Author Topic: I ended my 20-year relationship with my financial advisor today - Help!  (Read 2763 times)

HTX91

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Hi All,

Recently read "The Simple Path to Wealth" by JL Collins and needless to say it had an effect on me. Today I ended a 20 year relationship with my financial advisor and decided to take my investments in my own hands. The advisor has been "taking care" of my family since before I was born so naturally I inherited him too. He's got me in several different funds and I'd like to reallocate these funds into an Index fund, preferably FZROX. That being said I'm sure there are some tax ramifications of doing so and I want to make sure I don't do anything too sudden before consulting the MMM community. Below is my allocation

Here's a link to my Case Study I recently posted about a week ago, if you're interested for the full details: https://forum.mrmoneymustache.com/case-studies/case-study-new-chapter-financial-plans-moving-forward/

For those not interested in that much information:

Location: Texas (No state income tax)
Age: 30
Marital Status: Single
Kids: None.



Mutual Funds:
1. AMEFX (American Income Fund of America CL F2) $31,358.98
2. FIIMX (Fidelity Advisor Mid Cap II CL I)                $6,972.32
3. SMCFX (American Smallcap World Fund CL F2       $5,517.57
Total: $43,848.87

Traditional IRA:
1. FANIX (Fidelity Advisor Energy Fund CL I)              $6,949.74
2. FGADX (Franklin Gold and Precious Metals Adv CL) $11,734.99
3. FRIRX (Fidelity Advisor Real Estate Income I)         $7,649.57
4. VARBX (First Trust Merger Arbitrage Class I)          $3,048.01
Total: $29,382.34

**The rest of my assets are listed in the link above.**

Questions:

1. I'm assuming there will be tax ramifications for reallocating although I'm not 100% sure on that. If there is, is it worth reallocating at this point given the amount of investment years ahead of me?
2. My brokerage is Fidelity and i'm aiming to reallocate all of these dollars into FZROX (Fidelity's version of the VTSAX). Is there anything special I need to know when completing these transactions online?
« Last Edit: December 04, 2021, 07:22:10 PM by HTX91 »

MrThatsDifferent

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Re: I ended my 20-year relationship with my financial advisor today - Help!
« Reply #1 on: December 03, 2021, 02:06:18 PM »
Unfortunately I canít help you with any specific advice. Iím just weeping for you for the amount of money wasted having someone employed to manage such a small sum of money, I was expecting to see hundred of thousands in the portfolio. Glad you woke up.

fell-like-rain

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Re: I ended my 20-year relationship with my financial advisor today - Help!
« Reply #2 on: December 03, 2021, 02:08:29 PM »
Reallocating within the IRA is totally fine- buying and selling are not taxable events, only withdrawals. So you can go ahead and move all that money to FZROX or any other fund/equity without trouble.

The taxable account (I assume that's what the other one is) is a bit trickier. Can you find out how much capital gains you have for each? Usually that's something a brokerage account will display for you. Basically, you'll pay 15% of your gains, assuming your total income for the year is more than $40k. That might not be awful- if your money has appreciated 30%, for example, 0.15 * 0.3 = 0.045, so you'd pay 4.5% of the total.

On the other hand, the expense ratios are not awful. It looks like 0.35% for the income fund and 0.76% for the other two. FZROX is just 0.03%, so you'd definitely be improving, but it's a different situation than if you had a fund with 2% expense ratio or something.

Ultimately I think it comes down to the cap gains and asset allocation. If the gains are fairly small, just sweep it all into FZROX. If they're on the large side, and you're fine with this value - small/mid allocation, you could just leave it as is and invest all new money into other funds. Depends on the situation, in my view.
« Last Edit: December 03, 2021, 02:10:39 PM by fell-like-rain »

EvenSteven

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Re: I ended my 20-year relationship with my financial advisor today - Help!
« Reply #3 on: December 03, 2021, 02:11:06 PM »
No tax consequences for the IRA, and FZROX is a fine choice in there.

You will need to pay capital gains tax on the funds listed under "mutual finds," assuming those are in a regular taxable brokerage account. The tax owed will depend on your tax brackets and if the gains are long term or short term.

If I were you I would probably first turn off dividend re-investment in those taxable funds. Then sell funds with long term capital gains up to the top of the 15% long term capital gains rate. If there are funds still left, wait for them to go long term, or spread the sale out over a couple years to keep under the 20% LTCG rate. This depends on your tax situation.

Note that FZROX cannot be held at any other brokerages, so if you ever need to move them you will need to sell them, with the accompanying tax implications. Consider FSKAX (or VTI) in a taxable account at Fidelity instead. At Fidelity ETFs will be more tax efficient than mutual funds.

Freedomin5

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Re: I ended my 20-year relationship with my financial advisor today - Help!
« Reply #4 on: December 03, 2021, 03:15:36 PM »
I agree with the others. Move your IRA funds into something better.

For the mutual funds, the amounts are so small that it might be okay to just turn off DRIP and leave them be, and then invest new money into a better total stock market equity index fund. That would be the lazy personís way of doing it and is actually what I did (had about $20k invested before discovering MMM).

The other way to think about it is that the amounts are so small that your capital gains taxes really arenít going to be too high. So just sell them now and create the AA you want. When you sell, Fidelity should send you a statement so you can calculate the taxes. My brokerage actually just takes out the taxes and remits them on our behalf.

act01

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Re: I ended my 20-year relationship with my financial advisor today - Help!
« Reply #5 on: December 04, 2021, 12:42:57 AM »
Check out ďThe Little Red Book of Common Sense Investing.Ē Itís a quick read. Indexes are super easy and hands off, and also what Warren Buffet has said his wifeís investment accounts will be in once he passes away.

DaTrill

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Re: I ended my 20-year relationship with my financial advisor today - Help!
« Reply #6 on: December 04, 2021, 04:05:31 PM »
Read "Random Walk Down Wallstreet", follow the advice.   

Dicey

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Re: I ended my 20-year relationship with my financial advisor today - Help!
« Reply #7 on: December 04, 2021, 06:05:38 PM »
Unfortunately I canít help you with any specific advice. Iím just weeping for you for the amount of money wasted having someone employed to manage such a small sum of money, I was expecting to see hundred of thousands in the portfolio. Glad you woke up.
This is a big blob of hyperbole. Based on how what the OP has saved, the fees probably never really added up to all that much. The advisor is not responsible for the lack of saving, the OP is. Now that OP has discovered MMM, they can make up for lost time. I'm not throwing shade on the OP. They started at age ten, how much a one kid be expected to save? Sure, time has been lost, but $73k at age 30 is still a good start.

HTX91

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Re: I ended my 20-year relationship with my financial advisor today - Help!
« Reply #8 on: December 04, 2021, 07:07:30 PM »
Reallocating within the IRA is totally fine- buying and selling are not taxable events, only withdrawals. So you can go ahead and move all that money to FZROX or any other fund/equity without trouble.

The taxable account (I assume that's what the other one is) is a bit trickier. Can you find out how much capital gains you have for each? Usually that's something a brokerage account will display for you. Basically, you'll pay 15% of your gains, assuming your total income for the year is more than $40k. That might not be awful- if your money has appreciated 30%, for example, 0.15 * 0.3 = 0.045, so you'd pay 4.5% of the total.

On the other hand, the expense ratios are not awful. It looks like 0.35% for the income fund and 0.76% for the other two. FZROX is just 0.03%, so you'd definitely be improving, but it's a different situation than if you had a fund with 2% expense ratio or something.

Ultimately I think it comes down to the cap gains and asset allocation. If the gains are fairly small, just sweep it all into FZROX. If they're on the large side, and you're fine with this value - small/mid allocation, you could just leave it as is and invest all new money into other funds. Depends on the situation, in my view.

Given that these funds are pretty small I think I'm going to eat the capital gains tax on them and re-allocate. Thanks for throwing in your wisdom!

No tax consequences for the IRA, and FZROX is a fine choice in there.

You will need to pay capital gains tax on the funds listed under "mutual finds," assuming those are in a regular taxable brokerage account. The tax owed will depend on your tax brackets and if the gains are long term or short term.

If I were you I would probably first turn off dividend re-investment in those taxable funds. Then sell funds with long term capital gains up to the top of the 15% long term capital gains rate. If there are funds still left, wait for them to go long term, or spread the sale out over a couple years to keep under the 20% LTCG rate. This depends on your tax situation.

Note that FZROX cannot be held at any other brokerages, so if you ever need to move them you will need to sell them, with the accompanying tax implications. Consider FSKAX (or VTI) in a taxable account at Fidelity instead. At Fidelity ETFs will be more tax efficient than mutual funds.

You brought up an interesting point about FZROX only being available through Fidelity. I had not thought about this. What scenarios would prompt me to need to switch brokerages? Is there anything besides personal preference?

I agree with the others. Move your IRA funds into something better.

For the mutual funds, the amounts are so small that it might be okay to just turn off DRIP and leave them be, and then invest new money into a better total stock market equity index fund. That would be the lazy personís way of doing it and is actually what I did (had about $20k invested before discovering MMM).

The other way to think about it is that the amounts are so small that your capital gains taxes really arenít going to be too high. So just sell them now and create the AA you want. When you sell, Fidelity should send you a statement so you can calculate the taxes. My brokerage actually just takes out the taxes and remits them on our behalf.

Given that these accounts are fairly small, i'm just going to eat the capital gains tax since 95% of taxable account is long term at this point.

Check out ďThe Little Red Book of Common Sense Investing.Ē Itís a quick read. Indexes are super easy and hands off, and also what Warren Buffet has said his wifeís investment accounts will be in once he passes away.

I'll definitely check this book out. Thanks!



Read "Random Walk Down Wallstreet", follow the advice.   

I'll check this book out. Thanks for the advice!

Unfortunately I canít help you with any specific advice. Iím just weeping for you for the amount of money wasted having someone employed to manage such a small sum of money, I was expecting to see hundred of thousands in the portfolio. Glad you woke up.
This is a big blob of hyperbole. Based on how what the OP has saved, the fees probably never really added up to all that much. The advisor is not responsible for the lack of saving, the OP is. Now that OP has discovered MMM, they can make up for lost time. I'm not throwing shade on the OP. They started at age ten, how much a one kid be expected to save? Sure, time has been lost, but $73k at age 30 is still a good start.

So I originally linked my recent case study thinking most MMMer's would check it for more details. That was my mistake...heh. If you account for all my assets they're running around $150K (177K if you count the paid off tahoe) with zero liabilities. Now I know I lost some savings opportunity, but I took 2.5 years to try and start a business that didn't pan out well enough to continue and I have no support so it ate some of my previous resources. <shrug> I'm focused on what's in front of me, not behind me.

Thanks for the encouragement!
« Last Edit: December 04, 2021, 07:19:12 PM by HTX91 »

Wolfpack Mustachian

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Re: I ended my 20-year relationship with my financial advisor today - Help!
« Reply #9 on: December 05, 2021, 05:57:59 AM »
Unfortunately I canít help you with any specific advice. Iím just weeping for you for the amount of money wasted having someone employed to manage such a small sum of money, I was expecting to see hundred of thousands in the portfolio. Glad you woke up.
This is a big blob of hyperbole. Based on how what the OP has saved, the fees probably never really added up to all that much. The advisor is not responsible for the lack of saving, the OP is. Now that OP has discovered MMM, they can make up for lost time. I'm not throwing shade on the OP. They started at age ten, how much a one kid be expected to save? Sure, time has been lost, but $73k at age 30 is still a good start.

+1 They actually have wasted a lot less money in raw numbers because they had less money being managed. As you said, $73k at 30 is pretty darn good, and they have a bright future ahead, so rock on OP!

DaTrill

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Re: I ended my 20-year relationship with my financial advisor today - Help!
« Reply #10 on: December 10, 2021, 04:41:07 PM »
Hi All,

Recently read "The Simple Path to Wealth" by JL Collins and needless to say it had an effect on me. Today I ended a 20 year relationship with my financial advisor and decided to take my investments in my own hands. The advisor has been "taking care" of my family since before I was born so naturally I inherited him too. He's got me in several different funds and I'd like to reallocate these funds into an Index fund, preferably FZROX. That being said I'm sure there are some tax ramifications of doing so and I want to make sure I don't do anything too sudden before consulting the MMM community. Below is my allocation

Here's a link to my Case Study I recently posted about a week ago, if you're interested for the full details: https://forum.mrmoneymustache.com/case-studies/case-study-new-chapter-financial-plans-moving-forward/

For those not interested in that much information:

Location: Texas (No state income tax)
Age: 30
Marital Status: Single
Kids: None


Mutual Funds:
1. AMEFX (American Income Fund of America CL F2) $31,358.98
2. FIIMX (Fidelity Advisor Mid Cap II CL I)                $6,972.32
3. SMCFX (American Smallcap World Fund CL F2       $5,517.57
Total: $43,848.87

Traditional IRA:
1. FANIX (Fidelity Advisor Energy Fund CL I)              $6,949.74
2. FGADX (Franklin Gold and Precious Metals Adv CL) $11,734.99
3. FRIRX (Fidelity Advisor Real Estate Income I)         $7,649.57
4. VARBX (First Trust Merger Arbitrage Class I)          $3,048.01
Total: $29,382.34

**The rest of my assets are listed in the link above.**

Questions:

1. I'm assuming there will be tax ramifications for reallocating although I'm not 100% sure on that. If there is, is it worth reallocating at this point given the amount of investment years ahead of me?
2. My brokerage is Fidelity and i'm aiming to reallocate all of these dollars into FZROX (Fidelity's version of the VTSAX). Is there anything special I need to know when completing these transactions online?

Watch.

https://www.youtube.com/watch?v=JdUKhgW1gOo&t=1s

Retire-Canada

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Re: I ended my 20-year relationship with my financial advisor today - Help!
« Reply #11 on: December 12, 2021, 07:16:52 AM »
Nothing new to add other than to say congrats on breaking free from that FA.

BicycleB

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Re: I ended my 20-year relationship with my financial advisor today - Help!
« Reply #12 on: December 13, 2021, 08:01:23 PM »

You brought up an interesting point about FZROX only being available through Fidelity. I had not thought about this. What scenarios would prompt me to need to switch brokerages? Is there anything besides personal preference?


I think there's not a need to switch away from Fidelity.

From what I can tell, the reasons people switch are price, service, trust. Fidelity is usually good on these so in your shoes I'd move there.

I think the "best" brokerages using the criteria above are usually:
1. Vanguard - very reliable/trustworthy; at or near the best price on just about everything; service decent unless you need to meet in person. My fave.
2. Fidelity - reasonable on trust but not as consistent as Vanguard; price the best by a tiny bit on some things, not best on others, but usually better than most; service good, includes in-person offices.
3. Schwab - reasonable trust, reasonable price, good service especially for international travelers.

HTX91

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Re: I ended my 20-year relationship with my financial advisor today - Help!
« Reply #13 on: December 22, 2021, 08:40:31 AM »
Hi All,

Recently read "The Simple Path to Wealth" by JL Collins and needless to say it had an effect on me. Today I ended a 20 year relationship with my financial advisor and decided to take my investments in my own hands. The advisor has been "taking care" of my family since before I was born so naturally I inherited him too. He's got me in several different funds and I'd like to reallocate these funds into an Index fund, preferably FZROX. That being said I'm sure there are some tax ramifications of doing so and I want to make sure I don't do anything too sudden before consulting the MMM community. Below is my allocation

Here's a link to my Case Study I recently posted about a week ago, if you're interested for the full details: https://forum.mrmoneymustache.com/case-studies/case-study-new-chapter-financial-plans-moving-forward/

For those not interested in that much information:

Location: Texas (No state income tax)
Age: 30
Marital Status: Single
Kids: None


Mutual Funds:
1. AMEFX (American Income Fund of America CL F2) $31,358.98
2. FIIMX (Fidelity Advisor Mid Cap II CL I)                $6,972.32
3. SMCFX (American Smallcap World Fund CL F2       $5,517.57
Total: $43,848.87

Traditional IRA:
1. FANIX (Fidelity Advisor Energy Fund CL I)              $6,949.74
2. FGADX (Franklin Gold and Precious Metals Adv CL) $11,734.99
3. FRIRX (Fidelity Advisor Real Estate Income I)         $7,649.57
4. VARBX (First Trust Merger Arbitrage Class I)          $3,048.01
Total: $29,382.34

**The rest of my assets are listed in the link above.**

Questions:

1. I'm assuming there will be tax ramifications for reallocating although I'm not 100% sure on that. If there is, is it worth reallocating at this point given the amount of investment years ahead of me?
2. My brokerage is Fidelity and i'm aiming to reallocate all of these dollars into FZROX (Fidelity's version of the VTSAX). Is there anything special I need to know when completing these transactions online?

Watch.

https://www.youtube.com/watch?v=JdUKhgW1gOo&t=1s

Thank you for sharing!

Nothing new to add other than to say congrats on breaking free from that FA.


Thank you. I'm happy to feel that i'm taking more control of my financial future!


You brought up an interesting point about FZROX only being available through Fidelity. I had not thought about this. What scenarios would prompt me to need to switch brokerages? Is there anything besides personal preference?


I think there's not a need to switch away from Fidelity.

From what I can tell, the reasons people switch are price, service, trust. Fidelity is usually good on these so in your shoes I'd move there.

I think the "best" brokerages using the criteria above are usually:
1. Vanguard - very reliable/trustworthy; at or near the best price on just about everything; service decent unless you need to meet in person. My fave.
2. Fidelity - reasonable on trust but not as consistent as Vanguard; price the best by a tiny bit on some things, not best on others, but usually better than most; service good, includes in-person offices.
3. Schwab - reasonable trust, reasonable price, good service especially for international travelers.

Thanks for the input. I think with this additional information I'm more solid in my choice in sticking with Fidelity for the foreseeable future.

MoneyGoatee

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Re: I ended my 20-year relationship with my financial advisor today - Help!
« Reply #14 on: December 30, 2021, 11:38:21 AM »
Two things about IRA:

1.  Diversify your traditional IRA properly because you are required to withdraw from it annually.  When the market turns to crap, you want to withdraw from a fund that DOESN'T turn to crap.  Hence, diversification.  It's still early for you, but you need to start preparing for that scenario.  For instance, have at least one year (N years) 's worth of savings in a fund that likely won't turn to crap (right away) in a market crash, such as bond funds. 

2.  Start setting up a Roth IRA or any tax-free account, so that when you die, your offsprings who inherit your money won't have to pay tax.  It's a long way from that, but starting preparing, either via IRA rollover or opening a new Roth IRA account.  Obviously, spend your Roth IRA money *last* when you withdraw money for your own retirement.

lhamo

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Re: I ended my 20-year relationship with my financial advisor today - Help!
« Reply #15 on: December 30, 2021, 12:11:13 PM »
Two things about IRA:

1.  Diversify your traditional IRA properly because you are required to withdraw from it annually.  When the market turns to crap, you want to withdraw from a fund that DOESN'T turn to crap.  Hence, diversification.  It's still early for you, but you need to start preparing for that scenario.  For instance, have at least one year (N years) 's worth of savings in a fund that likely won't turn to crap (right away) in a market crash, such as bond funds. 

2.  Start setting up a Roth IRA or any tax-free account, so that when you die, your offsprings who inherit your money won't have to pay tax.  It's a long way from that, but starting preparing, either via IRA rollover or opening a new Roth IRA account.  Obviously, spend your Roth IRA money *last* when you withdraw money for your own retirement.

He's 30 years old.  He doesn't have to start taking RMDs from the traditional IRA for 42 years.  PLENTY of time to step down risk.  For now, FZROX is a great place to put what he has.  I have a big chunk of it as part of my portfolio and I'm 53 and already FIREd.

Advice on Roths is good, though.

MoneyGoatee

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Re: I ended my 20-year relationship with my financial advisor today - Help!
« Reply #16 on: December 30, 2021, 12:26:13 PM »
Two things about IRA:

1.  Diversify your traditional IRA properly because you are required to withdraw from it annually.  When the market turns to crap, you want to withdraw from a fund that DOESN'T turn to crap.  Hence, diversification.  It's still early for you, but you need to start preparing for that scenario.  For instance, have at least one year (N years) 's worth of savings in a fund that likely won't turn to crap (right away) in a market crash, such as bond funds. 

2.  Start setting up a Roth IRA or any tax-free account, so that when you die, your offsprings who inherit your money won't have to pay tax.  It's a long way from that, but starting preparing, either via IRA rollover or opening a new Roth IRA account.  Obviously, spend your Roth IRA money *last* when you withdraw money for your own retirement.

He's 30 years old.  He doesn't have to start taking RMDs from the traditional IRA for 42 years.  PLENTY of time to step down risk.  For now, FZROX is a great place to put what he has.  I have a big chunk of it as part of my portfolio and I'm 53 and already FIREd.

Advice on Roths is good, though.

The time to do it is NOW because it takes years to set up a traditional IRA since you can only contribute $6k a year to it.  All the funds in his traditional IRA -- FANIX, FGADX, FRIRX, VARBX, and even FZROX if he had it -- all turned to crap last year at the height of the panic sell period.  Wouldn't it be better if you had some funds that didn't turn to crap, such as a bond fund?  And if you think, oh, I can always re-allocate to a bond fund anytime, know that you don't have a crystal ball and don't know when the market will turn to crap.  Having the bond funds READY in your traditional IRA asap is the way to go.

IRA rollover could also take years in order to avoid heavy taxes.  So that's something he needs to start early too if he wants to do it.
« Last Edit: December 30, 2021, 12:37:50 PM by MoneyGoatee »

BicycleB

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Re: I ended my 20-year relationship with my financial advisor today - Help!
« Reply #17 on: December 30, 2021, 02:05:27 PM »
Two things about IRA:

1.  Diversify your traditional IRA properly because you are required to withdraw from it annually.  When the market turns to crap, you want to withdraw from a fund that DOESN'T turn to crap.  Hence, diversification.  It's still early for you, but you need to start preparing for that scenario.  For instance, have at least one year (N years) 's worth of savings in a fund that likely won't turn to crap (right away) in a market crash, such as bond funds. 

2.  Start setting up a Roth IRA or any tax-free account, so that when you die, your offsprings who inherit your money won't have to pay tax.  It's a long way from that, but starting preparing, either via IRA rollover or opening a new Roth IRA account.  Obviously, spend your Roth IRA money *last* when you withdraw money for your own retirement.

He's 30 years old.  He doesn't have to start taking RMDs from the traditional IRA for 42 years.  PLENTY of time to step down risk.  For now, FZROX is a great place to put what he has.  I have a big chunk of it as part of my portfolio and I'm 53 and already FIREd.

Advice on Roths is good, though.

The time to do it is NOW because it takes years to set up a traditional IRA since you can only contribute $6k a year to it. All the funds in his traditional IRA -- FANIX, FGADX, FRIRX, VARBX, and even FZROX if he had it -- all turned to crap last year at the height of the panic sell period.  Wouldn't it be better if you had some funds that didn't turn to crap, such as a bond fund?  And if you think, oh, I can always re-allocate to a bond fund anytime, know that you don't have a crystal ball and don't know when the market will turn to crap.  Having the bond funds READY in your traditional IRA asap is the way to go.

IRA rollover could also take years in order to avoid heavy taxes.  So that's something he needs to start early too if he wants to do it.

How is this any different from any other allocation decision?

His likely withdrawals are decades in the future. The main issue now isn't withdrawal, it's overall return for the next few decades. The temporary drop is meaningless if the investments are likely to appreciate over time. What's the likely appreciation of some bonds that struggle to match inflation?

lhamo

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Re: I ended my 20-year relationship with my financial advisor today - Help!
« Reply #18 on: December 30, 2021, 02:24:17 PM »
All the funds in his traditional IRA -- FANIX, FGADX, FRIRX, VARBX, and even FZROX if he had it -- all turned to crap last year at the height of the panic sell period.  Wouldn't it be better if you had some funds that didn't turn to crap, such as a bond fund? 

If you are needing to draw from that account for living expenses?  Yes, you should probably have it invested more conservatively.  But for a buy and hold account that you are unlikely to touch for decades?  No way.

Looking at the history on Google finance, the pre-Covid week-end high for FZROX was 11.87/share on 2/14/20

At the bottom of the dip the week ending 3/20/20, it had dropped to 7.96/share.

But by the week ending 11/6/20, the share price was back up over the previous high, clocking in at 12.53/share.  And it hasn't dropped below that since.  Last close was 16.86/share.

Short-term market downturns are no big deal for the long-term investor.  They are actually good opportunities to buy when funds are on sale, and to convert from traditional IRAs to Roths if it makes sense tax-wise (both short- and long-term).  I think Traditional to Roth IRA conversions are what you are referencing above, by the way.  Rollovers can be done quickly and without any major tax implications unless you have post-tax funds in the original retirement account.

And there are other ways to minimize risk besides bond funds.  Personally, for reasons I won't go into here, I have several years of household spending in regular savings/checking accounts.  That allows me to have my retirement funds invested more aggressively, especially the longer-term Roths that I hope not to have to tap for my own expenses (at least not until I have all the Trad IRA money converted).

But I'm just somebody who FIREd at age 46 and is enjoying life on a 2% WR.  Don't mind me...


MoneyGoatee

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Re: I ended my 20-year relationship with my financial advisor today - Help!
« Reply #19 on: December 30, 2021, 02:31:24 PM »
Two things about IRA:

1.  Diversify your traditional IRA properly because you are required to withdraw from it annually.  When the market turns to crap, you want to withdraw from a fund that DOESN'T turn to crap.  Hence, diversification.  It's still early for you, but you need to start preparing for that scenario.  For instance, have at least one year (N years) 's worth of savings in a fund that likely won't turn to crap (right away) in a market crash, such as bond funds. 

2.  Start setting up a Roth IRA or any tax-free account, so that when you die, your offsprings who inherit your money won't have to pay tax.  It's a long way from that, but starting preparing, either via IRA rollover or opening a new Roth IRA account.  Obviously, spend your Roth IRA money *last* when you withdraw money for your own retirement.

He's 30 years old.  He doesn't have to start taking RMDs from the traditional IRA for 42 years.  PLENTY of time to step down risk.  For now, FZROX is a great place to put what he has.  I have a big chunk of it as part of my portfolio and I'm 53 and already FIREd.

Advice on Roths is good, though.

The time to do it is NOW because it takes years to set up a traditional IRA since you can only contribute $6k a year to it. All the funds in his traditional IRA -- FANIX, FGADX, FRIRX, VARBX, and even FZROX if he had it -- all turned to crap last year at the height of the panic sell period.  Wouldn't it be better if you had some funds that didn't turn to crap, such as a bond fund?  And if you think, oh, I can always re-allocate to a bond fund anytime, know that you don't have a crystal ball and don't know when the market will turn to crap.  Having the bond funds READY in your traditional IRA asap is the way to go.

IRA rollover could also take years in order to avoid heavy taxes.  So that's something he needs to start early too if he wants to do it.

How is this any different from any other allocation decision?

His likely withdrawals are decades in the future. The main issue now isn't withdrawal, it's overall return for the next few decades. The temporary drop is meaningless if the investments are likely to appreciate over time. What's the likely appreciation of some bonds that struggle to match inflation?

The difference is this is a *traditional IRA* and putting your fastest-growing money there isn't necessarily a good thing because all that money is untaxed, and the more money you have it there, the more you pay tax for it down the road.  And bonds could grow too, you know.  You need some bonds to diversifying your portfolio anyway, so why not put them all into your traditional IRA?
« Last Edit: December 30, 2021, 02:44:16 PM by MoneyGoatee »

MoneyGoatee

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Re: I ended my 20-year relationship with my financial advisor today - Help!
« Reply #20 on: December 30, 2021, 02:37:01 PM »
All the funds in his traditional IRA -- FANIX, FGADX, FRIRX, VARBX, and even FZROX if he had it -- all turned to crap last year at the height of the panic sell period.  Wouldn't it be better if you had some funds that didn't turn to crap, such as a bond fund? 

If you are needing to draw from that account for living expenses?  Yes, you should probably have it invested more conservatively.  But for a buy and hold account that you are unlikely to touch for decades?  No way.

Looking at the history on Google finance, the pre-Covid week-end high for FZROX was 11.87/share on 2/14/20

At the bottom of the dip the week ending 3/20/20, it had dropped to 7.96/share.

But by the week ending 11/6/20, the share price was back up over the previous high, clocking in at 12.53/share.  And it hasn't dropped below that since.  Last close was 16.86/share.

Short-term market downturns are no big deal for the long-term investor.  They are actually good opportunities to buy when funds are on sale, and to convert from traditional IRAs to Roths if it makes sense tax-wise (both short- and long-term).  I think Traditional to Roth IRA conversions are what you are referencing above, by the way.  Rollovers can be done quickly and without any major tax implications unless you have post-tax funds in the original retirement account.

And there are other ways to minimize risk besides bond funds.  Personally, for reasons I won't go into here, I have several years of household spending in regular savings/checking accounts.  That allows me to have my retirement funds invested more aggressively, especially the longer-term Roths that I hope not to have to tap for my own expenses (at least not until I have all the Trad IRA money converted).

But I'm just somebody who FIREd at age 46 and is enjoying life on a 2% WR.  Don't mind me...

Stocks may not always drop and come right back up.  We dodged a bullet last year.  During 2008-09, it took over a year for the market to recover.  Basically, my last few posts are about diversifying properly.  Be always at the ready.

lhamo

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Re: I ended my 20-year relationship with my financial advisor today - Help!
« Reply #21 on: December 30, 2021, 04:02:50 PM »
During 2008-09, it took over a year for the market to recover. 

I know.  I lived it.  I was also a dirty market timer and threw a bunch of spare cash into my kids college funds (more "at the ready" than having to sell a bond fund) as the market was on the way down.  And then bought a property at the bottom of my housing market in spring 2009.   That version of diversification  served me much better than having a heavy load of bond funds in my retirement accounts would have done. As did continuing to invest in solid equity-heavy index funds in my retirement accounts while I was still employed through mid-2015.

I am not against diversification at all.  I am against somebody coming in and telling an inexperienced investor that they MUST hold bond funds in a retirement account they are not going to be tapping for years and/or decades. 

MoneyGoatee

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Re: I ended my 20-year relationship with my financial advisor today - Help!
« Reply #22 on: December 30, 2021, 04:26:23 PM »
During 2008-09, it took over a year for the market to recover. 

I know.  I lived it.  I was also a dirty market timer and threw a bunch of spare cash into my kids college funds (more "at the ready" than having to sell a bond fund) as the market was on the way down.  And then bought a property at the bottom of my housing market in spring 2009.   That version of diversification  served me much better than having a heavy load of bond funds in my retirement accounts would have done. As did continuing to invest in solid equity-heavy index funds in my retirement accounts while I was still employed through mid-2015.

I am not against diversification at all.  I am against somebody coming in and telling an inexperienced investor that they MUST hold bond funds in a retirement account they are not going to be tapping for years and/or decades.

A bad market is great if you put money in, but what if you have to take money out??  What if you retired just before 2008-09 and had to withdraw from your traditional IRA and all the funds in it were tanking?  That's my point.  You gotta give a beginner a WHOLE spectrum of advice on all possibilities.  And I didn't say "heavy load of bonds."  Be sensible and put in what you need, and know its pros and cons.
« Last Edit: December 30, 2021, 04:29:08 PM by MoneyGoatee »

Chris Pascale

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Re: I ended my 20-year relationship with my financial advisor today - Help!
« Reply #23 on: December 30, 2021, 10:54:52 PM »
.................such a small sum of money, I was expecting to see hundred of thousands in the portfolio......
....................$73k at age 30 is still a good start.

Agreed with 2nd comment. My Roth had less than $2,000 at 30.

Sounds to me like OP's folks got her going in a great way and now she's making a terrific next step.

BicycleB

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Re: I ended my 20-year relaqtionship with my financial advisor today - Help!
« Reply #24 on: December 31, 2021, 09:39:00 PM »

The difference is this is a *traditional IRA* and putting your fastest-growing money there isn't necessarily a good thing because all that money is untaxed, and the more money you have it there, the more you pay tax for it down the road.  And bonds could grow too, you know.  You need some bonds to diversifying your portfolio anyway, so why not put them all into your traditional IRA?

Because of returns. Suppose bonds quadruple in 30 years, an ordinary result, but stocks go up 32x, also pretty ordinary:
https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html

Yes, OP would have to pay more tax. But if their stocks grow to a value 8x larger than bonds, withdrawals after tax are still far larger.

There's a reasonable argument to be made that bonds can sometimes add to total returns as a component of a larger portfolio. But a young investor's better bet is probably stock based on the long timeframe involved.

HTX91

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Re: I ended my 20-year relationship with my financial advisor today - Help!
« Reply #25 on: January 14, 2022, 08:03:21 AM »
First off I want to say thanks once again to everyone that has commented and given advice over the last few weeks. I'm learning a lot just by spectating as a fly on the wall.

Had another question, I've got a Roth 401K from my old employer that's with Voya. I'm interested in rolling it over into my Roth IRA at Fidelity. I'm fairly certain my investment options are better with Fidelity than Voya. Any reason I should not do this?