Vanguard or Merrill Lynch

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3puttpar
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Vanguard or Merrill Lynch

Post by 3puttpar » Fri Nov 03, 2017 1:24 pm

Hello,

I am new to this forum and investing in general. I have about 500k in a Merrill Lynch account that has a 0.5% management fee. I do not know if there are any other fees associated but I am sure there are many hidden fees that I do not know about.

I am thinking about moving my 500k to Vanguard, putting it in some low cost index funds (85 % VTSMX (total stock market), 5 % VBMFX (bond market), 10% VGTSX (international market) re-allocating it every year and just letting it ride. I am in my early 30's and don't want to get hammered with fees for the next 30 years)

Is it worth moving to Vanguard and doing it myself or is that 0.5% fee worth just letting Merrill Lynch do it. Am I crazy to do it myself with this amount?

Thanks in advance

123
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Re: Vanguard or Merrill Lynch

Post by 123 » Fri Nov 03, 2017 1:36 pm

I'd move it to Vanguard and save $2,500 a year or more.

The Boglehead methods pretty much work the same whether you invest $10,000 or $10,000,0000.

Welcome

Edited to add:
You probably care more about your $500,000 then Merrill Lynch does. You'll do fine.
The closest helping hand is at the end of your own arm.

a5ehren
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Re: Vanguard or Merrill Lynch

Post by a5ehren » Fri Nov 03, 2017 2:29 pm

edit: double post
Last edited by a5ehren on Fri Nov 03, 2017 2:31 pm, edited 1 time in total.

a5ehren
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Re: Vanguard or Merrill Lynch

Post by a5ehren » Fri Nov 03, 2017 2:30 pm

Your proposed allocation is fine for your age, and you've made solid choices. There is no reason to pay ML 0.5% for your portfolio.

If you really want some guidance from VG, you can pay them 0.3% the first year (then discontinue) to have them tell a computer to manage it for you.

MrNewEngland
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Re: Vanguard or Merrill Lynch

Post by MrNewEngland » Fri Nov 03, 2017 2:31 pm

You can self-manage at Merril Lynch and just buy Vanguard Index Funds/ETFs, that's what I do. The benefits to having that money in ML are worth it to me.

hale2
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Re: Vanguard or Merrill Lynch

Post by hale2 » Fri Nov 03, 2017 3:13 pm

MrNewEngland wrote:
Fri Nov 03, 2017 2:31 pm
You can self-manage at Merril Lynch and just buy Vanguard Index Funds/ETFs, that's what I do. The benefits to having that money in ML are worth it to me.
I think you are referring to Merrill Edge, not the Merrill Lynch division where he is paying management fees. I agree that Merrill Edge would be a good choice for him and save the .5% fee.

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Re: Vanguard or Merrill Lynch

Post by MrNewEngland » Sat Nov 04, 2017 1:19 pm

hale2 wrote:
Fri Nov 03, 2017 3:13 pm
MrNewEngland wrote:
Fri Nov 03, 2017 2:31 pm
You can self-manage at Merril Lynch and just buy Vanguard Index Funds/ETFs, that's what I do. The benefits to having that money in ML are worth it to me.
I think you are referring to Merrill Edge, not the Merrill Lynch division where he is paying management fees. I agree that Merrill Edge would be a good choice for him and save the .5% fee.
You are 100% right, my mistake.

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ruralavalon
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Re: Vanguard or Merrill Lynch

Post by ruralavalon » Sat Nov 04, 2017 1:41 pm

Welcome to the forum :) .

The better choice is Vanguard. You fund ideas are good, there is no reason that I can see to pay an extra 0.50% to Merrill Lynch.

Low expenses are critical to long-term investing performance. An extra 0.50% in annual expenses can reduce the end value of your investment after 30 years by about 14%. Vanguard blog post, "Stopping the silent killer of returns". Please see the table at the end of the post, "Cumulative impact of fees on ending wealth at various time horizons." Also, here is a calculator you could use to estimate the impact of investing expenses. Bankrate.com, "Mutual fund fees calculator".
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Earl Lemongrab
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Re: Vanguard or Merrill Lynch

Post by Earl Lemongrab » Sat Nov 04, 2017 2:26 pm

I'm a big fan of Merrill Edge. The Preferred Rewards is great, free trades and credit card boosts. Unfortunately you can't get a transfer bonus if coming from Merrill Lynch.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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Re: Vanguard or Merrill Lynch

Post by Nthomas » Sat Nov 04, 2017 4:02 pm

3puttpar wrote:
Fri Nov 03, 2017 1:24 pm
Hello,

I am new to this forum and investing in general. I have about 500k in a Merrill Lynch account that has a 0.5% management fee. I do not know if there are any other fees associated but I am sure there are many hidden fees that I do not know about.

I am thinking about moving my 500k to Vanguard, putting it in some low cost index funds (85 % VTSMX (total stock market), 5 % VBMFX (bond market), 10% VGTSX (international market) re-allocating it every year and just letting it ride. I am in my early 30's and don't want to get hammered with fees for the next 30 years)

Is it worth moving to Vanguard and doing it myself or is that 0.5% fee worth just letting Merrill Lynch do it. Am I crazy to do it myself with this amount?

Thanks in advance
I know you did not mention expense ratios but when considering costs just keep in mind that at the amount you are thinking of transferring you would qualify for the Admiral class shares (instead the the investor classes you listed) and therefore lower expense ratios. VTSAX, VBTLX, and VTIAX.

3puttpar
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Re: Vanguard or Merrill Lynch

Post by 3puttpar » Mon Nov 06, 2017 11:43 am

I did not know this about the expense ratios with Admiral. Thank you for this info.

I have a call with my Merrill Lynch advisor this week. I know he is going to try to convince me to try to stay with him. For 2500 a year is that worth his advice?

Also one more question for you guys.... if I move to Vanguard, do I have to sell off all of the Merrill Accounts to transfer? If so, will I incur capital gains tax on this?

Thanks all!

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ruralavalon
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Re: Vanguard or Merrill Lynch

Post by ruralavalon » Mon Nov 06, 2017 12:08 pm

3puttpar wrote:
Mon Nov 06, 2017 11:43 am
I did not know this about the expense ratios with Admiral. Thank you for this info.

I have a call with my Merrill Lynch advisor this week. I know he is going to try to convince me to try to stay with him. For 2500 a year is that worth his advice?

Also one more question for you guys.... if I move to Vanguard, do I have to sell off all of the Merrill Accounts to transfer? If so, will I incur capital gains tax on this?

Thanks all!
No, it's not worth it to pay 0.50%, $2.5k/yr, for advice at Merrill Lynch or anyplace else.

What type of account or accounts are involved?

There is no tax liability in transferring an IRA. Just call Vanguard and they will help you with the transfer, you want a "trustee to trustee" rollover of an IRA.

A regular taxable account is different. Then it's important to consider ways to legitimately avoid or limit unnecessary income tax liability. There are ways to do that. So let us know what type of account is involved.
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Earl Lemongrab
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Re: Vanguard or Merrill Lynch

Post by Earl Lemongrab » Mon Nov 06, 2017 2:26 pm

3puttpar wrote:
Mon Nov 06, 2017 11:43 am
Also one more question for you guys.... if I move to Vanguard, do I have to sell off all of the Merrill Accounts to transfer? If so, will I incur capital gains tax on this?
As long as the fund is one that the new custodian will take, then it can be transferred in-kind. Not all funds will transfer, but you can ask the new custodian ahead of time. If you do sell in a taxable account, gains would be taxable.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

3puttpar
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Re: Vanguard or Merrill Lynch

Post by 3puttpar » Mon Nov 06, 2017 2:30 pm

Thank you both for the insight. It is in a taxable account so that is where it gets sticky. Is it worth transferring it to take the 20% capital gains hit? Or just stick to the 0.5%. Hopefully I can transfer in kind. I will ask Vanguard to see how this can work.

Mr.BB
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Re: Vanguard or Merrill Lynch

Post by Mr.BB » Mon Nov 06, 2017 2:36 pm

Look over your records for the past 2-3 years. How many trades or asset allocations did your portfolio manager do for you? Was that worth $2,500 a year?
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."

beehappy
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Re: Vanguard or Merrill Lynch

Post by beehappy » Mon Nov 06, 2017 2:49 pm

Earl Lemongrab wrote:
Sat Nov 04, 2017 2:26 pm
I'm a big fan of Merrill Edge. The Preferred Rewards is great, free trades and credit card boosts. Unfortunately you can't get a transfer bonus if coming from Merrill Lynch.
He might be able to still get the bonus if Merrill Edge is facing bonus vs move to somewhere else.

But even without the bonus, I much prefer Merrill Edge to Vanguard for the reasons you stated, as well as much better customer service.

beehappy
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Re: Vanguard or Merrill Lynch

Post by beehappy » Mon Nov 06, 2017 2:51 pm

3puttpar wrote:
Mon Nov 06, 2017 2:30 pm
Thank you both for the insight. It is in a taxable account so that is where it gets sticky. Is it worth transferring it to take the 20% capital gains hit? Or just stick to the 0.5%. Hopefully I can transfer in kind. I will ask Vanguard to see how this can work.
This may be a false choice. You may be able to avoid the fee and also avoid cap gains, or at least time them better for tax purposes if you consider a move to a self-managed account at Merrill Edge.

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Re: Vanguard or Merrill Lynch

Post by psteinx » Mon Nov 06, 2017 3:04 pm

3puttpar wrote:
Mon Nov 06, 2017 2:30 pm
Thank you both for the insight. It is in a taxable account so that is where it gets sticky. Is it worth transferring it to take the 20% capital gains hit? Or just stick to the 0.5%. Hopefully I can transfer in kind. I will ask Vanguard to see how this can work.
1) There's a pretty high chance, I would think, that you can transfer in-kind (i.e. not have to sell off at ML).
2) That said, you should review if the funds at ML are really ones you want to hold long term. It's possible that the ML funds have their own fees that are high enough, relative to alternatives, that you might want to sell even if you take a cap gains hit.
3) Compute what the actual cap gains hit would be. Remember, cap gains are not paid on the full balance, but rather, on the GAINS. So if you have a fund with a $200K value and a $150K basis, then only the $50K in gains would be taxable, and in turn, you'd be paying whatever your marginal rate is on that. For many folks, that's 15% (for some, less, for others, more, especially if you have state/local taxes). If your marginal rate is 15%, then the effective cost of selling is about 25% * 15% = 3.75%. That's not trivial, but if the fund in question has an E.R. of, say, 0.7%, and you transfer to a fund that is otherwise the same (i.e. performance, risk, etc), but with a 0.1% E.R., then you'll break even on the tax hit in a bit over 6 years. Another alternative, if some funds are sub-par but have high embedded gains, is to hold them, but turn off reinvestment (direct the dividends and such to a settlement account and use to buy something else).

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Earl Lemongrab
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Re: Vanguard or Merrill Lynch

Post by Earl Lemongrab » Mon Nov 06, 2017 3:11 pm

beehappy wrote:
Mon Nov 06, 2017 2:49 pm
Earl Lemongrab wrote:
Sat Nov 04, 2017 2:26 pm
I'm a big fan of Merrill Edge. The Preferred Rewards is great, free trades and credit card boosts. Unfortunately you can't get a transfer bonus if coming from Merrill Lynch.
He might be able to still get the bonus if Merrill Edge is facing bonus vs move to somewhere else.
It's possible, but the terms of offer specifically exclude that. Never hurts to check, of course.
But even without the bonus, I much prefer Merrill Edge to Vanguard for the reasons you stated, as well as much better customer service.
If the bonus programs ever go away entirely, Edge would be my custodian of choice right now.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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nedsaid
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Re: Vanguard or Merrill Lynch

Post by nedsaid » Mon Nov 06, 2017 4:41 pm

Here at Bogleheads, I suppose the default answer would be Vanguard and manage the funds yourself.

Really, what it boils down to is whether or not you are getting value added for the 0.50% a year. Actually, that is not a bad rate for employing an advisor, the industry standard for Assets Under Management used to be 1% a year. Ameriprise and Edward Jones charge more than 1.00% a year. Vanguard Advisory Services charges 0.30% a year. We have no way of knowing how good your advisor is.

A lot of folks will post the portfolio that advisors manage for them, and in most cases the Bogleheads are not impressed. A lot of times you will be big name mutual funds from different fund companies with recent strong performance. Often we see individual stocks mixed in as well. We see pretty complex portfolios, particularly from the Edward Jones folks. It helps to know the rationale behind the portfolio. What strategy is behind the investments?

An advisor should also help prevent the behavioral errors you might make if you were on your own. Too often investors want to buy near the top of the market and sell near the bottom. This happens because investors let their emotions dictate their investment decisions. An advisor can help with good portfolio construction.

You can look at Target Date Retirement Funds or Target Risk type of funds to give you an idea for an age appropriate or a risk tolerance appropriate portfolio. I tell people to look at what Vanguard, Fidelity, and T. Rowe Price is doing in their model portfolios and this gives you a good idea of appropriate allocations to US Stocks, International Stocks, US Bonds, and International Bonds.

If you buy into the Vanguard model, you will have 40% of your stocks and 30% of your bonds in International, these percentages hold true for their Target Date Retirement and LifeStrategy funds. If you want to pick a risk level like Aggressive, Moderate, or Conservative; look at their LifeStrategy funds. If you want an age appropriate asset allocation, look at the Target Date Retirement fund that most closely matches your projected retirement date. You can use the LifeStrategy (target risk) or Target Date Retirement fund or you can bake your own using your own choice of funds.

So you can simply look at what the big three mutual fund companies are doing, copy what they are doing, and ditch the advisor. Or you could just buy the Target Risk or Target Date fund of your choice. No fuss, no muss.

In many cases, people find the extra fees do not add value and elect to manage their investments on their own.
A fool and his money are good for business.

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ruralavalon
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Re: Vanguard or Merrill Lynch

Post by ruralavalon » Mon Nov 06, 2017 6:08 pm

3puttpar wrote:
Mon Nov 06, 2017 2:30 pm
Thank you both for the insight. It is in a taxable account so that is where it gets sticky. Is it worth transferring it to take the 20% capital gains hit? Or just stick to the 0.5%. Hopefully I can transfer in kind. I will ask Vanguard to see how this can work.
What funds are in the taxable account? Please give fund names, tickers and expense ratios. (Perhaps a fund might be worth keeping rather than selling, hard to to say without these details.)

What is the unrealized capital gain status for each fund?

How long have you held each fund?

It all depends on those details. It's probably still worth it.

. . . . .

In general here are some of the things to do or consider to reduce the tax cost from the switch.

1) turn off any automatic reinvestment of dividends, to stop stop buying new shares.
2) if anything is about to turn from short-term gain to long term-gain, wait a bit to sell.
3) sell any fund with an unrealized capital loss.
4) add up the capital losses realized by doing that.
5) sell funds with about the same total dollar amount of unrealized capital gains.
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