Think larva stage when I say "newbie" [buy an annuity?]

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waia
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Think larva stage when I say "newbie" [buy an annuity?]

Post by waia »

Hi.

I am completely new to the investing world, and I'm up a creek without a paddle, a boat, my floaties, and I'm pretty sure something just touched my foot!
:|

This forum kept popping up in response to my research so I decided I'd cut out the middle man and come straight to the source. First off, I apologize for any misused words, unclear explanations, or outright wrong information, but as my subject line states, I have no clue.
Help?
I sincerely tried playing the market with the help of a financial advisor. I have discovered that, after almost 2 years of barely making .02% return total on my initial investment in all that time, I am not a market playing kinda person.
The same advisor came back and pitched a great sounding annuity plan through Prudential after I said it was time for me to make some changes. The idea of being stuck, so to speak, with an annuity for the next 20 years (to avoid any penalties and/or taxes) is a little nerve racking, but hey, long haul and all that, right? Then, the bad news came. After all the pitch and selling me on this plan (one that he admitted upfront to not pitching often, so he needed to get more details), he finds out I'm too young for that it. I'm only 45, and Prudential doesn't offer their annuity option until age 50.
The advisor went back to the drawing board and has now found two different plans--both through AXA Equitable, which is how I ended up here, reading your boards and asking for your help.
I have no idea what my best options are at the moment. I want to be able to make a decent, growing return. I have no problem with it sitting for several years and doing its earning thing. I just don't want to lose any more money. I want it to make a steady gain, and between the research and the advisor's options, I'm lost. Logically, I know I'm looking at this much too simplistically, and I'm asking for the moon and stars apparently, but at this point I'm so confused. I don't know how to achieve what seems like such a simple thing in my mind. I give you (financial institution) a lump sum, you (financial institution) make money on said lump and share a little of the wealth with me for sharing my lump with you.

Much thanks in advance for any direction out of this state of confusion!
itstoomuch
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Re: Think larva stage when I say "newbie" [buy an annuity?]

Post by itstoomuch »

No, you are too young. But that's qualified, no.
If you do, no more than 15% (a guess) for your age cohort.
Annuities are Insurance to the Market for lifetime Income. They are not investments. Pension like.

No, because until you have attended at least 3 annuity presentations. Compared to a BH portfolio, annuities are complex but not so much so that you shouldn't understand them for your situation.

BTW, just how were you playing the Market?
Last edited by itstoomuch on Wed Jul 27, 2016 6:48 pm, edited 1 time in total.
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xenial
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Re: Think larva stage when I say "newbie" [buy an annuity?]

Post by xenial »

waia, welcome to the Bogleheads forum. Your advisor is trying to fleece you by recommending products which maximize his commissions. You need to educate yourself about investing. It's not hard! I suggest you begin with Bogleheads wiki: Getting started.
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William4u
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Re: Think larva stage when I say "newbie" [buy an annuity?]

Post by William4u »

If a "financial advisor" tries to sell you an annuity, run away and never talk to that person again. They are usually rip-offs. And it is not an appropriate savings vehicle for someone so young, even if it was a good annuity (and it is surely a bad one).

The advisor probably gets a huge commission from selling you that crud.... usually the advisor takes about 5% right out of your pocket at the get-go.

http://apps.suzeorman.com/igsbase/igste ... tiseID=107

Walk (or run) away. Do not do it.
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Index Fan
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Re: Think larva stage when I say "newbie" [buy an annuity?]

Post by Index Fan »

Don't do it! Take your time to read up on investing, then make your decision.
"Optimum est pati quod emendare non possis." | -Seneca
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arcticpineapplecorp.
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Re: Think larva stage when I say "newbie" [buy an annuity?]

Post by arcticpineapplecorp. »

waia wrote:Hi.

I am completely new to the investing world, and I'm up a creek without a paddle, a boat, my floaties, and I'm pretty sure something just touched my foot!
:|
I sincerely tried playing the market with the help of a financial advisor. I have discovered that, after almost 2 years of barely making .02% return total on my initial investment in all that time, I am not a market playing kinda person.

I have no idea what my best options are at the moment. I want to be able to make a decent, growing return. I have no problem with it sitting for several years and doing its earning thing. I just don't want to lose any more money. I want it to make a steady gain, and between the research and the advisor's options, I'm lost. Logically, I know I'm looking at this much too simplistically, and I'm asking for the moon and stars apparently, but at this point I'm so confused. I don't know how to achieve what seems like such a simple thing in my mind. I give you (financial institution) a lump sum, you (financial institution) make money on said lump and share a little of the wealth with me for sharing my lump with you.
First let me say welcome to the forum!

Agree with other posters. Steer clear from annuities as they benefit your advisor more than you. If you buy one it will be an expensive lesson to learn.

Slow down. As a larvae, it should take time to hatch into the beautiful butterfly you were meant to be. Before I invested one penny I took six months to read through everything I could find (this was mid 90s when not everyone had the internet). I felt more confident after I took the time and kept hearing over and over again from reputed financial professionals like Jean Chatsky, Jane Bryant Quinn, etc. two words: 1. Vanguard, 2. S&P500 index fund. So I started there. Why were so many people (who had no paid association with Vanguard mind you) promoting the Vanguard S&P500 index fund? So I researched it and read read read. Since I started investing I've continue to read. I no longer own the S&P500 index fund (except in the total stock market index fund I own) and I continue to learn. But I have made few mistakes and have fewer regrets because I take my time and make sure I understand what I'm buying and why. If I don't, I don't buy it.

You should know what you're buying and why. And only then should you put your money down. If you don't understand what you're buying or why, then don't. It's as simple as that.

Do you know what your money was invested in that it was only earning .02%? That would be helpful so you can understand what products earn low returns and what other products earn higher returns. Then you will be able to choose which of those two (or a mix of both) you want to own, why, and what return you can expect to receive.

Risk and Return are inextricably linked. That means you can't have one without the other. If you want a gain you have to take risk. If you want safety, you have to give up return. There's no way around that. You don't get return with no risk (that was Bernie Madoff's guarantee and we see how that worked out). It's the reason savings accounts pay so little (no short term risk...fdic insured, liquid, no interest rate risk, etc. They have long term risk which is inflation risk but that's another story) and why stocks pay higher returns than a savings account (because stocks are risky, they can fall in the short term). Stocks have risk in that they can "lose" money but I've found there are really only three ways people can lose money investing permanently:

1. The world comes to an end (or very close). Nobody will care about iphones, reeboks, etc. This is out of your control so don't worry about it.
2. People buy individual stocks. Individual companies can go out of business. You will lose money permanently if you own such a company. This is within your control. Don't buy individual stocks.
3. People smartly own "the market" instead of individual stocks, but unfortunately they sell everytime the market declines. This means they bought the market at a higher price in the past only to sell it at a lower price. Buy high/sell low is a recipe to go broke. This is within your control. Don't sell everytime the market falls.

Markets decline fairly frequently and not just big-time like 2008. There are corrections, "profit taking" which pulls markets down from a previous high point, etc. and just general fear (remember the two days after the Brexit vote? Europe/Japan was down 7% and U.S. down 3% but by the following Friday, yes only one week later all markets had recovered to the point where they were the day before the vote. Rip van winkle would have fared better than those selling their stocks the Friday and Monday after the vote). Markets (in the U.S. at least) have always recovered and gone higher. A loss is a loss on paper and a temporary loss unless you sell and lock in that loss. But smart investors buy AND HOLD so that losses are temporary and after the market recovers they get their money back and even make money especially if they kept buying when the market fell (knowning they were getting deals on the market when it sold for a lower price). It's been said that the stock market is the only market that when the store goes on sale everyone runs for the exits. Don't.

As for "steady returns" I don't know of anything that offers "steady returns" except maybe a CD. Even bonds have some interest rate risk. But CDs are paying fairly low interest right now (because they're safe and inflation is low). And there's liquidity risk with a CD (you lock it up for a period of time and are penalized if you cash it out before the end of the term).

If you have an advisor and you're still "lost" then I would strongly suggest either finding a new advisor (preferably a fee only advisor who is a fiduciary, that is someone who charges an hourly rate and puts your interest ahead of his, not someone who charges you a percentage to "manage" your portfolio, all the while charging commissions, etc. and making decisions that benefit them not you. Ask your advisor if he's a fiduciary. I'd bet money he's not. And I'm not a gambling man. But you should know that only 1% of all advisors are fiduciaries. So you're likely paying someone who puts his own interests ahead of yours and only has to sell you "suitable" products). If you're lost or confused you're not getting what you paid for, namely advise. Or just use Vanguard's personal advisory service which has a far lower annual fee (0.30% per year) than most other advisors (1% is fairly standard in the industry. Do you know what your guy is charging you?)

If you want to start reading/learning Vanguard's own webiste is a good place with lots of resources available. You can also read William Bernstein's “If You Can. How Millennials Can Get Rich Slowly” at:
http://srv.spulk.com/wjb/if_you_can_v1.pdf or
http://www.etf.com/docs/IfYouCan.pdf

I also highly recommend Jack Bogle's "The little book of common sense investing". It's a short book but packed full of much of what you need. I got a copy from my local library.

Hope that helps. Check in to let us know how it's going, what changes you're making, etc. Keep asking questions and reading/learning.
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
mickroark
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Re: Think larva stage when I say "newbie" [buy an annuity?]

Post by mickroark »

:greedy Annuities are best bought when you are young and have time to let them grow. They might grow slower than the stock market, but you can sit out the volatility and be safe. For this privilege you pay a fee, but so do most stock market investors even though they dispute this. Most stock investors tell you not to invest in annuities, and most annuity investors tell you not to buy stocks. So there you have it my friend.

Ps! those that catch the fish and eat them are different than those that catch and release them. I do both. So maybe you should invest in both. Just a thought coming from an addicted fisherman.
pkcrafter
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Re: Think larva stage when I say "newbie" [buy an annuity?]

Post by pkcrafter »

waia, welcome,

From reading your post, I'm not sure you actually want to invest in the stock market, or you just don't understand how it works.
I want to be able to make a decent, growing return. I have no problem with it sitting for several years and doing its earning thing. I just don't want to lose any more money. I want it to make a steady gain, and between the research and the advisor's options, I'm lost.
We invest in the market in a specific way that any average person can do, but there is volatility in returns, so it's not such a smooth ride in the short term. Still, it's the most efficient way to put your money to work. Annuities of any kind just aren't going to work, and they are expensive. If you are interested in more specific help in getting started, please post information as shown in this link:

viewtopic.php?f=1&t=6212

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.
Topic Author
waia
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Re: Think larva stage when I say "newbie" [buy an annuity?]

Post by waia »

WOW!
You guys are awesome. Thanks for all welcomes, the links, and the wealth of information. I realized as I was reading some of your replies that was I awfully vague the details of my situation, so an extra thanks on top of that for even attempting to educate me without knowing any real specifics. As I said, forty-five here, so I tend to play details pretty close to the vest online. My apologies.

First off, let me cover for my advisor just a bit. It's not his fault really that annuities were brought up. Given my request to basically "make more money," I think he did the best he could with the options he has available to him. Annuities were one of those. The Prudential annuity really got my attention, but that's a moot point now. So, moving on--

articpinapplecorp, you should check on that lottery ticket because you nailed it! My advisor is fee based and he charges 1%.

mickroark, that's an option I hadn't considered. I'll keep it in mind when I speak to him next. Never hurts to ask more questions, right?

pkcrafter, I know I don't fully understand the market. There is no question about that. But given what I've seen from it personally, even with a fairly conservative portfolio, I'm not sure I want to stay in it.

Initially, I had a bit more risk involved, but when that started eating into my original investment, the advisor and I sat down and came up with something new. He also changed companies during that time, and was able to offer me something he hadn't been before. At this time, he's split my account with half going to an insured cash account via Goldman Sachs and the other half in ETFs via Vanguard. From what I'm seeing here, it sounds like I may be a bit of a nervous Nelly and simply not riding out a fairly sound decision made on his part.

CDs were mentioned, and yes, I have a few of those as well--something established well before even meeting this advisor. I've let them sit and slowly, but steadily, earn their little percentage. What got me looking for something new was when I noticed I had earned just as much on one little CD with a third of the balance as I had on the much larger portfolio in the same amount of time. Somehow that just doesn't seem right in my mind. So…I ended up here.

Thanks again so much for all the input, and if any of these new details give you more financial advice inspiration, I'll be here, clicking away on all the links I have so far.
Last edited by waia on Wed Jul 27, 2016 10:10 pm, edited 1 time in total.
Lafder
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Re: Think larva stage when I say "newbie" [buy an annuity?]

Post by Lafder »

Welcome here!

Take the time to go through your current holdings and post them like this.

viewtopic.php?f=1&t=6212

It will help you look at what you have in detail, what your asset allocation is, and what your current ERs (expense ratios) are. It also divides your holdings into taxable and non, and looks at any debt.

Gathering the info for the above format is an education in itself. Then from your overall portfolio, you can talk through what you think you want to change to with the help of a bunch of helpful folks on here :)

lafder
mhalley
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Re: Think larva stage when I say "newbie" [buy an annuity?]

Post by mhalley »

To help you pupate, you need to educate yourself. The Bogleheads Wiki has a great wealth of information. Start at the beginning, and read and/or watch the videos.
https://www.bogleheads.org/wiki/Getting_started
Here are the tenents of boglheadism:
Develop a workable plan
Invest early and often
Never bear too much or too little risk
Never try to time the market
Use index funds when possible
Keep costs low
Diversify
Minimize taxes
Keep it simple
Stay the course
After that, read up and decide on your asset allocation.
https://www.bogleheads.org/wiki/Asset_allocation
and the 3 fund portfolio:
https://www.bogleheads.org/wiki/Three-fund_portfolio
Now you have the knowledge you need to start pupating. Put all of this knowledge in writing, so that in the future you know exactly what to do, by creating an investment policy statement:
https://www.bogleheads.org/wiki/Investm ... _statement

Now, IPS in hand, go to Fidelity, Vanguard or Schwab website, create accounts, and initiate transfer of all your funds in kind to one of these great, low cost providers. If you have large capital gains in your taxable account, you might want to slowly transition to a three fund portfolio, but if you have losses or minimal gains you might want to do it all at once.
https://investor.vanguard.com/account-t ... -questions
jjface
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Re: Think larva stage when I say "newbie" [buy an annuity?]

Post by jjface »

Do you have a mortgage or other loans you can pay down/off - this is great for guaranteed return.

Of course losing the advisor is recommeneded. That is a guaranteed 1% gain without doing anything.

I suggest putting everything into a conservative all in one fund. Vangaurd wellesley Vwiax is a fantastic conservative fund. Or you can go with vanguard lifestrategy conservative growth VSCGX. You have to be prepared for some volatility but not as much as most funds out there. Just learn to leave it alone once invested. If you keep adding to the fund year by year with your own contributions you'll hardly ever notice your balance dropping from the previous year.

The problem with other options like cds is that if you invest all your money in them you may not even keep up with inflation and actually be losing money. Even retirees who typically have low risk appetite are recommended to hold 20-40% stocks as a minimum. So consider yourself in the same boat and pick one if the funds above and stop worrying about it :)
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bertilak
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Re: Think larva stage when I say "newbie" [buy an annuity?]

Post by bertilak »

waia wrote:I know I don't fully understand the market. There is no question about that. But given what I've seen from it personally, even with a fairly conservative portfolio, I'm not sure I want to stay in it.
From what I can tell, you didn't do poorly because you were in the market, but because you were giving away chunks of your money. There was no need to do that. You can be in the market without being taken advantage of.

You don't need to stay out of the market. You need to stay away from people trained to sell you expensive services and products you don't need. They are trained in salesmanship more than they are trained in investing. What investing they are trained for is the mechanics, not the theory. It is no wonder they are good at selling you things but not so good at making you money.

This website has all you need, including advice on when you DO need to go to a professional. This is rarely needed, and when needed is mostly for financial planning other than investing.

Vanguard provides investment management services at bargain rates. Call them up and ask which is best for you. Perhaps you could start with that until you understand what they are doing and are comfortable with it. You can then jump out of the nest and fly on your own. If the birds and the bees (and the rest of us) can do it, you can too!
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
Tal-
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Re: Think larva stage when I say "newbie" [buy an annuity?]

Post by Tal- »

Hi Waia,

Here are my thoughts:

1: Early in your investing, you should only buy mutual funds. Think of these as stocks that own tiny amounts of other companies, so when you buy the mutual fund, you're really buying parts of other companies. Thousands of mutual funds exist, each using a different approach to buy different companies/bonds. I would advocate the Vanguard Total Stock Market Index (https://personal.vanguard.com/us/funds/ ... IntExt=INT ).

2: Keep investing simple and boring. Individual stocks are sexy. Timing the market is sexy. Gold, oil, and bridges are sexy. And complicated investments like annuities are sexy, if not enticing. But, responsible investing is all about long-term, boring, diversified, inexpensive (fees) investments.

3: Remember that annuities are experts in two areas: marketing, and making money for the company. Annuities have done a great job of sounding wonderful. Seriously, the talking points of many annuities make it sound like a can't-miss option. But, when you really dig into the contracts, annuities are almost always a horrible investment that have had excellent marketing up front, and will make a lot of money for the company (out of your pockets).

I'm sorry that your first investment didn't do much. That happens to us all from time-to-time. But hang in there. Continue to get educated. And always invest in the future.
Debt is to personal finance as a knife is to cooking.
technovelist
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Re: Think larva stage when I say "newbie" [buy an annuity?]

Post by technovelist »

1. You cannot get a guaranteed return ("steady growth") of any reasonable size these days. It just isn't possible, because interest rates are too low to make it possible.
2. So your first decision is whether you are capable of and willing to take risk, which in this connection means the risk of fluctuation in your account, in the downward direction.
3. It is very difficult for most people to accurately predict how they will feel when they see their account balance dropping. Read the threads here from 2008 and you will see what I mean.
4. There is a substantial risk of serious fluctuations, including in the downward direction, in the strategies typically recommended on this web site. This is not necessarily bad, if you can stomach serious losses, but most people have a lot of trouble doing that, including experts on exactly why people have trouble stomaching that. :(
5. If you can't understand it, don't buy it. Variable annuities, in particular, are very expensive investments that are good primarily for the sellers, not for the buyers. I am quite knowledgeable about investing and I couldn't follow the presentation I was given a few years ago by an investment adviser who was trying to sell me a variable annuity.

My recommendation for people who want a low-cost investing approach with minimal downward fluctuations but an overall upward trend is the "Harry Browne Permanent Portfolio", or HBPP for short. That is discussed on quite a few threads here but also has a dedicated forum, gyroscopicinvesting.com.

Does that help?
In theory, theory and practice are identical. In practice, they often differ.
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Re: Think larva stage when I say "newbie" [buy an annuity?]

Post by Jack FFR1846 »

waia wrote: My advisor is fee based and he charges 1%.
You have been misguided and don't understand what "fee based" means. What it means is that the advisor charges you....say $2500 and does specific work for you. There's no "1%" which is AUM (assets under management). Stop it.

There are certainly a lot of ways to invest. Lots of them drain your assets into the pocket of an advisor (1% is one way that happens). The investment part is actually really easy. If you don't know what to do, here's some very basic basics:

1) Save. Spending less than you earn gives you the basics to be able to invest. Sounds like Captain Obvious, but there are plenty of people with credit card interest of 18% who are looking to invest money (that they don't actually own).

2) Put the investable money into a place that is low cost, easily liquid and available to do what you want without interference. An advisor is NOT one of these places. Vanguard, Fidelity, Schwab, TDAmeritrade are places you can do this stuff. If you have tax advantaged accounts somewhere that can be moved, move them trustee to trustee so you keep the tax advantaged status and don't pay tax.

3) Choose a portfolio that owns the entire market. This is the haystack analogy. You know there's a needle in the haystack that's the next skyrocketing company. Everyone tries to find that needle and most everyone fails. Don't go looking for the needle.....buy the entire haystack. The easiest way to do this is with a target date fund. When you become more comfortable, you can move from that to a 3 fund portfolio to save costs some more.

4) When you're doing it right, your investments are more boring than watching paint dry. Unlike day trading, you're going to get no rush. Your numbers aren't going to skyrocket or drop like a rock. Indeed, you can totally ignore your portfolio. Fidelity recently did a study and found that their 401k clients who did better than anyone else were.....well....dead. Nearly as good were people who forgot they had an account. Don't play with the account. Leave it alone. Add money as you are able but don't buy/sell/buy/sell or you'll lose money.

That's it. Do you want to know about small value vs REITs vs foreign emerging bonds? If you do, do it without making any changes to your investments. Watching the market for entertainment is fine. Acting on day to day news is a sure way to end up with far less for your retirement.
Bogle: Smart Beta is stupid
barnaclebob
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Re: Think larva stage when I say "newbie" [buy an annuity?]

Post by barnaclebob »

Don't buy an annuity. They only really make sense for retirees with limited means that need to buy a guaranteed stream of income. There might be a few other cases where they make sense but they are more of a cover you a$$ type of product than a wealth building product.
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waia
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Re: Think larva stage when I say "newbie" [buy an annuity?]

Post by waia »

I have started reading through the links y'all are providing me with, but I'll add the new ones to the list, mhalley. Thanks much. I am working on pupation as best I can.

jjface, I don't have a mortgage, but I do have student loans. I'm down to three of them that I'm steadily paying off each month. The interest rates range from 5.35% - 3.15%, and the balance is less than $10,000. I paid off the highest (5.75%) already. Outside of that, I only have the typical monthly bills.
And yes, I know CDs aren't the best way to go, but at the time I first established them, I was even more uneducated than I am now if you can imagine. I thought I was making this big, grown-up decision because I had more than just a regular checking and savings account. Ah, the naive days…

bertilak, thank you. I'm rapidly realizing my many mistakes. Again, at the time, I thought I was being smart. This account was more money than I'd ever had before. I wanted to invest and knew I was in over my head, so I did what I thought was right and hired a professional. I thought I was getting a deal when he said he was willing to give me a break on fees at 1%. Turns out, "deal" translates to "screwed over" when you don't do your homework better than I did. Lesson learned.
I appreciate your words of advice, however. It's nice knowing I'm not alone in making mistakes, and I can get myself out of this hole I voluntarily jumped into. I've already made a call to Vanguard for some additional information, taken my notes, and I'm prepping for a call with my advisor. Now it's just time to pull up the grown-up undies and get on with the adulting.

Tal, I've never thought of myself in any way as "sexy," though I certainly appreciate the analogies! Boring, sometimes nice, typically quiet, always trying to be responsible--that's more my speed, so thank you much for your tips and the assurances. Very much appreciated.

technovelist, I genuinely and logically do understand there are no guarantees in the market, no matter what I end up doing. I guess my issue was looking at a CD with a third of the principal making just as much, in the same amount of time, as an account three times its size. It just doesn't seem right. Looking at things with (slowly) more educated eyes, I'm coming to see the fault is more mine than the advisor's. I stumbled onto a field, jumped on the swings, and started pumping like I owned the place. Fact of the matter is I can't play in a park without understanding the rules. I'm learning that. I chose the hard way, unfortunately, but with y'all's fantastic advice and some pretty great support, I'm hoping to chalk it up and set things right.

Thanks to everyone again for taking the time to help a fool floundering in the deep end.
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bertilak
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Re: Think larva stage when I say "newbie" [buy an annuity?]

Post by bertilak »

waia wrote:I've already made a call to Vanguard for some additional information, taken my notes, and I'm prepping for a call with my advisor. Now it's just time to pull up the grown-up undies and get on with the adulting.
I hope by "advisor" you mean someone from Vanguard, but suspect you mean the advisor who got you into trouble in the first place. If so ...
  • There is no need to talk to the original advisor. It will be a frustrating experience. He will make you feel uninformed, guilty, unfaithful, or whatever it takes to keep you as a client. That is his REAL job and odds are that he is really, really, good at it. If you feel you MUST talk to him, or if he calls, know ahead of time exactly what you are going to do regardless of what he says. Be firm but don't argue. He will win ANY argument. Focus on the fact that you have ALREADY decided and it is a final, firm, decision.

    Believe me, I've been through this! Many of us were at one time right where you are now.
  • Vanguard can do ALL the messy work for you. Just tell them your account number with the current company. You will need to sign some papers but Vanguard will take the lead.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
Topic Author
waia
Posts: 5
Joined: Wed Jul 27, 2016 5:52 pm

Re: Think larva stage when I say "newbie" [buy an annuity?]

Post by waia »

bertilak, the advisor call was already scheduled, so not much choice there. But now that it's done, he's accepted his part in this as well as my decision. Yes, it was frustrating, but…only and hour of back and forth later ("But this account has made $695 so far." "Yes,and I've paid you $750. See my dilemma?"), it's done, and now, he's waiting on whatever transfer paperwork I send.
Whew!

As per a couple of earlier requests:
Emergency funds: I do have three to six months of expenses outside of this account if absolutely needed.
Debt: Luckily, I have no huge debt outside the roughly $10k in student loans, monthly expenses (runs $1500 on the high end), and my yearly payments for things such as property taxes, home owner's insurance, self-employment taxes, and the like (approximately $5600).
Tax Filing Status: Single, no dependents
Tax Rate:10% Federal, 5% State
State of Residence: Alabama
Age:45
Desired Asset allocation: Still working these details out
Desired International allocation:

I live rather frugally, or try to anyway. As I mentioned, right now, the account I'm looking at changing up in the very low 6 figures and split, not quite half and half, between Vanguard Short-term ETF with an estimated 30-day yield at 2.02% (as of the last statement) and Goldman Sachs Insured Cash Account with a blended interest rate at .010%. The former advisor said his mistake was moving things into this super-conservative split and not pushing me to stay in something much more like the Wellesley Fund that the Vanguard rep talked to me about this morning.

Hopefully, these details give a bit clearer picture. I'm not a huge risk taker when it comes to money, obviously. I'm trying to be smart about the decisions I make, but I'll admit, this is all incredibly overwhelming.

Again, much thanks to all of you for taking the time!
songman52
Posts: 168
Joined: Fri Feb 24, 2012 2:20 pm

Re: Think larva stage when I say "newbie" [buy an annuity?]

Post by songman52 »

Welcome, waia!
You've received lots of good advice here already. I concur that you should read the short booklet "If You Can" to begin your investing education. Also, don't kick yourself. Congratulations are in order to you that you found this site before you threw away money in the annuity. I had one that I cashed in several years back. Consider the money you didn't earn, and that you spent, (with the advisor) as tuition.

Just to give you encouragement I'll tell you that I rolled over a 403b (teacher retirement account) into an IRA in February of 2010. To date the average annual return on the IRA has been 8.5%. This includes a year when it gained just under 13.5%, and 2015 when it was essentially flat. It does include the gains on my annual contributions, too. This is on a portfolio which is 95% the "three fund portfolio" you see often recommended in this forum. The other 5% is the Vanguard dividend fund, VDIGX. The total portfolio is 65/35, or 65% stock index funds and 35% bond index funds.

You've found an excellent place to get primo advice. Lots of helpful folks here. Don't get overwhelmed, just take it steady, ask whatever questions you need, and good luck now that you found the path out of the woods.
Katietsu
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Re: Think larva stage when I say "newbie" [buy an annuity?]

Post by Katietsu »

I am going to defend the advisor now that you have provided a fuller explanation of what you asked for. He seems to have done his best to find reasonable products that meet your stated desires. His 1% fee is a very standard fee for an account your size and he is using reasonably priced, and even inexpensive, products to meet your requests.

Did the advisor fail to educate you or did you fail to listen? The attitude of most people on this board is to not pay a fee for an advisor. However, at this point, There are indications that you may still need an advisor and yours seems like a decent one, from the limited information posted here. It is true though that if you want to be assured of not losing money then either: 1) dump the advisor and put the money in a CD or money market with an online FDIC insured bank or 2) buy an annuity. Otherwise, with any other investing options, you must not only accept a .02% return, but must accept that there will definitely be periods where you have a negative return.

In your first post, you seemed aware that you were asking for the moon and the stars. But I do not think you have really accepted that.

And I do not see any reason that you should still have student loans. Paying off student loans is the only way to get a decent guaranteed rate of return.
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bertilak
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Re: Think larva stage when I say "newbie" [buy an annuity?]

Post by bertilak »

Katietsu wrote:I am going to defend the advisor now that you have provided a fuller explanation of what you asked for. He seems to have done his best to find reasonable products that meet your stated desires. His 1% fee is a very standard fee for an account your size and he is using reasonably priced, and even inexpensive, products to meet your requests.
I partly agree. His 1% AUM fee is competitive. BUT, I still think it is competitive much as one snake bite is better than two.

He did try to satisfy the OP's conditions, but he instead should have tried to steer the OP away from an inappropriate product. After all, isn't that part of an advisor's job as opposed to a salesman's job? Perhaps he did so but that wasn't mentioned by the OP.

So, perhaps I was too hard on the advisor, but still, the proposed plan was hardly in the OP's best interests. The advisor sure would have come out OK!
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
pkcrafter
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Re: Think larva stage when I say "newbie" [buy an annuity?]

Post by pkcrafter »

waia, if you want to grow your wealth, you will have to use the market. When you said you were losing money, the fact is we all appear to lose money on a regular basis. These perceived losses are due to investment volatility--and you get that with a well diversified portfolio. If you are only investing in a few individual stocks, you can certainly get permanent losses. The stock market, with bumps and grinds, has always had an upward trend, and you can take that ride.

Market volatility, by definition, means down and UP movement of the market. It's something we have to live with. Here's an article that explains volatility.

https://blbarnitz4.wordpress.com/author/pkcrafter/

For someone who is not used to it, I'd suggest a lifestrategy fund or target retirement fund with moderate stock allocation, maybe you could start around 40-50% stock. Having an all-in-one fund like the LS or TR fund can reduce anxiety because the volatility of stocks is muffled by the bonds that are also in these funds.

Info on target date funds.

https://www.bogleheads.org/wiki/Target_ ... ment_funds

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.
wolf359
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Joined: Sun Mar 15, 2015 8:47 am

Re: Think larva stage when I say "newbie" [buy an annuity?]

Post by wolf359 »

Katietsu wrote:And I do not see any reason that you should still have student loans. Paying off student loans is the only way to get a decent guaranteed rate of return.
+1

If you pay off a student loan that is costing you 5.75%, you're eliminating a 5.75% expense. That's like a guaranteed 5.75% return on the money used to pay off the loan.

You were worrying about a .02% return. Get rid of the debt.

Student loans should be dealt with as quickly as possible. Prepay if you have to. Student loans can't be discharged through bankruptcy, so they'll follow you around forever. Once you get rid of one, you can use the freed up cash flow to pay off another, then the third, etc. until they're all gone.
Topic Author
waia
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Joined: Wed Jul 27, 2016 5:52 pm

Re: Think larva stage when I say "newbie" [buy an annuity?]

Post by waia »

While there was no way to know prior to this post, Katietsu, the reason I still have student loans is due to only getting my degree 4 years ago. Since then, I've managed to get that debt down to less than ten thousand dollars, and the 5.75% one was the first to be paid off. Sure, I know it needs to be taken care of, and I am steadily trying to do just that, but I can't take the lump sum hit just yet. It seems "better late than never" education is a running theme in my life.
Also, I do think I've accepted not getting the moon and the stars in a starter pack combo deal. Where I have an issue is paying everything I've earned and then some back in fees.Yes, I clearly need help making some of these decisions, but once they are made and the account set up, I intend to let it be to do its thing. I don't need the full hands-on approach, so why should I pay the additional expense when that could be earning something?

I don't blame the advisor for anything. Let me be clear on that. He is a decent guy who has been fair and provided me with the best options he could given my requests. I won't deny that at all! And I did listen to his advice every step of the way, asking questions and taking notes. Again, my hesitation in sticking with the going 1%, regardless of how great a guy I may think he is, comes with the bottom-line math of it more than two years later. If I can get the same basic service for .3%, isn't that the more prudent choice?

As for steering me away, bertilak, no, he didn't. That was what he said was his big regret in all this. I came to him with questions, and rather than sticking with his experience and knowledge about the market, he said he didn't advise me as he should have. Instead, he placed everything in two very limited baskets (his words), and now we're here.

Thank you both for your input! As always, much appreciated.
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