Which investment account and brokerage should I choose?

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Mtangler25
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Which investment account and brokerage should I choose?

Post by Mtangler25 » Mon Jul 10, 2017 8:01 pm

Hello, I am 23 years old, in my senior year of college and I just received an inheritance of $7,000 in cash. I want to start saving for retirement, I have met with two advisors. Edward jones and Northwester mutual. Both proposals are completely different. I am also considering vanguard and Schwartz intellectual portfolio.

Edward jones scenario:

Start with a Brokerage then roll over into an IRA once I graduate. Their is a $10.00/month minimum management fee which comes out to 1.85%. I am not thrilled with that amount of a management fee and around 95% of my principal will be fully vested automatically.

northwestern mutual senario :

Similar to Edward jones but the differences include. Investing my principal in blocks to take advantage of market pullbacks. Which I like. What I don't like is the fixed income portion of the investment. NWM is a life insurance company and the advisor is recommending a 70/30 equity to fixed income ratio but the bulk of the fixed income portion is life insurance, which would send me a monthly premium of around $250.00 a month which I cannot afford. I also don't want to have to pay a monthly bill for my investments I would rather just contribute as I am able. Needless to say, I am hesitant to go with NWM due to the fact of the life insurance part. However, I like the advisor and their approach to building a relatoinship but at the end of the day, I want my principal to go towards securities that will growth the value of my account, not go towards insurance premiums!

Vanguard:
I am considering going with a brokerage account to start and invest in the 2055 target retirement account. I love how vanguard is low cost and they have a great reputation. I don't like that it isn't face to face unless I were to be investing a minimum of $50,000. That being said, is this a solid investment strategy for long term retirement goals? Once I graduate and get a full time career I will roll over this investment into a Roth.

I am completely stumped on what's to do, all your advice is much appreciated!!!!

Helo80
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Re: Which investment account and brokerage should I choose?

Post by Helo80 » Mon Jul 10, 2017 8:13 pm

FYI -- you're about to be bombarded with people saying run for the hills when it comes to EJ and NWM. :sharebeer

Mtangler25
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Re: Which investment account and brokerage should I choose?

Post by Mtangler25 » Mon Jul 10, 2017 8:14 pm

Yes, I'm aware haha! And welcoming all opinions

kmurp
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Re: Which investment account and brokerage should I choose?

Post by kmurp » Mon Jul 10, 2017 8:15 pm

Vanguard.

Helo80
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Re: Which investment account and brokerage should I choose?

Post by Helo80 » Mon Jul 10, 2017 8:18 pm

Mtangler25 wrote: Vanguard:
I am considering going with a brokerage account to start and invest in the 2055 target retirement account. I love how vanguard is low cost and they have a great reputation. I don't like that it isn't face to face unless I were to be investing a minimum of $50,000. That being said, is this a solid investment strategy for long term retirement goals? Once I graduate and get a full time career I will roll over this investment into a Roth.

1. The fact that you're smart enough to come here, read and listen to our advice, means that you don't need EJ or NWM nor face to face with Vanguard. There are people with multi-million dollar portfolios with Vanguard here that maybe talk to their advisor once a year, if that. Most of them could not care less about having some CFP at Vanguard on speed dial (which they get).

2. With a $7,000 investment, it sounds perfectly reasonable to launch a taxable account at Vanguard to invest in TR 2055. Another option is to consider going through index funds. Do you feel more comfortable letting a professional handle your asset allocation with TR 2055 or do you want to try this yourself? (FTR -- setting up your own mutual funds and asset allocation is very easy to do).

3. Unfortunately, you can't roll your $7,000 into a Roth. If you're going to earn W2 income this year through a summer or college job, you can invest those earnings in a Roth IRA no problem. But, if you're 100% full-time student and not filing IRS taxes on earned wages (jobs --- NOT dividends and parental gifts) then you cannot invest in traditional or Roth IRAs.


BTW - I earn a decent salary, and I can't afford $250 a month in NWM's garbage or $10 a month in EJ's hot air either. I'm trying to fund my retirement here, not theirs. (I have an old, strictly platonic lady friend from college whom married a NWM person... good grief, every time I see him posting NWM articles on LinkedIn I just shake my head.)
Last edited by Helo80 on Mon Jul 10, 2017 8:22 pm, edited 1 time in total.

mortfree
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Re: Which investment account and brokerage should I choose?

Post by mortfree » Mon Jul 10, 2017 8:18 pm

Please read this - If You Can by Bill Bernstein

https://www.etf.com/docs/IfYouCan.pdf

Your choice should be obvious...

Let the people on here "hold your hand" for free rather than pay someone else to do it for you and to continue to charge you fees, etc.

CppCoder
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Re: Which investment account and brokerage should I choose?

Post by CppCoder » Mon Jul 10, 2017 8:32 pm

Mtangler25 wrote: Vanguard:
I am considering going with a brokerage account to start and invest in the 2055 target retirement account. I love how vanguard is low cost and they have a great reputation. I don't like that it isn't face to face unless I were to be investing a minimum of $50,000. That being said, is this a solid investment strategy for long term retirement goals? Once I graduate and get a full time career I will roll over this investment into a Roth.
Obviously, EJ and NWM are out. If you want something similar to Vanguard but with the possibility of interacting face-to-face, consider Fidelity or Schwab, depending on who might have a branch office near you. Be careful of their salesman, though. Know what you want to invest in without their advice, and then just use the branch office for the occasional face-to-face transaction, as necessary. I personally have my taxable at Fidelity. I handle 95%+ of my transactions via the internet with no customer service involvement at all. However, twice last year, I wanted to deposit some old stock certificates to my Fidelity account, and it was much easier to do this at their branch office than trying to do everything by phone and mail. They didn't try to sell me anything, and they even gave me some free cookies and a coke zero.

CppCoder
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Re: Which investment account and brokerage should I choose?

Post by CppCoder » Mon Jul 10, 2017 8:40 pm

Also, I wouldn't recommend a target date retirement fund in your taxable account. It won't be a nuisance now, but you'll regret it later from a taxation standpoint when you have more income. You'll be stuck paying income taxes on the bond interest embedded in the target date fund, and you'll probably be too locked in from a capital gains standpoint to sell. At your age, I'd probably recommend to just split the $7,000 into a domestic and/or international stock fund and go no bonds (I rarely recommend no bonds). You don't have enough money to get a reasonable bond percentage given the fund minimums. For example, Fidelity minimums are $2,500 (I think Vanguard's are $3,000, so even worse), so to have any bonds, you would need to be at 35.7% bonds minimum, which is too conservative. At your age, you are better off making the mistake of being too aggressive than too conservative. If you go 100% stocks, just don't sell if it goes down.

Mtangler25
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Re: Which investment account and brokerage should I choose?

Post by Mtangler25 » Mon Jul 10, 2017 8:49 pm

Thank you very much! I really appreciate this advice!

When you say go all stocks, are you saying just pick individual equities or find an all equity fund? I do have a schwab brokerage account which only has Apple in it. But I would like to invest in a fund so I get immediate diversification. If that makes sense.

Should I still go with vanguard or go with another service if I decided not to go with the target retirement fund.

Maybe the vanguard total stock fund? I think it's VTI

Helo80
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Re: Which investment account and brokerage should I choose?

Post by Helo80 » Mon Jul 10, 2017 9:22 pm

Mtangler25 wrote:Thank you very much! I really appreciate this advice!

When you say go all stocks, are you saying just pick individual equities or find an all equity fund? I do have a schwab brokerage account which only has Apple in it. But I would like to invest in a fund so I get immediate diversification. If that makes sense.
Naw, don't pick individual stocks. Most of us probably own individual stocks (which is fine), but the bulk of our investments come from index funds.

Mtangler25 wrote: Maybe the vanguard total stock fund? I think it's VTI
https://personal.vanguard.com/us/funds/ ... IntExt=INT

VTSMX

The only note, these are investor class shares that come with an expense fee of 0.15% versus admiral that come with 0.04%. The difference between the two classes is $11 per $10,000 dollars you invest. Once you get that balance about $10k, you can convert to admiral. Don't let it get to your head that your expense fees are nearly 4x.

Honestly, you can open a Vanguard account, send them the $7,000 investment and then sit back and enjoy college. Don't check it or micromanage it.

Helo80
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Re: Which investment account and brokerage should I choose?

Post by Helo80 » Mon Jul 10, 2017 9:28 pm

Mtangler25 wrote:
Maybe the vanguard total stock fund? I think it's VTI
You'll never "beat the market", but you'll never do worse than the market either. Look up Warren Buffet's $1 million dollar charity bet with a respected hedge fund manager. Warren Buffet said "my boring S&P 500 index fund will beat 5 stocks you choose over a 10 year period". The hedge fund manager chose his funds and has all but admitted he lost (bet concludes at EOY 2017 since it was made in 2007-ish).

that's why we like S&P 500 index and total stock market (not to splice hairs, choose one or the other --- they effectively match each other and neither is "better" than the other).


"Created in 1992, Vanguard Total Stock Market Index Fund is designed to provide investors with exposure to the entire U.S. equity market, including small-, mid-, and large-cap growth and value stocks. The fund’s key attributes are its low costs, broad diversification, and the potential for tax efficiency. Investors looking for a low-cost way to gain broad exposure to the U.S. stock market who are willing to accept the volatility that comes with stock market investing may wish to consider this fund as either a core equity holding or your only domestic stock fund."

alex_686
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Re: Which investment account and brokerage should I choose?

Post by alex_686 » Mon Jul 10, 2017 9:33 pm

Mtangler25 wrote:I don't like that it isn't face to face unless I were to be investing a minimum of $50,000.
Sadly, nobody will want to talk with you if you only have 50k. The economics just don't work. I mean you can find somebody to talk to you but the fees are just so horrible. I have 2 recommendations.

First, go with Vanguard's 2055 fund. It is a simple and solid, if bit generic, fund.

Second, if you don't want to go generic, find a fee only adviser. CFP has a good website to find one. They will charge you a couple of hundred dollars, but the one time fee is broken out - not buried. You should come away with a plan for the next couple of years.

http://www.letsmakeaplan.org/choose-a-c ... ofessional

jbolden1517
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Re: Which investment account and brokerage should I choose?

Post by jbolden1517 » Mon Jul 10, 2017 9:58 pm

There are three issues here that are a bit conflated:
  1. Which brokerage should you choose
  2. How to roll over money from taxable to tax free
  3. What should you be investing in
First off you are in good health, you seem willing to learn... You are talking about an IRA, and you only have $7k. So many of the more interesting brokerage products aren't open to you. Your broker isn't going to matter much except for fees, interface and educational materials. The two full service options make no sense for you at all, you are getting advice to skip them I'd concur. Vanguard is an extremely ethical and low cost mutual fund company. But in many ways they run one of the worst brokers you can pick, their policies in too many areas are simply annoying. I wouldn't pick them as your broker.

My daughter is in a very similar situation to yours and I'm steering her towards Schwab or Fidelity. Lots of features and high service levels (available 24x7) with features you will be able to take advantage of. They both have integrated banking options that will allow you to have a consistent bank account even as you move. You may still need a bank for cash and a few other things but mostly you can do without.

If neither of those appeal I wouldn't dismiss the next generation brokerages aimed at millennials. Their interfaces and educational materials are rather cool (Schwab's Option's House, Tastyworks, Ally...). Both Ally and Option's House also offer the integrated banking. That being said while these millennial brokerages provide some excellent educational materials which are age appropriate their materials do steer you towards investing approaches which rack up tremendous investment fees and that would make Edward Jones embarrassed. Their approaches also can easily turn into the excitement and poor returns of outright gambling if you aren't careful. TDAmeritrade should also make the short list for an all around good product, thinkorswim is also a great interface, though with worse services as sort of a compromise between the two lists.

The rules on moving over money from taxable to taxfree are the IRS not your broker. Essentially you can rollover the lesser of $500 and 100% of what you earned this year. You'll be able to do the rest hopefully in 2018. Having a brokerage account that's taxable is a good idea.

In terms of what you should be investing in I think Schwab Fundamentals are a good list to get you started and manageable. They are also no fees if you choose Schwab (though cheap enough with all the other options listed).

radiowave
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Re: Which investment account and brokerage should I choose?

Post by radiowave » Mon Jul 10, 2017 10:25 pm

Mtangler25 welcome to the forum.

I'll assume you have looked at the BH Wiki, if not, just click on the link on the main page and work through the various components.

I would recommend keep it simple, invest $5,500 of your $7k in a Roth IRA at Vanguard and choose VTI (the ETF version of the venerable Vanguard Total Stock VTSAX). There is no minimum other than the cost of a single share. Closing price today was 124.61/share. This has nearly 3600 individual stocks so you will own nearly all of the domestic stock market. For the remaining $1,500 open a high yield online savings account. Ally Bank is well regarded and many BH members use that as their primary bank account. Current savings rate is 1.15% a 12 mo CD is 1.35% return (much better than most if not all brick and mortar banks).

I commend your efforts to begin investing at a young age. I wish I had your discipline back in the day. I would be a lot better off today.
Bogleheads Wiki: https://www.bogleheads.org/wiki/Main_Page

WildBill
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Location: San Antonio, Texas

Re: Which investment account and brokerage should I choos

Post by WildBill » Mon Jul 10, 2017 11:41 pm

Howdy

You have gotten excellent advice. Here are some considerations for your decision.

Do not mess around with EJ or anyone like them. They cost too much and it is a bad habit, much like smoking, that you never want to start. Avoid them like the plague.

I concur with the recommendations re Fidelity, Schwab and Vanguard. I think your decision might best be based on the following pretty basic considerations :

First consideration is which company? That can be determined by what you want and what you might want in the future.

Do you need or want to have banking and bill pay/checking account services along with an investment account for investing your money? If so, you should go with Fidelity or Schwab. They have good platforms for this and good customer service. Vanguard is a fine company but they sort of suck at the banking and customer service is suffering from their explosive growth - actually a vote of confidence - they are gaining customers because they are inexpensive and ethical and provide excellent, low-cost products.

When you mention "brokerage" services, this is an account to buy and sell securities, including mutual funds, etfs and individual stocks and you might want to consider exactly what it is you want. If you just want to start out with mutual funds and you don't need banking services you will be fine with Vanguard.

If you just want an account to hold mutual funds Vanguard is fine.

Next question is what to invest the money in? My recommendation is a broad based equity index fund. Good choices are Fidelity Total Market Investor Fund FSTMX if you go with Fidelity and VTSAX which is Vanguards equivalent if you go with Vanguard. VTI is an ETF version of VTSAX and is a fine choice also. An ETF is a sort of mutual fund that sells like an individual security. If you don' t know the difference don't worry, just be aware that you will have to purchase it like a stock. You can go to the wiki and read up on ETFs or you can just ignore ETFS altogether for the time being. There is no particular advantage in your current situation to using them.

So - If it were me, and I wanted to have banking services and checking now or potentially in the future along with my investment account I would go with Fidelity and invest my money in FTSMX.

If the banking stuff is already taken care of I would go with Vanguard and VTSAX.

Full disclosure - I have been a Fidelity customer since 1977 and a Vanguard customer since 1982. Both are great choices. Don't sweat this too much - either choice is fine, you can change your mind at anytime with little or no cost, you will learn a lot more as you go along, and the key is to make a decision and go forward without sweating over a lot of minutiae.

Good luck

W B
"Through chances various, through all vicissitudes, we make our way." Virgil, The Aeneid

jbolden1517
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Re: Which investment account and brokerage should I choos

Post by jbolden1517 » Tue Jul 11, 2017 5:21 am

WildBill wrote: Don't sweat this too much - either choice is fine, you can change your mind at anytime with little or no cost, you will learn a lot more as you go along, and the key is to make a decision and go forward without sweating over a lot of minutiae.
Just 2nding that. Also excellent advice. There are lots of things you can do as an investor that do long term damage. Picking the wrong broker ain't one of them. This is a choice you can get wrong and reverse easily. All FINRA brokers are good about moving accounts (far better than banks). And moreover what makes sense changes. For example Merrill Edge and Interactive don't make sense with $7k but at $100k they might become the much better choice depending on what you are doing.

retiredjg
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Re: Which investment account and brokerage should I choose?

Post by retiredjg » Tue Jul 11, 2017 7:32 am

You are going to hate this advice, but you should probably pay attention to it. Everybody needs an emergency fund. If you don't have one, that $7k is best put away in high interest savings instead of being invested for retirement.

An emergency fund takes care of unexpected events and keeps you out of high interest debt. For example, if you need $1k in car repair and have to put it on a credit card, it could cost significantly more than $1k by the time it is paid off.

Savings can also take care of the expenses of moving after graduation, buying clothing for a new job, apartment and utility deposits, etc.

For now and in the future, avoid Edward Jones, Ameriprise, Raymond James, and their like and financial advisors found at banks or credit unions. Stick with Vanguard, Fidelity or Schwab and be careful of advisors at Fidelity or Schwab. A few may want to usher you into high cost actively managed funds.

In addition to reading the If You Can book, here's a good place to learn about investing. You are very wise to be thinking of investing for retirement at your age, but do consider that you may actually need the money as move out into the working world.

https://www.bogleheads.org/wiki/Getting_started

WildBill
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Re: Which investment account and brokerage should I choose?

Post by WildBill » Tue Jul 11, 2017 4:15 pm

retiredjg wrote:You are going to hate this advice, but you should probably pay attention to it. Everybody needs an emergency fund. If you don't have one, that $7k is best put away in high interest savings instead of being invested for retirement.

An emergency fund takes care of unexpected events and keeps you out of high interest debt. For example, if you need $1k in car repair and have to put it on a credit card, it could cost significantly more than $1k by the time it is paid off.

Savings can also take care of the expenses of moving after graduation, buying clothing for a new job, apartment and utility deposits, etc.

For now and in the future, avoid Edward Jones, Ameriprise, Raymond James, and their like and financial advisors found at banks or credit unions. Stick with Vanguard, Fidelity or Schwab and be careful of advisors at Fidelity or Schwab. A few may want to usher you into high cost actively managed funds.

In addition to reading the If You Can book, here's a good place to learn about investing. You are very wise to be thinking of investing for retirement at your age, but do consider that you may actually need the money as move out into the working world.

https://www.bogleheads.org/wiki/Getting_started
Howdy

This is pretty good advice also, depending on your current situation

Retiredjg is answering the question you did not ask, but maybe should have :P

Good luck

W B
"Through chances various, through all vicissitudes, we make our way." Virgil, The Aeneid

neveragain
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Re: Which investment account and brokerage should I choose?

Post by neveragain » Tue Jul 11, 2017 5:34 pm

I am in the process of leaving Edward Jones, they charge too many fees. Many of the fees seem to be hidden. My accounts have not done that well.

I plan to do my investing online now probably with Vanguard.

Good luck.

Mr.BB
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Re: Which investment account and brokerage should I choose?

Post by Mr.BB » Tue Jul 11, 2017 5:49 pm

1st lesson...talk to an insurance person and they will recommend insurance products. Unless you are married, you do not need like insurance at this point, and to put 30% of your long term equity into a product that over the next 30-40 years will return very little (fixed income), makes no sense at all.
To show you how much Edward Jones wants to take from you, use this calculator.
http://www.begintoinvest.com/expense-ratio-calculator/

Since you are in your early twenties that 1.85% is monstrous on how much money you will give away over 40 years. Plug in your $7,000, the expense ratio they will charge you versus a basic total market index fund lets say the Vanguard 500 Index Fund (VFIAX) plus 40 years; Vanguard exp ratio is 0.14 and once you get to $10,000 it will drop to 0.04%
Even if you didn't add another dollar, the amount you will give away is shocking!
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."

jbolden1517
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Re: Which investment account and brokerage should I choose?

Post by jbolden1517 » Tue Jul 11, 2017 7:03 pm

retiredjg wrote:You are going to hate this advice, but you should probably pay attention to it. Everybody needs an emergency fund. If you don't have one, that $7k is best put away in high interest savings instead of being invested for retirement.
We are going to hijack this thread. But I'm going to disagree. Let's assume that our young student has a 1/5 chance of needing $10k. I'm going to assume he aggressively pays down credit card debt if he gets it say at $1k / mo.

Option 1. Money is in savings.
80% of the time he earns 1%. +$70 * .8 = $56
20% of the time he needs the money. He earns .5% then has to take out a $3k loan. He pays 4% for the loan which is interest free since it is less than 6 mo. $3k. Total is -$120 * .2 = -$24
Expected return $32

Option 2: he plays the market
80% of the time he earns say 9%. $560*.8 = $448
20% of the time he has to sell 1/2 way through. So he only gets 4.5% and then loses the same his loan is only $2685 this time... -$107.40*.2 = -$21.48
+$426.52

Now in the 2nd year this gets even more extreme since he now has more money....

BTW this difference is still huge even if you make the interest rate something like 11% assuming he can't get a decent rate on a cash advance yet. Now of course if its going to take him 5 years to pay off a $3k loan things change. But in that case the utility of $7k is massive and he shouldn't be saving it for retirement at all but rather spending it today and getting the increase in standard of living when the money is going to have maximum impact.
Last edited by jbolden1517 on Wed Jul 12, 2017 5:51 am, edited 1 time in total.

ClaycordJCA
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Re: Which investment account and brokerage should I choose?

Post by ClaycordJCA » Tue Jul 11, 2017 11:59 pm

If you already have a Schwab account with Apple stock, you should ask yourself if you are happy with the experience you have had with Schwab. If so, there is no reason to change. You can deposit your $7,000 into that account and purchase the Schwab Total Market index fund or ETF. Just as inexpensive as Vanguard's expense ratios. Or you could buy a Vanguard ETF for a $4.95 transaction fee.

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