Author Topic: I Need Help Evaluating My Financial Advisor  (Read 8917 times)

jimmymango

  • 5 O'Clock Shadow
  • *
  • Posts: 43
I Need Help Evaluating My Financial Advisor
« on: January 21, 2015, 08:02:37 PM »
First off, thanks for taking the time to read my post. And now to the goods...

Backstory: Started really attempting to save money when I was 26 (I'm 31 now). Opened a Roth at my credit union, but was only earning savings-account level interest. Moved my money to wife's family's financial advisor of many years (in addition to his many other clients...he works for a financial services company in New England). I've met him a few times to discuss savings strategy and goals and he has been nothing but encouraging and informative, trying to get us to save as much as possible, giving us new savings goals to hit each year. He's been great, we've earned good returns, and yet...

My Concerns: I've been taking steps towards FIRE since MMM was featured in the Washington Post, but have mostly focused on reducing spending and debt. A few months ago I started reading up on investment philosophy and took a closer look at the investments my advisor set up for me, as well as his recommendations for my 401k. I am now confused.

Here's my Roth IRA (invested through American Funds). The expense ratios are absurdly high compared to Vanguard and I'm not really sure why I'm invested in such a wide range of funds:

FundPercentage of My PortfolioExpense RatioAllocation
AMCAP Fund16%1.51%U.S. Equities 78.9% Non-U.S. Equities 5.7% Cash & Equivalents 15.4%
American Balanced Fund8%1.41%U.S. Equities 60.9% Non-U.S. Equities 6.0% U.S. Bonds 24.9% Non-U.S. Bonds 2.9% Cash & Equivalents 5.3%
American High-Income Trust7%1.46%U.S. Equities 2.8% Non-U.S. Equities 0.6% U.S. Bonds 71.0% Non-U.S. Bonds 20.8% Cash & Equivalents 4.8%
The Bond Fund of America7%1.41%U.S. Equities 0.1% U.S. Bonds 83.6% Non-U.S. Bonds 12.6% Cash & Equivalents 3.7%
Capital World Bond Fund7%1.70%U.S. Bonds 40.9% Non-U.S. Bonds 54.9% Cash & Equivalents 4.2%
Capital World Growth and Income Fund8%1.60%U.S. Equities 40.7% Non-U.S. Equities 53.3% U.S. Bonds 0.3% Non-U.S. Bonds 0.5% Cash & Equivalents 5.2%
EuroPacific Growth Fund1%1.62%U.S. Equities 2.1% Non-U.S. Equities 85.5% U.S. Bonds 0.5% Non-U.S. Bonds 0.1% Cash & Equivalents 11.8%
The Growth Fund of America8%1.45%U.S. Equities 80.8% Non-U.S. Equities 10.2% U.S. Bonds 0.2% Cash & Equivalents 8.8%
New Perspective Fund6%1.55%U.S. Equities 47.4% Non-U.S. Equities 44.8% U.S. Bonds 0.2% Cash & Equivalents 7.6%
New World Fund5%1.84%U.S. Equities 12.5% Non-U.S. Equities 66.3% U.S. Bonds 0.7% Non-U.S. Bonds 9.6% Cash & Equivalents 10.9%
SMALLCAP World Fund1%1.87%U.S. Equities 49.9% Non-U.S. Equities 44.0% U.S. Bonds 0.3% Cash & Equivalents 5.8%
U.S. Government Securities Fund7%1.43%U.S. Bonds 96.5% Cash & Equivalents 3.5%
Washington Mutual Investors Fund16%1.39%U.S. Equities 89.6%, Non-U.S. Equities 6.7%, Cash & Equivalents 3.7%

Here's my 401k. He recommended some index funds with low expenses, which I thought was the way to go, so I don't really understand why he would suggest the others:

FundPercentage of My PortfolioExpense Ratio(%)Allocation
BlackRock US Debt Index-W15%0.05Bonds 83.8 Cash 16.1
BlackRock Russell 1000 Index-M15%0.02U.S. Stocks 98.5 Non-U.S. Stocks 1.0
BlackRock Russell 2000 Index-M15%0.06U.S. Stocks 93.6 Non-U.S. Stocks 1.1 Cash 4.2 Other 1.1
PIMCO Global Bond (Unhedged)-Inst10%0.56Cash 49.7 Stocks 0.0 Bonds 44.1 Other 6.2
T Rowe Price Blue Chip Growth Trust-T2 15%0.45U.S. Stocks 92.7 Non-U.S. Stocks 7.3
DFA U.S. Small Cap-I10%0.37Cash 1.1 Stocks 98.8 Foreign Stocks 0.6
American Funds New Perspective-R65%0.45Cash 8.1 Stocks 91.7 Bonds 0.2 Foreign Stocks 49.1
Thornburg International Equity15%0.6U.S. Stocks 7.8 Non-U.S. Stocks 87.6 Cash 4.6
Templeton International Smaller Companies-A25%0.95U.S. Stocks 2.7 Non-U.S. Stocks 87.1 Cash 5.2 Other 5.1

If you've made it this far, thanks again. Now, if you'd be so kind...I'd like to know your opinion of the situation.

My initial thought is that I'd be better off taking my money from the advisor and putting it into a Vanguard index fund, then re-allocating my 401k into the Russell 1000 and/or 2000.

How would you proceed?

kpd905

  • Handlebar Stache
  • *****
  • Posts: 1915
Re: I Need Help Evaluating My Financial Advisor
« Reply #1 on: January 21, 2015, 08:17:21 PM »
Call Vanguard tomorrow and transfer your Roth IRA to them.  Just throw it in a Target date retirement fund if you want, that way you won't have the need for any advising.  You'll still be paying about 10% the fees you are paying now.  You could also invest in a simple 3 fund portfolio of Total Stock market index, Total International Index, and Total Bond Index.

I'd say you are invested in more funds than you need in both the Roth and the 401k.  Three to five funds should be all you need.

Dodge

  • Pencil Stache
  • ****
  • Posts: 790
Re: I Need Help Evaluating My Financial Advisor
« Reply #2 on: January 21, 2015, 08:18:06 PM »
You're invested in those funds, because those are the funds your financial advisor profits from putting you in.

Yes, you would be better off leaving for Vanguard. Look at their LifeStrategy and Target Retirement funds if you want something fully automatic.

Frankies Girl

  • Magnum Stache
  • ******
  • Posts: 3576
  • Age: 83
  • Location: The oubliette.
  • Ghouls Just Wanna Have Funds!
Re: I Need Help Evaluating My Financial Advisor
« Reply #3 on: January 21, 2015, 08:56:01 PM »
Ouch. Yeah, you're being screwed. Most American Funds are front loaded (which means they skim a percentage off the top before you invest anything - and most of that ends up in the adviser's pocket for being such a "good" salesman) and HIGH fees.

And the fact that you're in THIRTEEN different funds in your Roth and NINE in your 401k just shows they're overcomplicating things to make it seem like they know what they're doing better than you.

Transfer out to Vanguard with the Roth (they'll hit you with an account transfer/closing fee, but it's worth it to get away) and get into one of the Bogleheads' lazy portfolios  that best match up with your AA.
 
http://www.bogleheads.org/wiki/Lazy_portfolios

And as you can't move your 401k, make sure that there are no fees being charged by this guy to "manage" and get rid of all that mess and into the lowest fee index available for you (again, that matches up with your AA).

http://jlcollinsnh.com/stock-series/
^read this series if you haven't already - awesome stuff

Pay particular attention to this one:
http://jlcollinsnh.com/2012/06/06/why-i-dont-like-investment-advisors/

Indexer

  • Handlebar Stache
  • *****
  • Posts: 1463
Re: I Need Help Evaluating My Financial Advisor
« Reply #4 on: January 21, 2015, 09:28:22 PM »
1.  What share class are the American Funds?   Normally advisors sell the A share for the quick commission, but those expense ratios are too high even for A shares.  American Funds are expensive, but normally their A shares have a 4-5% front end load, and an ongoing fee in the .7-.9 range.  Those are probably C shares which are even more expensive over the long term.  The good news if they are C shares is that you didn't bite quite as big of a bullet in the beginning so you can cut your losses while the damage is minimal(but C shares do sometimes have a 1% redemption fee if sold within 1 year).

2.  You know what I hate about trying to build a portfolio with American Funds? 
"The Growth Fund of America   8%   1.45%   U.S. Equities 80.8% Non-U.S. Equities 10.2% U.S. Bonds 0.2% Cash & Equivalents 8.8%"
If I want to be 70% US stocks and 30% international stocks WTF do I do with funds that are 80% US, 10% international and 47% domestic and 44% international.  American Funds aren't designed for portfolio construction.  They are designed to have a 'story' and be easy to 'sell'.  Vanguard funds are boring, but boy can you build a portfolio with them.  70% total stock, 30% total international, done.

3.  So he recommends doing the super low cost index fund in your 401k, and then also throws in all this other crap?  How do you justify that?  How do you on the one hand acknowledge that low cost index funds are good, and then load up on expensive active funds? 


Here is what you should do.  Figure out your desired asset allocation, or call Vanguard and they can help you figure it out.  I don't know how big your 401k is compared to your Roth, but if the numbers work out right I would have 100% of your 401k in the blackrock index funds, and then have any international stock funds in your Roth.  My reasoning is that the blackrock index funds in your 401k are as cheap or cheaper than VG domestic equity index funds, but your 401k international options look expensive so you can probably do better with that at Vanguard.

Example assuming 100k in 401k, 50k in Roth with 80/20 portfolio.  70% of the stocks are US, 30% are international.

401k: 100k
30k BlackRock US Debt Index-W  (bonds 0.05)
50k BlackRock Russell 1000 Index-M  (us stocks  0.02)
20k BlackRock Russell 2000 Index-M  (us stocks  0.06)

Roth:  50k
36k VXUS  (total international stocks 0.14)
14k VTI     (total US stock 0.05)

All in average ER under 0.1%.   
« Last Edit: January 21, 2015, 09:30:56 PM by Indexer »

Cwadda

  • Handlebar Stache
  • *****
  • Posts: 2179
  • Age: 27
Re: I Need Help Evaluating My Financial Advisor
« Reply #5 on: January 21, 2015, 11:08:36 PM »
Get out of American Funds ASAP. Not only are the expense ratios high, but also you're probably getting hit with a front load fee of something like 5.75%.

innerscorecard

  • Pencil Stache
  • ****
  • Posts: 589
    • Inner Scorecard - Where financial independence, value investing and life meet
Re: I Need Help Evaluating My Financial Advisor
« Reply #6 on: January 22, 2015, 12:23:10 AM »
He hasn't been great and you haven't been earning great returns. You deserve a big facepunch for sticking with this charlatan.

cjottawa

  • Stubble
  • **
  • Posts: 152
Re: I Need Help Evaluating My Financial Advisor
« Reply #7 on: January 22, 2015, 07:05:35 AM »
...I'm not really sure why I'm invested in such a wide range of funds...
How would you proceed?

BINGO. You're already there, asking the right questions! "A bunch of funds" does not a strategy make.

Echoing what Frankie's Girl wrote, you'd do well with a simple, "Lazy Portfolio" of, say, two to four funds.

I wonder how many advisors are either clueless or deliberately over-complicate their clients' portfolios with a mess of overlapping funds to confuse them into thinking they can't self-manage? Fortunately, you've caught on to that game so you're way ahead of most people.

If two or three funds covers: domestic equity, international equity, and domestic bond indices, you don't need anything else. Period.

An article of possible interest: http://canadiancouchpotato.com/2013/09/09/is-your-portfolio-just-a-pile-of-parts/
« Last Edit: January 22, 2015, 07:09:24 AM by cjottawa »

Bobberth

  • Bristles
  • ***
  • Posts: 320
Re: I Need Help Evaluating My Financial Advisor
« Reply #8 on: January 22, 2015, 02:38:13 PM »
Not that I disagree with what has already been posted, but if this is your inlaw's financial guy, are you in a position to leave him?  Is there some family dynamic  that would be amiss if you leave?  Financially, it is better to leave, for you and your inlaws, but sometimes "liking" a guy is the most important reason to hire an advisor for some people.  You moving for smart reasons could be taken as telling the inlaws that they have been "dumb" in some family dynamics I have seen.  If you have these dynamics, it might be better off to keep what you have there, or at least token amounts, and start new accounts elsewhere.

Frankies Girl

  • Magnum Stache
  • ******
  • Posts: 3576
  • Age: 83
  • Location: The oubliette.
  • Ghouls Just Wanna Have Funds!
Re: I Need Help Evaluating My Financial Advisor
« Reply #9 on: January 22, 2015, 02:56:47 PM »
Not that I disagree with what has already been posted, but if this is your inlaw's financial guy, are you in a position to leave him?  Is there some family dynamic  that would be amiss if you leave?  Financially, it is better to leave, for you and your inlaws, but sometimes "liking" a guy is the most important reason to hire an advisor for some people.  You moving for smart reasons could be taken as telling the inlaws that they have been "dumb" in some family dynamics I have seen.  If you have these dynamics, it might be better off to keep what you have there, or at least token amounts, and start new accounts elsewhere.

Nope, not an issue - and definitely would not keep a poor relationship that is losing you money just for the sake of it somehow hurting someone's feelings. You don't even have to speak to the guy again. Contact Vanguard and get the paperwork for transfer completed and they handle the rest.

If the guy actually contacts you (like he didn't know why you were leaving), you don't have to respond, but could do a short but polite email saying that you decided it was best to start self-managing now, thanks for your time, and goodbye. (I had to deal with a clingy/annoying adviser when I told him no, I was leaving, and ended up reporting him to the main company after I left due to his silly and insulting tactics. Sometimes you can't fix stupid.)

If any relatives bring it up, just say you wanted to get more involved with your investments, and didn't see the need for an adviser any more as you were going in another direction (which is the truth). And then change the subject. It isn't a judgement on anyone else and anyone that would see it that way has deeper issues than this.


Scandium

  • Handlebar Stache
  • *****
  • Posts: 2360
  • Location: EastCoast
Re: I Need Help Evaluating My Financial Advisor
« Reply #10 on: January 22, 2015, 02:58:20 PM »
Not that I disagree with what has already been posted, but if this is your inlaw's financial guy, are you in a position to leave him?  Is there some family dynamic  that would be amiss if you leave?  Financially, it is better to leave, for you and your inlaws, but sometimes "liking" a guy is the most important reason to hire an advisor for some people.  You moving for smart reasons could be taken as telling the inlaws that they have been "dumb" in some family dynamics I have seen.  If you have these dynamics, it might be better off to keep what you have there, or at least token amounts, and start new accounts elsewhere.

Hell no. I don't care what my in-laws would do, I would not ruin my retirement and waste $100,000s because they might be miffed. Don't need to tell him what a slimebag he his, but do leave. ASAP!

Spork

  • Walrus Stache
  • *******
  • Posts: 5747
    • Spork In The Eye
Re: I Need Help Evaluating My Financial Advisor
« Reply #11 on: January 22, 2015, 03:21:29 PM »

You're learning this lesson at 31.  I learned it at about 35.  I was in a bunch of AmFunds, too.

I chalked it up to:
* I learned something
* I did manage to save some money
* the Financial Advisor really did give us a wake up call and totally set us on a path of less spending.  He pointed out that we were DINK's at the time making a significant combined paycheck and pretty much spent every dime and didn't know where it went.

In the end: the experience was valuable and we parted friends (and still occasionally talk to the guy).  We moved it all to Vanguard and never looked back.

trailrated

  • Handlebar Stache
  • *****
  • Posts: 1136
  • Age: 33
  • Location: Bay Area Ca
  • a smooth sea never made a skilled sailor
Re: I Need Help Evaluating My Financial Advisor
« Reply #12 on: January 22, 2015, 03:50:45 PM »
Overlapping funds, high ER's, and whyyyy would there be cash sitting in these accounts?! Fire themmmm now!

nonsequitur

  • 5 O'Clock Shadow
  • *
  • Posts: 42
  • Location: Canberra, Australia
Re: I Need Help Evaluating My Financial Advisor
« Reply #13 on: January 22, 2015, 03:52:02 PM »
We also started off with a similar situation, eventually woke up, and moved to Vanguard.  I don't begrudge our former "advisor"; he was encouraging of our savings goals and even claimed to be FI at a very young age himself, through saving a large percentage of his income.  That was 10 years ago.  Wish I'd listened more closely to that part of his story. 

But definitely ditch all those American Funds and move your stuff to Vanguard.  I think "charlatan" is pretty harsh--he is providing a service, just not the best or cheapest one, and one that you can easily do yourself with a bit of study.  But there's a huge difference between someone who takes a commission and someone like Bernie Madoff. 

Capsu78

  • Pencil Stache
  • ****
  • Posts: 739
  • Location: Chicagoland
Re: I Need Help Evaluating My Financial Advisor
« Reply #14 on: January 22, 2015, 04:40:44 PM »
I had nearly 1/2 of our portfolio with an FA for 5 years and had to have a "Dear John" meeting with him exactly a year ago.  He was kind of an ahole about it so I didn't second guess our decision one bit.  Moved to VG and am working on my AA.

act01

  • Pencil Stache
  • ****
  • Posts: 644
  • Age: 41
  • Location: Los Angeles, CA
Re: I Need Help Evaluating My Financial Advisor
« Reply #15 on: January 22, 2015, 05:42:40 PM »
Go get a copy of John Bogle's book "The Little Book of Common Sense Investing". You probably could read it in a day - it's an easy read and short. It'll give you all the statistics you'll ever need to see to prove that you will outperform 99.9% of advisors. It's incredibly easy to set up your own portfolio, and doesn't take a lot of maintenance to perform equally to the market.
http://www.amazon.com/Little-Book-Common-Sense-Investing/dp/0470102101

I would look into starting an account with Vanguard or Betterment (or both). Betterment is great if you just want to get your feet wet and build up security. Vanguard is much more flexible and more options (and great customer service). I was exactly like you where I trusted an advisor in my 20s cause I was too busy to figure it out on my own (I trusted the guy and saw my money going up!) It's a learning curve a lot of us go through, though.

kpd905

  • Handlebar Stache
  • *****
  • Posts: 1915
Re: I Need Help Evaluating My Financial Advisor
« Reply #16 on: January 22, 2015, 07:53:36 PM »
Not that I disagree with what has already been posted, but if this is your inlaw's financial guy, are you in a position to leave him?  Is there some family dynamic  that would be amiss if you leave?  Financially, it is better to leave, for you and your inlaws, but sometimes "liking" a guy is the most important reason to hire an advisor for some people.  You moving for smart reasons could be taken as telling the inlaws that they have been "dumb" in some family dynamics I have seen.  If you have these dynamics, it might be better off to keep what you have there, or at least token amounts, and start new accounts elsewhere.

How much would you pay in fees to keep your inlaws happy?

3okirb

  • Stubble
  • **
  • Posts: 147
Re: I Need Help Evaluating My Financial Advisor
« Reply #17 on: January 22, 2015, 08:28:54 PM »
Here's my take on it. 

1)  How well are you doing in your funds?
2)  As stated above, you need to know what share classes you have.  (A/C)
3)  This is unpopular, but if he has provided you with value, I don't see the real issue in paying for it.  Unless you're paying him an actual fee out of your pocket, you can't expect a guy to work for free.  That being said, if he hasn't shown you value, or if you feel like you've learned all you can from him, then it's time to move on.

innerscorecard

  • Pencil Stache
  • ****
  • Posts: 589
    • Inner Scorecard - Where financial independence, value investing and life meet
Re: I Need Help Evaluating My Financial Advisor
« Reply #18 on: January 22, 2015, 08:48:51 PM »
When the only reason to give money is a sense of obligation, it's a sign that you have been had. It's especially true in finance, where returns and benefits are so easily measurable.

MoNoGro

  • 5 O'Clock Shadow
  • *
  • Posts: 5
  • Location: ABQ, NM
Re: I Need Help Evaluating My Financial Advisor
« Reply #19 on: January 22, 2015, 10:06:53 PM »
Iíve  worked with an advisor for the past 4-5 years who manages several IRA accounts for DW and I.  Annual rate of return ranges from 10.2 to 15.5%.  He has us in ten no-load but actively-managed mutual funds.  The funds are heavily weighted toward large blend and growth equities with some overseas exposure (I expect there is probably significant overlap).  In most cases, the funds have performed better that their respective index.

At first blush I could say he is providing value, but this post sparked my curiosity.  I looked up the fundsí expense ratios and Iím a bit stunned.  We're paying 0.8 to just over 2% in expenses for these funds.  Perhaps itís time to have a chatÖor pull the plug.

innerscorecard

  • Pencil Stache
  • ****
  • Posts: 589
    • Inner Scorecard - Where financial independence, value investing and life meet
Re: I Need Help Evaluating My Financial Advisor
« Reply #20 on: January 22, 2015, 10:57:53 PM »
It's insane to pay for managers to manager managers.

A good active manager can provide value. But why do you have to pay another person on top of that?

Travis

  • Magnum Stache
  • ******
  • Posts: 3580
  • Location: South Korea
Re: I Need Help Evaluating My Financial Advisor
« Reply #21 on: January 22, 2015, 11:06:54 PM »
Jimmy, your portfolio looks exactly like mine did a year ago.  USAA was managing me and had me in 20 different funds with expense ratios of .5% to 1.4%.  With so many funds being managed by someone else I had no real way of understanding whether I was making any money with this arrangement (looking back I pretty much broke even for 2013).  I didn't truly see what this was costing me until I plugged all the numbers into Personal Capital which analyzed my entire portfolio.  I nearly broke my laptop when it revealed that if I stayed on course from now (age 34) to age 60 I would have lost almost 20% of my potential earnings to fees!  I would literally have had to work an extra decade to make up for the lost earnings.  I now manage my own 4-fund portfolio through TSP and Vanguard.  My expense ratios are so low the Personal Capital analyzer literally has nothing to say since they are below what they consider normal.  Their system doesn't take FIRE calculations into account, but suffice to say by the time I FIRE I'll only pay a few months income in fees rather than a decade's worth.

innerscorecard

  • Pencil Stache
  • ****
  • Posts: 589
    • Inner Scorecard - Where financial independence, value investing and life meet
Re: I Need Help Evaluating My Financial Advisor
« Reply #22 on: January 22, 2015, 11:23:38 PM »
It's not just the expenses of the funds at issue. It's that you are paying them on top of what you are paying the advisor!

thd7t

  • Handlebar Stache
  • *****
  • Posts: 1348
Re: I Need Help Evaluating My Financial Advisor
« Reply #23 on: January 23, 2015, 09:03:59 AM »
Let's look at this in a really straightforward way:
How have you done in comparison to the market?  The S&P500 has had five years of big gains during the exact time you've been with this advisor.  Have you doubled your money?

That's the only metric.

Now get into some damn index funds.

plaidington

  • 5 O'Clock Shadow
  • *
  • Posts: 1
Re: I Need Help Evaluating My Financial Advisor
« Reply #24 on: January 23, 2015, 10:33:00 AM »
Those are some high expense ratios. Wow. I  recommend moving the whole lot over to Vanguard. You can also pare down the quantity of funds.

If you carry over 50K at Vanguard they have some fantastic online tools that will help you balance your portfolio.

Great advice from folks here so far!

hodedofome

  • Handlebar Stache
  • *****
  • Posts: 1447
  • Age: 41
  • Location: Texas
Re: I Need Help Evaluating My Financial Advisor
« Reply #25 on: January 23, 2015, 10:46:41 AM »
A financial advisor can be worth every penny if you are the type of person that will sell your stock funds after they are down 30% and buy bond funds because you believe the world is falling apart.

If you are going to take over your investments, make sure you are willing to take the responsibility that comes with that. If you can't handle it, then paying an advisor may be worth it.

jimmymango

  • 5 O'Clock Shadow
  • *
  • Posts: 43
Re: I Need Help Evaluating My Financial Advisor
« Reply #26 on: January 23, 2015, 07:23:19 PM »
Sorry for the late response, everyone. Thank you all so much for the advice. You confirmed what I already suspected but I wasn't ready to commit to dumping the guy without running it by impartial parties first. This is actually really timely because I'm changing careers at the end of March and was going to roll over my 401k to my advisor. Not a chance in hell that's going to happen now. I'm calling Vanguard Monday to get The ball rolling.

Family dynamics will only come into play when it comes to my wife. She's not unwilling to move her money, but she wants to feel secure as well and the idea of a financial advisor gives her a lot of comfort (in addition to the fact that he's worked for her family for so long). I think showing her the data on how fees eat away at returns, and getting her invested in a set-it-and-forget-it type of fund (I think they're called Lifepath?) will push her over the hump.

I could see my father-in-law having comments, but I'm not going to mention it. Even if he did, I'd have no problem telling him the reasons why I left. We have a good relationship so it wouldn't be any kind of family blowup. Probably more of a "I hope you know what you're doing" kind of thing.

I was wondering one thing...

I'm thinking of investing in a three fund portfolio (VTI, VTXUS, and BND). Since people typically split investments between domestic and international stocks, do they do the same with bonds? I saw Vanguard has a Total International Bond fund as well and was wondering whether adding it as a fourth would be a good idea.

Thanks again, everyone.

Bob W

  • Magnum Stache
  • ******
  • Posts: 2946
  • Age: 62
  • Location: Missouri
  • Live on minimum wage, earn on maximum
Re: I Need Help Evaluating My Financial Advisor
« Reply #27 on: January 23, 2015, 07:32:16 PM »
That seems like a standard EJ portfolio?

cjottawa

  • Stubble
  • **
  • Posts: 152
Re: I Need Help Evaluating My Financial Advisor
« Reply #28 on: January 25, 2015, 04:24:44 PM »
...
I was wondering one thing...

I'm thinking of investing in a three fund portfolio (VTI, VTXUS, and BND). Since people typically split investments between domestic and international stocks, do they do the same with bonds? I saw Vanguard has a Total International Bond fund as well and was wondering whether adding it as a fourth would be a good idea.

Thanks again, everyone.

I can't explain why but I've read enough about index investing to convince me that bonds should be domestic only. For some reason (perhaps currency exchange/FOREX/hedging issues? maybe tax treatment?) international bonds don't do much of any good for most portfolios. It's possible they're just not cost-effective or tax efficient... no idea.

If you find out why, do please let me know but for my money, I'll stick with a domestic bond fund, and a couple or three other funds to cover domestic and international equity.

EDIT - the above applies regardless of your home country; Canadians stick with a domestic Canadian bond index fund (typically the DEX Universe Index), Americans with an American bond index fund.
« Last Edit: January 25, 2015, 04:31:29 PM by cjottawa »

Indexer

  • Handlebar Stache
  • *****
  • Posts: 1463
Re: I Need Help Evaluating My Financial Advisor
« Reply #29 on: January 25, 2015, 07:45:45 PM »
That seems like a standard EJ portfolio?

I was thinking the same thing.  They do love their American Funds, and they do love building portfolios that are 1000 times more complicated than they should be.... so that it looks like they actually doing something. 

Singularity

  • 5 O'Clock Shadow
  • *
  • Posts: 68
Re: I Need Help Evaluating My Financial Advisor
« Reply #30 on: January 26, 2015, 10:42:57 AM »

I was wondering one thing...

I'm thinking of investing in a three fund portfolio (VTI, VTXUS, and BND). Since people typically split investments between domestic and international stocks, do they do the same with bonds? I saw Vanguard has a Total International Bond fund as well and was wondering whether adding it as a fourth would be a good idea.

Either way International Bonds will probably not make much of a difference.  For example, Vanguard's Target 2045 Fund (VTIVX) allocates 2.1% to International Bonds which really does not have much effect. Good link you may find helpful:  https://www.bogleheads.org/wiki/Lazy_portfolios  (3-4 Fund Portfolio Examples)

Congratulations on making the great long term decision.  How much risk tolerance do you have and how much will you have in stocks?

For example, equal weight to:
  • Vanguard Total Bond Market Index Fund  - BND
  • Vanguard Total Stock Market Index Fund  - VTI
  • Vanguard Total International Stock Index Fund - VXUS

Provides these Historical Returns:
1 Year: 5.7%
3 Year: 31.7%=> 9.6%
5 Year: 50.2% => 8.5%
10 Year: 87.7% => 6.5% Total Return Annualized  (Includes 2008)


Historical Stress Tests: During the Tech Bubble you lost 10%, During the Subprime Crisis you lost 27%. 

=====

If you can handle more risk, how about moving to more 70 % stocks and 30% bonds with less International. 50% Total Market VTI, 20% International VXUS, 30 % Bonds BND

Provides these Historical Returns:
1 Year: 7.9%
3 Year: 39.1%=> 11.6%
5 Year: 63.9% => 10.4%
10 Year: 98.8% => 7.1% Total Return Annualized  (Includes 2008 Crisis)

Historical Stress Tests: During the Tech Bubble you lost 11%, During the Subprime Crisis you lost 29%. 



Of course past performance does not predict future results and with either you are doing better than with high priced funds and an expensive adviser. 

« Last Edit: January 26, 2015, 10:54:27 AM by Singularity »