Trusting our advisor?

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Pattyk
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Trusting our advisor?

Post by Pattyk »

I wonder if anyone can help me with a little advice. My husband and I are just beginning our retirement (I'm in my 50s and my husband just turned 60) and we've found a good advisor to help with the planning. At least I thought he was good. Since we've transferred all of our assets to him he's invested a 65/35 portfolio (equities/fixed income), with 26% of that in international equity funds (all DFA), 5% of which is in emerging markets. The fixed income side is invested in one fund - the DFA 5 year Global Bond Fund. From what I've read in Morningstar, this DFA fund has 70% invested internationally. If you add that to the equity side of our portfolio we're up at about 45% invested internationally. Call me crazy but isn't that a tad bit risky? Wouldn't it be safer to either hold a number of DFA bond funds, or just invest in the Vanguard Total Bond Market Fund? Can anyone give me some advice?
JW-Retired
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Re: Trusting our advisor?

Post by JW-Retired »

I don't know about the wisdom of this particular thing you have seized on, but I'm thinking you are really questioning using an "advisor" and paying the usually considerably higher fees that entails. Suggest you might post your portfolio information in our preferred format and see what we might suggest as an alternative to an advisor. http://www.bogleheads.org/forum/viewtop ... f=1&t=6212
Then decide what to do.
JW
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Lafder
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Re: Trusting our advisor?

Post by Lafder »

Pattyk
Welcome! I think you will get some free unbiased advise here!

List your entire portfolio as JW nearly retired posted the link to for more specific feedback.

My personal opinion is that 65/35 is too aggressive for a just retired 50's, 60's couple, unless you have a portfolio so large there will clearly be excess and you can afford market drops for yourselves, and the more aggressive portion is to build more inheritance. Age in bonds is a general recommendation, more if conservative about risk, less if aggressive.

Before I complain that your advisor is a bit nuts to have you in almost half foreign markets, do you live in the US ? What percent foreign markets did you have before you handed your portfolio to him? Likewise, while 65/35 is aggressive, maybe he talked you down from 100% stocks ?? I have heard the most support for 20-40 % of your stock holdings should be in foreign, so I picked the in between of 30. That is % stock, not % portfolio ! What you had before would have shown the advisor what you were comfortable with.

It would make me nervous to hand my portfolio to an advisor under their control. When I have used an advisor (free service through Vanguard) I always had complete control and made the changes, they simply made suggestions. The thing about an advisor taking over funds is that I worry they could fake balance sheets and really be spending money on themselves (call me paranoid, but I have known several people this happened to).

If you have always used an advisor and wish to continue, certainly that is a choice that only you and your husband can decide if the fee is worth it.

By the nature of your questions you seem to have a good understanding of investing, and I would say your judgement is spot on to be questioning. You really can do this on your own if you want to, with the support of a site like this.

Post your portfolio as described. It may be eye opening when you see the actual expense ratios of the funds this advisor has put you into, plus their fees on top of that. You can also get a confirmation if the international percents are correct and stock/bond. Morningstar xray can also give you info if you plug in your account info.

Part of presenting is for you to say what stock %/bond %/international stock % you desire in your asset allocation.

It took me many hours to get my accounts understood enough to present in the desired format, but it was well worth it. And you may already know more than I did when I started to get the info together, so hopefully it will take you less time.

Best wishes, lafder
livesoft
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Re: Trusting our advisor?

Post by livesoft »

Pattyk's portfolio sounds perfect to me, but probably because it resembles my own asset allocation. I am about the same age and retired. I have no issues with half of my portfolio being in foreign investments. I don't think 65/35 is aggressive at all for any age of investor.

From http://www.altruistfa.com/dfavanguard.htm:
DFA Five-Year Global Fixed Income Portfolio (DFGBX). E/R: 0.28%. This fund's "variable maturity" strategy should somewhat increase risk-adjusted returns. While it contains some foreign bonds, the currency risk is always 100% hedged. We have only a slight preference for DFGBX over DFGFX. DFGFX has a lower expense ratio, but DFGBX has more room for the "variable maturity" strategy to operate over (which should allow it to be more effective).
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Lafder
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Re: Trusting our advisor?

Post by Lafder »

livesoft,
I know you know a lot more than I do about investing and I really respect your opinion from all of your posts I have read. I am glad for pattyk you have a similar portfolio, that is hopeful news!! Everything I have read, mostly on this website, is that the "sweet spot" for international is 20-40 % of your equity holdings. How did you arrive at your 50% ?
Genuinely interested,
lafder
Topic Author
Pattyk
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Re: Trusting our advisor?

Post by Pattyk »

Thanks for the advice, I certainly appreciate it. When I said that almost half of our portfolio is in international, I was speaking of the 26% international equities, but then also factoring in that of the 32% fixed income side of our portfolio, 100% of that is in the DFA 5 year Global Bond Fund, (which is comprised of 70% international investments). So the foreign exposure is in both equities and bonds....is that too much? I will try to post the portfolio to see what others may think, but I have to say my husband would be extremely reluctant to give up a financial advisor, especially when I'm the one doing the leading....I have only recently starting to show any interest at all in our portfolio, and probably only now because he just retired and it's all we're ever going to have....once it's gone, it's gone! My limited knowledge has come from doing research on the Internet! I could probably do as much harm as good, and he doesn't yet see any reason to distrust what our advisor is doing.
Dandy
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Re: Trusting our advisor?

Post by Dandy »

DFA funds have a decent reputation so that is a good sign. If you are afraid of too much international I would speak to your advisor. That risk should be discussed before investing. On the surface the allocation makes some sense given the size of the US markets vs the rest of the globe. Not many retirees go for that much international equity and fixed income.

I underweight international equities and have no money targeted for international fixed income. There is a slight exposure to international bonds in some general bond funds.
Call_Me_Op
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Re: Trusting our advisor?

Post by Call_Me_Op »

Pattyk wrote:I wonder if anyone can help me with a little advice. My husband and I are just beginning our retirement (I'm in my 50s and my husband just turned 60) and we've found a good advisor to help with the planning. At least I thought he was good. Since we've transferred all of our assets to him he's invested a 65/35 portfolio (equities/fixed income), with 26% of that in international equity funds (all DFA), 5% of which is in emerging markets. The fixed income side is invested in one fund - the DFA 5 year Global Bond Fund. From what I've read in Morningstar, this DFA fund has 70% invested internationally. If you add that to the equity side of our portfolio we're up at about 45% invested internationally. Call me crazy but isn't that a tad bit risky? Wouldn't it be safer to either hold a number of DFA bond funds, or just invest in the Vanguard Total Bond Market Fund? Can anyone give me some advice?
Patty,

Why are you using an advisor if you believe you know better?

I have 50% of my equities in international, and I believe that's a smart move for the long term. Note that expected returns for international equities are much higher right now, due to their recent under performance.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
dbr
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Re: Trusting our advisor?

Post by dbr »

I don't think lumping stock international and bond international is a good figure. The comments about 20%-40% have been for stocks. Those discussions have never included a statement about allocation to international bonds.

I personally have no familiarity with international bond investing. Putting 70% of fixed income into international bonds seems like an extreme "play" that needs a very good rationale, but with only 35% of assets in bonds in the first place, it doesn't loom as huge.

A question is whether this is a plan or the advisor has discretion to manipulate the asset allocation on his own authority and there may be changes. Advisor discretion would be a bigger concern than what this allocation is now.
pkcrafter
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Re: Trusting our advisor?

Post by pkcrafter »

pattyk, I suspect your advisor used the global fund because it is one of the few--or maybe the only-- intermediate term diversified funds that is rated AA. I think it's a very reasonable choice.

added: Your equity allocation is 40% international, which is also a reasonable choice. By coincidence, it's what I would recommend. :wink:

Paul
Last edited by pkcrafter on Sun Sep 21, 2014 11:28 am, edited 1 time in total.
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livesoft
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Re: Trusting our advisor?

Post by livesoft »

Lafder wrote:How did you arrive at your 50% ?
Most of the books that I have read have recommended half US / half international for a so-called slice-and-dice portfolio. That includes books by
Bill Bernstein
Larry Swedroe
Paul Merriman
Frank Armstrong
and so on. Rick Ferri has also recommended a high fraction to international equities. These authors may have changed their minds since they wrote the books I read. Furthermore, the market weight of international nowadays is above 50%. That is, the US market is less than half the world market.

As for the DFA 5-year global bond fund, DFGBX. I doubt it is 70% foreign bonds. I looked for information on that and could not find it. Morningstar has a top-10 country breakdown and North America is 50% of the holdings. Furthermore, M* says that 8% of the holdings are "supranational". I am guessing that might mean bonds from corporations such as Toyota, Glaxo, BP that have significant footprints in both the US and foreign countries.

In summary, the portfolio seems to be a typical DFA-style portfolio which many folks on the forum try to emulate.
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SpringMan
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Re: Trusting our advisor?

Post by SpringMan »

Livesoft,
Mr. Bogle is conspicuously not on your list :). This site is called Bogleheads. We all know how he feels about international. Also, the OP and your endorsement with respect to 65/35 equity to fixed income is counter to Mr. Bogle's age in fixed income mantra. 65/35 is too aggressive for many of us. I will say it is very personal, and not one size fits all. Even different advisors will not all make the same recommendations given the same set of circumstances. It is not an exact science.
Best Wishes, SpringMan
livesoft
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Re: Trusting our advisor?

Post by livesoft »

OK, so I am not a Diehard. Big Deal.
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dbr
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Re: Trusting our advisor?

Post by dbr »

livesoft wrote:OK, so I am not a Diehard. Big Deal.
Agreeing with every specific asset allocation statement that Mr. Bogle can be found to have made is hardly a requirement for being a Boglehead.

Of course, livesoft is not a diehard, obviously.

As far as the OP, in addition to confounding stock and bond international allocations, it now appears the facts are not even known.
JW-Retired
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Re: Trusting our advisor?

Post by JW-Retired »

26% of equities in international is near the middle of the 20%-40% usually recommended here. Not certain, but 70% of bonds in international bonds does sound high and undiversified. Maybe advisor is chasing yield, or past performance? :P Vanguard has recently added some international into the bond allocations in their target retirement funds (~20% of the bonds), so they are doing this to some extent too. I stick to domestic bonds more or less out of habit.

A bigger deal might be the sort of equity funds he has you in? Making sure these are well diversified and my expenses are low would be my main areas of concern.
JW
ps: I too think 65/35 is OK.
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derosa
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Re: Trusting our advisor?

Post by derosa »

Seems to me you have perfectly reasonable portfolio that should help you address what you are going to living with for the 30 or 40 years?

It sounds like you don't have anything to really compare with what you have. So take a deep breath and do some reading. Take a few months - hey you have almost half your life ahead of you. this isn't something that has to be done in a few days or weeks or months really.

Once you have done some research and reading and talking about this with your husband. Your post seems to be all about you and doesn't really state whether your concerns are his concerns also.

I would also go back to your advisor and talk with him about it. He didn't come up with this portfolio out of thin air. Why this portfolio and not something else. DFA is a respected firm.

You have also posted nothing else about you - as has been pointed out. Until you decide to post anything else about your situation I wouldn't get too deep in the weeds as some of these other posts are. You just have a general question about this, by your own words, you haven't ever thought about this. Now you have some time to consider it - so take some time.
Topic Author
Pattyk
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Re: Trusting our advisor?

Post by Pattyk »

Thank you all for your wisdom! We will talk to our advisor and get some answers - we do think very highly of him and trust him, but I think its important that we educate ourselves so that we can be comfortable with the decisions made. Having a forum like this is wonderful for people like me who are trying to educate themselves about the complexities of investing..maybe someday we will try to manage things ourselves....but certainly not in the near future!
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midareff
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Re: Trusting our advisor?

Post by midareff »

Keep in mind $1M under management at a 1% annual fee is $10,000 a year. YOU can do this.
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Re: Trusting our advisor?

Post by sschullo »

midareff wrote:Keep in mind $1M under management at a 1% annual fee is $10,000 a year. YOU can do this.
As long as we are talking about advisers and their fees, you can easily find out what you are paying for advice by adding the advisers fees, usually 1.0% percent under management and the cost of the investments. Also, if he or she is a broker dealer, they are under not legal fiduciary responsibility, they are only require to abide by the "suitability" standard. If your adviser belongs to either the Garrett Planning Network or National Association of Personal Financial Advisers, the members are required to sign a fiduciary oath, are trained as investment advisers, do not sell commissioned products and disclose all fees to you.
Never in the history of market day-traders’ has the obsession with so much massive, sophisticated, & powerful statistical machinery used by the brightest people on earth with such useless results.
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Re: Trusting our advisor?

Post by pkcrafter »

Here's the semi-annual report or the 5 year global fund, DFGBX. See pages 23-26. The fund is very diversified, and while U.S. is only 25%, it is by far the largest holding. The goal of this fund is low volatility and high quality. Again, I think it's a good choice.

http://us.dimensional.com/media/documen ... 1299119218

Paul
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livesoft
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Re: Trusting our advisor?

Post by livesoft »

Thanks for the link to the PDF. I was completely wrong about what a supranational is. But PDF says US is 26% plus another 3% of US agency (i.e. FNMA, et al.) obligations plus 10% Canada :).
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retiredjg
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Re: Trusting our advisor?

Post by retiredjg »

If age were the only thing to consider, 65/35 would be pretty aggressive for your ages. Things other than age do matter. However, I didn't see anything in your post to indicate that any of those factors apply to you - so my conclusion is that 65/35 probably is too aggressive for you.

But your advisor didn't pick that number out of the air. It came from somewhere. Maybe a risk analysis questionnaire, things you and your husband told him/her, or a combination of things including miscommunications.

Whatever it is, the only solution is to have a frank discussion with the advisor and express your concerns and and get the issue fixed. You should not be paying someone to do a portfolio for you if the portfolio does not suit you. And I feel sure the advisor does not want you in a portfolio that you are uncomfortable with either.

In the end, if you simply can't get comfortable with that advisor, ask to transfer to another advisor in the same firm. Better yet, move your money to Vanguard and get advisory service much much cheaper.
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HardKnocker
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Re: Trusting our advisor?

Post by HardKnocker »

You can't trust nobody.
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nedsaid
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Re: Trusting our advisor?

Post by nedsaid »

PattyK, I have read through the thread and I have some thoughts on your situation.

First, there Is no right or wrong about asset allocation. I am 55 years old and I am not at approximately 70% stocks and 30% bonds and cash. I have chosen a more aggressive allocation mainly because of the very low level of interest rates. Normally, my target is about 60% stocks and 40% bonds. So I have an aggressive allocation for someone my age.

Second, you and your husband might have a pension on top of Social Security. Having a secure pension would be a factor in considering a more aggressive asset allocation. John Bogle, our mentor, has often discussed Social Security being considered as a bond investment. If memory serves me right, he things most people are invested too conservatively in retirement and he recommends 65% stocks and 35% bonds and cash.

Third, the allocation between domestic and international investments is a matter of taste and investment philosophy. Opinions are all over the map. Vanguard recommends 30% of stock investments and 20% of bond investments being in International markets. Bogleheads on this forum recommend between 20% and 50% of a stock portfolio in International Stocks. There is no consensus here about the proper amount of International Bonds. There are people on this forum who have zero international investments. About 25% of my stocks are in International Stocks and about 8% of my bonds are in International Bonds.

I think what your advisor has done is reasonable. You have a very good portfolio. The question to discuss with your advisor is whether or not this is too aggressive for you.

I would also look over your financial plan that you got from your advisor. Look it over real good and learn as much as you can from it.

From what I can see, I think the advisor has done a good job for you. Your portfolio might be a wee too aggressive but we don't know your whole financial picture.

Best wishes. Keep reading and informing yourself. It will make you a better investor.
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bloom2708
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Re: Trusting our advisor?

Post by bloom2708 »

I think you found the place for good advice. Read threads and books for a month or two.

Once you build up your knowledge, you will have to decide if saving $9,500 of a $10,000 annual fee is "worth" it or not. (I am using a $1 million portfolio as an example).

You could build a low cost 3 (or 4) fund portfolio at Vanguard with an expense ratio of under .10%. You would know exactly what is in your portfolio and set your asset allocation exactly how you envision it.

What could you do with an extra $9,000+ each year? For us that is a couple very nice vacations. Good luck!
dbr
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Re: Trusting our advisor?

Post by dbr »

I think a better perception of the cost is to realize that of a $40,000/year income a person could raise from $1M invested, the fee takes 25%. Who wants to give a quarter of their income every year to a money manager?
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