Is the Vanguard advisor service worth while for me?

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tc101
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Is the Vanguard advisor service worth while for me?

Post by tc101 »

I talked to a guy at Vanguard, who answered my basic questions and set me up for a free consult with an adviser tomorrow.

The cost of the the service is 0.3% of assets under management. You can select just a portion of your portfolio for management. There is no long term commitment.

I have about $300K in my taxable account at Vanguard. Everything else is in IRAs or at other institutions. I am thinking about putting the $300K taxable account under their management in order to get them to do tax loss harvesting. That would cost me $900 for a year. The question is if this is likely to save me more than $900 in income taxes next year.

Turbo tax says my 2014 Adjusted gross income as $39K, taxable income $27K, total federal tax $4K. Effective tax rate 10.11%. I am in Georgia and pay not state income tax because of my age.

All of the income was from investments, most of it from real estate loans I make with my brother. Next year will be about the same.

I am 65 and retired. I spend more than $39K per year, but it is coming from a bank account where I parked some cash. I don't think I will be withdrawing anything from Vanguard for 3-4 years.

All the money in the taxable account is in stock index funds and ETFs. There are 11 different stock funds and ETFs in the taxable account. I know this is way to many. It ended up being 11 because over the years I changed my investing philosophy several times, and never sold an old fund but just bought new ones.

Is it likely the Vanguard adviser can save me $900 / year in taxes?
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timboktoo
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Re: Is the Vanguard advisor service worth while for me?

Post by timboktoo »

I think a better question is would you be willing to do Tax Loss Harvesting yourself if someone paid you $900 for it.

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retiredjg
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Re: Is the Vanguard advisor service worth while for me?

Post by retiredjg »

I don't know and I certainly hope you let us all in on what you learn tomorrow.

My concern with this plan is that whatever they TLH in taxable could inadvertently overlap and cause a wash sale with what you hold in your other accounts. I'd be interested in how they would plan to work around that.
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Re: Is the Vanguard advisor service worth while for me?

Post by skinner »

You could use a robo service, like Betterment, which uses Vanguard ETFs (mostly). Their fees would be .15% for your account (plus the ETF fees). Just an idea - there are prior discussions regarding them on the forum.
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tc101
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Re: Is the Vanguard advisor service worth while for me?

Post by tc101 »

I think a better question is would you be willing to do Tax Loss Harvesting yourself if someone paid you $900 for it.
I don't know. How long would it take me to learn to do it, and how much time would it take?
You could use a robo service, like Betterment, which uses Vanguard ETFs (mostly). Their fees would be .15% for your account (plus the ETF fees). Just an idea - there are prior discussions regarding them on the forum.
Would that work with funds I already own at Vanguard?
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skinner
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Re: Is the Vanguard advisor service worth while for me?

Post by skinner »

You would transfer the funds to Betterment.
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Re: Is the Vanguard advisor service worth while for me?

Post by mhc »

If you have a lot of unrealized gains, you are less likely to be able to TLH. Would the service overcome the $900 head winds? If the funds have a lot of unrealized gains, I doubt it since TLH does not occur too often and your marginal tax rate is low.

The other thing is TLH only takes about 2 minutes online. I would not pay someone $900/yr to do it on average probably once a year.
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Re: Is the Vanguard advisor service worth while for me?

Post by CABob »

Do you have significant capital losses in your taxable accounts? Remember that if you want to tax loss harvest you must have some losses to harvest.
If the primary reason to use the advisor service is for tax loss harvesting I don't think it would be worth it IMO. You would have to make some assumptions and crunch the numbers in your specific case to see what it might save you. You might get a first year cost avoidance of $900 but I doubt it would continue.
As far as learning how to do it yourself I suggest you review the wiki and get some self education whether you plan to do it yourself or have an advisor do it.
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Re: Is the Vanguard advisor service worth while for me?

Post by livesoft »

You pay $4,000 in Federal income taxes on $27,000 of taxable income? Wow!
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tc101
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Re: Is the Vanguard advisor service worth while for me?

Post by tc101 »

You pay $4,000 in Federal income taxes on $27,000 of taxable income? Wow!
Is that high or low? I just enter the numbers in Turbo Tax and do what it says. Almost all that income is from taxable interest on real estate loans.
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House Blend
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Re: Is the Vanguard advisor service worth while for me?

Post by House Blend »

tc101 wrote:
You pay $4,000 in Federal income taxes on $27,000 of taxable income? Wow!
Is that high or low? I just enter the numbers in Turbo Tax and do what it says. Almost all that income is from taxable interest on real estate loans.
For 2014, $27K of taxable income with no qualified dividends or LTCG buys you a Federal tax liability of about $3600. So $4K sounds a bit high but in the ballpark.

But this comment of yours doesn't quite jive with that: "All the money in the taxable account is in stock index funds and ETFs."

In that case, the dividends in your taxable account should be mostly qualified. At a 2% yield, you should have received about $6,000 worth of (mostly) qualified dividends. Was that included in your taxable income?

The tax on $27K with $6K QDI is the same as the tax on $21K taxable income with $0 QDI--about $2700.
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Re: Is the Vanguard advisor service worth while for me?

Post by pkcrafter »

Is it likely the Vanguard adviser can save me $900 / year in taxes?
The adviser can save you money when your investments lose some value, but then you can do the same thing. Not sure of your tax bracket, but the taxes on withdrawals now is probably 15%, same as your withdrawals from tax deferred. Could also be zero if you are married.

Why not get the free consultation and see what he says.

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tc101
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Re: Is the Vanguard advisor service worth while for me?

Post by tc101 »

But this comment of yours doesn't quite jive with that: "All the money in the taxable account is in stock index funds and ETFs."

In that case, the dividends in your taxable account should be mostly qualified.
I was not clear enough. All the money in my VANGUARD taxable account is in stock index funds and ETFs. I have other money invested with my brother in high interest loans to a real estate developer. That is where the taxable interest income came from.
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tc101
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Re: Is the Vanguard advisor service worth while for me?

Post by tc101 »

Why not get the free consultation and see what he says.
That is what I plan to do, and I will write about it here, after it happens at 2pm today.
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tc101
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Re: Is the Vanguard advisor service worth while for me?

Post by tc101 »

For 2014, $27K of taxable income with no qualified dividends or LTCG buys you a Federal tax liability of about $3600. So $4K sounds a bit high but in the ballpark.
I have been trusting Turbo Tax to do this right, but if they made a mistake that caused me to pay an extra $400 I want to know about it. I just took a look to see what they did. Here is what is on the Turbo Tax generated form.

Line 43 - Taxable income - 27,198
Line 44 - Tax - 2,940
Line 46 - Excess premium tax credit - 1,250 Here is the extra
Line 47 - Total - 4,190

So the actual tax was $2940, then I paid an extra $1250 because my payments to Obama Care were too low. That explains it.
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tc101
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Re: Is the Vanguard advisor service worth while for me?

Post by tc101 »

I just finished talking to the adviser at Vanguard. He was a friendly, likable, knowledgeable person. He was not pushy in any way. I enjoyed our conversation.

He looked over my portfolio. His main recommendation was simplification. He took the view that the total market makes more sense than slice and dice. This is the standard Vanguard view. He was pretty convincing.

We barely talked at all about the service you pay for. I can call in there for a portfolio check up for free, which is what we did today.

I am now 65. When I get older I may get someone to manage my portfolio, but for now there is not much point.

He actually taught me a little about tax loss harvesting, and pointed out the Cost Basis screen, which I had forgotten about. He agreed that I could easily do it all myself.

It was worthwhile talking to him for an hour.
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Re: Is the Vanguard advisor service worth while for me?

Post by House Blend »

tc101 wrote:So the actual tax was $2940, then I paid an extra $1250 because my payments to Obama Care were too low. That explains it.
Agreed. And it is clear that your taxable account is producing qualified dividends that are being taxed at 0%, as I surmised earlier.

The good news is that you have some extra space available in the 15% bracket. That means you should be able to do some consolidation of the 11 funds in your taxable Vanguard account without generating any additional tax costs. Just be careful not to go past the top of the 15% bracket, and make sure that all gains realized are long term.

N.B.: The top of the 15% bracket for Singles in 2015 is Taxable Income = $37,450.

This brings up another topic that is relevant to your original post....

As long as
1) your income/spending/deductions stay in the current range (after adjusting for inflation)
2) the tax rates relevant for you do the same

Then it will be mathematically impossible for Vanguard or a robo-advisor to save you $900/year in taxes via tax loss harvesting. A theoretical upper bound would be $450/year, which would be achievable only if you are able to realize enough losses to sustain deductions of $3,000 per year. And no one can do this from scratch, robo or otherwise, unless the the markets cooperate.

(The point is that people in higher tax brackets also have to pay capital gains taxes, and so they "enjoy" a much higher theoretical bound on how much can be saved via TLH.)

On the other hand, the assumptions in 1) might fail when you start taking RMDs out, and/or start SS benefits.
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Re: Is the Vanguard advisor service worth while for me?

Post by tc101 »

Thank you House Blend and everyone else for taking the time to help me understand this.
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Re: Is the Vanguard advisor service worth while for me?

Post by Toons »

Good to hear you decided to save yourself 900.00. :happy
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