My early 30's Ameriprise portfolio - UPDATE

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geauxpassive
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My early 30's Ameriprise portfolio - UPDATE

Post by geauxpassive »

My friend is a long time passive investor and a regular contributor to this forum. He promises me I will get excellent feedback and thinks hearing advice from others will help further encourage my nascent passive-ness. I am reading "Common Sense on Mutual Funds" and the passive strategy is resonating, but I also like the idea of taking a portion (say 25%) of my wife and I's portfolio and taking a bet on outperformance. "Investor's Dilemma" by Louis Lowenstein is next. Our strategy is to slowly build our passive portfolio while reducing active, but as mentioned, to keep a portion active. Admittedly have not thought in much detail on the subject of fees and performance.

Stats on us: Early 30's, Married, I have fairly safe medical-field job, she is mostly stay at home with our 2 young children, 25% Federal tax bracket, sometimes 28%, 6% state, Emergency Fund = 6 months of expenses with fall back to our taxable investments / Primary residence mortgage = $250,000 at 3.90% matures in 2032 but would like to repay in <10 years/ Long term buy & hold investor and it is planned that we not touch this money for 30+ years. Risk profile should be more growthy (90% stocks, maybe 100%) and I must not have communicated this to my Advisor very well. In full disclosure, my Advisor is a friend.

Contributions: Approximately $80,000 annually; first to fill up tax deferred space, then to pay off mortgage. She has no 401K, I have a small simple IRA that is excluded from the analysis below due to its insignificance. This simple IRA will be moving to Vanguard soon.

The portfolio below is in the low to mid 6 figures and has insignificant capital gains. Better said, no gains too big for me to not liquidate if I found a better long term home.

Tax Deferred 49% (Hers and His IRA's. Brokerage Account so no "Wrap Fee". This is a new development...used to be managed).
Name / Ticker / % of Total / Style / ER / 12b-1
James Balanced / GLRBX / 7.4% / Balanced / 1.04% / 0.25%
Hartford Balanced / HBLAX / 15.6% / Balanced / 0.96% / 0.25%
Oppenheimer Steel MLP / MLPAX / 5.9% / ? Energy ? / 1.52% / 0.25%
Nuveen Flexible Income / NWQAX / 10.0% / ? Flexible / 0.97% / 0.25%
American Century Equity Income / TWEAX / 7.1% / Equity Income / 1.18% / 0.25%
Oakmark Fund / OAKMX / 3.2% / Large Cap / 0.95% / 0.00%
Total = 49.2%

Taxable 51% (Managed "Wrap" Account that incurs 1.0% fee. For this I pay no front or back loads.).
Name / Ticker / % of Total / Style / ER / 12b-1
James Balanced / GLRBX / 5.0% / Balanced / 1.04% / 0.25%
Hartford Balanced / HBLAX / 5.8% / Balanced / 0.96% / 0.25%
Oakmark Equity Income / OAKBX / 6.2% / Equity Income / 0.77% / 0.00%
Yacktman Focus Fund / YAFFX / 5.0% / Large Cap / 1.25% / 0.00% (I believe we missed the party here..only recent investors in this one)
BlackRock Multi Asset / BAICX / 6.3% / Flexible / 0.80% / 0.25%
Buffalo Flexible Income / BUFBX / 9.0% / Flexible / 1.01% / 0.00% (recent investors here)
Wells Fargo Large Growth / EKJAX / Large Growth / 7.0% / 1.12% / 0.00%
Permanent Portfolio / PRPFX / Flexible ? / 3.0% / 0.72% / 0.00%
Individual Equities / 2.3% (my fun bets)
Cash 1.8%
Total = 51.4% EH I'm off a bit!!

Questions
1. Could you simply offer high-level feedback on the existing fund lineup?
2. Do you see any overlap or needless complexity?
3. How best to compare this to the appropriate index?
4. Per Ameriprise literature, Ameriprise sometimes select from "Full Participation Firms". The literature mentions certain marketing/distribution kickbacks from these funds and how it could present a conflict of interest as it is an incentive for the Advisor to select from only these funds. These fund families are (bolded if I am currently invested): Allianz, American Century, BlackRock, Calvert, Columbia, Delaware, Deutsche, Dreyfus, Eaton Vance, Federated, Fidelity, Goldman, Invesco, Ivy, Janus, John Hancock, JP Morgan, Legg Mason, Lord Abbett, MainStay, MFS, Nuveen, Oppenheimer, Prudential, Putnam, Virtus, and Wells Fargo.

So of the 12 distinct funds in which I am invested, 5 are "Full Participation" funds. This strikes me as an 'ok' balances, does it you? Is this in addition to the 12b-1 fee? This link will better explain: https://www.ameriprise.com/investment/m ... iprise.asp

5. Can you speak to the tax efficiency or inefficiency of the portfolio?
Last edited by geauxpassive on Thu Feb 12, 2015 9:33 pm, edited 8 times in total.
matonplayer
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Re: My early 30's Ameriprise portfolio

Post by matonplayer »

My high level feedback is that you're getting killed in expenses. No reason to have as many funds or to have funds with such high expense ratios.
lawman3966
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Re: My early 30's Ameriprise portfolio

Post by lawman3966 »

geauxpassive wrote: 1. Could you simply offer high-level feedback on the existing fund lineup?
My real feelings are unprintable. My feedback is to move the whole thing into 3-4 low-fee index funds at Vanguard.
geauxpassive wrote: 2. Do you see any overlap or needless complexity?
Yup, big time.
geauxpassive wrote: 3. How best to compare this to the appropriate index?
Ask for a thorough statement of what your advisor and Ameriprise as a company are making off you each year. That is a good measure of how far behind the index you are.
geauxpassive wrote: 4. Per Ameriprise literature, Ameriprise sometimes select from "Full Participation Firms". The literature mentions certain marketing/distribution kickbacks from these funds and how it could present a conflict of interest as it is an incentive for the Advisor to select from only these funds. These fund families are (bolded if I am currently invested): Allianz, American Century, BlackRock, Calvert, Columbia, Delaware, Deutsche, Dreyfus, Eaton Vance, Federated, Fidelity, Goldman, Invesco, Ivy, Janus, John Hancock, JP Morgan, Legg Mason, Lord Abbett, MainStay, MFS, Nuveen, Oppenheimer, Prudential, Putnam, Virtus, and Wells Fargo.

So of the 12 distinct funds in which I am invested, 5 are "Full Participation" funds. This strikes me as an 'ok' balances, does it you? Is this in addition to the 12b-1 fee? This link will better explain: https://www.ameriprise.com/investment/m ... iprise.asp
It's a great balance, for your advisor. The balance of the account that holds the fees from your holdings will grow rapidly and reliably for as long as you're his customer.
geauxpassive wrote: 5. Can you speak to the tax efficiency or inefficiency of the portfolio?
Everything about the portfolio is a disaster, including, in all likelihood, the tax you'll pay on capital gains distributions, as well as both short-term and long-term capital gains on the sale of mutual fund shares.

Your post is exhibit A for what Jack Bogle fought against his whole career, and for why Vanguard investments, and the index fund were created. In all seriousness, you would be best served by moving everything to Vanguard (or other reasonable low-fee fund provider) and selecting a three fund portfolio. You could embellish this over time by adding a fund here or there. But, what you have now is really just a grab bag of lucrative treats for your advisor, all at your expense.
McCharley
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Re: My early 30's Ameriprise portfolio

Post by McCharley »

You should look at the "Three Fund Portfolio" sticky.

You have a crazy number of accounts -- I would simplify. If you want to invest do it with "funny money" in individual stocks not to exceed 5% of your portfolio (many on this forum would try to talk you out of this).

The managed "wrap" at 1%/yr needs to be pitched. :annoyed
4th and Inches
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Re: My early 30's Ameriprise portfolio

Post by 4th and Inches »

You are going to need to man up and deal with the discomfort that will come along with getting all of your money out of Your advisor "friend's" care. You said that the amount in taxable isn't too big to liquidate and move it somewhere else and that is exactly what you should do. Just tell the friend, no insist that you don't want to mix friends and money and that you are comfortable managing your money now so there isn't anything to discuss regarding the matter. You mentioned that you have generous parents and you have a good job so he may try to talk you into staying since he will make a killing off of you over the years. He is a salesman so he may have a number of tactics to keep you. Sorry to hear he is (or was) a friend.

You have far too many funds that are needlessly expensive with too much overlap. As you free money from Ameriprise you can just put it onto Vanguard target retirement, three fund portfolio or life strategy funds while you build your knowledge base. Don't send another penny to your friend at Ameriprise.

Welcome!
ilovedavidstove
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Re: My early 30's Ameriprise portfolio

Post by ilovedavidstove »

I echo the other posters. This is bad on a lot of levels and needs organization quick. The tax efficiency is deplorable and there seems to be no strategy. Many of your funds are "flexible income", which means the manager has huge flexibility on the stock/bond mix in the fund....how does this fit with sticking to an overall asset allocation? It pains me further to know you are paying for this. Your instincts are right - you wouldn't have asked for criticism if you didn't suspect some of this already. Keep reading and educating yourself.

A nice alternative would be to move the taxable account to brokerage; you've done a great job moving the tax deferred to brokerage, cutting your expenses in half, so now go after the other. Do this before your portfolio gets too big.
livesoft
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Re: My early 30's Ameriprise portfolio

Post by livesoft »

If and when you fire your Ameriprise advisor, please add to the testimonials found in this thread: http://www.bogleheads.org/forum/viewtop ... 1&t=144994

Thanks!
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ilovedavidstove
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Re: My early 30's Ameriprise portfolio

Post by ilovedavidstove »

Herein lies the key to understanding what you are paying for: Why, if the superiority of passive investing (on average) is uncontroversial and FACT, does not my Advisor have me invested in just one index fund? Why, among my 4 balanced funds, is not 1 the index?
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BL
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Re: My early 30's Ameriprise portfolio

Post by BL »

Here are examples of 3-fund portfolios at various companies:
http://www.bogleheads.org/wiki/3-fund_portfolio
This would be a great way to go, using tax-exempt bonds in taxable instead of total bond fund to make it tax-efficient. If you later choose, you could add one or two funds to tilt.

The current funds will be great for your adviser's retirement as over the years it will probably transfer ~30% of your funds to him/her and lots to the high-ER fund companies as well compared to a total of <0.2%/year total ER to Vanguard. Costs are one of the few things you can control in investing. (I am only thinking of 30 years, but then there may be another ~30 years of retirement.) Isn't it time to "divorce" your "adviser"? (We have a family friend who is an A adviser, but fortunately he has never tried to sell us anything. He is doing very well!)

You might want to ask if Vanguard (or other) would accept some/all of the funds "in kind". That would get you away from the wrap fee immediately and let you sell on your timeline (split between this year, next year, etc.) for savings in both taxes and selling costs.

Have you read the updated Boglehead's Guide to Investment (now in Kindle form)? There may be lots of good ideas (or even one) that you may find useful.

I would encourage you to consider 20-25% bonds or fixed income, at least until you have lived through a severe downturn where your assets keep going down and down with no end in sight, and jobs may not be secure either. I wouldn't want to lose my parent's or my hard-earned money by being so aggressive. You may have the Desire and perhaps the Ability to be aggressive, but you may not have the Need to do so.
bloom2708
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Re: My early 30's Ameriprise portfolio

Post by bloom2708 »

Our portfolio looked very similar at Edward Jones. Each time I brought in new money I added a new fund. After 2 years we had ~15 funds. The "winner" was an Oppenheimer fund with a 5.75% load, 2.0% ER and a .25% 12b1 fee.

We were getting killed by fees. I didn't mention we had an Advisory fund with a 1.35% fee on top of the ER.

When I stumbled in here I thought I was doing things "right". We were saving. An advisor was advising us. It didn't take me long to figure out what to do. I had the break up call and moved everything to Vanguard.

We have a 3 fund portfolio. Taxable: VTSAX, VTIAX and VWIUX, Tax sheltered: VTSAX, VTIAX and VBTLX, A total ER of .09%. Saving close to $7k in fees this year.

Personally I had trouble sleeping and shutting off my brain once the light bulb turned on. You have a bunch of very helpful people out here and a lot of "threads" to read on most any topic. Good luck.
KyleAAA
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Re: My early 30's Ameriprise portfolio

Post by KyleAAA »

This is not a very good portfolio and not very tax efficient. Why do they have you in balanced funds in taxable when you have plenty of tax-deferred space for bonds?
mptfan
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Re: My early 30's Ameriprise portfolio

Post by mptfan »

Your portfolio is much more complex than it should be, and, more importantly, you are getting killed by unnecessary fees and expenses. Both the complexity and the fees will continue to cost you over time, and it will get worse, not better. You should move to Vanguard and follow the excellent advice offered on this forum, and in the books on the recommended reading list. I would start with the Boglehead's Guide to Investing, 2d Edition, published very recently. Good luck and welcome to the forum.
ilovedavidstove
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Re: My early 30's Ameriprise portfolio

Post by ilovedavidstove »

Yacktman Focus Fund / YAFFX / 5.0% / Large Cap / 1.25% / 0.00% (I believe we missed the party here..only recent investors in this one)
Annualized Returns:
YAFFX (1.25% ER / 1.14% 10 year annualized tax cost ratio)
3 years +16.42%
5 years +15.50%
10 years +11.33%

VTSAX (Total Stock Market Index / 0.05% ER / 0.37% 10 year annual tax cost ratio)
3 years +22.29%
5 years +17.90%
10 years +8.89%

Yes, I would say you have missed the party as the out-performance period was somewhere in the 5 to 10 years ago period. Since that time the Yacktman Focused Fund has been focused on under-performing. As Advisors chase returns and convince their clients to invest in whatever fund that bubbles to the top of their Google search "best performing funds last X years", the Fund soon gets bloated and out-performance becomes increasingly difficult, not to mention the reversion to the mean as out-performance can't continue indefinitely. Perhaps you are timely placed in front of another period of out-performance, perhaps not. This could very well be a terrific fund that will have a long period of general out-performance, but one must commit to active funds for at least 10 years to realize the benefit of active management - and even then its more often than not a losing proposition after fees. If an active manager is right about certain industry or secular trends, they will likely be ahead of the general investing public and will under-perform for sometimes several years in front of a long period of out-performance. The reputable Value managers "missed" the dot-com boom and underperformed for several years, but were right in the long run. They need time. In fact, you might be better off investing in the worst performers of the last decade! :)
Last edited by ilovedavidstove on Wed Sep 03, 2014 2:24 pm, edited 3 times in total.
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FelixTheCat
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Re: My early 30's Ameriprise portfolio

Post by FelixTheCat »

You need some help. The good new is you can make your portfolio simple, low-cost and tax efficient using the methods describe on the boglehead wiki. A Vanguard simple three-fund portfolio can accomplish everything.

Total Bond Market Index in a tax-deferred account such as an IRA.
Total Stock Market Index in a taxable account.
Total International Market Index in a taxable account.
Felix is a wonderful, wonderful cat.
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mickeyd
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Re: My early 30's Ameriprise portfolio

Post by mickeyd »

My friend is a long time passive investor and a regular contributor to this forum. He promises me I will get excellent feedback and thinks hearing advice from others will help further encourage my nascent passive-ness.
You owe your friend a steak dinner for directing you here. Maybe even a couple of cocktails too. 8-)

Follow the direction that these smart Bogleheads are giving you.

Good Luck.
Part-Owner of Texas | | “The CMH-the Cost Matters Hypothesis -is all that is needed to explain why indexing must and will work… Yes, it is that simple.” John C. Bogle
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SkierMom
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Re: My early 30's Ameriprise portfolio

Post by SkierMom »

[quote5. Can you speak to the tax efficiency or inefficiency of the portfolio?][/quote]

You're holding bonds in your taxable account through the Hartford Balanced Fund: bad news for both short-term and long term Capital gains = tax inefficient. I hate "mutual funds" by insurance companies that are mostly packaged insurance product derivatives. You never truly know what it is that you own.
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Ged
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Re: My early 30's Ameriprise portfolio

Post by Ged »

geauxpassive wrote:In full disclosure, my Advisor is a friend.
High level comment:

Mixing friendships and business dealings inherently creates conflicts of interest.
TRC
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Re: My early 30's Ameriprise portfolio

Post by TRC »

Why would you want to keep "a portion active". Can your advisor show a 20+ year track record of beating the market after fees? How about a 5 year track record? The more you research passive investing, the more you'll realize its impossible for an advisor to beat the market, let alone match it, long term. Divorce yourself from the advisor ASAP. You're getting ripped off, are underperforming the market and have an inefficient tax portfolio.
ilovedavidstove
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Re: My early 30's Ameriprise portfolio

Post by ilovedavidstove »

You're holding bonds in your taxable account through the Hartford Balanced Fund: bad news for both short-term and long term Capital gains = tax inefficient. I hate "mutual funds" by insurance companies that are mostly packaged insurance product derivatives. You never truly know what it is that you own.
Additionally, The Hartford is a publicly traded company, NYSE ticker "HIG", whose executive management has a mandate to increase the value of its public shareholders. Increasing the NAV of one of the mutual fund products it sells is way down the list of priorities; rising fee income much more important.

Hartford Balanced: last 5 years annualized performance +12.17%/year (no 10 year available)
Vanguard Balanced Index Fund: last 5 years annualized performance +12.56%/year

They did manage to beat the index prior to their public-shareholder-friendly 1.0% expense ratio. FYI, a "Balanced Fund" can be expected to generate about 6% per year; at a combined 2.0% expense ratio (fund level plus Advisor), you are paying away 1/3 of your expected return. This is PRIOR to any tax considerations of holding a balanced fund in a taxable account, which probably reduces the value of the after tax return another 1+% per year. All that now said, in fees and taxes, you are losing more than half your expected return.
Last edited by ilovedavidstove on Wed Sep 03, 2014 9:38 pm, edited 5 times in total.
investor1
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Re: My early 30's Ameriprise portfolio

Post by investor1 »

Here is what you could be paying assuming an AA of 90/10:

Fund (Ticker) ER
Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) 0.05%
Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) 0.14%
Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) 0.08%

For an overall ER of around 0.08% depending on how much international stock you want to hold. I used 63/27/10 since that closely mirrors what VG does in their target date funds. Speaking of VG's TD funds, you could just buy the TD 2045 fund (VTIVX) and pay an ER of 0.18% which would add international bonds too.

I would take the IRA funds and move those to VG now. Take your time and figure out what to do with the taxable assets. Read the wiki regarding tax efficient fund placement and tax loss harvesting.

Your friend owes you a solid.
mrboast
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Re: My early 30's Ameriprise portfolio

Post by mrboast »

geauxpassive wrote: Questions
1. Could you simply offer high-level feedback on the existing fund lineup?
Yes, an eclectic group of grubola. Oppenheimer "SteelPath"? Really? For a long term buy and hold investor with a 30 year investment horizon? I don't see any fiduciary standard being followed. Do you know if your Advisor has a contractual fiduciary obligation to you?

It is impossible to beat or meet the index with that portfolio and those expenses. In fact, the best way to try is to pick one or two active funds and hope they do the job. 15, or whatever it is, drowns out all the out-performers.

Follow the advice you are hearing. If your Advisor could beat the market he would leverage every asset he has and buy in bulk whatever stock or fund he saw as the future out-performer. Why not ditch the noise and control the one thing you can...expenses? Of course, there clearly are human implications to consider and good luck with that. Good news is that you are at Step 1 of turning things around.
Last edited by mrboast on Wed Sep 03, 2014 8:38 pm, edited 4 times in total.
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LAlearning
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Re: My early 30's Ameriprise portfolio

Post by LAlearning »

I think the OP left.
I know nothing!
4th and Inches
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Re: My early 30's Ameriprise portfolio

Post by 4th and Inches »

^^^^^^I was thinking the same. The OP asked for advice. He got fantastic advice that will help him end up with 100s of thousands more over his investing lifetime. The least he can do is check in and acknowledge the great advice and say thanks.
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geauxpassive
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Re: My early 30's Ameriprise portfolio

Post by geauxpassive »

I apologize for my tardy thanks; 14 hour work day. I have been given much to ponder and for that I am grateful. Let me digest this information and come back in a day or two with questions. Again, many thanks to you all.
pkcrafter
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Re: My early 30's Ameriprise portfolio

Post by pkcrafter »

I think geauxpassive will be back. He's in the med field, so probably working 25 hours a day.

Well, he posted as I was writing this....

So, I have to post it.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
Novine
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Re: My early 30's Ameriprise portfolio

Post by Novine »

1% wrap fee on top of 0.72% - 1.25% ER - you can do the math. Do you really think he/she has picked the funds that are going to beat a comparable index by 2+% year after year? Looks like you'll find out if the friendship is based on something more than money.
pkcrafter
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Re: My early 30's Ameriprise portfolio

Post by pkcrafter »

geauxpassive, here's the situation you are in.

You believe by holding the right active funds you can outperform an index strategy. On the other hand, you are using an advisor who is charging you 1%/year. These two approaches are very incompatible. In a 20 year time frame, index funds outperform 80% of active funds, and the winning active funds cannot be predicted in advance. If you then add a 1% fee on top of the active funds expense ratio, you have pretty much eliminated any chance of even matching index performance. In fact, you can lag by more than 100k over the years if you are investing large amounts.

Too late now, but this is one rule for using an advisor: Do not hire anyone you cannot fire without personal repercussions—friends, family, members of church or social network.

Finally, your advisor has you in some very tax-inefficient funds in the taxable account.


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
dickenjb
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Re: My early 30's Ameriprise portfolio

Post by dickenjb »

The fees and complexity are of course simply unacceptable and not necessary.

I personally helped a family member leave an advisor and implement a three fund approach at Vanguard. They were paying er's averaging 1% and an advisor fee of 0.5% AUM. Pretty modest compared to what we are seeing here.

What astonished me - they had originally invested ca. $250K and portfolio had grown over many years to ca. $500K - so I thought there would be a lot of cap gains to pay when we liquidated. Amazingly, there were only $40K in cap gains. Why? Because the active funds ran 80-120% turnover and distributed their cap gains each and every year. This is something that is often overlooked in the active vs passive debate.

Their portfolio I moved is now worth $600K and they are paying 8 bps, saving (1.5%-0.08%)*$600K or $8600 a year. When you consider they are retired and can safely spend 4% or $24K a year from their portfolio, I rather think they enjoy keeping almost all of that $24K for themselves rather than ceding fully ONE THIRD of it to others. Let alone the savings on current taxes on $30-$40 K of cap gains distributions EACH AND EVERY YEAR.

So if you insist on keeping some active bets - at least go low cost active and put them in your tax advantaged accounts.

I am a three fund person myself.
mrboast
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Re: My early 30's Ameriprise portfolio

Post by mrboast »

4th and Inches wrote:^^^^^^I was thinking the same. The OP asked for advice. He got fantastic advice that will help him end up with 100s of thousands more over his investing lifetime. The least he can do is check in and acknowledge the great advice and say thanks.
Significant understatement if more is added to the pie. I'm sorry, but I can't let this thought go...my mathematical mind demands too much of me.

Here are the expenses laid bare and covering the 30 year investment horizon mentioned by Original Poster. This considers everything in a taxable account and assumes no new contributions.

Assumptions for both scenarios: $200,000 Portfolio. Portfolio Growth Rate: 8%. 30 years.

As currently constructed
Average Expense Ratio = 1.0% (this compounds daily of course, as mutual fund NAV's take out their expense ratio on a daily basis)
Advisor Fee = 1.0% (let's say this compounds monthly which is how I was paid as an advisor)
Average Tax Consequences = 1.25%. (compounded annually and this may be too low???).

Expense Ratio: $2,000 (1% X $200,000) compounding daily at 8% for 10,950 days = $250,507.
Wrap fee: $2,000 (same) compounding monthly at 8% for 360 mos = $248,393. (Advisor, by allowing you to pay monthly instead of daily has created $2,114 in value over 30 years)
Taxes: $2,500 (1.25% X $200,000) compounding annually at 8% for 30 years = $283,208
Total = $782,108.

Index Alternative
Average expense ratio: 0.08%
Wrap fee = 0.0%.
Average tax consequences = 0.40%

Expense Ratio: $160 (0.08% X $200,000) compounding daily at 8% for 10,950 days = $20,041.
Taxes: $800 (0.40% X $200,000) compounding annually at 8% for 30 years = $90,627
Total = $110,667.

Active Strategy Minus Index Strategy = $671,441.

30 years hence when you are taking 4% of your portfolio for retirement expenses, you will first have to pay half of it to the Advisor and the Fund.

If portfolio is twice that, simply multiple all expenses by 2. If half that amount, divide by 2. When big numbers get in play, which they will with your stated annual contribution capacity, I hope you can see where this is going quickly. You would be paying for the hope for out performance, which could happen and is a reasonable bet to make with maybe 10% of your portfolio...although most around here wouldn't agree.
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arthurdawg
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Re: My early 30's Ameriprise portfolio

Post by arthurdawg »

Agree with posters above... There was a recent post where Rick Ferri had posted a comparison between an index portfolio at Vanguard and 10,000 actual funds. Only 200 of the 10,000 active funds matched or beat the index. An much smaller number beat the average by more than 1%... You stand no chance whatsoever of beating the index with a wrap fee on those ERs...!

Another nice thing... I'm a very busy medical professional and managing my indexed portfolio (noted below) takes an hour per month. And this time includes a complete review of all financial issues, not just investments!
Indexed Fully!
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geauxpassive
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Re: My early 30's Ameriprise portfolio

Post by geauxpassive »

Thanks to all of you who took the time and energy to give me feedback, sorry I've been slow to reply but between work and children (who apparently hate sleep) I've been busy. I am admittedly in my own infancy when it comes to financial planning, but I'm now certain I'm looking in the right place for good advice. I've already begun moving the many high cost funds to only a few low cost Vanguard funds. To be honest I had never read a word of an investment book or site until a couple of months ago, when my friend told me about this site and about how much money I was, and would be, flushing down the toilet in high cost, tax inefficient funds. I'm now reading Mr Bogle's books and am more confident in this strategy with each day. Even this early, it's been quite eye opening. I used to blindly and ignorantly send my hard earned money to my advisor with hardly a thought of where it was going, and now that I do know, I know I can and will do better. Again, thanks for the assistance.
JamesSF
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Re: My early 30's Ameriprise portfolio

Post by JamesSF »

I, too, was in Ameriprise after being lured in by a "free lunch" offer from an Ameriprise advisor many years ago. Same situation - funds chosen to provide big commissions to the advisor, needless complexity delivered via the Ameriprise fund selection platform, etc. He even convinced me to lock myself into a VUL insurance vehicle with even more fees and a 10-year surrender period. After spending a few months reviewing this forum, I moved all my money into no-commission WellsFargo brokerage accounts and bought low-fee Vanguard or Fidelity mutual funds / ETFs, and surrendered the VUL. Lesson learned.

Take the time to read the wiki on this forum, and you'll save yourself six figures in fees over your lifetime.

-JamesSF
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William4u
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Re: My early 30's Ameriprise portfolio

Post by William4u »

Wow. The funds are pointlessly expensive. The high number of funds is a bad sign. Needlessly complicated and confused. It seems to be designed to give the false impression that one needs to pay someone to manage one's investments.

There is also a lot of unnecessary overlap among so many funds. I bet many of your funds own many of the same stocks.

Use a Morningstar X-ray to see what the overlaps really come to (in the end all these funds likely are similar to a very expensive version of a 3-fund portfolio). When I have seen friends with a similarly bizarre array of funds, they can use the Morningstar X-ray to see what it really adds up to. The stock allocation is usually very similar to an Index fund that costs far less.

I would bet that once you run the X-ray, you will learn that you have something very similar to a ridiculously expensive and complicated 3-fund index portfolio.

I would get out of Ameriprise ASAP.
ilovedavidstove
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Re: My early 30's Ameriprise portfolio

Post by ilovedavidstove »

geauxpassive wrote:Thanks to all of you who took the time and energy to give me feedback, sorry I've been slow to reply but between work and children (who apparently hate sleep) I've been busy. I am admittedly in my own infancy when it comes to financial planning, but I'm now certain I'm looking in the right place for good advice. I've already begun moving the many high cost funds to only a few low cost Vanguard funds. To be honest I had never read a word of an investment book or site until a couple of months ago, when my friend told me about this site and about how much money I was, and would be, flushing down the toilet in high cost, tax inefficient funds. I'm now reading Mr Bogle's books and am more confident in this strategy with each day. Even this early, it's been quite eye opening. I used to blindly and ignorantly send my hard earned money to my advisor with hardly a thought of where it was going, and now that I do know, I know I can and will do better. Again, thanks for the assistance.
Don't beat yourself up too much about this. You are still young and your portfolio is still relatively small. This can be cleaned up in no time. Also, your friend Advisor is most likely doing nothing malicious - it could also be simple incompetence, which is a little easier to stomach. You can get to the answer by asking him/her some questions raised here.
bloom2708
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Re: My early 30's Ameriprise portfolio

Post by bloom2708 »

My advisor was/is a good friend. He is very trustworthy. He just has a job that dictates he gets paid (well) if he sells a variety of products. His well being is determined by me and others paying those fees. I know he knows this is the case. There are a certain type of investor that this is OK for.

You are no longer in that group just by coming here and learning. I only was with EJ for 36 months. I paid lots of fees I shouldn't have, but I also learned a ton.

The best thing you can do is quickly move on. Break up, call Vanguard and have them assist you moving things.
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DueDiligence
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Re: My early 30's Ameriprise portfolio

Post by DueDiligence »

geauxpassive wrote:My friend is a long time passive investor and a regular contributor to this forum. He promises me I will get excellent feedback and thinks hearing advice from others will help further encourage my nascent passive-ness.....snip....
Questions
1. Could you simply offer high-level feedback on the existing fund lineup?
2. Do you see any overlap or needless complexity?
3. How best to compare this to the appropriate index?
5. Can you speak to the tax efficiency or inefficiency of the portfolio?
The earlier BH responses are not a surprise and likely pretty much in line with your friends expectations??

How about getting the other side of the story by asking your advisor some of the same questions?
(1) High level feedback on portfolio lineup, strategy, and objectives.
(2) There appears to be overlap & complexity. Please explain.
(3) What is appropriate benchmark and how does portfolio performance compare with benchmark?
(4) Is tax efficiency a consideration? If yes, what is the approach?
(5) What is historical return over different time periods (1yr, 3yr, 5yr, 10yr....max)?

The answers may tell you about both your advisor and your portfolio. Many BHs would likely be interested in the answers.

He certainly owes you answers to these questions and more since Ameriprise has/is being well compensated.

DueDiligence
"Personal preferences, circumstances, and abilities affect portfolio construction in a profound manner..." David Swensen
mrboast
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Re: My early 30's Ameriprise portfolio

Post by mrboast »

ilovedavidstove wrote:
Yacktman Focus Fund / YAFFX / 5.0% / Large Cap / 1.25% / 0.00% (I believe we missed the party here..only recent investors in this one)
Annualized Returns:
YAFFX (1.25% ER / 1.14% 10 year annualized tax cost ratio)
3 years +16.42%
5 years +15.50%
10 years +11.33%

VTSAX (Total Stock Market Index / 0.05% ER / 0.37% 10 year annual tax cost ratio)
3 years +22.29%
5 years +17.90%
10 years +8.89%

Yes, I would say you have missed the party as the out-performance period was somewhere in the 5 to 10 years ago period. Since that time the Yacktman Focused Fund has been focused on under-performing. As Advisors chase returns and convince their clients to invest in whatever fund that bubbles to the top of their Google search "best performing funds last X years", the Fund soon gets bloated and out-performance becomes increasingly difficult, not to mention the reversion to the mean as out-performance can't continue indefinitely. Perhaps you are timely placed in front of another period of out-performance, perhaps not. This could very well be a terrific fund that will have a long period of general out-performance, but one must commit to active funds for at least 10 years to realize the benefit of active management - and even then its more often than not a losing proposition after fees. If an active manager is right about certain industry or secular trends, they will likely be ahead of the general investing public and will under-perform for sometimes several years in front of a long period of out-performance. The reputable Value managers "missed" the dot-com boom and underperformed for several years, but were right in the long run. They need time. In fact, you might be better off investing in the worst performers of the last decade! :)
Another interesting case study in: 1) how difficult it is to beat the market consistently/reversion to the mean and 2) how difficult it is predicting the manager who will do it and 3) closely related to #2, how past performance doesn't mean much...is Guru Bruce Berkowitz' The Fairholme Fund (FAIRX). Bruce was Morningstar's 2010 "Manager of the Decade" - and the money soon came rushing in.

Below is FAIRX's performance against my Total Stock Market Index. As you can see, for the last 7-8 years or so I have outperformed one of the world's most renowned stock-picking Guru's, a man who spends his entire life dissecting companies in an attempt to beat the market. A man who goes to bed and rises thinking about how to do this. A man who spends countless hours with the top brass at his owned companies in order to gain some semblance of an insight. He undoubtedly sacrifices enormous amounts of leisure and intellectual time, while simultaneously incurring tremendous amounts of stress, in this attempt to beat the "dumb money". It has probably cost him some social relationships as well. How have I beat Bruce the last 7-8 years or so and more-likely-than not well into the future? By working a day job in HR, spending uncountable hours playing with my grandchildren, quality time in Europe with my wife, reading Flaubert and Balzac, watching my Crimson Tide beat most of the competition, oh and checking out my portfolio once a month or so.

Annualized Returns:
FAIRX - 1.02% ER
3 years +21.66%
5 years +13.01%
10 years +10.65%

VTSAX - 0.05% ER
3 years +22.29%
5 years +17.40%
10 years +8.94%

When Bruce's mid 2000's outperformance rolls off the 10 year figures above, it will look ugly across the board. Invest in the market and live life to the fullest.
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geauxpassive
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Re: My early 30's Ameriprise portfolio

Post by geauxpassive »

Since my initial post (above) of my Ameriprise portfolio several months ago (and its shredding) I've been busy, transferring all of my assets to Vanguard and reading I can . I've read Bogle's Common Sense on Mutual Funds and Lowenstein's The Investor's Dilemma, and a ton of well thought out articles, but have to admit much of it is still above my head. To summarize, I'm 34 and she is 31, have 2 small children (with more coming if you ask her) whose 529's are going, and have a household income of 150-175k. I've decided on a more aggressive AA (for now) given my time frame and risk tolerance and am now in the following:

Portfolio size = low to mid 6 figures
My traditional IRA - VFIAX (S&P 500 Admiral) - (25% of total portfolio)
My and her Roth - VSIAX (Small Cap Value Admiral) - (39% )
Taxable - VFWAX (All World ex U.S.) - (36%)

The above excludes a $20,000 emergency type fund in cash and also it is important to note that parents gift my wife and I the tax free max each year which is great, but we do not count on it.

I plan on getting into bonds at some point but not right now, and throwing all extra cash at my mortgage until it's paid off (hopefully in the next 8-9 years) but diligently contribute each month as well. I can roll over my simple IRA from Wells Fargo only 1x/ year to avoid fees and I plan on putting it into VFIAX as well. I'm Louisiana public school educated so bare with me, Am I on the right track here ? Thanks for the feedback. A Boglehead friend has been helping me with the transition; he and i came to the following stock allocation goal: 70% US / 30% Int'l / 50% Large / 50% Small in each...I am bucking his recommendation and further overweighting small US right now at least until simple IRA rollovers and gifts come; int'l small coming soon too.
Last edited by geauxpassive on Fri Feb 13, 2015 7:36 am, edited 1 time in total.
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geauxpassive
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Re: My early 30's Ameriprise portfolio - UPDATE

Post by geauxpassive »

polite bump for the morning crew :happy
livesoft
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Re: My early 30's Ameriprise portfolio - UPDATE

Post by livesoft »

That is a very aggressive portfolio. You should add some fund names.

I would recommend some amount in a bond fund in order to reduce the risk AND get you used to dealing with a bond fund.

How did you feel when your portfolio dropped in October and in December? Are you back to where it was in September yet?
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BL
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Re: My early 30's Ameriprise portfolio - UPDATE

Post by BL »

Here is some quick reading if you are looking for more. It is only 16 pages, but covers many of the important things that beginners need (you are well into savings so you already have that covered.) This is written by a Boglehead, Dr. William Bernstein:
http://www.etf.com/docs/IfYouCan.pdf

My biggest concern is that you are going from a portfolio that had some bonds (balanced funds-I don't know how much) to one that has none. Even 10-25% bonds would be a very good idea. I believe there is research that 10% is safer than 0% bonds overall, it is somewhere in these threads. Adding to your mortgage is bond-like, so you probably don't need a lot of bonds. "Age in bonds" seems to be ignored these last few years while stocks have been flying high, but there are some longer periods not so long ago where bonds have actually done better than stocks. (Maybe start with some bonds while you are studying, then change to less bonds if you are convinced after studying. This is one of the risks of making changes before you are done studying. It is also called "youthful exuberance" or optimism.) We may be in for a correction, stocks dropping 10-50%, but no one knows whether it will be soon or not. Some people panic and sell then, so that locks in their losses.

Other than the lack of bonds, you should be much better off. I don't memorize symbols so all I know about your fund selection is that Vanguard funds are low-ER. I bet you will notice the lowering of taxable income from your taxable account; that is considered a good thing. Let you funds grow and mainly pay tax when you sell, rather than every year.

Oh, beware of adding more and different funds each year. Soon you would have a collection again! Find a good balanced boring portfolio and stick with it.

There is an interesting thread here now on Target Date funds and why they chose such a low % of bonds that you might be interested in.
viewtopic.php?f=10&t=157796&newpost=2373966
They refer to the Vanguard site which has a link to the "white paper" on why:
https://institutional.vanguard.com/VGAp ... pproachTDF
mrboast
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Re: My early 30's Ameriprise portfolio - UPDATE

Post by mrboast »

It appears you have gone from annual AUM expenses of ~2% to annual AUM expenses of ~0.10%, which is a 95% annual reduction, while simultaneously increasing your expected return. Pat yourself on the back.

I agree with those above - think about bonds and continue reading. The "increase in expected return" comment above is not meant to congratulate you for transitioning away from a balanced portfolio to a more aggressive one, it is merely an acknowledgement of the math behind passive investing.

This thing is nearing cruise control, but that does not imply ceasing your education.
feh
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Re: My early 30's Ameriprise portfolio - UPDATE

Post by feh »

Another vote for bonds in the portfolio. I suggest 20%.
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LowER
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Re: My early 30's Ameriprise portfolio

Post by LowER »

Deleted by me - already addressed
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fetch5482
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Re: My early 30's Ameriprise portfolio - UPDATE

Post by fetch5482 »

I am of roughly the same age and asset size as you (33 y.o, mid 6-figure investment portfolio). While a lot of folks on this forum prefer the three & four fund portfolio, I personally prefer a four or five fund portfolio (and add slice-and-dice later, as shown below) for my age/risk, especially with a decent tax advantaged account Cushion, such as yours. My portfolio would look something like this:

20% Total Bonds <-- put in tax advantaged
7% REIT <-- put in tax advantaged
25% Total International <-- put in taxable first, tax advantaged OK
48% TSM <-- OK to put in either tax advantaged or taxable

This is quite similar to what I started at when I came to Boglehead a year or so ago. After that, if you feel comfortable, you can add a bit more slicing and dicing. This will increase your number of funds, and potentially make it a bit more complicated to rebalance.. but gives you more opportunity to TLH and potentially more returns from tilting (keyword is "potentially" - nothing is guaranteed). With additional slice-and-dice funds, my portfolio would look similar to:

12% Total Bonds
4% Intermediate Term Bonds
4% Inflation Protected Bonds
7% REIT
12% Total International
8% Emerging Markets
5% International Small-Cap
33% Total Domestic Stock Market
15% Domestic Small-cap Value

Notice that this is a whole lot more than 4 funds, but the overall split of stocks/bonds and domestic/international is similar.

You can play with the percentage of stock/bond split (80/20 in my example above) and Domestic/International equity (65/35 in my example above) to match your risk tolerance.. but the basis of a simplistic 4-fund portfolio and slice-and-dice will eventually look similar to above.

If you don't like so many different funds, stick to the 4-fund portfolio, or 5-fund portfolio (I like to have a separate international and emerging market split).
(AGE minus 23%) Bonds | 5% REITs | Balance 80% US (75/25 TSM/SCV) + 20% International (80/20 Developed/Emerging)
Topic Author
geauxpassive
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Re: My early 30's Ameriprise portfolio - UPDATE

Post by geauxpassive »

Thanks to all for the feedback. I certainly have a lifetime of learning ahead of me, but who doesn't I suppose. And for all the northern BH's, it was 67 degrees at the Mardi Gras parades today, now that's priceless!
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