poster (besides one) in my Value investing/tilting with funds is utter crap (http://forum.mrmoneymustache.com/investor-alley/value-investing-is-utter-crap/) thread, agreed with the premise of the thread. Guess who uses a value tilt in all of their funds?
2. If you just need someone to walk you through things, help you get setup, Vanguard can do that for free (just like Betterment does that for free). See for yourself:
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Whether you're opening a new account, rolling over a 401(k), or adding to your portfolio, our associates in Concierge Services make investing at Vanguard easy. Call us and see how we can help you.
Here's how we can support you:
Guide you from start to finish.
Explain your investment choices.
Assist you with the paperwork.
Talk to your current plan administrator.
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Since you have over $50,000 to invest, you will also receive Voyager Services...for free:
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"We'll help you work toward your investing goals with confidence. As your assets grow with us, so do your Vanguard benefits. Our Voyager Services provide an extra level of personal assistance, cost savings, guidance, and advice"
"Investment professionals who will listen to you, address your questions, and direct you to an advice solution that best suits your needs."
"And when you receive investing help from Vanguard, know that our professionals are salaried and don't receive commissions. So you can be confident that we'll make every decision with only your needs in mind."
https://investor.vanguard.com/what-we-offer/personal-services/voyager-and-voyager-select-services
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However, if you want someone to sit down with you for an hour or two every few months, to "review your portfolio, your financial situation and the general state of the economy." you won't be getting that anywhere with your current assets, without paying at least 0.3%...and sorry but that just smells like someone trying to justify their fee (and you will be paying an additional fee for this. What in the portfolio is there to review multiple times a year? If you are 100% invested with index funds, what exactly are you reviewing that you can't login to Vanguard.com and see in 15 seconds? What does the state of the economy have to do with anything? When you're 100% invested with index funds, you don't change things around based on the state of the economy.
I guess if you feel the need to have a service like this...to each their own...but in my opinion it's a waste of time when your plan is to buy and hold index funds for the rest of your life.
3. You don't pay taxes in any IRA accounts. You'll probably pay about $3,000 on your $81k, it depends on your tax bracket. But no matter what you'll have to pay this, so it shouldn't factor into the decision of where to go.
Literally the only thing you mentioned at Betterment, that makes it different than Vanguard Lifestrategy, is:
1. Tax Loss Harvesting - which has already been shown to be an unequivocal loser
2. 0.15% fee - However you made the error of comparing it to Vanguard's 0.3% advisory service, which offers substantially more than either Betterment or Lifestrategy. The proper comparison to the 0.15% extra fee, is Lifestrategy's 0% extra fee.
Edit: Fixed bad math. You'll likely pay about $3,000 taxes on your $81k move.
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Thank you, Dodge.
When I talk to Kevin at Vanguard next week, I'll be excited to ask about Voyager Services. Thanks for finally making me understand how the services actually line up.
A few other tidbits I'm wondering (seriously....apologies for more questions.) –
Is the automatic rebalancing that Betterment offers if my portfolio skews more then 5% away from my target risk allocation worth anything and is there an equivalent that I would receive at Vanguard?
Would he IRAs still not be taxed even if I had to switch them all out to Vanguard from the American Funds? I'm scared that they'll have to liquidate them in order to get them invested into Vanguard in which case they'll be taxed. Hoping I'm way off on this one, as per usual!
Getting very excited over here – Sounds like I need to have about 3 or 4 thousand bucks ready for next tax season and pretty soon I can have some shiny new Vanguard funds!
Thanks again to everybody for all the help.
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Is the automatic rebalancing that Betterment offers if my portfolio skews more then 5% away from my target risk allocation worth anything and is there an equivalent that I would receive at Vanguard?
Might want to read the info Dodge linked about Vanguard's LifeStrategy Funds....
Would he IRAs still not be taxed even if I had to switch them all out to Vanguard from the American Funds? I'm scared that they'll have to liquidate them in order to get them invested into Vanguard in which case they'll be taxed. Hoping I'm way off on this one, as per usual!
You should be able to transfer the funds "in kind." Or you can liquidate to cash with the current broker, then transfer the cash directly from the broker to Vanguard. Check with Vanguard and the current broker for the costs to sell the funds.
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There's no taxes involved in moving your IRA from one to another. Even if you cash out, there's no tax due assuming you transfer within 60 days. You'll get a tax form at the end of the year (1099-INT?) but you just have to make sure it's noted as a transfer, not a dispersement. Super easy.
There will probably be fees for closing your accounts at your old advisor - just another trick they do to try to get you to stay. You'll more than make it up by getting into lower cost funds.
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Tacocat,
You asked me about my experience so far, and about the taxes....so....
I liquidated about $140,000 of my mutual funds over 1 year old to buy Vanguard index funds. Between federal and state, I'll owe ~ $6500 in capital gains tax in 2016.
To put things in perspective, my financial advisor netted me about $6000 in returns last year. My Vanguard funds are already up significantly over that tax bill above ($250k portfolio) in the first quarter.
It was totally worth it to be free of the fees at Edward Jones (ugh, and the loads) AND to trigger the capital gains tax. At least so far.
The market will eventually shift, but knowing that I was paying THOUSANDS of dollars in fees and expenses every year has me resting easier with my decision.
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Tacocat
As another newbie, I am so glad to follow your journey and hear your questions. FYI...
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Thank you, Dodge.
When I talk to Kevin at Vanguard next week, I'll be excited to ask about Voyager Services. Thanks for finally making me understand how the services actually line up.
A few other tidbits I'm wondering (seriously....apologies for more questions.) –
Is the automatic rebalancing that Betterment offers if my portfolio skews more then 5% away from my target risk allocation worth anything and is there an equivalent that I would receive at Vanguard?
Would he IRAs still not be taxed even if I had to switch them all out to Vanguard from the American Funds? I'm scared that they'll have to liquidate them in order to get them invested into Vanguard in which case they'll be taxed. Hoping I'm way off on this one, as per usual!
Getting very excited over here – Sounds like I need to have about 3 or 4 thousand bucks ready for next tax season and pretty soon I can have some shiny new Vanguard funds!
Thanks again to everybody for all the help.
I understand you're overwhelmed here, so you may have missed it:
(http://i.imgur.com/vYRKNLE.png)
https://investor.vanguard.com/mutual-funds/lifestrategy/#/ (https://investor.vanguard.com/mutual-funds/lifestrategy/#/)
It's funny to hear that you're excited about getting some shiny new Vanguard funds. Because even if you choose Betterment, that's what you were going to end up with :-P (Betterment takes your money and puts it in Vanguard for you).
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Alrighty, latest update –
Can't stress how much I appreciate everybody weighing in with their expertise and assistance.
I sent out a mail to my advisor last night which I thought was pretty stern. Paraphrased –
"Thanks for the information about our funds. I'm including a graph that shows some of our funds, ITSLX, vs the similar mid-cap Vanguard fund, VMGRX. It looks as though our funds actually do worse in the bear markets of '08 and worse in the bull market of the last few years, too. I'm having trouble figuring out how we can be doing ok with this information as well as the 2.14% expense ratio and 53% turnover ratio on funds like ITSLX. I’m leaning quite heavily towards the ETF’s and index funds to eliminate some of these fees, even though I've tried to hear you out about being against them.
While I really would rather not have to be dwelling in the weeds like you say, I'm feeling uncomfortable with some of the answers you've given me. My financial future and portfolio are important to me and I’d like to be able to make some decisions, based on as much information as I can gather. So please provide any info or illustrations you can offer that show that we're doing better than we would be if all our funds were just invested in Vanguard Total Stock Market Index. Sorry to cause you a headache, but I felt the need to be honest with you about questions I currently have.
Its not an issue of trust of course – I understand your track record and how kind you've been to my family; I just like knowing what my money is doing and how my dollars are being invested. Therefore, I find it a bit insulting that you state you can provide me with tons of information (but you don't) and that I should just trust blindly.
Thanks for the help."
Attached this image –
(http://i1300.photobucket.com/albums/ag82/tacocat01/FundCompare_zpsq2fhon48_1.jpg) (http://s1300.photobucket.com/user/tacocat01/media/FundCompare_zpsq2fhon48_1.jpg.html)
Since sending this last night, I've heard back from him 3 times, with 4 separate American Funds information packets.
In his response, he stresses to me that in the attached info it explains why, there is "simply no protection in bear markets with indexes". Which, as we've discussed here, seems pretty obvious. He goes on to say that active management is now this year beating indexes and passive just when everyone is jumping on the low cost ETF and index bandwagon . He says he saw this in 2000 and 2007 and BOTH ended poorly, and that things cycle.
He goes on to say that it also comes down to asset allocation and that is what he does well that Vanguard and passive indexes can not.
Finally, he stresses that investing doesn’t not boil down to just fees, and that there is way more to it. He says he does comprehensive wealth management that I will see it in time, much more than just placing mutual funds or stocks. He does offer me the option to change the funds we're in, but says he's not concerned or upset with the gains we've made. He closes by saying there are also new managers that he generally gives more time to operate. But that it's up to me and that he's happy to visit this.
Here are the main points from his attached documents....The funny thing is, i think all the documents were FROM American Funds, Ha. But I could be wrong, perhaps they just said american funds on them and it's information he gathered.
(http://i1300.photobucket.com/albums/ag82/tacocat01/Summary_zpsmkwabm5f.png) (http://s1300.photobucket.com/user/tacocat01/media/Summary_zpsmkwabm5f.png.html)
(http://i1300.photobucket.com/albums/ag82/tacocat01/Graphs_zps5okxib6f.png) (http://s1300.photobucket.com/user/tacocat01/media/Graphs_zps5okxib6f.png.html)
(http://i1300.photobucket.com/albums/ag82/tacocat01/PieGraphs_zpsxikdg8yr.png) (http://s1300.photobucket.com/user/tacocat01/media/PieGraphs_zpsxikdg8yr.png.html)
What is he trying to prove to me by showing these SP500 graphs vs. barclay?
Anyways, the writing seems pretty clear on the wall to me, just nice to have you guys' continued support while I wait to talk with Vanguard again next week.
Thanks, as always, for all the help.
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What is he trying to prove to me by showing these SP500 graphs vs. barclay?
No idea what he is trying to show.
What he is showing is a 5% Withdrawal Rate from a non-rebalanced portfolio starting at 60% stocks / 40% bonds, and assuming 3% inflation, from 2000 through 2013. The 5% is higher than the usually-assumed Safe Withdrawal Rate of 4%, and the 3% inflation is higher than actual (see http://www.statista.com/statistics/191077/inflation-rate-in-the-usa-since-1990/). He may be trying to imply that using indexes will cause you to lose money, but it's a "misleading at best" example if so.
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Wow. Just. Wow.
I actually had to break out Excel to determine what was happening here...
$500,000 portfolio, not rebalanced, with a 5% withdrawal rate, 3% "inflation" increases (despite inflation being well below 3% during this time), timed exactly at the peak of the market in the year 2000, just before the two biggest crashes since 1929.
?! Really !? That's his argument?
This is a fantastic combination of idiocy, and worst timing ever. But I still don't see how any of this helps his point, because your American Funds portfolio would have performed ***worse*** during this period. Again, he either doesn't know what he's doing, or he's purposely treating you like an idiot.
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Ahh, Ok. THis is my bad – I think I understand what he's trying to show now. I failed to include pictures from the other handout as well, which compare the last pics (index bonds and index equities) to the following pics which compare against mutual funds:
(http://i1300.photobucket.com/albums/ag82/tacocat01/Summary_zpsmkwabm5f.png) (http://s1300.photobucket.com/user/tacocat01/media/Summary_zpsmkwabm5f.png.html)
(http://i1300.photobucket.com/albums/ag82/tacocat01/MarketHighLines_zpsepxwaqbk.png) (http://s1300.photobucket.com/user/tacocat01/media/MarketHighLines_zpsepxwaqbk.png.html)
(http://i1300.photobucket.com/albums/ag82/tacocat01/MarketHighsPies_zpswtgc1lg0.png) (http://s1300.photobucket.com/user/tacocat01/media/MarketHighsPies_zpswtgc1lg0.png.html)
(http://i1300.photobucket.com/albums/ag82/tacocat01/AmFundsLines_zps1xath1tm.png) (http://s1300.photobucket.com/user/tacocat01/media/AmFundsLines_zps1xath1tm.png.html)
He is showing that the indexes will lose while you withdraw, right?
Thanks again, to all.
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Even worse than not rebalancing, he is purposely withdrawing the same amount from both stocks and bonds, despite the fact that stocks halved in value twice during this period. No one does this. The whole point of having bonds is so you don't have to touch stocks when they crash, and if things get too out of bounds, to rebalance. Seriously, this entire example is contrived with the assumption that you, the person being sold on their expensive funds, knows absolutely nothing about investing. Otherwise they wouldn't show people this obvious crap.
Tacocat, it doesn't seem like you're offended by this. Don't worry. I'm offended enough for us both. Stop treating this guy like he's doing you a favor. You don't have to preface your statements with "sorry to give you a headache", "it's not an issue of trust", and "I know how kind you've been to my family". He's literally calling you an idiot to your face.
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He is showing that the indexes will lose while you withdraw, right?
No, he's showing that he's willing to call you an idiot, with a smile, while asking for money. This is wrong on so many levels. The more I look at it, the more I see:
- Why is he using a 5% withdrawal rate? Does he think you're an idiot?
- Why is he using 3% inflation, when inflation was much lower? Does he think you don't know how to look this up?
- The funds he's show you here, all of them rebalance, and all of them withdraw more from bonds when stocks are falling. Why don't the index funds do this? This is standard practice.
- these three funds are a combined 70% USA/International stocks, and 30% cash/bonds/other. A 60% S&P500, 40% Barclays portfolio isn't even close to being a good benchmark for this.
- If these specific American funds are so great, why aren't you in them? Are these funds cherry picked? Will the brochure in 10 years from now, have different cherry picked funds to "prove" active funds are superior than passive funds? Interesting that these funds have an average fee of 0.58%, while you're being put in 2.14% funds...
The only thing this shows you, is that he's willing to manipulate data to get a sale.
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If we're going to cherry pick, let's at least have fun with it! These are the same three funds from the brochure:
(http://i.imgur.com/I0lFr5H.png)
(http://i.imgur.com/aB2mw1v.png)
And now with the ridiculous 5% withdrawal rate:
(http://i.imgur.com/5ZSQGhj.png)
PROOF that index funds beat active funds!
(http://28oa9i1t08037ue3m1l0i861.wpengine.netdna-cdn.com/wp-content/uploads/2014/02/tumblr_m5y7apLjOC1rqfhi2o1_250.gif)
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The only thing this shows you, is that he's willing to manipulate data to get a sale.
Any chance he doesn't understand it himself? Drinking someone else's Koolaid?
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The only thing this shows you, is that he's willing to manipulate data to get a sale.
Any chance he doesn't understand it himself? Drinking someone else's Koolaid?
If a financial manager doesn't understand when data is being manipulated, then I don't want him handling my money.
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I would not waste my time getting in a debate with your advisor. It is your money. You do with it as you wish. Give him the order to transfer the funds. Period. End of story.
Many years ago a family member gave us some American Funds. I was an inexperienced investor at the time, but even then I could see how terrible they performed. I couldn't stomach it any more and moved to Vanguard. It has been great. That was when we had AF without an advisor. The AF funds are awful. Great decision for you to move.
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Take a deep breath.
This is what you tell him: You're fired.
Stop getting ripped off, because that is the reality.
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I would not waste my time getting in a debate with your advisor. It is your money. You do with it as you wish. Give him the order to transfer the funds. Period. End of story.
When I switched to Vanguard, I never had to contact my old advisor to transfer the funds. I called Vanguard, and they took care of that for me. No awkward phone calls or emails to say goodbye to the old advisor.
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I would not waste my time getting in a debate with your advisor.
This.
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I, too, was in a similar scenario with you about 10 years ago. I had some money invested with Edward Jones that was placed in American Funds. After doing my own research, I went with Vanguard. I filled out the necessary paperwork and Vanguard took care of everything. I never let my "investment advisor" know because it didn't concern him. Nevertheless, he called when Vanguard began transferring the money and I explained that I could do it for better and cheaper and that I have my own interest as my highest priority (unlike him). He wanted a meeting so you could go over the data, etc., but I politely refused and hung up. I've never looked back.
Don't get into a back and forth with him. This is what he's trained to do. Seek out your own graphs and information if you want true data because his will be tampered in his favor. He's continually slapping you in the face and so far you've been taking it. Fill out the paperwork from Vanguard (it literally couldn't be any easier) and they'll take care of it. Once the money is with Vanguard, then you can sit down and execute a plan on transferring to better (and cheaper!) funds.
PS: Regardless what his relationship with your family has been, he's been far from good to them.
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I would not waste my time getting in a debate with your advisor. It is your money. You do with it as you wish. Give him the order to transfer the funds. Period. End of story.
When I switched to Vanguard, I never had to contact my old advisor to transfer the funds. I called Vanguard, and they took care of that for me. No awkward phone calls or emails to say goodbye to the old advisor.
Same here. Unless the guy is a personal friend I'd just move on.
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Being such a newcomer to investing, I'm first to admit that I could very well poop my pants when the portfolio suddenly drops 30% one day.
I'd poop my pants at a 30% one day drop too. But for a completely different reason. If the market dropped 30% tomorrow, I would joyfully put $100,000 in an index fund tomorrow.
Buy low, sell high. What in the heck is so hard about that?
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Friend, would you let anyone basically steal from you, if you knew they were doing it? Pay a $200 tip at Pizza Hut? FA's from my experience have a handbook they quote from, and yours is no different... Make it seem like this is big scary stuff, shame you on your lack of investing acumen, everything will be OK if you stick with me, degenerate the competition with flat out lies or skew things with BS, razzmatazz, etc. Even the tactic of a not so soft dig, well shown by one of the posters here, is a tactic...
"(index funds) are good for the typical everyday investor who doesn't want to spend a lot of time or effort learning about the stock market and the ins and outs of investing."
Translated: You are too unsophisticated and lazy to do "REAL" investing, better let me handle (loose/take waaaaaaayyyy to much of your money), that I will spend a few minutes a month myself handling your account using a computer program, and a colored printer to show you some snappy charts, filled with a ton of buzzwords." Ask him what "ins and outs" cost??? Your FA knows he better keep you hooked, and his tone is demeaning and desperate, last breaths from a dying man.
Lets see all the buzzwords when the actual return you receive by those insane level of fees is way below the tracking benchmark. At best, go with a pay by the hour fiduciary to help you decide, but listening to the fox running the hen house will have you achieve so much less than could have been. As mentioned, do not spar with these sleazy used car salesmen, just do the transfer via whomever, and cut this parasite out of your life.
I have been with Vanguard for decades, and they have about $3 trillion under management, over $1MM of it being mine ... Recently while doing a 401k rollover, VG apologized for the potentially long processing time; I was told they are overwhelmed with inflows. Please listen the the wise advice of folks here, get switched over to low cost index funds from someone, and enjoy the fruit of your labor. I wish you the very best of luck!
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Agreed Vanguard rocks and I have accounts with them. I also use betterment for an emergency fund and mid term goal investing (buying a new used car). Betterment has a great website and has been extremely easy but of course they have higher fees.
Either option will be a massive improvement from where you are now. More important that choosing Vanguard or Betterment is that you add money every paycheck or every month. That is by far the most important thing to do. Every weekly paycheck I add money both my taxable and tax-advantaged (Roth/401k) accounts. Make the move and track what percentage of your monthly income you are saving and keep trying to increase it.
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It's finally done!
Out of nowhere, my financial advisor emailed to say he's switching firms, from Morgan Stanley to Benjamin F. Edwards & Co., and so I let him know I would not be following him to his new company. After I congratulated him on his new job, I asked for a hand in getting my accounts transferred. He wrote back two sentences:
"I would really like to help you however your assets are at Morgan Stanley and I am at Benjamin F Edwards. I wish you the best of luck."
And that was that. Yeesh.
Luckily, my accounts were transferred to a very kind advisor at Morgan Stanley who assisted me in getting everything transferred over to Betterment. He was very helpful.
I was all ready to invest with Vanguard directly and still have an empty account opened with them, but wound up transferring both IRA's and my taxable account to Betterment. I went with Betterment against the advice of some of you kind friends because of a reply I got from MMM himself to an email I sent him where he reported how pleased he's been with Betterment, its portfolio, and the amount it's already saved him with tax loss harvesting. He also mentioned money from a rental property he's selling this year going directly to Betterment because of how pleased he's been w/ his accouts there. Add to this how much more I like their interface and ease and I'm sold on Betterment for the time being. Because I have more than 100k, the fee will only be a .15% and I'm alright with that for now.
Thank you all so much for answering all of my dumb questions. It's been the start of an education that I'm excited to keep adding to! I really appreciate all the links, crunched numbers, words of wisdom, and shared stories you all brought to share. Thank you again! I'll let you know how things go with Betterment in the future.
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I went with Betterment against the advice of some of you kind friends because of a reply I got from MMM himself to an email I sent him where he reported how pleased he's been with Betterment, its portfolio, and the amount it's already saved him with tax loss harvesting.
Sorry to say it, but MrMoneyMustache isn’t exactly an investing mogul. I’ve pointed out to him many times that the math of tax loss harvesting doesn’t overcome the extra Betterment fees, and he’s never responded. He responds to my other points, but not that one. In his latest blog update (http://www.mrmoneymustache.com/betterment-vs-vanguard/) he talks highly of the money he’s saved in tax loss harvesting, claiming that the amount received from tax loss harvesting has exceeded his extra Betterment fees, but he embarrassingly misses the fact that his biggest loss was a wash sale. The “W” in Box 1f:
(http://3.ii.gl/JALxOyyAu.png)
This means he won’t be able to claim that loss on his taxes. Here’s Intuit’s page highlighting what a “W” in Box 1f means:
https://ttlc.intuit.com/questions/1901026-how-do-i-enter-a-wash-sale
In other words, his statement was wrong. The tax loss harvesting did not overcome his fees.
-Corrected by Cathy below. His numbers are still off, but just barely (74 cents).
Add to this how much more I like their interface and ease and I'm sold on Betterment for the time being. Because I have more than 100k, the fee will only be a .15% and I'm alright with that for now.
It really befuddles me when people say that. For me, I login, hit "LifeStrategy Growth", put in how much I'd like to buy, and I'm done. It already has my bank account information pre-filled in, it's literally a 15 second process. Do a lot of people really choose where invest their life savings based on how pretty the website interface is? People think the pretty boxes for 15 seconds are worth paying hundreds of thousands of dollars in extra fees over their lifetimes? ¯\_(ツ)_/¯
I think I'll make a new thread comparing the interfaces to get the bottom of this. Their entire product is literally a website-wrapper on top of Vanguard funds, and the fee they charge for this wrapper is many times higher than Vanguard's fee to manage the funds themselves! Technically, they are a broker that holds Vanguard funds for you, but no other broker charges their own percentage fee on your holdings. Their marketing trickery is really fascinating to me, I don't understand how they convince people who already know about Vanguard to do this...
Anyway, back on topic. CONGRATS on moving Tacocat :D I was worried there for a minute when we hadn't heard from you. Keep one thing in mind regarding your quote above, "for the time being" and "I'm alright with that for now". Your $100,000 (I'm sure it's more, but let's start there) is expected to double every 7 years or so. If you go on autopilot for 10 years, and get the long term stock market average, your $100,000 will have more than tripled. Let's round down and say it grows to $300,000.
If you try to cash out and move to Vanguard (or some other low fee provider, like WiseBanyan, who is even cheaper than Vanguard), you'll have to pay capital gains taxes on those $200,000 gains. This will probably result in a tax bill of around $36,000. If you choose not to pay the tax bill, and move your Betterment account "in-kind" instead, you'll end up managing the complicated 10-20 fund portfolio Betterment throws your money into.
In other words, you'll be penalized pretty heavily if this is a "for the time being" or "for now" decision. You might end up locked-in, turning this into a forever decision. I'd think long and hard before making a move like this. If you have your heart set on it, why not move just the IRA accounts over, and put the taxable in Vanguard? This will allow you to compare them both directly, and if you decide to leave Betterment, there will be no tax penalty. You won't be locked-in at all, you can simply cash out and go wherever you want, almost like a free trial :) Win/Win!
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I went with Betterment against the advice of some of you kind friends because of a reply I got from MMM himself to an email I sent him where he reported how pleased he's been with Betterment, its portfolio, and the amount it's already saved him with tax loss harvesting.
Sorry to say it, but MrMoneyMustache isn’t exactly an investing mogul. I’ve pointed out to him many times that the math of tax loss harvesting doesn’t overcome the extra Betterment fees, and he’s never responded. He responds to my other points, but not that one. In his latest blog update (http://www.mrmoneymustache.com/betterment-vs-vanguard/) he talks highly of the money he’s saved in tax loss harvesting, claiming that the amount received from tax loss harvesting has exceeded his extra Betterment fees, but he embarrassingly misses the fact that his biggest loss was a wash sale. The “W” in Box 1f:
(http://3.ii.gl/JALxOyyAu.png)
This means he won’t be able to claim that loss on his taxes. Here’s Intuit’s page highlighting what a “W” in Box 1f means:
https://ttlc.intuit.com/questions/1901026-how-do-i-enter-a-wash-sale
In other words, his statement was wrong. The tax loss harvesting did not overcome his fees.
Dodge, what this form tells you that is 74 cents of the loss is non-deductible. The remaining $326.43 is deductible (*).
((*) Of course, the deductibility of the loss is ultimately determined by the law, not by the entries on Form 1099-B. But in this context, we have no reason to think that the form is wrong.)
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I went with Betterment against the advice of some of you kind friends because of a reply I got from MMM himself to an email I sent him where he reported how pleased he's been with Betterment, its portfolio, and the amount it's already saved him with tax loss harvesting.
Sorry to say it, but MrMoneyMustache isn’t exactly an investing mogul. I’ve pointed out to him many times that the math of tax loss harvesting doesn’t overcome the extra Betterment fees, and he’s never responded. He responds to my other points, but not that one. In his latest blog update (http://www.mrmoneymustache.com/betterment-vs-vanguard/) he talks highly of the money he’s saved in tax loss harvesting, claiming that the amount received from tax loss harvesting has exceeded his extra Betterment fees, but he embarrassingly misses the fact that his biggest loss was a wash sale. The “W” in Box 1f:
(http://3.ii.gl/JALxOyyAu.png)
This means he won’t be able to claim that loss on his taxes. Here’s Intuit’s page highlighting what a “W” in Box 1f means:
https://ttlc.intuit.com/questions/1901026-how-do-i-enter-a-wash-sale
In other words, his statement was wrong. The tax loss harvesting did not overcome his fees.
Dodge, what this form tells you that is 74 cents of the loss is non-deductible. The remaining $326.43 is deductible (*).
((*) Of course, the deductibility of the loss is ultimately determined by the law, not by the entries on Form 1099-B. But in this context, we have no reason to think that the form is wrong.)
Ah, thanks Cathy (our resident tax expert!) that makes much more sense.