Fire Advisor then Vanguard Target or Individual?

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UnkyScrooge
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Fire Advisor then Vanguard Target or Individual?

Post by UnkyScrooge »

I have been educating myself via books, articles, Bogleheads site etc. I am middle-aged and have an IRA in the low 6 figures. I like my financial advisor who taught me a lot, but 1.75% of my portfolio annually seems like a mighty large part of my investment.

I'm looking at Vanguard and trying to decide between the straight Target Fund or basically building the same kind of fund myself so that I have more control over the allocation.

I know this is all very basic to most of you, but I'd love your thoughts on the investments and whether you agree that the 1.75% is just too large.

Thank you in advance - UnkyScrooge
livesoft
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Re: Fire Advisor then Vanguard Target or Individual?

Post by livesoft »

Of course 1.75% is just too large. Many folks around here are paying 0% to an advisor and their portfolios consist of funds with an average annual expense ratio of less than 0.2%. The math is easy and compelling.
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synergy
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Re: Fire Advisor then Vanguard Target or Individual?

Post by synergy »

Agree that 1.75% is a burden on your portfolio performance. If you are satisfied with the AA that your advisor has chosen, figure out what Vanguard funds will duplicate or if a Target fund is close enough. Figure out where you are going before you start moving stuff.
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BL
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Re: Fire Advisor then Vanguard Target or Individual?

Post by BL »

Yes, get them moved to Vanguard (or other low-cost company) immediately! There is nothing wrong with choosing a Target Date, or perhaps a similar Life Strategy fund such as(Aggressive (80% equities), Moderate (60%), Conservative (40%), or Income (20%) which is even more straightforward without the distraction of almost meaningless target dates. You can always change without cost if you decide to break them out into their components. So all you need to do is choose what AA (Asset Allocation) you want and go with the fund that is most similar.

Remember to think of the 1.75% as the part of your gain that the adviser gets. If you gain 5%/year, you are left with 3.25% for yourself and taxes.
If you plan to withdraw 4% in retirement, your are left with 2.25% for yourself and taxes. Think of how much more those funds have to make to break even with index funds. Probably the funds have a much greater ER (Expense Ratio) as well than the 0.2 or less available at Vanguard.
Last edited by BL on Sat Sep 14, 2013 6:24 pm, edited 1 time in total.
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bearwolf
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Re: Fire Advisor then Vanguard Target or Individual?

Post by bearwolf »

UnkyScrooge wrote:I have been educating myself via books, articles, Bogleheads site etc. I am middle-aged and have an IRA in the low 6 figures. I like my financial advisor who taught me a lot, but 1.75% of my portfolio annually seems like a mighty large part of my investment.

I'm looking at Vanguard and trying to decide between the straight Target Fund or basically building the same kind of fund myself so that I have more control over the allocation.

I know this is all very basic to most of you, but I'd love your thoughts on the investments and whether you agree that the 1.75% is just too large.

Thank you in advance - UnkyScrooge
Do you have any taxable investments as well as the IRA. If so then there are asset location questions that you need to consider. If it is all in the IRA then the Target fund would be OK until you are more confident to pick your own allocation. I currently have no advisor and my total expense ratio is .11% This is spread across multiple taxable and tax deferred accounts between DW and myself.

BearWolf
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Re: Fire Advisor then Vanguard Target or Individual?

Post by JW-Retired »

I know this is all very basic to most of you, but I'd love your thoughts on the investments and whether you agree that the 1.75% is just too large.
1.75%? Yes, too large by at least a factor of 10 compared to the index fund alternative. If you have 6 figures to invest at Vanguard, you can create a basic 3-index fund portfolio of total stock mkt (ER=0.07%), total international (ER=0.20%), and total bond mkt (ER=0.11%). Depending on your US stock/international stock/bond mix your overall expense should be down to somewhere pretty near 0.1%.
http://www.bogleheads.org/wiki/3-fund_portfolio

Too large an effect on the ultimate size of the retirement nest egg you can accumuluate. Yes for sure. Use this calculator and compare what 1.75% expenses does to a lifetime of saving compared to 0.1%. http://www.buyupside.com/calculators/feesdec07.htm

Too large compared to what it does to your retirement income? Yes for sure. 1.75% is nearly half of the rule-of-thumb safe drawdown rate of 4% that a retirement portfolio can sustain for a retirement lifetime. You said you like the guy but handing over almost half your retirement portfolio draw to him? Really? :oops:

So your likeable advisor fees make you accumulate substantially less and then you give half the (now smaller) retirement income stream away on top of that? Are you mad sir?
JW
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Taylor Larimore
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Need more information

Post by Taylor Larimore »

UnkyScrooge:

Welcome to the Bogleheads Forum!

I suggest that you use the link below to post the information we need to evaluate your portfolio and offer suggestions--including your need for such a high-price adviser.

ASKING PORTFOLIO QUESTIONS

This is a link to the 3-fund portfolio mentioned by JW:

The Three Fund Portfolio

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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stemikger
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Re: Fire Advisor then Vanguard Target or Individual?

Post by stemikger »

livesoft wrote:Of course 1.75% is just too large. Many folks around here are paying 0% to an advisor and their portfolios consist of funds with an average annual expense ratio of less than 0.2%. The math is easy and compelling.
+1

You can do it without him. There is nothing he could have taught you that was worth that fee. Also, if you are asking this question which is very basic, I'm not so sure how far he furthered your education. Read The Little Book of Common Sense Investing, and if you want to go further into theory read The Common Sense Guide to Investing and/or The Bogleheads Guide to Investing.

I like the idea of just putting it into the Target Fund and down the road if you feel you want more control of your AA pick the core funds separately. As long as you don't tinker and go in and out of them. There is not much to index investing. Once you pick your AA there isn't anything more you have to do, but if an advisor helps you stay the course, that might be worth something.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!
Topic Author
UnkyScrooge
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Re: Fire Advisor then Vanguard Target or Individual?

Post by UnkyScrooge »

Thanks for everyone for the helpful advice! I basically knew the answer but really needed reassuring to take the plunge. I'm in the middle of reading The Little Book of Common Sense Investing.
Are you mad sir?
- Absolutely for others to judge. :D
if you are asking this question which is very basic, I'm not so sure how far he furthered your education
Understood... but I DID go in 9 years from financial ruin to being financially secure, owning my own home, well on my way to my retirement goals AND 100% debt free... I don't owe a penny to a single person. So there was some constructive help there.

I'm calling Vanguard on Monday to get things rolling. Thanks again!
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Taylor Larimore
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Re: Fire Advisor then Vanguard Target or Individual?

Post by Taylor Larimore »

Unky:

I still think you should get the benefit of Boglehead comments and suggestions before opening an account with Vanguard. Use the link I provided above.

However, if you chose to plunge ahead, use this link to get started:

Open an account

Best wishes
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
gerrym51
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Re: Fire Advisor then Vanguard Target or Individual?

Post by gerrym51 »

Target fund.I have and like TRRBX by trprice. it's for 2020 and yes it has a .7 fee.
hq38sq43
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Re: Need more information

Post by hq38sq43 »

Taylor Larimore wrote:UnkyScrooge:

Welcome to the Bogleheads Forum!

I suggest that you use the link below to post the information we need to evaluate your portfolio and offer suggestions--including your need for such a high-price adviser.

ASKING PORTFOLIO QUESTIONS

This is a link to the 3-fund portfolio mentioned by JW:

The Three Fund Portfolio

Best wishes.
Taylor
Ah, the Three Fund Portfolio. What could be sweeter? The alternative is Lake Wobegon, where all the men are strong, all the women are beautiful, and all the children are above average.
Harry at Bradenton
columbia
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Re: Fire Advisor then Vanguard Target or Individual?

Post by columbia »

To put things in perspecive, my weighted expense ratio for three Vanguard funds is .07%.
Topic Author
UnkyScrooge
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Re: Fire Advisor then Vanguard Target or Individual?

Post by UnkyScrooge »

Taylor - I am looking into the three fund portfolio. Thanks!
Dandy
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Re: Fire Advisor then Vanguard Target or Individual?

Post by Dandy »

Since you have read some books and have an interest there is no problem with selecting a handful of Vanguard funds and doing it yourself. Once you get the general idea of investing in a few low cost broad based index funds according to your risk tolerance and then rebalance to that allocation it doesn't take much time or effort.

A lot of the discussion here is related to "finer" points e.g. should you include REITS, how much value tilt makes sense etc. Delving into that level of detail may take more time but I doubt that it will make significant difference in overall results.

Many vets on this forum use a 3 fund investment approach e.g. Total Stk, Total Int Stk, Total Bond - I would also add one of the TIPS funds. So with 3 or 4 funds you can do quite well.
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Rick Ferri
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Re: Fire Advisor then Vanguard Target or Individual?

Post by Rick Ferri »

I think this is a great conversation because it describes the evolution of an individual investor:

"I like my financial adviser who taught me a lot"
"1.75% of my portfolio annually is just too high"
"I have been educating myself via books, articles, Bogleheads site etc."
"I'm looking trying to decide between a Target Fund or building the same kind of fund myself."
"I am looking into the three fund portfolio."

UnkyScrooge has gone through a picture perfect transition. This is exactly how it is supposed to happen. All that is left is execution. Hopefully we'll soon read "I'm moving my money to Vanguard and implementing my plan."

I often wonder how many people this Bogleheads' board has helped convert. It must be in the thousands. You should all be congratulated!

Rick Ferri
The Education of an Index Investor: born in darkness, finds indexing enlightenment, overcomplicates everything, embraces simplicity.
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Taylor Larimore
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A great compliment !

Post by Taylor Larimore »

Rick:
I often wonder how many people this Bogleheads' board has helped convert. It must be in the thousands. You should all be congratulated!
Coming from you, one of the most respected advisers in the business, that is a great compliment.

Thank you and best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
cobill
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Re: Fire Advisor then Vanguard Target or Individual?

Post by cobill »

WOW! I just ran the calculator and on a 20-year holding with a 2.0% EJ fee, the reduction of future value due to fees was 33.24% :shock:

"Too large an effect on the ultimate size of the retirement nest egg you can accumuluate. Yes for sure. Use this calculator and compare what 1.75% expenses does to a lifetime of saving compared to 0.1%. http://www.buyupside.com/calculators/feesdec07.htm"

I'm transferring my IRA from EJ to Vanguard ASAP. Thank you JW for the calculator.

Bill
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InvestorNewb
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Re: Fire Advisor then Vanguard Target or Individual?

Post by InvestorNewb »

columbia wrote:To put things in perspecive, my weighted expense ratio for three Vanguard funds is .07%.
you must not have international?
My Portfolio: VTI [US], VXUS [Int'l], VNQ [REIT], VCN [Canada] (largest to smallest)
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