Company Sale - 6 months later

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Company Sale - 6 months later

Postby aNYTechie » Mon Jul 01, 2013 11:37 pm

A brief overview of my status before I dive in to the questions. Married, 35, live in NYC. I recently sold a large portion of my tech company about half a year ago from which I received $3m net cash (I paid taxes on it this past April). Prior to this I had no money saved (everything was in the business), 20k in an old 401k that I never rolled over, 15k in current company 401k, and zero experience in the market or any form of retirement planning.

Post transaction, I sought the advice of my now ex-investors as to what to do with all that cash. 2 of 3 recommended money managers (merrill, ubs) and one mentioned Bogle. Having trusted (still trust) all three of the guys, I opted to put the money with an advisor that was recommended. I met with him numerous times, like him personally and trust him professionally. I went through all the tests and surveys to determine my risk profile -- moderately conservative. I don't want to blow this cash after all that work. His fees are 1% of money under management. He placed me in a covered call strategy (see below).

During this time, at the recommendation of the 3rd investor-friend, I visited this site. I picked up and read books -- "The Coffeehouse Investor", "The Intelligent Asset Allocator", "Investing Made Simple", "The Only Guide to a Winning Investment Strategy You'll Ever Need", "A Beginner's Guide To Investing: Grow your Money the Smart and Easy Way", and of course "The Bogleheads' Guide to Investing" -- and learned about the Bogle approach.

I ultimately gave the Manager $2.5m to invest, took $50k to "play" with on my own, and kept the remaining in cash. With the 2.5, the Manager opened IRA's for myself and my wife which we contributed the max amount to, rolled over my old 401k into the new IRA and slowly (over 3 months) invested the remaining $2.5m into the market.

Manager Allocation (according to report):

18% Cash
22% Bonds
56% Stocks
3% Alternatives
1% Other

Also, costs beyond the 1% management fee (according to report): $4,966 total on 54 mutual funds and ETFs


Personal Allocation (the 50k I play with at eTrade):

52% SPY
23% VGTSX
3% BNDX
21% VBMFX
1% XOP


Performance YTD:

+3.43% Personal
+1.54% Manager


Future contributions will probably be 150-200k cash (post-tax), $20k to 401k (including 4% match).

So what is the question, right? I know coming to this forum, having lurked for 6 months or so, I can probably anticipate what the answers are… but I'm curious as to thoughts of others who have experienced something similar -- a large capital event (windfall?) of this size and how you handled it.

Having read the mass of books mentioned above, it would appear that I should be able to handle my investment plan properly and simply, but having never had exposure to personal investing in any form short of checking the 401k box at work, handling this much cash feels too risky on my own. There isn't much to base this on other than a healthy dose of fear combined with uncertainty. I'm an expert in my field so I tend to opt for relying on experts when possible. Running the business was (and still is) my risk -- I don't need to mess up this massive influx of cash. As the Manager said to me when we met, "you've won the game… now you just to implement a plan to preserve your principal and grow it controlled over time to achieve your goals."

Can I do this on my own? Is it as simple as choosing an allocation similar to what I did with my personal etrade and just sticking to it, rebalancing, and repeat? If so, how is my allocation?

I've only given the current system less than 6 months -- should I stick it out at least another 6 months? Given the volatility of the market it may be "fair" to see how the rest of the year shakes out in my current scenario.

Appreciate your time.
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Re: Company Sale - 6 months later

Postby Noobvestor » Tue Jul 02, 2013 2:28 am

I sold significant business assets a while back and was in a similar situation. I ended up managing my own portfolio, and am glad I went that route. I read similar books, asked questions on this forum, and got quite comfortable with what I ended up with - and I'm glad I'm not spending money on an adviser (I'd *consider* a fee-only one if I really felt strongly ... but there's no way I'd hand some guy 30K/year just to rebalance my stocks and bonds unless I was afraid I'd freak out and make bad decisions at the wrong time).

There are people who need managers and people who don't. The people who need them aren't people who can't figure out their allocation (anyone can do that with some research) - they are people with enough money that it will last forever and fees are worth just ignoring (maybe 10 mill+ for some people, 100 mill+ for others - subjective) and/or ones who are danger-to-themselves types with temptation to tinker. 1% of assets under management isn't absolutely crazy, but assuming your portfolio will probably generate something like 3 to 6% real going forward, you're giving away between 1/3 and 1/6 of your expected returns. Worth it if you might, say, panic and sell at the wrong time. Not really worth it though for most people.

You've read the books from which you can develop and maintain your own low-cost, tax-efficient, broadly-diversified, and risk-appropriate allocation. If I were in your shoes, unless you fall under the 'danger to yourself' risk category, I would not have an adviser. Now, if you ARE the kind of person who is going to get nervous and change their mind at the wrong time (buy high, sell low), maybe the 'insurance' of having someone between you and your money is worth it - hard to say.

Also, ignore YTD returns regardless - they are not a vote for or against your ability to manage your portfolio better. The differences there are in the noise, and the time period is to short to say anything about anyway.

As for your portfolio itself under the adviser's guidance: looks pretty reasonable to me, but you can do it on your own, or something similar. Maybe something like 50% stocks, 30% bonds and 20% cash to keep it simple using Vanguard Total Stock, Total International, Total Bond, Inflation Indexed Securities and CDs/Savings for the cash. And, in the end, pay a few grand if you want to run your plan by fee-only investors who don't have any vested interest in 'selling' you something just to double-check your results - that would be money far better spent than the tens of thousands you plan to hand your current adviser each and every year for the rest of your life.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
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A well informed investor.

Postby Taylor Larimore » Tue Jul 02, 2013 7:39 am

NYTechie:
During this time, at the recommendation of the 3rd investor-friend, I visited this site. I picked up and read books -- "The Coffeehouse Investor", "The Intelligent Asset Allocator", "Investing Made Simple", "The Only Guide to a Winning Investment Strategy You'll Ever Need", "A Beginner's Guide To Investing: Grow your Money the Smart and Easy Way", and of course "The Bogleheads' Guide to Investing" -- and learned about the Bogle approach.


Having read these books, there is a good chance you know more about successful investing than your adviser. It may sound strange, but with more money you actually have less to worry about than someone with less money.

Consider a simple portfolio like this:

The Three Fund Portfolio

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: Company Sale - 6 months later

Postby mhc » Tue Jul 02, 2013 10:46 am

NYTechie,

it really is pretty simple to handle your own investments. You have read the correct books. You have a good resource with this forum to answer questions. Also, with that much money, Vanguard will provide you a lot of hand holding to help you out. From what I have seen posted here, Vanguard will give you advice that aligns well with the advice on this forum. The 3-fund portfolio recommended by Taylor is great. It has many merits.

$2.5-3 million is a lot of money, especially since it is your hard earned money. Don't give it away to an adviser.

There are a lot of people on the forum with $1+ million, so you don't need "special" handling by a wealth management company.

I would recommend that you talk to Vanguard and do some thinking about what to do. Come up with a plan and post it on this forum. You will get a lot of good feedback.
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Re: Company Sale - 6 months later

Postby Ged » Tue Jul 02, 2013 10:56 am

mhc wrote:
so you don't need "special" handling by a wealth management company.



You only need that if you are Montgomery Brewster and need to get rid of $30 million in 30 days.

BTW, your adviser is ripping your face off. 54 different funds? 18% cash? Yikes!
Lack of planning on your part does not constitute an emergency on my part.
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Re: Company Sale - 6 months later

Postby Rick Ferri » Tue Jul 02, 2013 11:02 am

54 mutual funds and ETFs???

You have to be kidding!? That is ridiculous. It's close to a mathematical impossibility for a portfolio holding this many funds to earn the return you'll get with a simple all index fund portfolio and that's before paying the adviser his 1% fee. Read Scenario 4 of this whitepaper, A Case for Index Fund Portfolios.

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Re: Company Sale - 6 months later

Postby InvestorNewb » Tue Jul 02, 2013 11:10 am

I think many people, including the OP, underestimate their own ability to manage a portfolio. A passive indexing strategy takes virtually zero effort.

When the market is up, everyone benefits. It's not like an actively managed portfolio will be up when the market is down. We all get what the market returns.

That is what's nice about total market indexes.
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Re: Company Sale - 6 months later

Postby 22twain » Tue Jul 02, 2013 11:13 am

aNYTechie wrote:Also, costs beyond the 1% management fee (according to report): $4,966 total on 54 mutual funds and ETFs


Does that include just trading fees, commissions, loads, etc., or does it also include the expense ratios of the funds and ETFs (pro-rated for part of a year if necessary)?

Performance YTD:

+3.43% Personal
+1.54% Manager


The difference appears to be consistent with the 1% management fee plus about a 1% differential in expense ratios between index funds and the typical actively-managed funds that most professional asset managers like to use.
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Re: Company Sale - 6 months later

Postby Ged » Tue Jul 02, 2013 11:52 am

22twain wrote:
Performance YTD:

+3.43% Personal
+1.54% Manager


The difference appears to be consistent with the 1% management fee plus about a 1% differential in expense ratios between index funds and the typical actively-managed funds that most professional asset managers like to use.


It's quite telling, isn't it? The managed portfolio is throwing about 2% in fees to the managers and 1.5% in gains to the investor.

In other words, the investor got less than 1/2 of the proceeds. Consider this is the context of retirement with a 4% withdrawal rate... you would have to cut your withdrawal rate in half in face of these fees.

It is shocking to me that this is legal.
Lack of planning on your part does not constitute an emergency on my part.
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Re: Company Sale - 6 months later

Postby 22twain » Tue Jul 02, 2013 12:18 pm

22twain wrote:
aNYTechie wrote:Also, costs beyond the 1% management fee (according to report): $4,966 total on 54 mutual funds and ETFs


Does that include just trading fees, commissions, loads, etc., or does it also include the expense ratios of the funds and ETFs (pro-rated for part of a year if necessary)?


After looking at his numbers again, I'm pretty sure it doesn't include expense ratios. $2.5M * (1% ER) * (0.5 year) = $12,500. And 1% is probably a conservative estimate for the average ER.
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Re: Company Sale - 6 months later

Postby HomerJ » Tue Jul 02, 2013 12:29 pm

aNYTechie wrote:Also, costs beyond the 1% management fee (according to report): $4,966 total on 54 mutual funds and ETFs


Costs are a lot higher than that... He's probably not including the expense ratios of the mutual funds, since those aren't explicit costs...

No one sends you a bill for the 1.5% expense ratio a mutual fund may be charging... It just means if the stocks in that fund return 8%, you'll only see the fund go up 6.5%.
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Re: Company Sale - 6 months later

Postby BolderBoy » Tue Jul 02, 2013 12:31 pm

aNYTechie wrote:Can I do this on my own? Is it as simple as choosing an allocation similar to what I did with my personal etrade and just sticking to it, rebalancing, and repeat? If so, how is my allocation?

I've only given the current system less than 6 months -- should I stick it out at least another 6 months? Given the volatility of the market it may be "fair" to see how the rest of the year shakes out in my current scenario.

You are proving you can do this on your own. Your posting makes it plain you are quite smart and able.

54 funds? It's a gag, right?

Do this yourself, just as you've outlined in your first paragraph above. To do even better, follow Taylor's advice in this thread.
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Re: Company Sale - 6 months later

Postby Watty » Tue Jul 02, 2013 1:13 pm

54 mutual funds and ETFs


Having this many investments is pretty common for investment advisors. Often part of the goal of putting you in so many investments is to make investing seem so complicated that you are too intimated to try managing it yourself. It sounds like it is working. (Just how good can someone's 54th best investment choice be?)

At your age a safe withdrawal rate is somewhere in the ballpark of 3% a year. If you choose to pay the advisor 1% then be sure to reduce your withdrawal down to 2% to compensate for this.

With three million that is a reduction from living on $90,000 a year to $60,000 a year, before paying taxes.

If there are more hidden fees then you would need to subtract these too.

I have not used it but Vanguard has a level of investing advice where you can just pay for the advice as you need it. I would think that for the $25,000 + a year that you are paying now that you could get a lot of advice there. In a few year you might only need to get a little help each year.

https://investor.vanguard.com/what-we-o ... Link=facet
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Re: Company Sale - 6 months later

Postby boggler » Tue Jul 02, 2013 1:18 pm

Watty wrote:
54 mutual funds and ETFs


Having this many investments is pretty common for investment advisors. Often part of the goal of putting you in so many investments is to make investing seem so complicated that you are too intimated to try managing it yourself. It sounds like it is working.


Cynically, I agree. However, I'd like to know the flip side of this argument. OP, do you know how the advisor justified having this many funds? Certainly there must have been some reason for the complexity.
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Re: Company Sale - 6 months later

Postby boggler » Tue Jul 02, 2013 1:21 pm

Watty wrote:I have not used it but Vanguard has a level of investing advice where you can just pay for the advice as you need it. I would think that for the $25,000 + a year that you are paying now that you could get a lot of advice there. In a few year you might only need to get a little help each year.

https://investor.vanguard.com/what-we-o ... Link=facet


This advice is free for people at the OP's asset level. But it doesn't cover other aspects of financial planning that wealth advisors typically do cover, like insurance needs, estate planning, etc. Can anyone confirm this?
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Re: Company Sale - 6 months later

Postby InvestorNewb » Tue Jul 02, 2013 1:22 pm

John Bogle, in his speech, “ Investing With Simplicity, ” said: “Simplicity is the master key to financial success. When there are multiple solutions to a problem, choose the simplest one.” [1]

As Bogleheads author William Bernstein says in reference to the three fund portfolio: "Does this portfolio seem overly simplistic, even amateurish? Get over it. Over the next few decades, the overwhelming majority of all professional investors will not be able to beat it." [3]

http://www.bogleheads.org/wiki/Boglehea ... simplicity
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Re: Company Sale - 6 months later

Postby bzcat » Tue Jul 02, 2013 1:33 pm

Is it possible the 54 funds are the same funds under different tax sheltering accounts? I only have a few funds, but if I count everything on my statement, its a lot more than that.

Otherwise, yes, yikes. You don't get admiral shares when you split 2.5M by 54.
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Re: Company Sale - 6 months later

Postby Bradley » Tue Jul 02, 2013 2:03 pm

aNYTechie wrote:


Can I do this on my own? Is it as simple as choosing an allocation similar to what I did with my personal etrade and just sticking to it, rebalancing, and repeat?



I believe it would be in your best interest to look for an experienced low cost ( less than .50 for AUM ) passive investment advisor and jettison your 54 fund advisor until you have a better understanding of portfolio construction, investment cost, discipline and the effect emotions play into managing one’s own money. Not everyone is cut out to manage their own portfolio. If your next potential advisor suggests more than 12 funds, keep looking.

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Re: Company Sale - 6 months later

Postby bkslainte » Tue Jul 02, 2013 2:30 pm

Everyone likes a winner, I certainly do. With 54 funds, you will probably to have 2 or 3 funds that will be top performers and future meetings with your advisor will probably focus on how great these 2 or 3 funds did while ignoring the overall average.

That's why I love bogleheads, average is winning!
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Re: Company Sale - 6 months later

Postby matonplayer » Tue Jul 02, 2013 7:18 pm

OP, your story is so similar to mine it's scary, right down to the broker wanting to do a covered call strategy. I received my windfall from a company sale in August and finally dumped my broker a month or so ago, when I calculated how much the option strategy had cost me compared to a Boglehead approach. You're more than capable of managing your own investments and with greater success.
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Re: Company Sale - 6 months later

Postby aNYTechie » Tue Jul 02, 2013 8:20 pm

First off, thank you all for the thoughtful replies. I need to find some time to post during the day! Hah. Apologies for the long post, replied to a few individuals throughout.

Will def check out the Three Fund Portofolio. One of the asset allocation books (not sure which one off the top of my head), went pretty granular by the time it wrapped up the book, breaking up each "major" asset class (stocks) into more granular sub-classes (large-cap international, etc) -- Is that needed? Seems to overly complicate things. Is the idea here to decrease the overall volatility?

mhc wrote:NYTechie,
I would recommend that you talk to Vanguard and do some thinking about what to do. Come up with a plan and post it on this forum. You will get a lot of good feedback.

Assume that Vanguard is fee based?


22twain wrote:Does that include just trading fees, commissions, loads, etc., or does it also include the expense ratios of the funds and ETFs (pro-rated for part of a year if necessary)?

Not sure to be honest, but I have my Q2 review coming up -- will ask this, but I don't believe it does. I think this is just direct costs (fees, commissions, etc)


boggler wrote:Cynically, I agree. However, I'd like to know the flip side of this argument. OP, do you know how the advisor justified having this many funds? Certainly there must have been some reason for the complexity.

I asked this in the beginning (as I was mid bogle-books) and he said it was a strategy to diversify my risk inside of a class. Something to the effect of "the highs won't be as high, but the lows won't be low by spreading the investment out." He explained that because I didn't need to run the risk of lower lows (by not demanding higher highs) this was the safest strategy to see the most upside combined with downside protection.

Kind of funny (embarrassing?) that now that I read my own writing and hear your thoughts on it, it doesn't make any sense. I could barely explain it actually. This speaks to my underestimating my ability to "properly" manage assets of this size. I wanted to be sold unfortunately.


Bradley wrote: I believe it would be in your best interest to look for an experienced low cost ( less than .50 for AUM ) passive investment advisor and jettison your 54 fund advisor until you have a better understanding of portfolio construction, investment cost, discipline and the effect emotions play into managing one’s own money. Not everyone is cut out to manage their own portfolio. If your next potential advisor suggests more than 12 funds, keep looking.

Are there firms that specialize in this? I spoke to 4 or 5 before going with the "recommended" and none approached that low of a fee, most were around 1.2-1.5% AUM.


matonplayer wrote:OP, your story is so similar to mine it's scary, right down to the broker wanting to do a covered call strategy. I received my windfall from a company sale in August and finally dumped my broker a month or so ago, when I calculated how much the option strategy had cost me compared to a Boglehead approach. You're more than capable of managing your own investments and with greater success.

Curious to hear how "advanced" of a Boglehead portfolio you went with on you own... how granular did you go inside each of the main classes?
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Re: Company Sale - 6 months later

Postby Beat The Street » Tue Jul 02, 2013 8:31 pm

Wow 1% on 2.5 million? That seems high to me and I am a licensed broker! 54 funds is absolutely absurd. You should look to cut your fee in half or so and reduce the amount of funds by at least 40. Read Ferri's paper and then have your advisor read it.
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Re: Company Sale - 6 months later

Postby Calm Man » Tue Jul 02, 2013 9:09 pm

OP, very simply, if you would like to have an adviser, you need look no further than Rick Ferri, who posts here regularly and is at Portfolio Solutions. He is more like the 1/4% per year and does a great job from everything I have read. I personally do not use an adviser but if you can you use it, he would be perfect. My understanding is that rarely do any of his clients not continue with him. Good luck.
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Re: Company Sale - 6 months later

Postby aNYTechie » Tue Jul 02, 2013 9:25 pm

Rick Ferri wrote:54 mutual funds and ETFs???

You have to be kidding!? That is ridiculous. It's close to a mathematical impossibility for a portfolio holding this many funds to earn the return you'll get with a simple all index fund portfolio and that's before paying the adviser his 1% fee. Read Scenario 4 of this whitepaper, A Case for Index Fund Portfolios.

Rick Ferri


Thanks for this -- great read. Are there web services out there that allow you to run historical data on simulation portfolios?
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Re: Company Sale - 6 months later

Postby Rick Ferri » Tue Jul 02, 2013 9:42 pm

Yes, there are several. You might look at Morningstar's Principia product. It's not too expensive. I use it for some analysis. There are probably less expensive databases that other people on this forum know about.

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Re: Company Sale - 6 months later

Postby Dale_G » Wed Jul 03, 2013 12:07 am

There is absolutely no justification for 54 funds for a new investor.

If you went to a Doctor and she/he suggested 54 pills for a bellyache you would drop her/him in a second.

Ditto for a personal dietitian who suggested a 54 component lunch consisting of 1 gram of lettuce, 2 grams of carrots, 1.5 grams of pineapple, 0.3 grams of kiwifruit, 0.4 grams of mango, 1 gram of flax seed, etc.

Oh, I know some gals have 54 pairs of shoes and some guys have 54 ties, but usually they don't try to wear them at the same time. :)

54 funds is a big red flag.

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Re: Company Sale - 6 months later

Postby rickmerrill » Wed Jul 03, 2013 12:47 am

Assuming your advisor costs you 1.5% in fees (probably low) and portfolio grows at 6% I calculated you will loose just over 2M over the course of 20 years for the benefits he provides. See http://www.buyupside.com/calculators/feesdec07.htm. Not only do you loose the actual fees to your advisor, you loose the opportunity cost of investing those fees.
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Re: Company Sale - 6 months later

Postby Bradley » Wed Jul 03, 2013 4:32 pm

aNYTechie wrote:First off, thank you all for the thoughtful replies.







Bradley wrote: I believe it would be in your best interest to look for an experienced low cost ( less than .50 for AUM ) passive investment advisor and jettison your 54 fund advisor until you have a better understanding of portfolio construction, investment cost, discipline and the effect emotions play into managing one’s own money. Not everyone is cut out to manage their own portfolio. If your next potential advisor suggests more than 12 funds, keep looking.

Are there firms that specialize in this? I spoke to 4 or 5 before going with the "recommended" and none approached that low of a fee, most were around 1.2-1.5% AUM.




Below is a reference to a list of some low cost providers. The top three on the list have fee's below .50% for your portfolio and are well worth your consideration. Portfolio Solutions is Rick Ferri's firm and I have many colleagues who have been pleased with the services he has provided. The reference is dated and some fees have been adjusted so you need to do your own research but hopefully the list will give some helpful information.

http://retireearlyhomepage.com/dfaadv.html

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Re: Company Sale - 6 months later

Postby greg24 » Wed Jul 03, 2013 4:38 pm

aNYTechie wrote:I'm an expert in my field so I tend to opt for relying on experts when possible.


There is no such thing in the investing world. An expert in investing would be someone who can predict the future.

You should be able to handle your own investments. It sounds like you have educated yourself in that area. I'd retain a fee-only advisor to help with some higher-level decisions, and issues such as taxes and investment vehicles.

But for investing itself, your 1% advisor will do no better than you. 54 funds/ETFs basically means you've invested 56% of your money in a Total Stock Market mutual fund, but with 2%+ in fees.
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Re: Company Sale - 6 months later

Postby Savvy » Wed Jul 03, 2013 5:30 pm

54??????? Yuck. Multiply 50 years times that 1% and that's half your windfall to someone that takes none of the risk.
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Re: Company Sale - 6 months later

Postby KyleAAA » Wed Jul 03, 2013 5:43 pm

aNYTechie wrote: I'm an expert in my field so I tend to opt for relying on experts when possible.


Nobody who would put you in 54 different funds/ETFs could legitimately be called an "expert." This is not something any reasonably competent investor would do UNLESS they were getting paid extra to do it. Think about it.

If you're scared of messing it up, buy Vanguard's Lifestrategy Conservative Growth fund and call it a day. It's 40% stocks, 60% bonds, and lost only 20% during the crash of 2008, which isn't bad at all considering what the market was doing. 10 year annualized return, including the one really bad year, is around 5.5%. And that's one of the worst decades on record.
Last edited by KyleAAA on Wed Jul 03, 2013 5:47 pm, edited 1 time in total.
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Re: Company Sale - 6 months later

Postby dan23 » Wed Jul 03, 2013 5:44 pm

Another option if you feel compelled to pay someone else to invest for you is wealthfront. Fees are .25 and it buys low expense ratio (average .17) ETFs for you based on how you fill out a risk questionnaire.
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Re: Company Sale - 6 months later

Postby Noobvestor » Wed Jul 03, 2013 6:47 pm

Re: 'is Vanguard fee-based?' question: https://investor.vanguard.com/what-we-o ... t-services - effectively no, they don't charge you a fee if you've got a million dollars or more with them.

Re: more funds question: each additional split into another fund has proportionally less impact than the previous - the finer you slice, the less utility of each additional slice. Where the line is I'm not sure, but no one should ever need more than 8 mutual funds at the most (8 would get you spliced between US, europe, pacific, emerging, small value on the stock side, and nominal safe, nominal risky and inflation-adjusted bonds on the bond side - finer than that starts getting pointless). A lot of people 'feel' more diversified having more funds, but I guarantee you have a ton of overlap with 54 funds - all part of the illusion that he is 'doing work' for you when he is just shuffling paper.

FWIW, I slice US/developed/emerging on the stock side, and TIPS/tax-exempt/cash on the fixed income side, and frankly, I don't think even slicing that finely is *necessary* but it feels like the right balance for me. I own chunks of thousands of companies around the world and thousands of bond issues ... I feel pretty diversified ;)
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
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Re: Company Sale - 6 months later

Postby freebeer » Wed Jul 03, 2013 8:07 pm

Everyone's beating up this guy's broker for putting him in 54 funds... but isn't the even bigger red flag the covered call "strategy"?
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Re: Company Sale - 6 months later

Postby livesoft » Wed Jul 03, 2013 8:15 pm

aNYTechie wrote:.... I'm an expert in my field so I tend to opt for relying on experts when possible.

The problem is finding an expert to rely on. The guy servicing you now is demonstrating lack of expertise* based on what you have posted.

*Investing expertise. He seems to be an expert in convincing people to invest with him.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Company Sale - 6 months later

Postby jainn » Wed Jul 03, 2013 8:21 pm

KyleAAA wrote:
aNYTechie wrote: I'm an expert in my field so I tend to opt for relying on experts when possible.


Nobody who would put you in 54 different funds/ETFs could legitimately be called an "expert." This is not something any reasonably competent investor would do UNLESS they were getting paid extra to do it. Think about it.

If you're scared of messing it up, buy Vanguard's Lifestrategy Conservative Growth fund and call it a day. It's 40% stocks, 60% bonds, and lost only 20% during the crash of 2008, which isn't bad at all considering what the market was doing. 10 year annualized return, including the one really bad year, is around 5.5%. And that's one of the worst decades on record.



Fidelity has 27 different funds/ETFS in their "All-in-One" Freedom 2020 Fund. :confused Several of the funds inside have under 1% allocation!
https://fundresearch.fidelity.com/mutua ... /31617R605

For an all in one, I prefer 4 fund approach, "All-in-One" Target 2020 Fund from Vanguard :sharebeer
https://personal.vanguard.com/us/funds/ ... =INT#tab=2
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27 funds or 5 ?

Postby Taylor Larimore » Wed Jul 03, 2013 9:20 pm

Jainn wrote:
Fidelity has 27 different funds/ETFS in their "All-in-One" Freedom 2020 Fund. :confused Several of the funds inside have under 1% allocation!

NYTechie:

I thought it would be interesting to compare the 5-year returns of the 27 fund Fidelity "All-in-One" Freedom 2020 fund with the 5 fund Vanguard 2015 fund. Both funds hold the same 55% stocks and 45% bonds/cash.

$10,000 invested for 5 years ending 6-30-2013 (longest Morningstar period shown):

27 fund Fidelity Freedom = $12,339
Standard Deviation = 14.59

5 fund Vanguard Target = $13,262
Standard Deviation = 12.28

Observation: Fewer funds (and lower cost) in the Vanguard portfolio increased returns and reduced risk.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: Company Sale - 6 months later

Postby Noobvestor » Wed Jul 03, 2013 11:21 pm

jainn wrote:
KyleAAA wrote:
aNYTechie wrote: I'm an expert in my field so I tend to opt for relying on experts when possible.


Nobody who would put you in 54 different funds/ETFs could legitimately be called an "expert." This is not something any reasonably competent investor would do UNLESS they were getting paid extra to do it. Think about it.

If you're scared of messing it up, buy Vanguard's Lifestrategy Conservative Growth fund and call it a day. It's 40% stocks, 60% bonds, and lost only 20% during the crash of 2008, which isn't bad at all considering what the market was doing. 10 year annualized return, including the one really bad year, is around 5.5%. And that's one of the worst decades on record.



Fidelity has 27 different funds/ETFS in their "All-in-One" Freedom 2020 Fund. :confused Several of the funds inside have under 1% allocation!
https://fundresearch.fidelity.com/mutua ... /31617R605

For an all in one, I prefer 4 fund approach, "All-in-One" Target 2020 Fund from Vanguard :sharebeer
https://personal.vanguard.com/us/funds/ ... =INT#tab=2


Wow, here are my two favorites in that Fido fund:

Fidelity Series Opportunistic Insights Fund
Fidelity Series Intrinsic Opportunities Fund

I have no idea what either of those is supposed to do, but yeah ...
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
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Re: Company Sale - 6 months later

Postby NPE » Thu Jul 04, 2013 9:04 am

aNYTechie,

I was in same situation as you couple of years ago. I didn't know anything about investing when I sold my tech-company.

I ended up using two different advisor companies and made one portfolio myself. All portfolios were to be 60/40 stocks/bonds.

All three portfolios used almost only passive mutual funds and ETFs. But somehow after almost three years, the portfolio I managed myself is way ahead of two advisor managed.
The only thing I did differently from advisors was keeping the portfolio simple and doing no trading.

Along the way I learned a lot about different asset classes and the importance of sticking with chosen asset allocation.

A couple of months ago I dismissed one advisor, and now I am slowly combining my own portfolio with the funds the advisor left me with. When it is complete, I will dismiss the other one too.

Both my advisors fees were 0,4% of assets under management. You should not pay 1%, it is way too much for 2.5M portfolio.

Disclaimer: I live in Europe.
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Re: Company Sale - 6 months later

Postby mhc » Thu Jul 04, 2013 10:29 am

aNYTechie wrote:
mhc wrote:NYTechie,
I would recommend that you talk to Vanguard and do some thinking about what to do. Come up with a plan and post it on this forum. You will get a lot of good feedback.

Assume that Vanguard is fee based?



With $1+ million, Vanguard will not charge you a fee for what you need. Work out an AA and divide across the 3-fund portfolio. Vanguard will help you transfer the money to Vanguard. Once you get down to 3 funds, management is easy. You only need a professional for 54 funds. :D

Give Vanguard a call and ask them what they can do for you. Make sure you mention your portfolio size. They will be very helpful.
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Re: Company Sale - 6 months later

Postby aNYTechie » Thu Jul 04, 2013 1:27 pm

Thanks again for everyone's input. Love the perspective provided. NPE -- appreciate your input as it sounds very similar indeed, just a bit further along the path than I am.

Couple thoughts rather than individual replies...

I've read a ton of posts on the "popular" fee-based advisors and think I may give each a call and go through the initial process with them -- Portfolio Solutions, Cardiff and Evanson. The Wealthfront (and couple similar ones) are attracted because they speak to techie in me -- love the dashboards and charts -- but doesn't seem worth any fee, not to say anything of the longterm safety of them. I'm also going to contact Vanguard to see how it works with them.

I'm pretty comfortable that I can (especially with the board help), put together a reasonable, simple portfolio that works for me. The reason I am leaning towards one of the fee-based advisors mentioned is that I'm new to investing and haven't experienced a bear... not sure how I'll react. Though I try not to follow the market or get "into to"... I now find myself watching Squawk Box before work, adding a couple stocks to my phone app, etc... which I never did. When the SP had a sell off 2 or so weeks ago, I immediately checked my accounts and called my advisor. Haha. Long way of saying if a true bear emerges I may panic and hope that an advisor will help minimize that.

Thanks everyone.
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Re: Company Sale - 6 months later

Postby livesoft » Thu Jul 04, 2013 1:31 pm

When you called your sales rep, were you thinking "Sell now!" or were you thinking "Things on sale! Buy Now!"?
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Company Sale - 6 months later

Postby aNYTechie » Thu Jul 04, 2013 1:40 pm

livesoft wrote:When you called your sales rep, were you thinking "Sell now!" or were you thinking "Things on sale! Buy Now!"?


Haha -- it was more of, "what the hell is happening and what do we do?"
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Re: Company Sale - 6 months later

Postby archbish99 » Thu Jul 04, 2013 1:53 pm

aNYTechie wrote:
mhc wrote:NYTechie,
I would recommend that you talk to Vanguard and do some thinking about what to do. Come up with a plan and post it on this forum. You will get a lot of good feedback.

Assume that Vanguard is fee based?


Vanguard is a mutual fund company that, due to its corporate structure, is driven to minimize fees. Rather than being a privately- or publically-held company owned by individuals with a profit motive which offers mutual funds, each mutual fund is an entity owned by its shareholders; the funds themselves jointly own Vanguard, which provides their customer-facing and other services. This means Vanguard is motivated to provide those services at minimal cost to its owners -- the funds. See the wiki as a starting point for more detail.

Because larger accounts are less expensive to deal with (fixed fees per customer amortized over a larger share of assets), they pass on some economies of scale. They offer "Admiral shares" -- lower expense ratios for having over a certain amount in a given fund ($10k-$50k depending on fund type). They also offer some convenience factors to folks whose total holdings are past certain thresholds (no annual fee over $50k, discounted CFP consultations over $500k, free CFP consultations over $1m).

Honestly, you probably want something like the three-fund portfolio, possibly replacing Total Bond with one of the Tax-Exempt bond funds since you'll have so much in a taxable account. Vanguard can help with that in getting things transferred, and then you manage it yourself day-to-day with the ability to ask questions of them (and us) as needed.

If you want them to manage it for you, they offer that as well, on the following fee schedule:
  • First $1M: 0.70%
  • Next $1M: 0.35%
  • Past $2M: 0.20%
But you're not paying for expertise anywhere you go -- no one can forecast the market. If they could, they'd be doing it with their money (not yours) and getting rich (not making you rich). If you pay someone, know that what you're paying for is convenience, just like paying someone to mow the yard. Admit that it's something you can do as well, and you choose to pay money because you don't want the hassle. If you know what it costs and decide the reduced hassle is worth it, that's a reasonable choice. I just feel that most people overestimate the hassle and underestimate the total expense.

(You correctly note, though, that a major benefit of an advisor is their ability to be calmer in a rough market and keep you from doing anything rash.)
I'm not a financial advisor, I just play one on the Internet.
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