New here/considering moving to Vanguard

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tenthstreet
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New here/considering moving to Vanguard

Post by tenthstreet »

Hi all,

Brand new here! I'm in my early 30s, married with a kid. Up until recently, I've been doing a set it and forget it mode of financial planning - only problem is that it was a bit too "forget it." So, looking to finally get serious.

Our primary accounts are Roth and traditional IRAs currently over at Edward Jones (yes - them). We both have work-related retirement accounts somewhere else that we're keeping for the match, and I've also been playing around with Betterment over the last two years. Thanks to Betterment, I'm more familiar with the low-cost, passive model, and I'm increasingly pondering what I do with Edward Jones. I'm considering the Vanguard Personal Advisor Services since I'm still learning, and I think it would be good to get some advice from someone, somewhere, and know that I'm on track.

One of the things I'd love advice on is the following: at Edward Jones, I largely have target date American Funds. They actually perform fairly well—better than Vanguard's target date funds of my class year, but the expense ratios are obviously higher, at around 0.75%. Front load is already paid for (sunk cost, I know), and we're not putting any more dollars into that account now that I've learned my lesson on the front load phenomenon. Any new dollars would go into this new Vanguard account, as well as some other funds that have fairly high expense ratios.

My question is in that I have some slight hesitancy to move these American Funds. How does one determine if the higher expense ratio + higher returns is "worth" keeping those funds at Edward Jones vs. the lower expense ratio + slightly lower returns at Vanguard, especially if best net return is really what I'm looking for?

Thanks - and look forward to hearing your thoughts and advice as I move forward on all of this!
angelescrest
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Re: New here/considering moving to Vanguard

Post by angelescrest »

Welcome! Glad to have you.

I look forward to counting how many people here tell you to leave Edward Jones. It'll be pretty much everyone.
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BL
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Re: New here/considering moving to Vanguard

Post by BL »

One way to compare them is to look at what they are made up of. Usually higher returns mean higher risk, but I don't know anything about your funds. Don't make a quick move until you understand what you have and what you want to do. All of your investments for retirement for the both of you should be looked at as one portfolio.

Vanguard has Target Date funds (don't necessarily go by dates but maybe by % bonds), Life Strategy Funds, a Balanced Fund, and active funds such as Wellington and Wellesley.

What other charges, fees, etc., are you paying at EJ?
mhalley
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Re: New here/considering moving to Vanguard

Post by mhalley »

You need to look at the actual allocations vs the date to properly compare 2 target funds. Also, American I think has more domestic vs international which has helped their performance recently.
Novine
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Re: New here/considering moving to Vanguard

Post by Novine »

There are fans of American funds and some of them have done well. But that's past perfomance. There's no guarantee that they'll continue to outpace Vanguard's fund. You can't control performance. But you can control costs.
krow36
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Re: New here/considering moving to Vanguard

Post by krow36 »

I wouldn’t use American Funds because of the load—that’s a deal breaker. John Bogle likes AF, EXCEPT for the loads. If you’ve got a million to invest with them, the load goes away!?

You can’t compare Target Date funds by their date, you need to look at what’s in them. As mentioned, if there’s more in Int’l funds or fixed income, even though the date is the same, they won’t have the same performance. If managed funds are used, they could outperform occasionally, but long term, low-cost index forms that VG uses are likely to do better. I would go with Vanguard because their TR funds are index funds based, are no-load and because of their lower ER.
krow36
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Re: New here/considering moving to Vanguard

Post by krow36 »

tenth street wrote: at Edward Jones, I largely have target date American Funds. They actually perform fairly well—better than Vanguard's target date funds of my class year, but the expense ratios are obviously higher, at around 0.75%.
What years were you comparing? Using Vanguard’s Compare feature, I found that Vanguard outperformed the same year target retirement fund of AF in 2030, 2040, 2045 and 2050.
Topic Author
tenthstreet
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Re: New here/considering moving to Vanguard

Post by tenthstreet »

Hi all, and thanks for weighing in!
BL wrote:What other charges, fees, etc., are you paying at EJ?
No new dollars are going into Edward Jones - nor, with the front loads, would I be inclined to put more in. Everything new is going towards matching at other employer-based outlets, and anything beyond that is currently going into a Betterment Roth. The fees we pay at Edward Jones are the account fees of $40 per year (three accounts total) - plus, I would assume, any reinvesting of dividends (unsure about those expenses).
krow36 wrote:What years were you comparing? Using Vanguard’s Compare feature, I found that Vanguard outperformed the same year target retirement fund of AF in 2030, 2040, 2045 and 2050.
My American Funds are Target Date 2050 (AALTX, 0.76% expense ratio). I'm definitely not wedded to target date funds - thus far, just seemed like a simple comparison of "hey, if I moved to Vanguard, how much better would it be performing in a comparable setup?", but I know this is way too simplistic of a view. Just a bit of a reluctance to give up on the American Funds since they've been performing well, and looking to talk to people who actually know what they're doing to see if that fear of mine is even reasonable. Beyond the American Funds, the other funds we have at Edward Jones are things we'd be eager to move over, anyway.

Thanks all!
sport
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Re: New here/considering moving to Vanguard

Post by sport »

One thing to be aware of with target funds is layers of fees. Target funds are "funds of funds". At Vanguard, the ER is only that of the underlying funds. Some other fund companies tack on an ER for the target funds and they may "conveniently" forget to mention that the underlying funds are also charging fees. I would expect that details like that are disclosed in the Prospectus. However, many (most?) people never get around to reading those.
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LAlearning
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Re: New here/considering moving to Vanguard

Post by LAlearning »

I doubt those funds are doing better. Run, don't walk.
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BL
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Re: New here/considering moving to Vanguard

Post by BL »

I would ask V if they accept transfer of this exact target date fund. I believe they do accept transfer of most if not all load American funds, so if you wanted to keep it that might work anyway. Since you paid the load you are not paying the hefty higher ER and higher 12b-1 fee kickback to your broker. Broker gets the money one way or another.
dbr
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Re: New here/considering moving to Vanguard

Post by dbr »

Comparing fund performance is useless because it is not a prediction of future performance and because you are not comparing identical risk profiles. On the other hand expenses are certain and exact.

That said, American Funds are not terrible funds in general, but loads aside that expense ratio is too high.
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LAlearning
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Re: New here/considering moving to Vanguard

Post by LAlearning »

tenthstreet wrote: My American Funds are Target Date 2050 (AALTX, 0.76% expense ratio). I'm definitely not wedded to target date funds - thus far, just seemed like a simple comparison of "hey, if I moved to Vanguard, how much better would it be performing in a comparable setup?", but I know this is way too simplistic of a view. Just a bit of a reluctance to give up on the American Funds since they've been performing well, and looking to talk to people who actually know what they're doing to see if that fear of mine is even reasonable. Beyond the American Funds, the other funds we have at Edward Jones are things we'd be eager to move over, anyway.

Thanks all!
the biggest concept to understand is that you cannot control returns. and when you look at the data, the amount that fund managers can control IS EXACTLY the same. aka it is a crap-shoot. and, then you need to pick the right one year after year out of thousands of funds to make that pick pay off. and then it has to pay off more than what you are paying the person/company to do it by! year after year......

so basically, impossible.

but what can you control? cost! that is why when you look back the vast majority of the time, the highest returns come from the lowest cost funds.

so you really need to do some homework and not this gestalt "oh they have been doing so well" feeling. i did this to my parents. once you add up fees, expenses, and every dollar that gets sucked out, i think you will be (not) pleasantly surprised to see the results.
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tenthstreet
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Re: New here/considering moving to Vanguard

Post by tenthstreet »

Thanks all! I'll call Vanguard tomorrow and get the ball rolling on this!
BL wrote:I would ask V if they accept transfer of this exact target date fund. I believe they do accept transfer of most if not all load American funds, so if you wanted to keep it that might work anyway. Since you paid the load you are not paying the hefty higher ER and higher 12b-1 fee kickback to your broker. Broker gets the money one way or another.
So, if I'm able to transfer the American Funds, what does happen to the 12b-1 fee? Is that not taken out anymore? Does it go to Vanguard? I'm just learning about that fee, and not sure how that works/where it comes from/how and where it's taken out. Surprise!
krow36
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Re: New here/considering moving to Vanguard

Post by krow36 »

BL wrote:I would ask V if they accept transfer of this exact target date fund. I believe they do accept transfer of most if not all load American funds, so if you wanted to keep it that might work anyway. Since you paid the load you are not paying the hefty higher ER and higher 12b-1 fee kickback to your broker. Broker gets the money one way or another.
I don't understand what you mean in the bolded sentence. The OP has paid the load and that's gone. If the funds can be transferred to Vanguard, the ER, which includes the 12b-1 fee, will continue. Even if Vanguard allows the "in kind" transfer of the load AF funds, I believe they will not allow further purchases. To get out of paying the higher ER which includes the 12b-1 fee, OP needs to sell the AF fund and use the cash to invest in no-load, no 12b-1 fee, low-cost index funds at Vanguard.
tenth street wrote: So, if I'm able to transfer the American Funds, what does happen to the 12b-1 fee? Is that not taken out anymore? Does it go to Vanguard? I'm just learning about that fee, and not sure how that works/where it comes from/how and where it's taken out. Surprise!
12b-1 fees mostly go to the broker/rep who sells the fund, for as long as you own the fund! It's included as part of the fund's expense ratio.
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BL
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Re: New here/considering moving to Vanguard

Post by BL »

When I did a Google search for American target date fund I got this:
American Funds 2050 Target Date Retirement Fund® Class R-3
MUTF: RCITX -
Which is a different class and a higher ER of 1.11% and no front load. That is what I was comparing it to.
No load but the 12b-1 kickback is 0.50%. Not as high as the 1% 12b-1 kickbacks I usually see with Class C funds with still higher ERs.

I am not recommending the American funds since they still cost a lot more than V funds. However if that is a deterrent from moving away from EJ, then I think it is a great "baby step" just to move for now. They are going to be looking for new ways to earn something more on those funds.

Edit: Here is a favorite recommended short free pdf booklet for new investors:
https://www.etf.com/docs/IfYouCan.pdf
Last edited by BL on Sun Oct 23, 2016 9:24 pm, edited 1 time in total.
JI0124
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Re: New here/considering moving to Vanguard

Post by JI0124 »

Understanding the fees that you pay is really important. Limiting the fees that you pay is also important. Really, really important.

You can't control future performance but you can control fees. Others have said this already. The $40 annual administrative fee charged by your brokerage is likely only a small fraction of overall fees that you are paying.

Once you really understand the fees that your broker is/has charged you will probably be extremely upset, but when you do the research you will understand how easy it is to put this back into your control.

The Vanguard target date funds have very low expense ratios as do target date funds from others. Check out this link on mutual funds and fees...https://www.bogleheads.org/wiki/Mutual_funds_and_fees.

You may want to consider the recommended reading also - https://www.bogleheads.org/RecommendedReading.php. I've found the Bogleheads Guide to Retirement Planning and the Bogleheads Guide to Investing to be great. The New Coffeehouse Investor is great as well.

Fees are really, really important. Many people can reduce them and create a material impact on their opportunity for financial independence.
Topic Author
tenthstreet
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Re: New here/considering moving to Vanguard

Post by tenthstreet »

Hi all,

Just talked to Vanguard. All of our funds are eligible to be transferred in-kind, which will allow us to move out of Edward Jones as we research what funds to move out of. Definitely seems like a good idea to get the ball rolling, since I'm not sure how long that'll end up taking.

Question: When comparing funds - and yes, I know it's not a great representation to do so and is imperfect, but I'm curious and just want to see how I would've done with a Vanguard target date vs American Funds - how do I compare returns + costs? For example, do I take the annualized returns and subtract expense ratios + 12b-1 fees and then get a total %? Or do annualized returns already include those costs?

Also, oddly, I'm getting different average annual returns when I look at Vanguard's website for both funds (AALTX and VFIFX)...not sure what to make of that? Vanguard is listing AALTX's 5 year at 11.42% and VFIFX at 12.14%, and MarketWatch is giving me AALTX's at 10.90% and VFIFX at 10.15%. Same discrepancy for 3 year, too.

Thanks!
dbr
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Re: New here/considering moving to Vanguard

Post by dbr »

Fund fees and costs are already included in performance. Advisor fees including loads are not included. All returns are before tax unless you are looking at a tax analysis.

Comparing returns fund to fund is a futile undertaking. Different sets of investments will wander randomly with respect to one another. In addition different portfolios taking different amounts of risk will have different expected returns. (Note: Do not expect to get the expected return.) In general past returns of individual funds do not predict future returns.
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tenthstreet
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Re: New here/considering moving to Vanguard

Post by tenthstreet »

Thanks everyone! We just transferred our Edward Jones funds in-kind. We're going to try out the Vanguard Personal Advisor Services to set us up and see how we like it.

I'm curious to see how helpful they'll be in terms of getting global view - we have some employer funds elsewhere that we need to keep there because of matches, and we have my son's 529 over at TIAA (passive, age-based) that we're not going to move over because it's got a lower expense ratio than Vanguard. I'll keep everyone posted!
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ruralavalon
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Re: New here/considering moving to Vanguard

Post by ruralavalon »

Welcome to the forum :) .
tenthstreet wrote: . . . . .
One of the things I'd love advice on is the following: at Edward Jones, I largely have target date American Funds. They actually perform fairly well—better than Vanguard's target date funds of my class year, but the expense ratios are obviously higher, at around 0.75%. Front load is already paid for (sunk cost, I know), and we're not putting any more dollars into that account now that I've learned my lesson on the front load phenomenon. Any new dollars would go into this new Vanguard account, as well as some other funds that have fairly high expense ratios.

My question is in that I have some slight hesitancy to move these American Funds. How does one determine if the higher expense ratio + higher returns is "worth" keeping those funds at Edward Jones vs. the lower expense ratio + slightly lower returns at Vanguard, especially if best net return is really what I'm looking for?
If you want to continue to use Target Retirement funds, then you don't need any advisory service at all.

There is no free lunch. A target retirement fund which gets a higher return is taking more risk. At American Funds they use a lower bond allocation, longer duration bonds, with lower credit quality. All of that means greater risk, but what one wants in a target retirement fund is safety and lower risk.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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tenthstreet
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Re: New here/considering moving to Vanguard

Post by tenthstreet »

ruralavalon wrote:If you want to continue to use Target Retirement funds, then you don't need any advisory service at all.
Thanks for the expertise on why the American Funds are performing "better"! I'm thinking I want to break out of the target retirement funds and see how the advisors set them up. Since I'm not at a point where I could shape my portfolio myself, I wonder if it's worth the investment to do a period of learning with an advisor and then see if I can downgrade and do it myself. Otherwise, I'd feel the need to go with target date funds (and no advisory services). Pros and cons, I suppose. But either seems like I'm ahead of where I currently am at Edward Jones.
krow36
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Re: New here/considering moving to Vanguard

Post by krow36 »

You might take a look at the 3 fund portfolio in the wiki: https://www.bogleheads.org/wiki/Three-fund_portfolio
Vanguard's advisory service will in all likelihood put you in a 4 fund portfolio using the same funds that are in the Target Retirement and Strategic Life funds. The 3 fund portfolio also uses these same index funds, omitting the International bond fund.

EJ does a good job of making this all seem very difficult--they want you to think you need a "professional" to guide you. It really isn't all that difficult. However the VG advisory service will do you no harm and you can drop it when you feel more confident.
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ruralavalon
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Re: New here/considering moving to Vanguard

Post by ruralavalon »

tenthstreet wrote:Brand new here! I'm in my early 30s, married with a kid. Up until recently, I've been doing a set it and forget it mode of financial planning - only problem is that it was a bit too "forget it." So, looking to finally get serious.

Our primary accounts are Roth and traditional IRAs currently over at Edward Jones (yes - them). We both have work-related retirement accounts somewhere else that we're keeping for the match, and I've also been playing around with Betterment over the last two years. Thanks to Betterment, I'm more familiar with the low-cost, passive model, and I'm increasingly pondering what I do with Edward Jones. I'm considering the Vanguard Personal Advisor Services since I'm still learning, and I think it would be good to get some advice from someone, somewhere, and know that I'm on track.
. . . . .
ruralavalon wrote:If you want to continue to use Target Retirement funds, then you don't need any advisory service at all.
Thanks for the expertise on why the American Funds are performing "better"! I'm thinking I want to break out of the target retirement funds and see how the advisors set them up. Since I'm not at a point where I could shape my portfolio myself, I wonder if it's worth the investment to do a period of learning with an advisor and then see if I can downgrade and do it myself. Otherwise, I'd feel the need to go with target date funds (and no advisory services). Pros and cons, I suppose. But either seems like I'm ahead of where I currently am at Edward Jones.
I will give you some ideas and some things to read about asset allocation. Asset allocation is a very personal decision. You must decide on an allocation that is comfortable for you based on your ability, willingness and need to take risk.

In the early 30's I suggest abut 20% in bonds. This is expected to substantially reduce volatility (risk), with only a relatively slight decrease in return. Graph, "An Efficient Frontier: the power of diversification". Please see also William Bernstein, "The Rebalancing Bonus".

Please see the wiki articles "Risk tolerance", "Asset allocation", and Bogleheads® investment philosophy, "Never bear too much or too little risk".

I suggest around 20 - 30% of stocks in international stocks. Vanguard paper (March 2012), "Considerations for investing in non-U.S. equities". Historically, allocating 20% of an equity portfolio to non-U.S. stocks would have captured about 84% of the maximum possible diversification benefit, and allocating 30% of an equity portfolio to non-U.S. stocks would have captured about 99% of the maximum possible diversification benefit (p. 6).

That would work out to about: 20% bonds; 20% international stocks; and 60% domestic stocks. Again, asset allocation is a very personal decision. You must decide on an allocation that is comfortable for you based on your ability, willingness and need to take risk.

You would of course have to include your all of your other accounts, the work-related accounts and Betterment account, not just the two IRAs.

. . . . .

I suggest that you read one or two books on general investing. Wiki article, "Books: recommendations and reviews".

If you have any questions just ask.

I hope that this helps.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
selters
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Re: New here/considering moving to Vanguard

Post by selters »

ruralavalon wrote: A target retirement fund which gets a higher return is taking more risk.
That is only true if markets are fully efficient, or am I wrong? If markets are not fully efficient, then there may be mispriced stocks out there, and if you can identify them, you can get a higher return with the same risk or the same return with lower risk.
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ruralavalon
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Re: New here/considering moving to Vanguard

Post by ruralavalon »

selters wrote:
ruralavalon wrote: A target retirement fund which gets a higher return is taking more risk.
That is only true if markets are fully efficient, or am I wrong? If markets are not fully efficient, then there may be mispriced stocks out there, and if you can identify them, you can get a higher return with the same risk or the same return with lower risk.
Attempting to pick stocks is a fool's errand in my opinion.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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