Switching to Vanguard - What Do You Advise Post-FIRE?

[Dicey]

Hi! My name is Dicey and I confess I have been using a Financial Advisor that I've been pleased with for the last decade. [Dicey ducks - at least it isn't Edward Jones]

They were great for me when I was single. Now that I'm married and we're FI/RE, I'm finally ready to cut the cord and make the switch to Vanguard.

I'm thinking of using Vanguard's Personal Advisor Service. The fee is 0.30% of managed assets. While is not the lowest possible Vanguard fee, it's still significantly less that we've been paying.

Apparently, I had a Vanguard account once upon a time in my single days. Making the necessary changes has been a pain in the ass. While that's percolating in the background, I've been thinking about a few things. I mentioned this ysette9's journal recently, which gave me the idea to ask for more input from the community.

Fast Facts:

- I'm 61 and seven years FIRE, DH is 59 and still working. We live on his income.

- DH is just under two years away from a sweet Defined Benefit Pension complete with COLA and generous healthcare allowance. He likes his job and walks to work. His mom has ALZ and lives with us, so travel is not an option yet. When DH retires, we will move his mom into an ALZ facility. Eight years of caregiving is enough. She's healthy as a horse, so we fully expect her to live many more years. She has enough assets to cover the cost of her care.

- Our primary home is worth $1.4M and has no mortgage. We will gladly downsize when DH retires, but want to purchase something smaller in the same area, which won't be cheap. Ideally, we'll find a fixer for $750k-$800k.

- DH's pension is from a very stable source and will replace at least 60% of his current income.

- We both qualify for SS. Last time we ran the numbers, it looked like we can expect at least $4k/month when we're 67.

- Between the Pension and SS, we will have enough to live on comfortably. The rest is gravy.

- We own three rentals in a retirement resort community, each with about 50% equity. We aren't counting on the rental income. When DH retires, we'll move in and pretty them up one by one and sell them off. DH is the kind of guy who thrives when he has defined projects and this will bridge the gap until SS kicks in.

All of that could be looked at as acting as bonds in our portfolio. I'm strongly thinking that when we move our assets to Vanguard we will go 100% equities, but I'm not sure if that's insanely aggressive.

The above mentioned managed portfolio is about $1.1M, and about we have about $450k in cash. We just finished a successful flip, hence the boatload of cash. We may want to use that for a future flip project.

So, mustachians, how should we invest this $1.1M at Vanguard? Should we go 100% equities? Should we splurge on the Personal Advisor? If we decide to keep the cash out of the market, where should we park it?

Thanks for your input.

[ysette9]

Do you think you would feel better with the hand-holding that comes with the managed services of vanguard or would you rather DIY? What asset allocation does your current advisor have you in and how does that feel?

Both my parents and aunt & uncle are using vanguard’s advisors and seem pleased. I’ve questioned one or two things they have recommended, but overall I think they are in good hands, better than they would be with others and for lower fees.

[MDM]

I'm strongly thinking that when we move our assets to Vanguard we will go 100% equities, but I'm not sure if that's insanely aggressive.

The above mentioned managed portfolio is about $1.1M, and about we have about $450k in cash. We just finished a successful flip, hence the boatload of cash. We may want to use that for a future flip project.

So, mustachians, how should we invest this $1.1M at Vanguard? Should we go 100% equities? Should we splurge on the Personal Advisor? If we decide to keep the cash out of the market, where should we park it?

Yes, it's aggressive.  No, not insanely so.  See Case Study - Underexposed to stocks? for pertinent discussion.

It's really up to the two of you to pick the asset allocation that makes the most sense for you.

Might be interesting to look at the PA cost in absolute dollars instead of percentage.

One of the http://www.magnifymoney.com/blog/earning-interest/best-online-savings-accounts275921001 could be a reasonable place to hold cash.

[BicycleB]

Hi, @Dicey. I admire your courage in making your Personal Advisor admission!

Based on my limited understanding:
1) Bonds and real estate have similarities, but also differences. To me it seems that in a serious crash, rents can go down almost exactly when bonds go up. Or, bonds could go up early in a crash, while rents respond slowly. Or bonds can go up while the renter who lost a job stiffs you on rent and takes months to be evicted. Individual rental properties cannot easily be sold in small bits to buy stocks that become cheap in a crash; bond funds can. I too have a portfolio that is heavy on real estate, but personally I don't think of bonds and real estate as equivalent.

2) I view stocks, REITs, rental real estate, bonds, cash, pensions, Social Security, gold, and commodities as asset classes that each have significant differences.

3) In your shoes, I wouldn't go all stock. I'd reserve some cash and bonds, maybe in a 1:2 ratio, to at least cover the risk of a tenant stiffing you during a recession. Even if the cash+bonds is just 9% or 10% of financial assets. Judgment call.

Fwiw, my overall portfolio excluding SS is roughly 10.5% home equity, 31.5% rental equity, 10% pension (by contribution, 20% by value...most similar to bonds), 32% stock, 13% bonds, 3% cash. Arguably I'm too convervative, but because of my sequence of payments (I draw down investments soon, then draw pensions/SS) I have a shorter timeframe for the financial assets than someone who will draw gradually from age 60 to 100.

4) I think you can manage this stuff fine without paying Vanguard's personal advisor service. That said, obviously it's cheaper than most non-Vanguard advisors.

5) Despite 3, you have lots of resources and probably will do great with any allocation decision of your financial assets. That's one reason I vote DIY on 4....just keep your investment costs low, be happy that you are already diversified (rentals, pension / SS, financial assets), and have a good time.