Opinions on recent Boglehead convert portfolio

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Topic Author
Quincy
Posts: 41
Joined: Tue May 28, 2013 3:28 pm

Opinions on recent Boglehead convert portfolio

Post by Quincy »

I recently began educating myself on investing after wathcing, "The Retirement Gamble." Listening to John Bogle speak, it was like a lightbulb went off and it made too much sense. I thought that if it was really as simple as he was saying then why wasn't everyone doing it? In the last 3 weeks I have read "Common Sense on Mutual Funds", "The Bogleheads Guide to Investing", "A Random Walk Down Wallstreet", and I am currently working on "The Four Pillars of Investing." I decided to pull all of my IRA accounts out of a major brokerage firm and open a Vanguard account. My Broker pitched a fit when I explained that I was moving my money to Vanguard and handling it myself from now on. His quote was "Index funds are NOT the answer." He had all of our money in 2 Unit Investment trusts. One was Invesco Cohen Steers Master Income Portfolio 35. The other was Unit Van Kampen Global 45 Dividend Strategy. I have had my account there for 3 years and those 2 funds are what we have been in the whole time. The UIT ends every year and we reinvest into the next. The original ones carried a 2.95% sales charge and the subsequent ones were reduced to 2% for renewing. I spent 3 hours trying to figure out all the fees associated and could not. My new plan is to invest 20% in Total international index, 10% REIT index, 10%Total Bond index, 10%TIPS, 50% TSM index all in Vanguard Admiral shares. I am 35 and plan on retiring at age 57 so I am planning on gradually increasing my bond allocation until 50/50 by retirement. My inlaws are wealthy and this is their financial advisor. They are telling my wife I am making a mistake and that their guy is great. He charges them a 1% AUM fee and was waiving it for me as a favor to them. What do you guys think am I making a good decision or not?
bulldog1
Posts: 46
Joined: Thu Nov 29, 2012 9:06 pm

Re: Opinions on recent Boglehead convert portfolio

Post by bulldog1 »

Hi Quincy,

I am 37 years old and recently I made the same moves you did and I am glad I did it. The light bulb went off and things are so simple now. My average expense ratio is .15% with a 4 fund portfolio...incredible! Good luck and continue what you're doing. Before you make any big moves, do your research and ask a lot of questions.

Best Wishes
Chris M
Posts: 88
Joined: Tue May 28, 2013 6:25 pm

Re: Opinions on recent Boglehead convert portfolio

Post by Chris M »

Quincy,

You will not find better investment advice than in the classics by Bogle, Malkiel and Bernstein. Keep doing what you're doing.
Calm Man
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Re: Opinions on recent Boglehead convert portfolio

Post by Calm Man »

OP, as long as this won't cause your in laws to disinherit your wife then it doesn't matter what they say. You can figure out a way to politely say you have read and believe in passive management with low fees., BTW, he waives the 1% AUM as a favor to them and makes up for it by selling you loaded unit trusts. I assume he isn't selling them loaded funds on top of the AUM. You are not going to change their minds as they like giving 20 or 25% of their return to the advisor instead of leaving it for your wife !!!! Stick to your guns and if your wife is educated and can understand, maybe have her read some of the books or learn a bit like you have. Good job.
livesoft
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Re: Opinions on recent Boglehead convert portfolio

Post by livesoft »

Don''t worry as your in-laws will soon see that the grass is greener on your side and move their assets, too.
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Bob's not my name
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Re: Opinions on recent Boglehead convert portfolio

Post by Bob's not my name »

So the "Dividend Strategy" is to surrender the 2% dividends up front?
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nedsaid
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Re: Opinions on recent Boglehead convert portfolio

Post by nedsaid »

I like your plan. A nice Vanguard portfolio. No argument from me.

You are right that your advisor is costing you more than you think.
A fool and his money are good for business.
Gauntlet
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Re: Opinions on recent Boglehead convert portfolio

Post by Gauntlet »

It might have been better to take longer than 3 weeks to make the decision. Having said that, your new strategy sounds much better than your previous one and you will likely be much wealthier because of it. I have been a passive investor for almost 15 years and I have yet to regret my decision.
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dratkinson
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Re: Opinions on recent Boglehead convert portfolio

Post by dratkinson »

You are on the right path and you found it much more quickly than I.

(1) If your in-law's FA can not prove he is beating an appropriately constructed market index every year, then he is losing to it.
  • It should be easy enough to show your in-law's how to compute the annual return of an appropriate total market index based on their asset allocation. You could do this for past years, too.
(2) Your in-law's must understand the logic that if they paid less in annual fees, then they would capture more of their investment return.
  • Rick Ferri has a recent post demonstrating the bite fees take from our investments. Your in-law's 1% FA fee is not simply 1%, it is ~20% of their annual investment return. Any annual asset fees must be added on top of his fee.

    From Rick's article, his fee waiver for you and the assets he selected for you resulted in your losing >50% of your return in the first year and ~40% in subsequent years.

    "The Heavy Toll of Investment Fees": http://www.bogleheads.org/forum/viewtop ... 0&t=117003
If you were to demonstrate to your in-laws that their FA is (1) under-performing the return of an appropriately-computed market index and (2) charging them excessive fees based on simpler mutual funds, then they must be persuaded to rethink any opposition.

How can they then argue with you when you tell them that your new Vanguard MF portfolio captures the whole market return, less your (much lower total) management fee of ~0.15%.

Who knows, with enough new knowledge and *understanding, your in-laws might be persuaded to drop their FA, too.
  • *We put up all the money, we take all of the investment risk, and our FA's investment plan is taking >20% of our annual return! Why continue doing this when we could easily keep that money for ourselves?
What a wise son-in-law you are.
d.r.a., not dr.a. | I'm a novice investor; you are forewarned.
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bertie wooster
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Re: Opinions on recent Boglehead convert portfolio

Post by bertie wooster »

Congrats on your choice. You've made an excellent decision which will save you an immense amount of money in the long term and allow your family to more easily achieve its financial goals.

I disagree with other folks here about trying to convince your in-laws about how wise your move is. It's likely a losing battle and will only cause strife. Stop talking about how much money they've spend in fees and what a great deal Vanguard is. It's true obviously, but most fathers-in-law aren't going to like taking investment advice from their son-in-law (and will probably like it even less when you prove to be right). The only person you need to convince about how this financial advisor is a fraud is your wife.

Also, stop talking about how much you moved to Vanguard, how you have all Admiral shares, etc. Your in-laws shouldn't know this much about your financial situation. Time to set some limits. Believe me, you'll be very thankful if you heed this advice
Topic Author
Quincy
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Re: Opinions on recent Boglehead convert portfolio

Post by Quincy »

Thank you for all of the replies and opinions. I am definitely going to heed the advice of Wooster and keep out of the in-laws finances. Investing and money management seems like an intensely personal subject with most people. I have an updated question about one of the funds I am still in, the Unit Invesco Master income series 35 portfolio. I am still trying to figure out the fees, sales charge, and expenses. The prospectus is fairly detailed about it, but I cannot figure out what I am going to pay if I pull out now as opposed to the end of the trust on 7/02/14. My FA reinvested us in this on 4/02/13. My FA just says that there is no withdrawal fee. When I called Invesco to find out they could not figure it out and then finally said that they could not discuss it with me that my broker has that information. When I replied that I was merely trying to figure out the fees based on their own prospectus they deferred to my broker again. Can any of you figure out the difference based on an $18,000 investment? Here is the prospectus link http://www.invesco.com/portal/site/us/u ... d=MSTR0035
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Bogle101
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Re: Opinions on recent Boglehead convert portfolio

Post by Bogle101 »

Obviously the board here will applaud you for switching to low cost index investing and so will I. However, be wary of your in laws. If they are wealthy don't upset them or their advisor or they may cut you out of the inheritance! :D
40% Extended Market | 40% S&P 500 | 10% REIT | 5% State Muni Bond | 5% Cash
TampaTime
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Joined: Sat May 25, 2013 5:29 am

Re: Opinions on recent Boglehead convert portfolio

Post by TampaTime »

I'm currently in the process of moving to Vanguard from Edward Jones. My funds currently in transit. What is still left at EJ if a bond UIT, so I'm kind of interested on what is suggested on this asset.

TampaTime.
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Taylor Larimore
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Re: Opinions on recent Boglehead convert portfolio

Post by Taylor Larimore »

Quincy wrote:
When I replied that I was merely trying to figure out the fees based on their own prospectus they deferred to my broker again. Can any of you figure out the difference based on an $18,000 investment?
I can't figure it out either. You might try asking the broker: "How much will I receive if I sell now." Compare that figure at Morningstar with $18,000 invested in Total Market Index Fund (VTSMX) over the same period. I suspect you will get an unpleasant surprise.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
jwa
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Re: Opinions on recent Boglehead convert portfolio

Post by jwa »

Have you made a mistake? Nope

Are your in-laws making a mistake - Yep

Press forward with your decision and you won't regret it.
Topic Author
Quincy
Posts: 41
Joined: Tue May 28, 2013 3:28 pm

Re: Opinions on recent Boglehead convert portfolio

Post by Quincy »

I took your advice. We reinvested 18,509.10 on 4/2/13 in this fund. If I had invested the same amount in TSM index at the same time I would have 19,360.41 on 06/04/13. Current value of the UIT is $17,769.75. Reading the prospectus it appears to have a 5.19% total fee structure in the first year based on a 5% return in the portfolio. I cannot believe that it basically says right in the prospectus that they intend to take not only your entire return, but .19 of your original investment. This should be illegal. I feel like going down to my FA's office and punching him in the face.
medstudent12
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Re: Opinions on recent Boglehead convert portfolio

Post by medstudent12 »

Perhaps you might consider gifting to your in-laws one of the books you have been reading.
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