realized startup equity / schwab private client

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The0s
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realized startup equity / schwab private client

Post by The0s » Mon Feb 12, 2018 7:48 pm

I'm 32y/o and recently realized my equity in a startup. My portfolio is now ~$3m and have access to the highest tier of schwab private client at discounted rates.

I've been bogleing for about 3 years, so I'm trying to pick apart their various slice n' dice arguments for why a 4 fund portfolio is too simple. However, schwab is pointing out many things which I do not have a rebuttal. Some examples:

1) Total stock market is underweight small cap
2) Total bond market does not have the management to deal with the risk of a rising interest rate environment
3) Total international does not have enough emerging markets
4) Emerging markets require active management due to the inefficiencies of those markets
5) International bonds is an asset class worth having
6) Tax advantaged bonds are worth having

I'm starting to doubt the bogle simplicity at this asset level.

My friends ask for advice and I usually say: for 50k - 2 fund, for 500k - 4 fund.

At this point, my (much) older friends who are 30m+ use various private client services (schwab, chase, etc). At what point does the bogle simplicity inflect to allow money managers to provide value?

What price would you pay for third party recommendations and administration of your portfolio? 20bp? 10bp? 1bp?

I have the urge to reject the 'drag' at all costs, but if I have access to the advice of people who monitor the markets all day for below market rates - am I missing the forest for the trees?

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Ged
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Re: realized startup equity / schwab private client

Post by Ged » Mon Feb 12, 2018 7:56 pm

Do you have any evidence of the existence of an inflection point?

If there is what makes you think it's less then $3 Million? Many Bogleheads have amounts exceeding that.

alex_686
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Re: realized startup equity / schwab private client

Post by alex_686 » Mon Feb 12, 2018 8:05 pm

I believe that active management can add value. The big problem is figure out if your adviser is actually adding value. If you can't figure that out then you should stick with the neutral portfolio.

Can tilting add value? Or item #1 and #3? Yes. That is one skill class.

Can active selection add value? or Item # 2 or #4. Yes, sorta of. For bonds it is "better fitted to your risk/return profile", not higher returns. I strongly believe this for EM but picking a good manager is hard.

Can one get "tax" alpha. Yes, and this is the easiest of the 6 items. At 3m AUM, which is pretty small, I would think fund - not individual bonds. Maybe if you had 500k in munies....

Yes, international bonds is worth having. Vanguard is including them in their target date funds if you need reassurances.

ksualum
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Re: realized startup equity / schwab private client

Post by ksualum » Mon Feb 12, 2018 8:12 pm

So, if Schwab has convinced you you need EM and International bonds etc, why couldn't you add them yourself? Just buy one of William Bernstein books on asset allocation or read the Lazy Person's Guide to Investing and do it yourself . . . .

AlohaJoe
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Re: realized startup equity / schwab private client

Post by AlohaJoe » Mon Feb 12, 2018 8:36 pm

The0s wrote:
Mon Feb 12, 2018 7:48 pm
I'm starting to doubt the bogle simplicity at this asset level.
I have more money than you and I don't doubt Boglehead simplicity.

All of the questions you (and Schwab) ask have been repeatedly answered (probably thousands of times) on this forums and in articles by people like Jason Zweig, JL Collins, and Larry Swedroe.

If you don't agree with the answers, well, that's one thing. Reasonable people can disagree on many things in life. But the answers are there for the taking.
What price would you pay for third party recommendations and administration of your portfolio? 20bp? 10bp? 1bp?
Probably around 1-3bp. I am vaguely acquainted with 2 billionaires. They have private offices with staff of 3 or 4 full-time people to manage their investments. But that still only works out to something like 0.03% expense ratio for them.

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Nestegg_User
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Re: realized startup equity / schwab private client

Post by Nestegg_User » Mon Feb 12, 2018 8:57 pm

The0s wrote:
Mon Feb 12, 2018 7:48 pm
I'm 32y/o and recently realized my equity in a startup. My portfolio is now ~$3m and have access to the highest tier of schwab private client at discounted rates.

I've been bogleing for about 3 years, so I'm trying to pick apart their various slice n' dice arguments for why a 4 fund portfolio is too simple. However, schwab is pointing out many things which I do not have a rebuttal. Some examples:

1) Total stock market is underweight small cap
you can add small cap yourself to whatever level you feel comfortable
2) Total bond market does not have the management to deal with the risk of a rising interest rate environment
You don’t have to go total bond, many don’t due to amount of MBS in it. I use shorter duration (intermediate) bonds and currently CD’s for shorter {just put into 2% two year CD}
3) Total international does not have enough emerging markets
as with 1) you can add emerging markets if you want ( currently I’ve not added any emerging markets to my portfolio, and had culled some before, as I didn’t need the volatility right after retirement.
4) Emerging markets require active management due to the inefficiencies of those markets
that is very debatable, some agree others don’t. it adds to the question as to whether EM is sufficiently valuable to include or whether you are better off adding mid-caps and small-caps
5) International bonds is an asset class worth having
unhedged international bonds are more risky; once hedged they return is not sufficiently different than equivalent domestic bonds. Not needed
6) Tax advantaged bonds are worth having
There are threads that discuss various funds on BH. you can put them in your portfolio yourself without additional overhead

I'm starting to doubt the bogle simplicity at this asset level.

My friends ask for advice and I usually say: for 50k - 2 fund, for 500k - 4 fund.

At this point, my (much) older friends who are 30m+ use various private client services (schwab, chase, etc). At what point does the bogle simplicity inflect to allow money managers to provide value?

What price would you pay for third party recommendations and administration of your portfolio? 20bp? 10bp? 1bp?
I don’t pay for such hand-holding
I have the urge to reject the 'drag' at all costs, but if I have access to the advice of people who monitor the markets all day for below market rates - am I missing the forest for the trees?
...and congratulations

The0s
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Re: realized startup equity / schwab private client

Post by The0s » Mon Feb 12, 2018 9:52 pm

All - thank you for your candid responses. Schwab hit me with a bunch of uncomfortable statements and now you're hitting me, and that's a good thing.

Let me ask some followup questions.
Do you have any evidence of the existence of an inflection point?
I compare it to why I have an accountant instead of doing it myself. At some point the time required outweighs the cost. At 500k it was clear, now - I dont know - considering the fees are less than 20bps.
The big problem is figure out if your adviser is actually adding value. If you can't figure that out then you should stick with the neutral portfolio.
Good point. I cant figure it out. I've been using a spreadsheet to track my total return but I cant easily convert to something generic. Do you have a recommendation for a total return portfolio tool?
So, if Schwab has convinced you you need EM and International bonds etc, why couldn't you add them yourself?
I could add them myself but I thought the 4 fund portfolio was sufficient and they poked holes in it. I didnt even consider adding EMs/etc. I'm asking for perspective on when a boglehead might throw up their hands and pay someone else to do it since this is not set it and forget it (or is it?).
Probably around 1-3bp
Thank you for answering this.
I have more money than you and I don't doubt Boglehead simplicity.
As your assets grew, how did your number of securities change?
All of the questions you (and Schwab) ask have been repeatedly answered (probably thousands of times) on this forums and in articles by people like Jason Zweig, JL Collins, and Larry Swedroe.
If you don't agree with the answers, well, that's one thing. Reasonable people can disagree on many things in life. But the answers are there for the taking.
I understand that these answers are available but I am attempting to judge if the effort to discover them is less than the price of paying for the answers. Which simple portfolio do you ascribe to?

jminv
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Re: realized startup equity / schwab private client

Post by jminv » Mon Feb 12, 2018 10:22 pm

Of course Schwab has discounted their rates for you. Your total asset base is higher than their average which only means they make equivalent advisory fees (lower fee * higher account balance) and get to keep your assets under managment which is the metric they care most deeply about, followed by the number of trades a year your make. Schwab is good at increasing customer stickiness. You should try to get $2500 a year retention bonus from them for not transferring to another broker: they will pay if you are persistent enough as in maximum one hour of effort a year. If you compound these gains, you will have a non-trivial sum at retirement.

If you believe Schwab's advice then you should make use of their free Intelligent Portfolio tool which will give you a portfolio based on their principals based on your risk tolerance. This is a tool you would probably like quite a bit. The portfolio will have a minimum 6% cash (the cash drag is where they make their money on this product). Next, spend 10 minutes googling this portfolio allocation to identify the ETFs they are recommending, then buy those ETFs and avoid the advisory fee. A 3 fund portfolio is just a recommendation. There's nothing keeping you from investing in asset classes in a way that you feel comfortable. I don't follow the 3 fund portfolio and you don't have to if you don't want to either.

The idea that Schwab's advisors know better than an average investor is incorrect. Schwab corporate recognizes this which is why they've created their Intelligent Portfolio. It's all the advice they would give you wrapped into an automated product that bypasses such a human. I too have a persistent advisor assigned to my Schwab account. He's a nice enough guy but is less knowledgeable than me. His major was English followed by a career in sales...err...advisory at Schwab.

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unclescrooge
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Re: realized startup equity / schwab private client

Post by unclescrooge » Mon Feb 12, 2018 10:32 pm

The0s wrote:
Mon Feb 12, 2018 7:48 pm
I'm 32y/o and recently realized my equity in a startup. My portfolio is now ~$3m and have access to the highest tier of schwab private client at discounted rates.

I've been bogleing for about 3 years, so I'm trying to pick apart their various slice n' dice arguments for why a 4 fund portfolio is too simple. However, schwab is pointing out many things which I do not have a rebuttal. Some examples:

1) Total stock market is underweight small cap
2) Total bond market does not have the management to deal with the risk of a rising interest rate environment
3) Total international does not have enough emerging markets
4) Emerging markets require active management due to the inefficiencies of those markets
5) International bonds is an asset class worth having
6) Tax advantaged bonds are worth having

I'm starting to doubt the bogle simplicity at this asset level.

My friends ask for advice and I usually say: for 50k - 2 fund, for 500k - 4 fund.

At this point, my (much) older friends who are 30m+ use various private client services (schwab, chase, etc). At what point does the bogle simplicity inflect to allow money managers to provide value?

What price would you pay for third party recommendations and administration of your portfolio? 20bp? 10bp? 1bp?

I have the urge to reject the 'drag' at all costs, but if I have access to the advice of people who monitor the markets all day for below market rates - am I missing the forest for the trees?
I agree with all these points except #4. I'd also add a few more of my own.
But you can fix all of these issues yourself.

What you should be paying for is financial planning.

livesoft
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Re: realized startup equity / schwab private client

Post by livesoft » Mon Feb 12, 2018 10:44 pm

If someone hit me with the following, I would respond as in blue.
The0s wrote:
Mon Feb 12, 2018 7:48 pm
1) Total stock market is underweight small cap
Yes, I know. I will tilt to small-cap and value by adding a small-cap value (IJS or VBR/VSIAX) and small-cap foreign (VSS/VFSVX).

2) Total bond market does not have the management to deal with the risk of a rising interest rate environment
Neither does any other bond fund. Nevertheless, I would use Total bond market along with short-term corporate bond index fund (VCSH/VSCSX) in order to trade duration risk for credit risk. I would rebalance between the two occasionally.

3) Total international does not have enough emerging markets
Maybe the Schwab one doesn't, but there are plenty of Total International funds that really are Total International and have plenty of EM for me.

4) Emerging markets require active management due to the inefficiencies of those markets
That's BS and you know it. Check out SPIVA.

5) International bonds is an asset class worth having
Maybe. I might invest in them later.


6) Tax advantaged bonds are worth having
I will use tax-exempt muni-bond funds as needed. Thank you very much.
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AlohaJoe
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Re: realized startup equity / schwab private client

Post by AlohaJoe » Mon Feb 12, 2018 10:48 pm

The0s wrote:
Mon Feb 12, 2018 9:52 pm
I have more money than you and I don't doubt Boglehead simplicity.
As your assets grew, how did your number of securities change?
It didn't change from $800,000 to >$3 million.
All of the questions you (and Schwab) ask have been repeatedly answered (probably thousands of times) on this forums and in articles by people like Jason Zweig, JL Collins, and Larry Swedroe.
If you don't agree with the answers, well, that's one thing. Reasonable people can disagree on many things in life. But the answers are there for the taking.
I understand that these answers are available but I am attempting to judge if the effort to discover them is less than the price of paying for the answers. Which simple portfolio do you ascribe to?
I think the answers can be found in about a weekend of searching & reading. Considering a 10bps advisor on a $3 million portfolio costs you $3,000 a year, is it worth spending $3,000 (every year, forever) instead of learning? How many other (far less expensive) things do you do yourself rather than pay someone for? For instance, many people clean their houses instead of hiring a cleaner. $3,000 a year would pay for a cleaner so you never have to clean for the rest of your life. Would you rather clean your house for the rest of your life or learn the answers to Schwab's questions? :D

WhiteCoatInvestor (who is on this forum and also has his own blog) has a nifty post, 150 Portfolios Better Than Yours. Virtually any of those portfolios is "good enough". Even if you agree with Schwab's points -- as others have said -- you don't need to pay for them to run it for you. WhiteCoatInvestor's posts has several portfolios that address all of Schwab's points.

123
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Re: realized startup equity / schwab private client

Post by 123 » Mon Feb 12, 2018 11:04 pm

If you use any advising service from anyone, with probably the exception of Vanguard PAS, you will likely be on a hit-list of customers who can be sold more products by advisers from Schwab or wherever you find your adviser. I've found the only way to be "off the radar" is to manage your own investments, it's not hard. The peace and quiet is wonderful. But I know some people like to deal with salespeople, it may make them feel worthy, important, and valuable, whereas the salesperson only sees a "mark".
The closest helping hand is at the end of your own arm.

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Tyler Aspect
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Re: realized startup equity / schwab private client

Post by Tyler Aspect » Mon Feb 12, 2018 11:23 pm

Well, did you think a Schwab check on your portfolio was going to result in their approval of what you were doing before? Their goal was to recruit you into their managed service. They are very good at what they do.

These free portfolio checks are never free. Somehow you got into a mental frame that you need to buy their service if you cannot rebut all their points. Although Bogleheads recommendations are simple, they have very technical foundations. If you did not read up on all of books and white-papers it is unlikely for you to be able to answer all their challenges.

The most difficult aspect of personal finance is that for the normal people on the street a false statement can sound better than a true statement. Usually the false statements have been crafted through a well-paid sales department, but the true statements lacked polish and not as well written.
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Nate79
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Re: realized startup equity / schwab private client

Post by Nate79 » Mon Feb 12, 2018 11:30 pm

Why not just use the free Schwab service, SIP? It has all of the aspects that they talked about and no need for advisory fee? You can also find some in-depth review and backdating of SIP in some recent threads.

gsmith
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Re: realized startup equity / schwab private client

Post by gsmith » Mon Feb 12, 2018 11:32 pm

The questions have really been answered, but I just wanted to leave this link here

WSJ:Advisers at Leading Discount Brokers Win Bonuses to Push Higher-Priced Products
Fidelity representatives are paid 0.04% of the assets clients invest in most types of mutual funds and exchange-traded funds. They earn more than twice as much, 0.10%, on choices that typically generate higher annual fees for Fidelity, such as managed accounts, annuities and referrals to independent financial advisers.

“If I was sitting in front of someone and there were 20 different avenues we could choose from,” said former Fidelity financial consultant Sean Gray, “and we could choose Fidelity’s managed accounts—that is what paid us more—in my mind, that created a conflict. And that’s one of the reasons I left.” Mr. Gray, who worked in a Fidelity branch in Atlanta from 2011 to 2016, now is at a wealth-management firm in Georgia.

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in_reality
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Re: realized startup equity / schwab private client

Post by in_reality » Tue Feb 13, 2018 1:11 am

The0s wrote:
Mon Feb 12, 2018 7:48 pm
I'm 32y/o and recently realized my equity in a startup. My portfolio is now ~$3m and have access to the highest tier of schwab private client at discounted rates.
I have that at Schwab but wouldn't consider private client unless the fee was low (0.3% or under).

I used to be private bank at Wells Fargo but found bogleheads better.
The0s wrote:
Mon Feb 12, 2018 7:48 pm
1) Total stock market is underweight small cap
It's not difficult to find out what market weight is, what your portfolio has and adjust.

Have you ever used Morningstar's instant x-ray
The0s wrote:
Mon Feb 12, 2018 7:48 pm
2) Total bond market does not have the management to deal with the risk of a rising interest rate environment
Sure it's true. But what are any of the actively managed offerings really going to do about it. Bond yields are low and if they shorten duration, they will earn less minus the fee. You can shorten durations yourself.

To me inflation might be the best reason to use advice. The Schwab Intelligent Portfolios and Intelligent Advisory's have considered that case are set up to address it (at least somewhat). I view inflation protection as having a cost and am happy with just using an intermediate duration in bonds, over weighting emerging markets, overweighting REITS (these will suffer at first but can increase rents - not a perfect strategy).
The0s wrote:
Mon Feb 12, 2018 7:48 pm
3) Total international does not have enough emerging markets
The Schwab fund doesn't no.

It's easy to add SCHE (Schwab Emerging Markets). I also use FNDE which is a little more expensive value type fund and DGS which is small caps value (but a dividend fund so not great in taxable.

The0s wrote:
Mon Feb 12, 2018 7:48 pm
4) Emerging markets require active management due to the inefficiencies of those markets
No. Just no.
The0s wrote:
Mon Feb 12, 2018 7:48 pm
5) International bonds is an asset class worth having
It might be. Vanguard International Bond is fine if you want some. You can look at Vanguard Target date funds for how much they hold. My concern is that hedging might cost a little in terms of the term premium (as they are hedged at short term rates), but they might be a wash. The advantage is if rates go up here but not overseas. You have bonds you can sell. I'm kinda expecting inflation to come more globally or not so much because costs that can be moved to a cheaper location seem like they get moved. Also, international bonds have been great while QE pushed them below zero (NAV gain + hedge return) but QE below zero has to stop and they are a little longer duration.

The0s wrote:
Mon Feb 12, 2018 7:48 pm
6) Tax advantaged bonds are worth having
It's not difficult to find an decent muni fund. That is maybe Schwab's weakest point. I use a Van Eck's ETF. Vanguard has some good ones too.

I'm starting to doubt the bogle simplicity at this asset level.

My friends ask for advice and I usually say: for 50k - 2 fund, for 500k - 4 fund.
The0s wrote:
Mon Feb 12, 2018 7:48 pm
At this point, my (much) older friends who are 30m+ use various private client services (schwab, chase, etc). At what point does the bogle simplicity inflect to allow money managers to provide value?

What price would you pay for third party recommendations and administration of your portfolio? 20bp? 10bp? 1bp?
Target Date funds are great, have a team of researchers behind them and are cheap.

If you are crazy busy at work, that might be the best way to go. The Schwab Target Index (0.08% ER) is cheaper than than their Target Date series which includes some actively managed funds I think, so go with Target Index.

If you want to see what a market cap weighted portfolio would be with Schwab ETFs, I put a simple calculator here (it draws data from Morningstar which sometimes changes their formats, so if it's down let me know).

https://docs.google.com/spreadsheets/d/ ... =842559917

By the way, the Schwab Investment Advisory caps it's 0.28% fee to $900/quarter so that mean no cost for amounts above $1.4M. The SIP robo is less but does have a cash allocation they use both for a zero duration bond holding for stability and to earn money for themselves via lending it out in home mortgages.

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