Help me separate

[starguru]

From my financial advisor.  Wife and I have over 500k with an advisor. The rate is .85%.  We are 37/36.  We save close to 150k a year all told. 

Honestly I don't why this is so difficult for me to do.  I guess part of the problem is I don't know if Im comfortable managing so much money on my own; I don't want to fuck it up. 

On the other hand, we are losing 50k per ten years just paying these people to act once or twice a quarter.  Plus performance has not been great; so far this year we are up 4.5% (according to latest statement which doesn't include recent market drop), and the latest 3 year column says 13.6%, not sure if that is averaged per year or in the last 3 years our portfolio is up 13.6 percent. Which if true, actually really pisses me off since the SP500 is up 50% in that time frame.

 I also don't know what sort of allocation I would want.  I feel like we would want 80-90% in a total US market type fund, but not sure what to do with the other 10-20%.  Bonds? International?  If Bonds not really sure what type of fund makes most sense in the current environment -- short/mid/long/muni etc.  What about doing different strategies with retirement vs personal accounts (about 60% of the total is retirement accounts)?  Also, if I start pecking at how they have left things how do I do it in such a way so as to minimize taxes.

So I guess what I am asking for is asset allocation/fund recommendations.  This is all at Fidelity.

[RichMoose]

The good news is that you're at Fidelity. You really just need to figure out what you want your asset allocation to be and how to manage your own accounts with the Fidelity Investments. Once that's done, tell your advisor you will be switching all your funds to Spartan funds at Fidelity. When you do that, he won't want you as a client anymore because he won't be able to overcharge you for continued under performance.

I would make sure that you have a minimum 10% of your portfolio in bonds. You can go up to 30%, but there's no real benefit to going higher than that. As far as the stocks go, split your portfolio between US, Developed, and Emerging. If you decide on 20% bonds, your portfolio may look like:

50% - FSTVX (Spartan US Total Market Index Fund)
15% - FSIVX (Spartan International Index Fund)
15% - FPMAX (Spartan Emerging Markets Index Fund)
20% - FSITX (US Bond Index Fund)

This will give you ultra-low expense ratios that are similar to Vanguard Funds. Hope this helps!

[Frankies Girl]

You're paying them for professional management? Been there. I inherited my dad's accounts and they were set up that way. I read up on stuff, and then told the adviser that I wanted to take over. They had to create a new account (managed accounts have specific account numbers) sell off the "preferred" funds (exclusive to their professional management) and then transferred over everything. I sold off the rest of the crappy funds, bought into the Spartan series of index funds (mix of 75% FSTVX total stock market, 12% FSITX total bond, and 13% FSRVX, a REIT fund). Took me several months to get to the point of making all these moves, but now, I couldn't be happier.

I stayed with Fid because I really like them overall - they have superior customer service and as long as you stay away from the high expense ratios, they are comparable to Vanguard. Saw no reason to move since they have the awesome Spartan fund series.

I personally don't need any international funds since the US stock market has companies that invest internationally, so that's enough exposure as far as I'm concerned. But whatever you end up with, just check out their Spartan series, and make sure to keep things like bonds/REITs in the tax deferred accounts (since they're less efficient funds, keep them where they won't generate tax hits) and set it and forget it.

Also, as you have over 250K, you can have a personally assigned representative at no additional cost, and they should be happy to answer any questions. Mine supported my move into index investing and has been absolutely no pressure about trying to sell me on anything else - he got that I wanted to do it myself and simplify and he just checks in with me about every quarter just to ask if I have any questions or needed anything. But really, you can call their general help line and get answers from any of the reps - I've had yet to stump them and they don't leave me on hold or bounce me around at all. They'll always be extra helpful once they see the balance - they want you happy and to stay there, so even if you're investing in index funds, they'll still be there for you. ;)

[starguru]

To be clear, not paying Fidelity. The money is at Fidelity and managed by another party.

Yeah I was thinking of going

70% US total market
10% international
10% emerging
10% bonds

From what I reading i should put the bond component in my retirement accounts.  But I'm not even sure what type of bond fund to go for.  Does it make sense to do a short term bond fund given the current climate?  OR eschew bonds for some sort of REIT?  Part of the problem is I have 5 (!) different retirement accounts, an SEP, and Roth, a Rollover, a Traditional, and a Non-deductible.  How do I keep everything in sync across those?

[RichMoose]

To be clear, not paying Fidelity. The money is at Fidelity and managed by another party.

Yeah I was thinking of going

70% US total market
10% international
10% emerging
10% bonds

From what I reading i should put the bond component in my retirement accounts.  But I'm not even sure what type of bond fund to go for.  Does it make sense to do a short term bond fund given the current climate?  OR eschew bonds for some sort of REIT?  Part of the problem is I have 5 (!) different retirement accounts, an SEP, and Roth, a Rollover, a Traditional, and a Non-deductible.  How do I keep everything in sync across those?

I would just go with a blended bond fund, its got short, intermediate, long, corporate, etc. Get a piece of everything at a low cost.

As far as your 5 accounts go, follow this rule of thumb:

1. Bonds go in tax-deferred (401k, traditional)
2. Put international in taxable account because they are slightly more tax efficient because of foreign tax credits
3. Put emerging markets in taxable or Roth (high capital gains growth so you are better off avoiding tax-deferred because its taxed as regular income)
4. US goes to wherever there's room left over.

After typing all that I remembered the Bogleheads wiki has a page on this: http://www.bogleheads.org/wiki/Principles_of_tax-efficient_fund_placement

[mxt0133]

Have you ever heard of a fee only advisor, that is a CFP certificant?  Look for an advisor that acts as a fiduciary, this means that your interests are put first, not a stock broker that only has the obligation of suitability.  The difference is that if you plan calls for some allocation in bonds then he can choose any bonds to meet those needs, if he happens to have some bonds that will bring him a big commission then it is ok to sell you those bonds, even if he could have picked another bond with lower commission to save you money.  A fiduciary is required to serve in your best interest, in the event that they choose a higher expense investment, then it needs to be clearly stated why the put you in the that investment and why it was superior to other alternatives.

Also fee only advisors can be hired on a hourly basis, which can significantly reduce your fees vs as a percent of assets under management (AUM).  Of course the more complex your situation the longer it will take to come up with an appropriate strategy to achieve your goals.

I say ditch them and come up with a plan to do it yourself and if you need reassurance, hire a fee only advisor to scrutinize your plan for piece of mind.

[starguru]

To be clear, not paying Fidelity. The money is at Fidelity and managed by another party.

Yeah I was thinking of going

70% US total market
10% international
10% emerging
10% bonds

From what I reading i should put the bond component in my retirement accounts.  But I'm not even sure what type of bond fund to go for.  Does it make sense to do a short term bond fund given the current climate?  OR eschew bonds for some sort of REIT?  Part of the problem is I have 5 (!) different retirement accounts, an SEP, and Roth, a Rollover, a Traditional, and a Non-deductible.  How do I keep everything in sync across those?

I would just go with a blended bond fund, its got short, intermediate, long, corporate, etc. Get a piece of everything at a low cost.

As far as your 5 accounts go, follow this rule of thumb:

1. Bonds go in tax-deferred (401k, traditional)
2. Put international in taxable account because they are slightly more tax efficient because of foreign tax credits
3. Put emerging markets in taxable or Roth (high capital gains growth so you are better off avoiding tax-deferred because its taxed as regular income)
4. US goes to wherever there's room left over.

After typing all that I remembered the Bogleheads wiki has a page on this: http://www.bogleheads.org/wiki/Principles_of_tax-efficient_fund_placement

Ah, thank you for this.  So say I go 10% bonds, I don't need to put 10% of the amount of each account into the fund, just take the amount of all accounts, find 10% and then buy that much in one of the accounts? I mean, it shouldn't really matter, as long as bonds are in a retirement account....

[starguru]

Have you ever heard of a fee only advisor, that is a CFP certificant?  Look for an advisor that acts as a fiduciary, this means that your interests are put first, not a stock broker that only has the obligation of suitability.  The difference is that if you plan calls for some allocation in bonds then he can choose any bonds to meet those needs, if he happens to have some bonds that will bring him a big commission then it is ok to sell you those bonds, even if he could have picked another bond with lower commission to save you money.  A fiduciary is required to serve in your best interest, in the event that they choose a higher expense investment, then it needs to be clearly stated why the put you in the that investment and why it was superior to other alternatives.

Also fee only advisors can be hired on a hourly basis, which can significantly reduce your fees vs as a percent of assets under management (AUM).  Of course the more complex your situation the longer it will take to come up with an appropriate strategy to achieve your goals.

I say ditch them and come up with a plan to do it yourself and if you need reassurance, hire a fee only advisor to scrutinize your plan for piece of mind.

I have heard of that, and would consider one if I could find a good one.

To be clear, I don't think this company has been bilking us.  They are RIAs, and as defined at this link http://en.wikipedia.org/wiki/Registered_Investment_Advisor they have to act as a fiduciary.   

I just think their strategy is not optimal and besides after being around these forums,  I should just do this myself. 

Anyway,  I just fired off the email. 

[bdbrooks]

You are reading the 3 year performance wrong. They are showing the 3 year ANNUALIZED performance. So the 13.6% would be 46.6% over the 3 years. This is very comparable to the SP500.

95% of financial advisors are going to perform under or even with the market BEFORE fees. There are very few that can add value. If you don't think he was adding .85% on average to returns, then kick his butt to the curb. Just remember that past performance is not indicative of future performance. Of those that add value, the advisors are usually good at limiting downside risk (market timing) or just barely beating the market while riding with the market. So if he had good measures for determining downward trends then maybe he hasn't had his chance to shine.

Generally if an advisor is one that adds value, he will be able to show his good returns over an extended period of time.

[surfhb]

I think you need to do some reading before you take this on

read and understand the boglehead wiki page first.   Pick up some of the books in the reading section

http://www.bogleheads.org/wiki/Main_Page

[RichMoose]

Ah, thank you for this.  So say I go 10% bonds, I don't need to put 10% of the amount of each account into the fund, just take the amount of all accounts, find 10% and then buy that much in one of the accounts? I mean, it shouldn't really matter, as long as bonds are in a retirement account....

No, it would be 10% of your total portfolio. Always divide Asset Allocation by your total portfolio for any asset class. If your portfolio is worth $500k, you might start by purchasing $50k of bonds in your Traditional IRA. If you only have say $40k of assets there, you would buy another $10k of bonds in your SEP-IRA.
For emerging, if you go with 10%, buy $50k of EM in your Roth IRA. If you only have $45k of room in your Roth, you would buy another $5k EM in your non-deductible.
Just work on it like that and eventually you will end up where you want with your desired AA. After that, just rebalance with smart purchasing and maybe once a year selling some of your outperformers and purchashing laggards to meet your target AA.

[starguru]

You are reading the 3 year performance wrong. They are showing the 3 year ANNUALIZED performance. So the 13.6% would be 46.6% over the 3 years. This is very comparable to the SP500.

95% of financial advisors are going to perform under or even with the market BEFORE fees. There are very few that can add value. If you don't think he was adding .85% on average to returns, then kick his butt to the curb. Just remember that past performance is not indicative of future performance. Of those that add value, the advisors are usually good at limiting downside risk (market timing) or just barely beating the market while riding with the market. So if he had good measures for determining downward trends then maybe he hasn't had his chance to shine.

Generally if an advisor is one that adds value, he will be able to show his good returns over an extended period of time.

Yes I think you are right, re the 3yr return thing.  The good thing about these statements is that they compare to some benchmarks, so the SP500 over the same time was at 22%.  So they were 8% under the SP500, but now we need to consider that the strategy wasn't 100% SP.

Either way, it's done and Im glad I did it.   

[starguru]

Ok, Ive been playing with a spreadsheet and came up with AA of

Bonds               10%  FBIDX (.22%)
International      8%   FSIIX  (.2%)
Emerging           7%   FPEMX (.31, .46%)
REIT                 10%  FRXIX  (.23, .33%)
US Stock           65%  FTSMX (.1%)

1.  So the expense ratios on these surprise me a bit - also don't understand why some of them have 2 expense ratios.  I was expecting them to be under .1%.

2.  Not sure if FRXIX is what Im hoping it is, which is an index fund of REITs

3.  Any general comments on this strategy?

4.  My SEP-IRA has room in it for everything the US Stock component, so I guess all bonds, international, emerging, and REIT shares go in there.  The rest of the balance in the SEP will be used for total market index, as well as the complete amounts of all other accounts.

5.  I have 1 personal account in this mix, according to statement 4 it would all be FTSMX.  Does it make sense to put some bonds in there to reduce the volatility of a non-tax account, at the expense of tax efficiency?

6.  Any alternative fund recommendations?

[RichMoose]

 Are you not eligible for the Advantage Class of Spartan funds? They have cheaper ER like Vanguards Admiral funds.

I would also recommend you read jlcollinsnh.com about investing in REIT. It's in his stock series.

[starguru]

Are you not eligible for the Advantage Class of Spartan funds? They have cheaper ER like Vanguards Admiral funds.

I would also recommend you read jlcollinsnh.com about investing in REIT. It's in his stock series.

Interesting.  I wasn't thinking of REIT as an inflation hedge, just another asset class for diversity. 

Looking over Fidelities website now I'm thinking of going with the ITOT ETF -- total US market with .07% fees.  Not seeing the advantage of a mutual fund here.

[VirginiaBob]

Please reconsider before you divorce.  That is a difficult decision.

[starguru]

I've got control of the accounts and I'm a bit overwhelmed by all the choices there are for each asset class. Looking at where the funds are now, I see things like

IVV
PRF
PXLG
DHLAX

for equities.  Is it a good idea to have all those, or is something like IVV enough?  Is there a better ETF for total us stock than IVV?

As a note, Ive gone thru my account and sold anything with an expense ratio higher than .5%. 

For International I was planning on using VEU and VWO.

I was planning on using VNQ for REIT and  BND for bond.

Also, even though I was planning to put the bond, international, and REIT components in my largest IRA, and just make everything else equities, not quite sure that is best plan considering I already own things like VEU/VWO in some of the accounts and selling incurs a fee. Given that fee (7.95 per transaction) should I just keep those positions and then balance it out to the target AA?  I like the aesthetics of having all the different components in one account, but don't know if that trumps keeping trading fees down.

Please, any better suggestions or confirmation would be greatly appreciated. Thank you.

[RichMoose]

My personal opinion is to stick with IVV. There are arguments that might favour RAFI models (ETF's such as PRF), but I would like to see some long term, after fees performance before buying into a "better index".

As far as buying and selling to get your account allocation right, I don't think its a bad idea if you have sizable positions (at least $5000), or if they are in retirement accounts so you don't trigger Cap Gains tax.

You should put VWO in Roth because it's theoretically your highest growth potential. Take some time to plan your allocation in each account using Boglehead tax-efficient placement information. It's better to get it right at this point than make changes later, incurring more $8 fees.

[starguru]

TuxedoEagle

thank you for the reply. Yes all the accounts are retirement except 1, and that account is going to be all equities; I am definitely keeping non-equity/international assets in retirement accounts. 

What about my other fund choices?  VEU, VWO, VNQ, and BND?

My question around buying and selling was this - Before I was advised to act as follows:  If my bond allocation amount is 10k, then buy 10k in one (IRA type) account, not 2k in each of 5 accounts.  Now that I look at it though, I already have low cost bond fund positions in a bunch of my accounts.  So does it make sense to sell those positions just to rebuy, all in account, especially if there are going to be fees for the transactions?

[RichMoose]

My question around buying and selling was this - Before I was advised to act as follows:  If my bond allocation amount is 10k, then buy 10k in one (IRA type) account, not 2k in each of 5 accounts.  Now that I look at it though, I already have low cost bond fund positions in a bunch of my accounts.  So does it make sense to sell those positions just to rebuy, all in account, especially if there are going to be fees for the transactions?

If they're currently spread across tax-deferred accounts in small amounts I would just keep what you have. For future purchases, I would stick to buying in one account just to help keep your accounts as clean as possible. But that's just me and my OCD. Other people may spread their purchases over tax-deferred accounts and that's OK too, it just means making small purchases frequently, potentially triggering more trading commissions.