How to analyze portfolio recommendations

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
sam.thode
Posts: 11
Joined: Fri Apr 17, 2015 3:07 pm

How to analyze portfolio recommendations

Post by sam.thode » Fri Apr 17, 2015 7:42 pm

Emergency Funds – 3 months saved
Debt – 1x Loan (2 months remaining at 1.49%), 1x Car (32 months at 2.9%)
Tax Status – Single
Tax Rate – 25% Federal / 6.45% State (Living out of state though, so technically don’t actually pay any state taxes)
State of Residence – NY
Age – 26
Desired Asset Allocation – 80 / 20
Desired International – 15

Current Roth IRA – mid 5 figures
Current Brokerage – mid 5 figures
No 401k

Current Assets-
Brokerage
14.9% VTIAX
14.6% VBILX
70.3% VFIAX

Roth
17.6% VBILX
82.3% VFIAX

Contributions
$5,500 Roth IRA

1- I've got 2 recommendations, one from Future Advisor, one from a CFP with Northwestern Mutual. I was trying to figure how to best analyze the recommendations and determine the best way forward. Having read Bogle's common sense book to investing, I'm partial to index investing, but I've seen some stuff about active management benefits balancing out during down markets, and I'm considering having it managed by northwestern mutual.

Future Advisor-
30% Vanguard 500 Index Admiral (VFIAX) (0.05)
33% Vanguard Emerging Markets Stock (VWO) (0.15)
13% Vanguard FTSE All World ex US Small Cap Index (VSS)(0.19)
6% Vanguard Tax Managed International (VEA) (0.09)
3% iShares MSCI EAFE Value ETF (EFV) (0.40)
14% Vanguard Total International Stock Index (VTIAX) (0.14)

Financial Representative
16% Fidelity Advisor New Insights I (FINSX) (0.67)
16% MFS Value I (MEIIX) (0.63)
7% Dodge and Cox Income (DODIX) (0.44)
6.5% Met West Total Return Bond I (MWTIX)(0.40)
6% American Funds Europacific Growth F2 (AEPFX) (0.59)
5.5% Oakmark International I (OAKIX) (0.95)
5% Columbia Acorn International R4 (CCIRX) (1.04)
5% PIMCO Commodities PLUS Strategy P (PCLPX) (0.84)
5% T Rowe Price Real Estate (TRREX)(0.76)
4.5% PIMCO Income P (PONPX)(0.55)
4% Delaware Emerging Markets Instl (DEMIX) (1.44)
4% Fidelity Advisor Mid Cap II I (FIIMX) (0.85)
4% JHancock Disciplined Value Mid Cap I (JVMIX) (0.89)
3.5% American Funds Intl Gr and Inc F2 (IGFFX) (0.70)
3% Northern Small Cap Value (NOSGX) (1.00)
3% T Rowe Price Emerging Markets Stock (PRMSX) (1.24)
2% Cash

2- The CFP recommended a whole life policy. I understand Northwestern Mutual is one of the few companies who actually have good whole life options. But Im on the fence about the buy term and invest the difference argument to build greater wealth over time. The argument that you can pull money from it during retirement in a market down year is compelling, and since the returns arent affected by the market (albeit they wont beat the market), it seems like it may be a decent long term option. I don't currently contribute to a 401k (no employer matching, I've got the TSP) Would it make more sense to start those contributions there first instead of a whole life policy?

User avatar
nedsaid
Posts: 8521
Joined: Fri Nov 23, 2012 12:33 pm

Re: How to analyze portfolio recommendations

Post by nedsaid » Sat Apr 18, 2015 11:51 am

I certainly would not buy the whole life insurance. If you want tax deferred cash value, why not buy term insurance and use the difference in premiums to buy Series I and EE bonds at Treasury Direct? The illustrations that the insurance agent provides might look impressive, but how much return can 2-3% in the bond market minus expenses really produce? My guess is that your long term return returns from a whole life policy will not be impressive. What the agent will tell you is that you can borrow from the cash value of your policy tax free. You can borrow against anything tax free.

The Northwestern reps recommendations aren't bad but there is overlap and needless complexity. There are funds in there that I wouldn't mind owning. The expense ratios are not unreasonable. But why two emerging market funds? Why three large cap International funds? What is he charging as an annual fee to manage this?

The future advisor recommendations look best to me. If I had a choice of the two, this is what I would pick. The fund expense ratios are much lower and the advisory fees are probably much lower as well.
A fool and his money are good for business.

pkcrafter
Posts: 11989
Joined: Sun Mar 04, 2007 12:19 pm
Location: CA
Contact:

Re: How to analyze portfolio recommendations

Post by pkcrafter » Sat Apr 18, 2015 12:21 pm

1. Don't even discuss investing with an advisor who is pushing insurance. In addition, his suggested portfolio is a non-starter.

2. Future advisor portfolio isn't that great either, but far better than the advisor's. You want an AA of 80/20, but future advisor doesn't provide any bonds.

3. What's wrong with your current portfolio? The only suggestions I have are, don't use a taxable bond fund in a taxable account, and use total stock market instead of S&P500. Use tax exempt or put bonds in tax-deferred. All accounts are part of one portfolio.

4. You have access to TSP and aren't using it?? Max it out. C fund, S fund G fund.

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.

User avatar
ruralavalon
Posts: 11316
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: How to analyze portfolio recommendations

Post by ruralavalon » Sat Apr 18, 2015 12:58 pm

1) Your current portfolio is better than either recommendation, in my opinion.. You need a little more in bonds to meet your 80/20 asset allocation. You now have:
Brokerage
14.9% VTIAX, Vanguard Total International Stock Index Fund Admiral Shares, ER 0.14%
14.6% VBILX, Vanguard Intermediate-Term Bond Index Fund Admiral Shares , ER 0.10%
70.3% VFIAX, Vanguard 500 Index Fund Admiral Shares, ER 0.05%

Roth
17.6% VBILX, Vanguard Intermediate-Term Bond Index Fund Admiral Shares , ER 0.10%
82.3% VFIAX, Vanguard 500 Index Fund Admiral Shares, ER 0.05%

Consider selling the bond fund in your taxable account, its not very tax-efficient. Buy all of your 20% bond allocation in the TSP or your IRA.


2) Don't even consider the whole life policy, And the insurance salesman's suggested portfolio has needless complexity, overlap and expense. It uses 16 funds, only 3 of which I would ever even consider using.

3) The Future Advisor recommendation has 5 international funds for no readily apparent reason, when Vanguard Total International would do fine. Also it has no bond allocation at all.

4) There is no proof that managed funds do better in a down market, that's a myth.

5) Use the TSP as much as you can, its an excellent plan with excellent low expense index funds. I would not trust any advisor who failed to recommend using the TSP.
Last edited by ruralavalon on Sat Apr 18, 2015 1:11 pm, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

goingup
Posts: 2708
Joined: Tue Jan 26, 2010 1:02 pm

Re: How to analyze portfolio recommendations

Post by goingup » Sat Apr 18, 2015 1:03 pm

Don't mix insurance with investing. Everyday folks come here trying to get out of whole life policies. At your age, unless you have dependents, you probably don't need any life insurance beyond what is provided at your job.

The NWM portfolio is, frankly, ridiculous. Complicated with funds that are expensive. Everyday folks also come here trying to unwind expensive complicated portfolios, especially in taxable accounts where there are tax consequences in doing so.

As pkcrafter notes, your portfolio looks good, except you may not want the Intermediate Bond Fund in taxable, as it throws off taxable income. The TSP funds are revered here for their low costs. Don't miss out on contributing to your 401K! Use that first, then ROTH, then taxable savings.

Theoretical
Posts: 1063
Joined: Tue Aug 19, 2014 10:09 pm

Re: How to analyze portfolio recommendations

Post by Theoretical » Sat Apr 18, 2015 4:22 pm

The Future advisor plan is mostly bad for having redundant international exposure and no bonds. No bonds means you lose significant flexibility and counterweighting in a market downturn.

The Northwestern Mutual plan is downright sickening. It would make tons of money for the agent and leave you in a morass of mediocrity. Whole life policies have their uses, but they are very limited and specialized uses. However, they're sold very differently and negatively.

What also bothers me is the NM advisor's theory that actively managed funds do better in market crashes. That's a pretty bad way to look at it, because they also tend to lag the index (post-expenses) in good times. It's much better to have a bond allocation that limits your portfolio's drops during recessions/depressions.

livesoft
Posts: 56384
Joined: Thu Mar 01, 2007 8:00 pm

Re: How to analyze portfolio recommendations

Post by livesoft » Sat Apr 18, 2015 4:30 pm

That NW plan is a piece of crap. How to analyze it? Tear it up into little pieces and flush it down the toilet. The analysis simply consists of watching the last torn piece disappear into the sewer system.
This signature message sponsored by sscritic: Learn to fish.

User avatar
hoppy08520
Posts: 1910
Joined: Sat Feb 18, 2012 11:36 am

Re: How to analyze portfolio recommendations

Post by hoppy08520 » Sat Apr 18, 2015 4:50 pm

Are you sure this salesman is actually a CFP? I thought the CFP requires that CFPs act as a fiduciary. Clearly this salesman is not. Glad you found this board.

retiredjg
Posts: 30371
Joined: Thu Jan 10, 2008 12:56 pm

Re: How to analyze portfolio recommendations

Post by retiredjg » Sat Apr 18, 2015 4:52 pm

Neither of these suggestions is worth your time in my opinion.

User avatar
53timr
Posts: 215
Joined: Sat Dec 27, 2014 4:27 pm

Re: How to analyze portfolio recommendations

Post by 53timr » Sat Apr 18, 2015 6:50 pm

Max out your TSP plan using your desired asset allocation. TSP is one of the best retirement savings plans out there even if you don't get a match. After you max out your TSP, then contribute to a Roth using some low cost Vanguard or Fidelity index funds. Keep it simple--you have a lot of years for the money to grow. If you are single with no other persons to be responsible for, you don't really need life insurance. When the time comes and you do, stick with term insurance.
“I take my investment advice from my dentist, because he’s just as likely to lose me money as a financial advisor.” | ― Jarod Kintz, This Book Title is Invisible

mhalley
Posts: 5078
Joined: Tue Nov 20, 2007 6:02 am

Re: How to analyze portfolio recommendations

Post by mhalley » Sat Apr 18, 2015 7:07 pm

Do "good" and "whole life" belong in the same sentence? I know everyone here at bogleheads love to bash them, and I agree with that. Run away. Screaming.
The Future advisor one is better, but there is no reason you couldn't do that yourself. I don't know why you would need the tax managed fund instead of the regular intl fund tho. Also, that is a massive amout of Emerging markets, are you sure that is right?
Mike

mickens16
Posts: 317
Joined: Wed Apr 06, 2011 8:52 am

Re: How to analyze portfolio recommendations

Post by mickens16 » Sat Apr 18, 2015 7:51 pm

Are you certain that the Future Advisor plan is recommending 33% of your total portfolio in emerging markets, or should that 33% be under the Total International and 14% emerging markets?

User avatar
Taylor Larimore
Advisory Board
Posts: 25976
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Suggested links

Post by Taylor Larimore » Sat Apr 18, 2015 7:52 pm

sam.thode:

Welcome to the Bogleheads Forum!

It appears to me that you are considering two bad choices--especially the "Financial Representative" 16 fund plan.

I wonder if you understand the futility of picking funds based on past performance? It is such a bad idea that the government requires mutual fund companies to tell you it is a bad idea.

I strongly suggest that you read a good book on investing. You can use the link below to select a book that appeals to you and learn how to invest successfully at the same time.

http://www.bogleheads.org/wiki/Taylor_L ... tment_Gems

Take a look at this low-cost Three Fund Portfolio which you can manage yourself, save the advisor fees, and enjoy the benefits listed.

This is another link that can help put you on the right track:

What Experts Say

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

retiredjg
Posts: 30371
Joined: Thu Jan 10, 2008 12:56 pm

Re: How to analyze portfolio recommendations

Post by retiredjg » Sat Apr 18, 2015 7:53 pm

sam.thode wrote: I don't currently contribute to a 401k (no employer matching, I've got the TSP) Would it make more sense to start those contributions there first instead of a whole life policy?

This is a no-brainer. The TSP is probably the best plan on the planet.

You may not even need life insurance. If you do, whole life is probably not the kind you need. In general, mixing investments and insurance is not in your best interests - but it sure can benefit the person who sells it to you. And yes, their arguments are compelling. That's just good salesmanship. What people don't realize is the costs that are hidden in these products.

sam.thode
Posts: 11
Joined: Fri Apr 17, 2015 3:07 pm

Re: How to analyze portfolio recommendations

Post by sam.thode » Thu May 28, 2015 7:58 pm

All-

Much appreciated on all your replies. I'm looking at restructuring as I laid out in this post, and any feedback is much appreciated-
viewtopic.php?f=1&t=166677&p=2505518#p2505518

That being said-
For everyone who said the NW plan was garbage, what was your reasoning behind it?

livesoft
Posts: 56384
Joined: Thu Mar 01, 2007 8:00 pm

Re: How to analyze portfolio recommendations

Post by livesoft » Thu May 28, 2015 8:05 pm

sam.thode wrote:For everyone who said the NW plan was garbage, what was your reasoning behind it?

High fees. Too many funds so each with small percentage of overall portfolio. Overlapping funds. Obfuscation.

For instance, why do you need 5 international funds including 2 different emerging markets funds???

It is as if the sales rep wanted to have so many funds that at least one would do well.

My question back to you: Did you not recognize this yourself?
This signature message sponsored by sscritic: Learn to fish.

User avatar
iceport
Posts: 3271
Joined: Sat Apr 07, 2007 4:29 pm

Re: How to analyze portfolio recommendations

Post by iceport » Thu May 28, 2015 8:12 pm

livesoft wrote:That NW plan is a piece of crap. How to analyze it? Tear it up into little pieces and flush it down the toilet. The analysis simply consists of watching the last torn piece disappear into the sewer system.

Ha, ha! That's the funniest thing I've read all week! Thanks.

The problem for the OP is that, while hilariously bad to most of us here, the CFP actually convinced the OP to consider the plan.

sam.thode, please, don't walk, run from that CFP.
"Discipline matters more than allocation.” ─William Bernstein

User avatar
ruralavalon
Posts: 11316
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: How to analyze portfolio recommendations

Post by ruralavalon » Thu May 28, 2015 8:26 pm

sam.thode wrote:For everyone who said the NW plan was garbage, what was your reasoning behind it?

Too many funds, unnecessary overlap and duplication, high expense ratios. Sixteen funds total.

Eight domestic stock funds, when one by itself would do.just fine --
MFS Value I (MEIIX) ER 0.63%

Five international stock funds when one by itself would do just fine--
American Funds EuroPacific Growth (AEPFX) ER 0.59%

Three bond funds when one by itself would do just fine --
Dodge & Cox Income (DODIX) ER 0.44%

And you could use even better low ER funds than those.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

dc81584
Posts: 581
Joined: Sat Apr 04, 2015 7:47 am

Re: How to analyze portfolio recommendations

Post by dc81584 » Thu May 28, 2015 8:40 pm

I'll make this quick!

Future Advisor, and at age 26, you don't need ANY life insurance.

User avatar
BL
Posts: 7252
Joined: Sun Mar 01, 2009 2:28 pm

Re: How to analyze portfolio recommendations

Post by BL » Thu May 28, 2015 9:47 pm

TSP is the best available. Any adviser who doesn't tell you that is no good. You don't need an adviser. A Roth IRA at Vanguard is a good next step. If you ever need an adviser, Vanguard is one place that is quite low-cost and would not lead you wrong. But a Target or Life Strategy or similar TSP fund would manage your investments for you. You don't need expensive whole life insurance. If you have someone who depends on your income, consider low-cost term insurance and invest the difference.

There is a lot of reading here and suggested books and some short videos Here a little online book by Boglehead author, William Bernstein:
http://www.etf.com/docs/IfYouCan.pdf

Here is Wiki page on 3-fund portfolio:
https://www.bogleheads.org/wiki/Three-fund_portfolio

retiredjg
Posts: 30371
Joined: Thu Jan 10, 2008 12:56 pm

Re: How to analyze portfolio recommendations

Post by retiredjg » Fri May 29, 2015 5:37 am

High fees. Too many funds and a combination of funds that doesn't even make good sense. Too much complexity - would you know how to rebalance that mess?

That "plan" is what we call a "shotgun" approach. Just have a lot of funds and the potential customer will assume it is good because investing is so hard and normal people just can't understand it so I must need an advisor to help me figure this out and that many funds with names I don't understand much mean a lot of diversification.

As for life insurance, you don't really need any if you have no dependents (spouse, kids, parents who depend on your income). If you do need life insurance, whole life is a good deal for the salesman and not that great a deal for you. If you have the TSP, chances are you already have life insurance anyway.

And if you have the TSP, you should be putting new money into the TSP (assuming you are still working at that job or military) instead of investing in an account by either NW or Future Advisor.

sam.thode
Posts: 11
Joined: Fri Apr 17, 2015 3:07 pm

Re: How to analyze portfolio recommendations

Post by sam.thode » Fri Sep 01, 2017 10:34 am

2 years down the road, I wanted to follow up and see where I'm at and where I could have been based on these 2 portfolios. Thought it'd be useful to show for anyone else who might come across this.

Using Portfolio Visualizer's Backtest Portfolio, I calculated out the returns for each of these portfolios. After getting the returns, I used Squawkfox's MER Calculator to calculate the management fees for both. The fees came to 0.73 for NW, vs .05 for mine, and .04 for VFIAX.

The results, using compound annual growth rate (CAGR) / fee adjustment-
Northwester Mutual Portfolio - 8.56 / 7.83
My allocation listed above - 8.63 / 8.58
Vanguard 500 Index only - 9.25 / 9.21

That's a pretty big win in my book.

User avatar
Taylor Larimore
Advisory Board
Posts: 25976
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

An honest man

Post by Taylor Larimore » Fri Sep 01, 2017 1:43 pm

sam.thode wrote:
Fri Sep 01, 2017 10:34 am
2 years down the road, I wanted to follow up and see where I'm at and where I could have been based on these 2 portfolios. Thought it'd be useful to show for anyone else who might come across this.

Using Portfolio Visualizer's Backtest Portfolio, I calculated out the returns for each of these portfolios. After getting the returns, I used Squawkfox's MER Calculator to calculate the management fees for both. The fees came to 0.73 for NW, vs .05 for mine, and .04 for VFIAX.

The results, using compound annual growth rate (CAGR) / fee adjustment-
Northwester Mutual Portfolio - 8.56 / 7.83
My allocation listed above - 8.63 / 8.58
Vanguard 500 Index only - 9.25 / 9.21

That's a pretty big win in my book.
Some of the best lessons we ever learn are learned from past mistakes. The error of the past is the wisdom and success of the future. -- Dale Turner
Sam:

It requires honesty and self-assurance to admit that our results are less than a simple broad market index fund. :sharebeer


Thank you and best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

sam.thode
Posts: 11
Joined: Fri Apr 17, 2015 3:07 pm

Re: How to analyze portfolio recommendations

Post by sam.thode » Mon Sep 04, 2017 4:48 pm

It requires honesty and self-assurance to admit that our results are less than a simple broad market index fund.
Haha it's only less because it's an 80/20 mix with the 20 being VBILX, which I'll own up to any day of the week :D I've got a long time horizon, and at my current investments rates, financial independence / early retirement is an actuality. Compounding for the win.

I do appreciate the feedback and insight, it's nice to see how easy it is to do yourself once you get going.

Grackulah
Posts: 8
Joined: Fri Aug 18, 2017 11:09 am

Re: How to analyze portfolio recommendations

Post by Grackulah » Tue Sep 05, 2017 4:07 pm

Thanks for posting the results after a few years.

Helps newcomers like me :P

User avatar
BL
Posts: 7252
Joined: Sun Mar 01, 2009 2:28 pm

Re: How to analyze portfolio recommendations

Post by BL » Wed Sep 06, 2017 2:06 pm

Thanks a lot for posting again. Glad that you found value in this thread.

Post Reply