My EJ portfolio vs my Vanguard, side by side

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LoganLot
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My EJ portfolio vs my Vanguard, side by side

Post by LoganLot » Fri Oct 13, 2017 3:25 pm

Hi -
I currently have both an EJ Advisory portfolio (since 2009), and a Vanguard PAS portfolio (since 2015). I've read a lot on this forum and others about the down sides of the EJ model, but have never gotten around to moving everything to Vanguard. That said, no additional funds have been added to EJ since 2015, but I invest $2k / month into the Vanguard portfolio. 2/3rds of total assets across both are on the Vanguard side. Both portfolios have a similar 80/20 asset mix. Both have about 25% international. EJ is all taxable, while 5% of the Vanguard portfolio is in a Roth. EJ charges me 1%, Vanguard PAS 0.3%.

Today I learned about PortfolioVisualizer.com's historical analyzer, and so I decided to put the 2 portfolios side by side going back to 2009, to see how they both performed. I used the same initial investment, and modeled a $1k monthly contribution, re-balancing annually.

The results surprised me, which is why I decided to share them here and see if I'm thinking about things wrong. Even after I take out the adviser fees on both sides, the EJ account still outperformed the vanguard one. I know past performance doesn't predict future, but is there something I'm missing in my analysis? I'm not including tax benefits, but would that really make that much difference? (My marginal tax rate is 39.6%). It seems to me that the EJ account is performing just fine sitting where it is.

Details below:

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                Initial Balance	Final Balance	CAGR	IRR	Stdev	Best Year   Worst Year
EJ:             $100,000	$373,516 	18.53%  10.84%	10.79%	27.16%	   -2.05%
Vanguard:	$100,000	$342,090 	17.20%  9.31%	10.67%	21.16%	   -2.97%

Code: Select all

Annual Returns:
2010: EJ 15.05% Vanguard: 13.1%
2011: EJ -2.05% Vanguard: -2.97%
2012: EJ 17.1%  Vanguard: 15%
2013: EJ 27.16% Vanguard: 21.16%
2014: EJ 5.69%  Vanguard 5.73%
2015: EJ 0%     Vanguard -0.93%
2016: EJ 7.76%  Vanguard 8.01%
2017: EJ 15.97% Vanguard 14.52%
The current portfolio holdings are listed below. I had to make a few adjustments in the analyzer tool because all of these funds weren't available in 2009, but I replaced them with what I believe are equivalents.

Code: Select all

Holdings
EJ:
Fund Name						Symbol	ER	Holding %
AMERICAN EUROPACIFIC GROWTH CL F3			FEUPX	0.51%	5.24%
AMERICAN FUNDAMENTAL INVESTORS CL F3			FUNFX	0.32%	6.11%
BARON SMALL CAP FUND INSTITUTIONAL CL			BSFIX	1.06%	4.15%
DELAWARE US GROWTH FUND CL I				DEUIX	0.80%	5.40%
DFA US SMALL CAP VALUE FUND				DFSVX	0.52%	3.09%
DODGE & COX INCOME FUND					DODIX	0.43%	6.77%
DODGE & COX STOCK FUND					DODGX	0.52%	5.06%
FRANKLIN MUTUAL GLOBAL DISCOVERY FUND CL Z		MDISX	0.99%	5.86%
HARBOR CAPITAL APPRECIATION FUND INSTITUTIONAL CLASS	HACAX	0.70%	5.31%
HOTCHKIS & WILEY MID CAP VALUE FUND CL I		HWMIX	1.03%	1.91%
INVESCO COMSTOCK CL R6					ICSFX	0.41%	4.15%
JPMORGAN CORE BOND FUND CL R6				JCBUX	0.41%	7.73%
METROPOLITAN WEST FUNDS TOTAL RETURN BOND FUND CL I	MWTIX	0.44%	2.89%
MFS VALUE FUND CLASS R6					MEIKX	0.51%	6.13%
OAKMARK INTERNATIONAL CL I				OANIX	0.86%	6.27%
OPPENHEIMER INTERNATIONAL GROW FUND CL I SHARES		OIGIX	0.70%	6.11%
PRIMECAP ODYSSEY STOCK FUND				POSKX	0.69%	3.12%
T ROWE PRICE INSTITUTIONAL LARGE CAP GROWTH FUND	TRLGX	0.56%	3.21%
T ROWE PRICE INTERNATIONAL DISCOVERY FUND CL I		TIDDX	1.08%	3.21%
VICTORY MUNDER MID CAP CORE GROWTH FUND CL Y		MGOYX	1.06%	8.27%

Code: Select all

Vanguard:
Type	Fund Name							Symbol	ER	Holdings%
ROTH	Vanguard Total Bond Market Index Fund Admiral Shares		VBTLX	0.05%	3%
ROTH	Vanguard Total International Bond Index Fund Admiral Shares	VTABX	0.12%	1%
ROTH	Vanguard Total International Stock Index Fund Admiral Shares	VTIAX	0.11%	1%
Taxable	Vanguard Total International Stock Index Fund Admiral Shares	VTIAX	0.11%	32%
Taxable	Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares	VWIUX	0.09%	6%
Taxable	Vanguard Limited-Term Tax-Exempt Fund Admiral Shares		VMLUX	0.09%	4%
Taxable	Vanguard Long-Term Tax-Exempt Fund Admiral Shares		VWLUX	0.09%	5%
Taxable	Vanguard Extended Market Index Fund Admiral Shares		VEXAX	0.08%	13%
Taxable	Vanguard 500 Index Fund Admiral Shares				VFIAX	0.04%	36%

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David Jay
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Re: My EJ portfolio vs my Vanguard, side by side

Post by David Jay » Fri Oct 13, 2017 3:45 pm

First guess - underperformance by International in recent years. At 40% of stocks (32% of portfolio) the VG account appears to have about 12-13% more international than EJ.
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Re: My EJ portfolio vs my Vanguard, side by side

Post by CnC » Fri Oct 13, 2017 3:57 pm

Well to the best of my knowledge no one said vangard will always beat everything else.

Domestic stocks have been very good sice 09, if you had 1 fund holding more domestic stocks and 1 fund holding more international stocks you will find that the one holding the majority of domestic stocks wins.

International funds actually lost money over that last 10 years.

LoganLot
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Re: My EJ portfolio vs my Vanguard, side by side

Post by LoganLot » Fri Oct 13, 2017 4:08 pm

Yeah, and that's never been my expectation either. Both portfolios outperformed the other in certain years, but the EJ one did better overall. Given what I've read on this forum, my surprise was that the fee structure of the EJ portfolio, including ER of actively managed funds, didn't have a greater negative impact over that period of time compared to a similar structured vanguard portfolio. Both portfolios include international, but you're right that the Vanguard one is targeting about 8% more than EJ.

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Re: My EJ portfolio vs my Vanguard, side by side

Post by staythecourse » Fri Oct 13, 2017 4:26 pm

First off, take a step back and forget about the funds. Just breakdown each portfolio (EJ vs. Vanguard) by asset class and its % weight in the portfolio. There is NO point comparing the two unless they are apples to apples comparison. You may end up just proving that asset allocation does determine large % (90%) of return. That is where I would start vs. even thinking it is a EJ vs. Vanguard comparison vs. asset allcoation discussion.

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Re: My EJ portfolio vs my Vanguard, side by side

Post by livesoft » Fri Oct 13, 2017 4:26 pm

I'm curious about the taxes. I suspect you didn't withdraw from either portfolio the money needed to pay the taxes on the annual distributions. Your tax returns, especially Schedule B should be enlightening.

In some respects, if EJ caused you $10,000 extra annually in taxes over Vanguard, then it was like you were putting an extra $10K in the EJ portfolio every year.
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Re: My EJ portfolio vs my Vanguard, side by side

Post by Nate79 » Fri Oct 13, 2017 4:59 pm

The most basic first step as was already pointed out is to look at the asset allocation breakdown. Until then the results are absolutely meaningless.

LoganLot
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Re: My EJ portfolio vs my Vanguard, side by side

Post by LoganLot » Fri Oct 13, 2017 5:54 pm

Both are very similar, except for the international that was already pointed out above.

Code: Select all

                EJ      VG
Growth	        17	15
Growth & Income	37	36
International	26	34
Fixed Income	18	15
Cash	         2	0
	       100	100
Good point on taxes, and there's probably hidden cost there. Its hard to compare, because 2016 is realty the only good full comparison based on actuals, and they were similar that year. VG was a lot more efficient by using tax exempt funds and the roth.

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Re: My EJ portfolio vs my Vanguard, side by side

Post by Dead Man Walking » Fri Oct 13, 2017 9:10 pm

I wasn't aware that Edward Jones offered DFA Funds.

DMW

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Re: My EJ portfolio vs my Vanguard, side by side

Post by oldcomputerguy » Fri Oct 13, 2017 9:18 pm

LoganLot wrote:
Fri Oct 13, 2017 5:54 pm
Both are very similar, except for the international that was already pointed out above.

Code: Select all

                EJ      VG
Growth	        17	15
Growth & Income	37	36
International	26	34
Fixed Income	18	15
Cash	         2	0
	       100	100
Good point on taxes, and there's probably hidden cost there. Its hard to compare, because 2016 is realty the only good full comparison based on actuals, and they were similar that year. VG was a lot more efficient by using tax exempt funds and the roth.
What about market cap?
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Re: My EJ portfolio vs my Vanguard, side by side

Post by oldcomputerguy » Sat Oct 14, 2017 6:35 am

I went through the process of putting both portfolios through Morningstar Instant X-Ray, there are some differences (although not huge).

Your EJ portfolio looks like this (with some rounding error present):

US stock: 55%
Foreign stock: 26%
Bonds: 15%
Cash and other: 3%

Stocks are a bit on the growth side:

Code: Select all

18   21   31
 5    7    9
 3    3    3
Bonds aren't of the highest quality, but duration is reasonable

Code: Select all

 0    0    0
46   53    0
 0    0    0
The Vanguard portfolio is a bit heavier in international, which a poster here already pointed out did not perform as well over the past few years:

US stocks: 48%
Foreign stocks: 32%
Bonds: 18%
Cash and other: 3%

Stocks are more on the value side than with the EJ portfolio:

Code: Select all

25   44   22
 6    7    7
 3    3    3
On the bond side, your Vanguard portfolio is significantly more heavily invested in longer-term holdings, which may have taken a hit with the recent interest rate increases:

Code: Select all

 0   16    0
21   32   32
 0    0    0
I'd say the combination of more international and more long-term bonds probably go a long way to explaining the difference between the two portfolios.

For what it's worth, I went to Portfolio Visualizer and backtested a simple three-fund portfolio of VTSAX, VTIAX and VBTLX in the same asset allocation as your Vanguard portfolio, and came out with a CAGR of 17.19% (versus 17.20% for yours) with a standard deviation of 9.34% versus 10.67% for your portfolio (almost identical return with less risk).

As a side note, I think this probably is a good demonstration of how hard it is to manage a portfolio with twenty separate mutual funds in it.
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Re: My EJ portfolio vs my Vanguard, side by side

Post by oldcomputerguy » Sat Oct 14, 2017 6:59 am

livesoft wrote:
Fri Oct 13, 2017 4:26 pm
I'm curious about the taxes. I suspect you didn't withdraw from either portfolio the money needed to pay the taxes on the annual distributions. Your tax returns, especially Schedule B should be enlightening.

In some respects, if EJ caused you $10,000 extra annually in taxes over Vanguard, then it was like you were putting an extra $10K in the EJ portfolio every year.
I'm curious also whether the OP accounted in the Portfolio Visualizer for the management fees being taken out each year. Can one even do that with that tool? I looked but couldn't figure out a way to account both for a fixed dollar contribution each month and a fixed percentage withdrawal each year.
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Re: My EJ portfolio vs my Vanguard, side by side

Post by David Jay » Sat Oct 14, 2017 8:00 am

oldcomputerguy wrote:
Sat Oct 14, 2017 6:59 am
livesoft wrote:
Fri Oct 13, 2017 4:26 pm
I'm curious about the taxes. I suspect you didn't withdraw from either portfolio the money needed to pay the taxes on the annual distributions. Your tax returns, especially Schedule B should be enlightening.

In some respects, if EJ caused you $10,000 extra annually in taxes over Vanguard, then it was like you were putting an extra $10K in the EJ portfolio every year.
I'm curious also whether the OP accounted in the Portfolio Visualizer for the management fees being taken out each year. Can one even do that with that tool? I looked but couldn't figure out a way to account both for a fixed dollar contribution each month and a fixed percentage withdrawal each year.
That's a good observation. LoganLot, is there an AUM fee on your EJ account?
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Re: My EJ portfolio vs my Vanguard, side by side

Post by oldcomputerguy » Sat Oct 14, 2017 9:30 am

David Jay wrote:
Sat Oct 14, 2017 8:00 am
oldcomputerguy wrote:
Sat Oct 14, 2017 6:59 am
livesoft wrote:
Fri Oct 13, 2017 4:26 pm
I'm curious about the taxes. I suspect you didn't withdraw from either portfolio the money needed to pay the taxes on the annual distributions. Your tax returns, especially Schedule B should be enlightening.

In some respects, if EJ caused you $10,000 extra annually in taxes over Vanguard, then it was like you were putting an extra $10K in the EJ portfolio every year.
I'm curious also whether the OP accounted in the Portfolio Visualizer for the management fees being taken out each year. Can one even do that with that tool? I looked but couldn't figure out a way to account both for a fixed dollar contribution each month and a fixed percentage withdrawal each year.
That's a good observation. LoganLot, is there an AUM fee on your EJ account?
In the original post the OP mentions that EJ charges 1%.
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Re: My EJ portfolio vs my Vanguard, side by side

Post by F150HD » Sat Oct 14, 2017 9:53 am

Dead Man Walking wrote:
Fri Oct 13, 2017 9:10 pm
I wasn't aware that Edward Jones offered DFA Funds.

DMW
Ran across this...

DFA Funds Are Booming, but That Adviser Fee Matters - WSJ

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Re: My EJ portfolio vs my Vanguard, side by side

Post by KT785 » Sat Oct 14, 2017 9:23 pm

I recently moved my parents over to Vanguard PAS from EJ, after they'd asked me to go through their investments and explain everything that had been going on in the account since it's inception several years ago. Accordingly, I would want to know if, and how frequently, new funds were added or removed from the EJ portfolio since 2009--I noticed a lot of churn in my parents' account and funds were frequently swapped around. I'd strongly suspect that the current portfolio doesn't reflect what it actually looked like over the years at EJ; their Vanguard account is a simple index fund based set up that I suspect will remain largely static (save perhaps for asset allocation) throughout their retirement years.

I'd also be curious if any of those funds, either current funds or ones that have been subsequently replaced, had load fees.

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Re: My EJ portfolio vs my Vanguard, side by side

Post by whodidntante » Sat Oct 14, 2017 9:43 pm

This EJ portfolio isn't terrible. I still wouldn't own it.

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Re: My EJ portfolio vs my Vanguard, side by side

Post by investorpeter » Sun Oct 15, 2017 12:02 am

LoganLot wrote:
Fri Oct 13, 2017 5:54 pm
Both are very similar, except for the international that was already pointed out above.

Code: Select all

                EJ      VG
Growth	        17	15
Growth & Income	37	36
International	26	34
Fixed Income	18	15
Cash	         2	0
	       100	100
Good point on taxes, and there's probably hidden cost there. Its hard to compare, because 2016 is realty the only good full comparison based on actuals, and they were similar that year. VG was a lot more efficient by using tax exempt funds and the roth.
EJ seems to be weighted to growth and small cap, while Vanguard more weighted to international. So apples and oranges.
Last edited by investorpeter on Sun Oct 15, 2017 1:31 am, edited 1 time in total.

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Re: My EJ portfolio vs my Vanguard, side by side

Post by grabiner » Sun Oct 15, 2017 12:28 am

You report returns since 2009, but you say that some of these funds did not exist in 2009. This suggests that you have changed your portfolio, and should not be counting past returns. If your advisor recommended a fund in 2014 which had good performance in the previous five years, and it has been only average since then, you have an above average eight-year return on the fund, but you did not benefit from it.

Another clear reason this is an unfair comparison: most of the Vanguard fixed-income funds are municipal bonds, while the EJ fixed-income funds are taxable bonds. The return comparison is pre-tax, but Vanguards municipal-bond funds were selected because they are expected to have better after-tax return. (This issue also affects the comparison of your personal returns, unless the EJ portfolio is all in an IRA. The taxable Vanguard portfolio is very tax-efficient, as the stock is all in index funds; the EJ portfolio would have a high tax cost.)
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Re: My EJ portfolio vs my Vanguard, side by side

Post by finite_difference » Sun Oct 15, 2017 2:12 pm

Make the Int’l equal and recompute.

How did you factor into account the ERs?

What about EJ front- or back-end loads — did you have to pay any of those? The tax efficiency issues have already been raised (if its a taxable account.)

It’s not a complete apples-to-apples comparison, and it is possible you got a good (even if active) portfolio setup for you and you beat the market after fees. Chances are it will revert to the mean and you’ll lose out in the long run. But it’s always possible that you could beat the market. I just wouldn’t consider it likely (after fees and taxes.)

Note that you do have some well-liked funds in the EJ portfolio: American, Dodge & Cox, DFA, etc. that even Bogleheads are known to own :)
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Re: My EJ portfolio vs my Vanguard, side by side

Post by LoganLot » Mon Oct 16, 2017 8:25 am

ERs were built into the historical analysis, and none of the funds in the EJ portfolio had loads.

I guess to wrap up the thread, I know its not an apples to apples comparison because of the slightly different allocation, and the tax efficiency of the VG portfolio, but it's also not way off base. Both advisers were given similar risk profiles, recommended similar allocations that performed similarly after fees. The impact of high fees over the long term is inarguable. There are a lot of what I feel are very negative perspectives on EJ on this board. Before I did this analysis I expected the EJ one to be much worse off over the 8 years, which wasn't the case.

I'm not advocating for one model over the other, but hope this thread encourages people not to be overly influenced by other peoples opinions without actively engaging in their own situation to decide what's right for them.

And thanks for all the responses.

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Re: My EJ portfolio vs my Vanguard, side by side

Post by bloom2708 » Mon Oct 16, 2017 8:40 am

One area the OP benefited is the EJ account ONLY has Advisory dollars. These are the "special" funds for "high valued" customers. 1.0% seems like a favorable percentage. 1.35% is the standard advisory fee. At least it was.

Most portfolios have a portion in Advisory and a portion in their more traditional funds. That is where the A vs C shares, sales loads, higher Expense ratios, complexity, overlap and churn happens.

Most likely the OP moved the second bucket to Vanguard and kept only the Advisory funds. That is fine. One does not need any valid reasons to stay with Edward Jones. If you like them, move your Vanguard money back.

I'll choose the lower fees and less complex portfolio every time.
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Re: My EJ portfolio vs my Vanguard, side by side

Post by goingup » Mon Oct 16, 2017 8:56 am

LoganLot wrote:
Mon Oct 16, 2017 8:25 am
ERs were built into the historical analysis, and none of the funds in the EJ portfolio had loads.

I guess to wrap up the thread, I know its not an apples to apples comparison because of the slightly different allocation, and the tax efficiency of the VG portfolio, but it's also not way off base. Both advisers were given similar risk profiles, recommended similar allocations that performed similarly after fees. The impact of high fees over the long term is inarguable. There are a lot of what I feel are very negative perspectives on EJ on this board. Before I did this analysis I expected the EJ one to be much worse off over the 8 years, which wasn't the case.

I'm not advocating for one model over the other, but hope this thread encourages people not to be overly influenced by other peoples opinions without actively engaging in their own situation to decide what's right for them.

And thanks for all the responses.
The back testing with the American Funds would be difficult. Typically those funds had loads and much higher ERs. F3 class shares (which you show above) just got introduced in January 2017.
Frankly, your post doesn't seem especially accurate or objective but I agree with your conclusion that every investor should investigate what's right for them.

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Re: My EJ portfolio vs my Vanguard, side by side

Post by LoganLot » Mon Oct 16, 2017 9:12 am

I don't think its fair or helpful to characterize the post as inaccurate or not objective. I was completely transparent and factual about the holdings and how I did the analysis. I never claimed they were completely apples to apples portfolios, only similar allocations. The original point of the post was to ask others for their thoughts on how I did the analysis, because I was surprised at the outcome.

Thanks to all who provided constructive and informative responses.

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Re: My EJ portfolio vs my Vanguard, side by side

Post by KT785 » Mon Oct 16, 2017 10:36 am

grabiner wrote:
Sun Oct 15, 2017 12:28 am
You report returns since 2009, but you say that some of these funds did not exist in 2009. This suggests that you have changed your portfolio, and should not be counting past returns. If your advisor recommended a fund in 2014 which had good performance in the previous five years, and it has been only average since then, you have an above average eight-year return on the fund, but you did not benefit from it.
I mentioned the same concern in my prior post.

OP, what has the EJ portfolio looked like over the course of time and to what extent have the funds and/or allocations changed? Given that I noticed a fair amount of frequent churn in my parents' EJ portfolio before I brought them to Vanguard, I'd suspect any backtesting you did on the current portfolio is not representative of the actual performance since the funds you backtested weren't in your portfolio (or at their current allocations) since its inception.

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Re: My EJ portfolio vs my Vanguard, side by side

Post by pkcrafter » Mon Oct 16, 2017 12:08 pm

Did you calculate the advisor fee correctly?
The double blow of investment fees

The impact of fees is twofold: An investor pays an ever-increasing amount in fees as account balances grow, because the fees are based on a percentage of assets. And fees also strike a blow to the portfolio’s returns. That’s because every dollar taken out to cover management costs is one less dollar left to invest in the portfolio to compound and grow. So in addition to paying potentially hundreds of thousands of dollars in avoidable fees, our research shows that an investor gives up many times that amount in lost portfolio returns over time.
Several of the EJ funds are not tax-inefficient, so you would need to factor that in as well.

PS - rerun returns for past year. You might see a different pattern.

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Re: My EJ portfolio vs my Vanguard, side by side

Post by oldcomputerguy » Mon Oct 16, 2017 12:12 pm

David Jay wrote:
Sat Oct 14, 2017 8:00 am
oldcomputerguy wrote:
Sat Oct 14, 2017 6:59 am
livesoft wrote:
Fri Oct 13, 2017 4:26 pm
I'm curious about the taxes. I suspect you didn't withdraw from either portfolio the money needed to pay the taxes on the annual distributions. Your tax returns, especially Schedule B should be enlightening.

In some respects, if EJ caused you $10,000 extra annually in taxes over Vanguard, then it was like you were putting an extra $10K in the EJ portfolio every year.
I'm curious also whether the OP accounted in the Portfolio Visualizer for the management fees being taken out each year. Can one even do that with that tool? I looked but couldn't figure out a way to account both for a fixed dollar contribution each month and a fixed percentage withdrawal each year.
That's a good observation. LoganLot, is there an AUM fee on your EJ account?
I did a bit more digging, turns out you indeed can model AUM fees in Portfolio Visualizer, but you have to be logged in to do it. You have the option of setting up multiple "canned" management fee scenarios in your account, then when you do a portfolio analysis you can select one of your preset management scenarios and have it apply to the analysis. If you're not logged in, you don't see the option to select a management scenario in the analysis entry screen.
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Re: My EJ portfolio vs my Vanguard, side by side

Post by wickywack » Mon Oct 16, 2017 7:39 pm

When I was "grading" my financial advisor, I had a record of all my deposits over the years as well my current balance. I used that to compute an XIRR in a spreadsheet. You might try that to sanity check your actual returns against your PortfolioVisualizer numbers.

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