Need Help With IRA - EJ Managed or Index/ETFs?

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Need Help With IRA - EJ Managed or Index/ETFs?

Postby cobill » Sun Sep 01, 2013 4:22 pm

I've finally recouped my IRA assets from the past downturns and just found your forum this week. A lot of good things to read and learn on this site! :D
I'm 57, retired with a good pension, currently using a local Edward Jones advisor and he wants me to move my $150K IRA account that is mostly bond and fixed income funds into an Advisory Solutions account, managed portfolio with Institutional funds, that charges a 1.35% fee. I'm not sold and asked for an updated hypothetical portfolio illustration(list of funds, costs, re-balance %, etc.) Another broker has a similar program of managed funds with a 1.25% fee.
The IRA is basically am emergency fund and not necessary for retirement. I'm almost ready to move all of my IRA funds out of EJ and into my Fidelity or a new Vanguard account, but need some guidance. The Three Fund Portfolio looks very interesting and easy to mange with index or ETFs. I've ordered some books recommended by your forum and don't know what to do given the current state of world events, poor bond performance, advisors charging excessive fees and so on.
I've read the Vanguard white paper on "The bumpy road to outperformance"....excellent work!
So, should I continue with an actively managed account or move my money into passive fund with index, ETFs and bond funds(VTSMX, VGTSX, VBMFX, VTIBX)?

Bill
[Personally identifiable info removed by admin LadyGeek (small town)], CO.
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Re: Need Help With IRA - EJ Managed or Index/ETFs?

Postby livesoft » Sun Sep 01, 2013 4:47 pm

Almost all the other posts that mention Edward Jones are folks asking how to get away from them. Just that fact alone is an answer to your question.

There is no rush, so read those books you've ordered.

Welcome.
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: Need Help With IRA - EJ Managed or Index/ETFs?

Postby CABob » Sun Sep 01, 2013 5:12 pm

You aren't going to find many (if any) on this forum who will recommend staying with a broker's managed account with fees of 1.25% or higher. There may be some who suggest a fee only advisor if you feel you need the advice. You will find many that will recommend an index fund approach using the 3-fund portfolio and perhaps with some additional funds. Either Vanguard or Fidelity are good fund companies to do business with.
I agree with the prior response to do some reading of appropriate books and this forum's wiki. Come up with a plan then come back with some more specific questions if needed.
Bob | An investment in knowledge pays the best interest. -- Benjamin Franklin
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Re: Need Help With IRA - EJ Managed or Index/ETFs?

Postby Dale_G » Sun Sep 01, 2013 7:26 pm

cobill, as you know knowledge is power. Read some of the recommended books and hang around here for a while. You are very likely to conclude that you don't need to pay someone 1.25% or 1.35% of your portfolio for dubious advice on asset allocation or fund selection.

Folks here will be glad to answer specific questions when you get a little further along. In the meantime, there is no need to do anything immediately. Take your time so you can be sure that you can develop a plan that you can stick to.

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Re: Need Help With IRA - EJ Managed or Index/ETFs?

Postby ThePrune » Sun Sep 01, 2013 8:42 pm

I and my wife left Edward Jones several years ago. We now use low-cost Passive Index mutual funds for all our investing. I have the remains of my 401(k) with Fidelity; the rest of my funds and all my wife's are with Vanguard. Very glad we made the switch. We didn't use their new wealth management program, but were still losing $1,500 a year in 12b-1 charges (essentially a fee for "ongoing advice") on their recommended mutual funds.

It's important to appreciate just how large even a 1.0% annual fee is in terms of how it can affect your savings. As shown in the financial Wiki article Bogleheads Investment Philosophy, 1% additional fees over your investing lifetime could cost you 10 years of retirement spending! (See the plot about half way through the article, in the subsection titled "Keep Costs Low"). So the charges they are requesting are large indeed! And if they intend to put you in actively managed mutual funds using A, B or C shares, your investment results will only get worse! When I point-blank asked my former Edward Jones broker if they would help me switch to index mutual funds, I was told it would be very difficult to do through Edward Jones.

Art
Investment skill is often just luck in sheep's clothing.
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Re: Need Help With IRA - EJ Managed or Index/ETFs?

Postby JW Nearly Retired » Sun Sep 01, 2013 9:10 pm

cobill wrote:I'm 57, retired with a good pension, currently using a local Edward Jones advisor and he wants me to move my $150K IRA account that is mostly bond and fixed income funds into an Advisory Solutions account, managed portfolio with Institutional funds, that charges a 1.35% fee. I'm not sold and asked for an updated hypothetical portfolio illustration(list of funds, costs, re-balance %, etc.) Another broker has a similar program of managed funds with a 1.25% fee.

So, should I continue with an actively managed account or move my money into passive fund with index, ETFs and bond funds(VTSMX, VGTSX, VBMFX, VTIBX)?
Bill

The EJ "advisor" managed portfolio will incur expenses of 1.35% + fund fees, which will surely make the total expense above 2%. Do you understand what such a expense drag will cost you in loss of retirement income? Obviously you don't. Please start by goggling "safe portfolio withdrawal rate" and reading a few of the results you get. You will learn that the old rule-of-thumb safe gross drawdown rate from a retirement nest egg is 4%/yr. That includes expenses. These days, given very low interest rates, this is thought by more than a few to be too much.

Anyway, even if we take 4% to be fine, at 2% expenses it means you will be getting just half the safely drawable income from your portfolio and EJ and the fund company get the other half. Is that a fair split?

It's just total madness that such advisors can even exist.
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Re: Need Help With IRA - EJ Managed or Index/ETFs?

Postby cobill » Mon Sep 02, 2013 1:46 pm

I appreciate the wise responses so far and will continue with my education as a newbie Boglehead. I read some of the forum EJ questions/answers and they never tell the "rest of the story". I was wondering if there are more "success" stories like Art's where the investor moved out of EJ and how they've done with index and ETFs from Vanguard or Fidelity...guess I need some more courage and time before making the move.

Bill
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Re: Need Help With IRA - EJ Managed or Index/ETFs?

Postby workingtoretire » Mon Sep 02, 2013 5:24 pm

cobill wrote:I appreciate the wise responses so far and will continue with my education as a newbie Boglehead. I read some of the forum EJ questions/answers and they never tell the "rest of the story". I was wondering if there are more "success" stories like Art's where the investor moved out of EJ and how they've done with index and ETFs from Vanguard or Fidelity...guess I need some more courage and time before making the move.

Bill


From a fellow newbie, my "rest of the story"--When I made the move away from EJ, it wasn't an easy thing to do mentally, it was almost like it was a "bad" thing to do, deserting your friendly neighborhood advisor that you know you are going to run into someday at the grocery store or the coffee shop, but when they are almost making more money than you, well, that's what made the difference for me. I'm glad I took the advice and moved everything out, now it has a chance to grow.
Fidelity made it simple, filled out the forms online, included a couple statements, and in a little over a week it was done. The hardest part for me was calling my EJ advisor and telling him to stop taking monthly debits from my checking account. Of course EJ charged $95 to close the account, I still haven't run into him at the coffee shop :shock:
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Re: Need Help With IRA - EJ Managed or Index/ETFs?

Postby synergy » Mon Sep 02, 2013 5:39 pm

cobill,

If you have gotten to this stage in life, you are surely able to manage your accounts as well or better than the "advisor" you describe. Figure out a comfortable AA that meets your needs and then have your choice of Fidelity or Vanguard move the funds. It took me a while to get out of bad funds that I had earlier in life but the knowledge I gained on this site has made the transition easy. Good luck!
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