$800,000 Windfall. Love the 3-Fund portfolio approach. Wealth Managers in contact

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Maple1234
Posts: 1
Joined: Fri Jul 20, 2018 12:58 am

$800,000 Windfall. Love the 3-Fund portfolio approach. Wealth Managers in contact

Post by Maple1234 » Fri Jul 20, 2018 1:29 am

Hi - I'm very happy to have found this forum.

I recently had an $800,000 windfall in the US and am looking for a bit of advice. I am 25 years old and single. I studied "business" in undergrad and have taken plenty of finance classes, but I definitely feel that I need a bit of advice with this kind of money. My main knowledge ends after the basics of diversification, dollar-cost averaging, and keeping fees/costs low when it comes to investing.

I have met with several wealth managers and financial advisers. My main take-a-way is that they seem to charge a fairly large percentage for what seems like a good sales pitch. A bit of googling seems like I may be on to something.

I love the idea of the 3-fund portfolio and "lazy investing" in general. I work a job (not finance related) that requires me to work 60-80 hours/week and 6 days/week (I don't plan to leave it because of the money), so that investing style is appealing for a number of reasons. My main question is:

For someone my age that is not one to "day-trade" or make rash decisions with market up/downturns, is the 3 fund portfolio (In theory, I've read how it can be more than 3 or personalized) a good choice for me? I just cant see how paying 1% plus active management fees makes sense long-run. This is especially true for me as I plan to treat this money as if I never received it for a minimum of 10-15 years (likely more like 20-25 years assuming my day job income increases).

My main concern is: Do wealth managers make sense when the market seems to be close to a downturn? Or are index funds still the long term move? I'm nervous that I seem to be entering the market with a relatively large amount of money during what seems to be close to the end of a very long bull run. I know it's foolish to try and time the market (time in the market is better than timing the market and so on and so forth..), so I plan to dollar-cost average whichever route I choose. But does the crazy international trade and political climate warrant a wealth manager? or does a consistent 3-fund portfolio strategy make sense given my timeline? The top wealth manager I've considered is attached to an Investment Bank but does not use any of their internal products for fear of seeming like they're "double dipping". They have also outlined every way that they seem to be investing with my best interests at heart. Additionally, they are a separate entity from the bank with autonomy, allowing them to put the clients first. But at the end of the day, it still seems like regardless of what they say, it's still a pitch and I'm not sure what the real benefit is other than "piece of mind".

Which is the better choice for a 25 year old hoping to let a windfall grow until I'm 35-45 years old for an early retirement? My appreciation for any and all answers! I'll also add that I contribute 20% of my $55,000/yr income to my 401k which uses the Vanguard 2055 fund.

WVbaron
Posts: 43
Joined: Sun Apr 30, 2017 2:12 am

Re: $800,000 Windfall. Love the 3-Fund portfolio approach. Wealth Managers in contact

Post by WVbaron » Fri Jul 20, 2018 4:52 am

Hello and welcome to the group!

I will leave it to others to give more specific / detailed advice as I am still learning too but a few things I would definitely consider:

* Take a deep breath and do nothing now...I would park the money in a vanguard money market account until you have a really good plan in place. There is NO rush to do anything with this money...regardless of what these wealth managers say!

* Tell no one about your windfall...this group is a great way to solicit feedback, share ideas, etc but I would not start telling friends, neighbors, co-workers, etc that you have $800K to invest.

* There are several feeds on this site about managing a windfall. I would read and re-read those and take your time organizing a plan. Then share the plan again with this group for feedback. The collective wisdom of this group never ceases to amaze me and you will get honest feedback about your plan, best ways to proceed, etc.

* FWIW, a good, simple 3 fund portfolio would be a good place to start thinking about investing this money. You need to think about your long term financial goals, asset allocation, level of risk you are comfortable taking, etc.

You have made a very smart choice in reaching out to this group and you will definitely get some good feedback. Take your time, organize yourself, and invest smartly. This is a nice amount to invest at your age and done correctly, will put you in a very good position to retire early or achieve other goals you might have. I wish you the best of luck and keep us updated.

Happy investing.

IowaFarmBoy
Posts: 728
Joined: Fri Jan 22, 2010 8:19 am

Re: $800,000 Windfall. Love the 3-Fund portfolio approach. Wealth Managers in contact

Post by IowaFarmBoy » Fri Jul 20, 2018 5:05 am

First, congrats on your success and welcome to Bogleheads!

From reading your post, it seems like the major attraction of a manager for you is that you think they may be able to do something to protect you against a downturn. One of my favorite quotes on Bogleheads is "nobody knows nothing". I think this applies to this situation. As much as professional managers want to believe they can predict the market, they just can't. A three-fund portfolio is perfect for your situation.

It seems like you are doing a good job of realizing that there are sharks in the water smelling the blood of your new money. Some managers are really bad and will exploit your situation. Some are honorable and honest and will look out for your best interests to the best of their ability. The problem is that even the honest ones need to make a living so they need to charge a fee. I don't perceive that they can add enough value over a three-fund portfolio to make it worthwhile.
Last edited by IowaFarmBoy on Fri Jul 20, 2018 6:25 am, edited 1 time in total.

tyrnup13
Posts: 79
Joined: Wed Aug 07, 2013 7:59 pm

Re: $800,000 Windfall. Love the 3-Fund portfolio approach. Wealth Managers in contact

Post by tyrnup13 » Fri Jul 20, 2018 5:16 am

If your time frame is 10-25 years, why do you even care if there is a market downturn? That just wouldn't be a concern of mine.

When has a financial adviser foreseen a market downturn and acted on a client's behalf? I don't think many advisers predicted the Great Recession, nor will they precisely time the next recession. All they can say is there will be one, but everyone already knows that.

Your inclination is correct--financial advisers typically charge a lot for questionable benefit. They will extract fees from you one way or another, even the ones that ostensibly don't "double dip". If I were you, I'd learn more about the 3-fund portfolio.

Good luck!

DarkHelmetII
Posts: 435
Joined: Mon Jul 24, 2017 12:25 pm

Re: $800,000 Windfall. Love the 3-Fund portfolio approach. Wealth Managers in contact

Post by DarkHelmetII » Fri Jul 20, 2018 5:39 am

Find a fee-only adviser and pay a one-time cost of $1,000 - $4,000 for written independent advice on a fiduciary basis (I paid $2,000). Ironically his / her advice should be very close to the 3-fund lazy portfolio ... but with this sum of money and given you are newer to investing, I'd says there is value in having a 'professional' / independent report to follow, keeping you from second guessing yourself, staying the course in downturns etc...

But you are absolutely right, be weary of people who want to manage your money for you, complex annuity / insurance arrangements etc....

ignition
Posts: 287
Joined: Sun Dec 11, 2016 11:28 am

Re: $800,000 Windfall. Love the 3-Fund portfolio approach. Wealth Managers in contact

Post by ignition » Fri Jul 20, 2018 5:44 am

There is a wiki page on managing windfalls: https://www.bogleheads.org/wiki/Managing_a_windfall

A 3 fund portfolio would be a very good choice imo. You can readjust the stock-bond allocation according to your risk tolerance.

I wouldn't use a wealth manager. The only good use for a wealth manager is psychological imo (ie. talking you out of selling stocks during a market crash). You could consider it I guess if he lets you invest in index funds and only charges a very minimal fee?

kmurp
Posts: 340
Joined: Fri Jun 01, 2007 1:53 pm

Re: $800,000 Windfall. Love the 3-Fund portfolio approach. Wealth Managers in contact

Post by kmurp » Fri Jul 20, 2018 5:52 am

Doesn’t Vanguard offer a one time financial planning session for this amount of money?

User avatar
Tamarind
Posts: 1866
Joined: Mon Nov 02, 2015 2:38 pm

Re: $800,000 Windfall. Love the 3-Fund portfolio approach. Wealth Managers in contact

Post by Tamarind » Fri Jul 20, 2018 6:07 am

Congrats on your windfall.

I don't think you need a wealth manager, but if you want advice and someone to ask investment and market questions of (besides us), you could try Vanguard PAS. They work with people with much larger portfolios than yours, use the same basic 3-4 fund approach we'll recommend, and are guaranteed not to try active management or any other shenanigans. They cost less than a traditional wealth manager (0.3% annually, no commissions), and you can quit using their service anytime without having to move money or change allocations.

I do think you might need to find a tax professional, as Vanguard can't do that for you last time I checked. You could pay a CPA a flat pre-arranged fee to help you make a plan for managing taxes over the next several years. For example, how should you prioritize tax-advantaged accounts, what would change as your income from work rises, how do charitable contributions affect your situation, etc. Have them do your taxes once (so you have an example to work from), with a eye to learning to do them yourself. If any CPA you speak to suggests you should buy insurance or investments from them, run.

The common thread here is that you can manage this yourself. It's not as complicated as it seems. There are hundreds of people on this forum managing as much or more of their own money. You don't need an ongoing paid relationship with advisors, but it can be helpful to purchase expert advice on an as-needed basis.

Also, another voice saying don't tell anyone around you and don't make any large purchases for at least a year. The only thing that should change is your fear level about a safe retirement.

Jack FFR1846
Posts: 10791
Joined: Tue Dec 31, 2013 7:05 am
Location: 26 miles, 385 yards west of Copley Square

Re: $800,000 Windfall. Love the 3-Fund portfolio approach. Wealth Managers in contact

Post by Jack FFR1846 » Fri Jul 20, 2018 6:21 am

Not only do you not need some wealth stealer, you really need to stay away from these thieves.

The primary job of a wealth manager is:

1) Convince you that only he can fend off the boogie man
2) Create a huge number of fund/stock/non-liquid investments so you are too scared to touch it because mere humans can''t possibly understand all the moving parts.
3) Generate fees in as sneaky of a way as possible.
4) Never forget the wealth manager's creed: "It's my money, and my quest is to take if from the client while smiling to his face".

With a couple million dollars invested, I spend all of 15 minutes a year "managing" it. My expense is less than 0.04% overall. Just create a 3 fund in the allocation that makes sense for you. If that's too hard, buy a target date fund for now and learn more.
Bogle: Smart Beta is stupid

racy
Posts: 242
Joined: Sun Mar 30, 2008 7:38 am
Location: Nebraska

Re: $800,000 Windfall. Love the 3-Fund portfolio approach. Wealth Managers in contact

Post by racy » Fri Jul 20, 2018 6:33 am

Maple1234 wrote:
Fri Jul 20, 2018 1:29 am
.... I am 25 years old and single. ... I'm nervous that I seem to be entering the market with a relatively large amount of money during what seems to be close to the end of a very long bull run. ....
At 65, I've been through many market corrections and a couple of crashes. And, before I'm dead I'm pretty sure I'll experience some more. Construct an asset allocation and, as they say around here, "stay the course".

User avatar
TomatoTomahto
Posts: 9745
Joined: Mon Apr 11, 2011 1:48 pm

Re: $800,000 Windfall. Love the 3-Fund portfolio approach. Wealth Managers in contact

Post by TomatoTomahto » Fri Jul 20, 2018 6:38 am

Jack FFR1846 wrote:
Fri Jul 20, 2018 6:21 am
Not only do you not need some wealth stealer, you really need to stay away from these thieves.

The primary job of a wealth manager is:

1) Convince you that only he can fend off the boogie man
2) Create a huge number of fund/stock/non-liquid investments so you are too scared to touch it because mere humans can''t possibly understand all the moving parts.
3) Generate fees in as sneaky of a way as possible.
4) Never forget the wealth manager's creed: "It's my money, and my quest is to take if from the client while smiling to his face".

With a couple million dollars invested, I spend all of 15 minutes a year "managing" it. My expense is less than 0.04% overall. Just create a 3 fund in the allocation that makes sense for you. If that's too hard, buy a target date fund for now and learn more.
OP, listen to the quoted advice.

Don’t “personalize” your 3-Fund Portfolio beyond deciding your asset allocation. Or, as Jack says, pick a Date Fund and forget it.

I am lucky enough to have a substantial portfolio to “manage;” thanks dear wife for marrying down. There are a few tweaks that are besides the point for this thread, but in principle it’s a boring 3-Fund Portfolio. It has served us well. It’s not Rocket Science. I’m as dumb as a sack of hammers, and I can do it in minutes per year. In our case, a “wealth advisor” would be charging almost 6 digits in AUM fees, and surely the fund expenses would be higher than at Vanguard, so as an hourly wage, those few minutes are paid astronomically.
Okay, I get it; I won't be political or controversial. The Earth is flat.

indexonlyplease
Posts: 1571
Joined: Thu Apr 30, 2015 12:30 pm
Location: Florida

Re: $800,000 Windfall. Love the 3-Fund portfolio approach. Wealth Managers in contact

Post by indexonlyplease » Fri Jul 20, 2018 6:42 am

I don't believe a wealth manager will keep you from losing money in a down market. You already have your investment decided for you. You picked the Target Dated Fund. Why not just invest the same in a taxed account with Vanguard. This will keep it simple for you and you can stay working with your busy schedule. The way you put money in the fund will be your choice.

Also, you can call Vanguard and request a free consultation over the phone. They will email you the recommendation. You can decide to go with their fund picks or go with your Target Dated Fund. I did this with my cousin when he got a windfall. We decided on the Target Dated Fund.

Grt2bOutdoors
Posts: 21747
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: $800,000 Windfall. Love the 3-Fund portfolio approach. Wealth Managers in contact

Post by Grt2bOutdoors » Fri Jul 20, 2018 6:50 am

Jack FFR1846 wrote:
Fri Jul 20, 2018 6:21 am
Not only do you not need some wealth stealer, you really need to stay away from these thieves.

The primary job of a wealth manager is:

1) Convince you that only he can fend off the boogie man
2) Create a huge number of fund/stock/non-liquid investments so you are too scared to touch it because mere humans can''t possibly understand all the moving parts.
3) Generate fees in as sneaky of a way as possible.
4) Never forget the wealth manager's creed: "It's my money, and my quest is to take if from the client while smiling to his face".

With a couple million dollars invested, I spend all of 15 minutes a year "managing" it. My expense is less than 0.04% overall. Just create a 3 fund in the allocation that makes sense for you. If that's too hard, buy a target date fund for now and learn more.
+1.

And don’t let the “wealth manager” convince you that you will receive extra attention because you have a large sum of assets. The only thing you will be getting is a larger bill for zero added value. BUT you will give the wealth guy a down payment on his new BMW that he’s been eyeing. Come into my parlor says the black widow wealth manager.... :twisted:
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

User avatar
Bruce
Posts: 354
Joined: Fri Mar 02, 2007 8:02 am
Location: Alaska

Re: $800,000 Windfall. Love the 3-Fund portfolio approach. Wealth Managers in contact

Post by Bruce » Fri Jul 20, 2018 7:11 am

Instead of spending time or money on a "wealth manager", spend the time yourself to read Taylor Larimore's excellent 86 page book "The Bogleheads Guide to the Three Fund Portfolio". Subtitled "How a simple portfolio of three total market index funds outperforms most investors with less risk". The outstanding advice in that book is distilled from a lifetime of investing lessons learned, and laid out in an easily understandable, but compelling way.

Then go read Bill Bernstein's outstanding short book, "If you can" and pay extra attention to the sentence, "Act as if every broker, insurance salesman, mutual fund salesperson and financial advisor is a hardened criminal, and stick to low cost index funds, and you'll do just fine".

Put your windfall in a Vanguard money market fund until you have read each of those books twice. You will now know more about what is best for you, then any "wealth manager" that is attracted to your windfall.

Best regards,
Bruce | | Winner of the 2017 Bogleheads Contest | | "Simplicity is the master key to financial success."

User avatar
CyclingDuo
Posts: 2825
Joined: Fri Jan 06, 2017 9:07 am

Re: $800,000 Windfall. Love the 3-Fund portfolio approach. Wealth Managers in contact

Post by CyclingDuo » Fri Jul 20, 2018 7:26 am

Maple1234 wrote:
Fri Jul 20, 2018 1:29 am
Hi - I'm very happy to have found this forum.

I recently had an $800,000 windfall in the US and am looking for a bit of advice. I am 25 years old and single. I studied "business" in undergrad and have taken plenty of finance classes, but I definitely feel that I need a bit of advice with this kind of money. My main knowledge ends after the basics of diversification, dollar-cost averaging, and keeping fees/costs low when it comes to investing.

I have met with several wealth managers and financial advisers. My main take-a-way is that they seem to charge a fairly large percentage for what seems like a good sales pitch. A bit of googling seems like I may be on to something.

I love the idea of the 3-fund portfolio and "lazy investing" in general. I work a job (not finance related) that requires me to work 60-80 hours/week and 6 days/week (I don't plan to leave it because of the money), so that investing style is appealing for a number of reasons. My main question is:

For someone my age that is not one to "day-trade" or make rash decisions with market up/downturns, is the 3 fund portfolio (In theory, I've read how it can be more than 3 or personalized) a good choice for me? I just cant see how paying 1% plus active management fees makes sense long-run. This is especially true for me as I plan to treat this money as if I never received it for a minimum of 10-15 years (likely more like 20-25 years assuming my day job income increases).

My main concern is: Do wealth managers make sense when the market seems to be close to a downturn? Or are index funds still the long term move? I'm nervous that I seem to be entering the market with a relatively large amount of money during what seems to be close to the end of a very long bull run. I know it's foolish to try and time the market (time in the market is better than timing the market and so on and so forth..), so I plan to dollar-cost average whichever route I choose. But does the crazy international trade and political climate warrant a wealth manager? or does a consistent 3-fund portfolio strategy make sense given my timeline? The top wealth manager I've considered is attached to an Investment Bank but does not use any of their internal products for fear of seeming like they're "double dipping". They have also outlined every way that they seem to be investing with my best interests at heart. Additionally, they are a separate entity from the bank with autonomy, allowing them to put the clients first. But at the end of the day, it still seems like regardless of what they say, it's still a pitch and I'm not sure what the real benefit is other than "piece of mind".

Which is the better choice for a 25 year old hoping to let a windfall grow until I'm 35-45 years old for an early retirement? My appreciation for any and all answers! I'll also add that I contribute 20% of my $55,000/yr income to my 401k which uses the Vanguard 2055 fund.

Kudos on the windfall and to your 20% savings rate into your 401k!

Click on the Amazon link above and read Taylor Larimore's excellent primer on the Three Fund Portfolio.

Or click here:

https://www.amazon.com/Bogleheads-Guide ... Bogleheads

You can easily read it on a weekend and you will have taken steps to be "in the know" enough to manage it all yourself at age 25 without having to pay fees to the sales pitch financial crowd. Plenty of information and feedback available here at BH as well. Take the advice mentioned above to read the windfall WIKI page.

Regarding your worry about investing at a perceived "market top", read Ben Carson's article What if You Only Invested at Market Peaks?:

http://awealthofcommonsense.com/2014/02 ... ket-timer/

Lump sum vs. dollar cost averaging:

https://investor.vanguard.com/investing ... t-lump-sum

viewtopic.php?t=216498
"Everywhere is within walking distance if you have the time." ~ Steven Wright

User avatar
alpine_boglehead
Posts: 365
Joined: Fri Feb 17, 2017 9:51 am
Location: Austria

Re: $800,000 Windfall. Love the 3-Fund portfolio approach. Wealth Managers in contact

Post by alpine_boglehead » Fri Jul 20, 2018 7:34 am

Bruce wrote:
Fri Jul 20, 2018 7:11 am
"Act as if every broker, insurance salesman, mutual fund salesperson and financial advisor is a hardened criminal, and stick to low cost index funds, and you'll do just fine".
Very true. As you have already made contact, and now are a known worthy target: Run.
In more civilized terms: tell all with whom you already had contact that you have found another advisor. (if you say you'll do it yourself, they'll probably go on pitching).

Good advice has already been given by the other posters, so I have only one minor addition: keep like 10k in your bank account as an emergency fund (anyone should do that, you never know what life throws at you). And maybe cut back a little on your work hours as you certainly can afford it - health is also worth something.

The Wizard
Posts: 13356
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: $800,000 Windfall. Love the 3-Fund portfolio approach. Wealth Managers in contact

Post by The Wizard » Fri Jul 20, 2018 7:40 am

How did those Wealth Managers find out about your windfall?
Was there something in the paper about it or did you solicit them yourself?
Doesn't matter much at this point, but the general recommendation of not publicizing your wealth is a good one, preventing both shark attacks and assorted requests for money.

Anyhow, it's easy to invest this yourself, as others have agreed with.
You may wish to reassess your AA (percentage of stocks) since this windfall puts you maybe a decade ahead of where you would otherwise be...
Attempted new signature...

deltaneutral83
Posts: 1406
Joined: Tue Mar 07, 2017 4:25 pm

Re: $800,000 Windfall. Love the 3-Fund portfolio approach. Wealth Managers in contact

Post by deltaneutral83 » Fri Jul 20, 2018 7:50 am

I would take 90 days to decompress, place funds into money market, take a few grand for fun. Then, put it into the PAS system at vanguard that charges 30 bps. On your windfall that's less than $2.5k, money well spent in my opinion. If you want to dollar cost average equal amounts over 12-18 months that's fine too, especially if it helps you sleep better at night.

Then over the next 12 months read everything you can to better familiarize yourself with the three fund portfolio (Vanguard PAS system essentially uses this). You will be fine to manage it yourself after that given the details and knowledge you posted in the OP. A manager charging 1% AUM with high ER active funds with front loads has had about a 2-3% chance of beating the index benchmarks he's investing one's money into over the previous 25 years after fees. In a taxable account, which is likely where this windfall will go, I think that shrinks to 1% or less after fees. Play the odds. And don't tell anyone about your windfall other than your spouse, not even your dog (science/technology is amazing these days).

Grt2bOutdoors
Posts: 21747
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: $800,000 Windfall. Love the 3-Fund portfolio approach. Wealth Managers in contact

Post by Grt2bOutdoors » Fri Jul 20, 2018 7:55 am

Here is the link to If You Can ----> https://www.etf.com/docs/IfYouCan.pdf
It's a free pdf, but don't let the "free" fool you, this 16 page booklet is worth more than 16 wealth managers, it just requires an hour of your time. Follow that up by a few days worth of time over the course of a few months reading some books. After you read those books, you will know more than those "wealth manager" salesman. That's right, they are salesman, and if you don't believe me, read up on the latest scandal going over at Wells Fargo Private Bank where they are pushed to "sell". And it's no different at any other wealth management shop that does not act in a fiduciary capacity.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

aristotelian
Posts: 6676
Joined: Wed Jan 11, 2017 8:05 pm

Re: $800,000 Windfall. Love the 3-Fund portfolio approach. Wealth Managers in contact

Post by aristotelian » Fri Jul 20, 2018 8:13 am

Bruce wrote:
Fri Jul 20, 2018 7:11 am
Instead of spending time or money on a "wealth manager", spend the time yourself to read Taylor Larimore's excellent 86 page book "The Bogleheads Guide to the Three Fund Portfolio". Subtitled "How a simple portfolio of three total market index funds outperforms most investors with less risk". The outstanding advice in that book is distilled from a lifetime of investing lessons learned, and laid out in an easily understandable, but compelling way.

Then go read Bill Bernstein's outstanding short book, "If you can" and pay extra attention to the sentence, "Act as if every broker, insurance salesman, mutual fund salesperson and financial advisor is a hardened criminal, and stick to low cost index funds, and you'll do just fine".


Put your windfall in a Vanguard money market fund until you have read each of those books twice. You will now know more about what is best for you, then any "wealth manager" that is attracted to your windfall.

Best regards,
Seconding this. Also the first sentence about how anyone with the intelligence of a 10 year old can outperform most investment professionals and become a millionaire.

cherijoh
Posts: 6379
Joined: Tue Feb 20, 2007 4:49 pm
Location: Charlotte NC

Re: $800,000 Windfall. Love the 3-Fund portfolio approach. Wealth Managers in contact

Post by cherijoh » Fri Jul 20, 2018 8:38 am

Tamarind wrote:
Fri Jul 20, 2018 6:07 am
I don't think you need a wealth manager, but if you want advice and someone to ask investment and market questions of (besides us), you could try Vanguard PAS. They work with people with much larger portfolios than yours, use the same basic 3-4 fund approach we'll recommend, and are guaranteed not to try active management or any other shenanigans. They cost less than a traditional wealth manager (0.3% annually, no commissions), and you can quit using their service anytime without having to move money or change allocations.

I do think you might need to find a tax professional, as Vanguard can't do that for you last time I checked. You could pay a CPA a flat pre-arranged fee to help you make a plan for managing taxes over the next several years. For example, how should you prioritize tax-advantaged accounts, what would change as your income from work rises, how do charitable contributions affect your situation, etc. Have them do your taxes once (so you have an example to work from), with a eye to learning to do them yourself. If any CPA you speak to suggests you should buy insurance or investments from them, run.

The common thread here is that you can manage this yourself. It's not as complicated as it seems. There are hundreds of people on this forum managing as much or more of their own money. You don't need an ongoing paid relationship with advisors, but it can be helpful to purchase expert advice on an as-needed basis.

Also, another voice saying don't tell anyone around you and don't make any large purchases for at least a year. The only thing that should change is your fear level about a safe retirement.
I guess it depends on the form of the windfall, but I'm not sure how much value a CPA would provide it the windfall is a standard inheritance. Otherwise i agree 100%.

OP - I agree with the "wait and develop a plan" approach. The only thing I would do immediately is make sure that you are on target to maximize any tax advantage accounts for 2018. If this leaves you with a shortfall in cash flow each paycheck, then use some of the windfall to make up the difference.

User avatar
hand
Posts: 1368
Joined: Sun May 17, 2009 8:42 pm

Re: $800,000 Windfall. Love the 3-Fund portfolio approach. Wealth Managers in contact

Post by hand » Fri Jul 20, 2018 9:13 am

Few if any managers can alter the fundamental relationship between risk and returns (positive or negative) and finding those managers who can ahead of time is essentially an impossible task.

Keep your fees as low as possible (don't pay anyone a percentage!) and use the three fund portfolio (or a target date fund) to dial in the appropriate amount of risk for your situation.

As an aside (and something to be fine tuned over time with this group), be sure you use your newfound wealth to ensure you are maxing all retirement savings opportunities each year.

Dottie57
Posts: 7519
Joined: Thu May 19, 2016 5:43 pm
Location: Earth Northern Hemisphere

Re: $800,000 Windfall. Love the 3-Fund portfolio approach. Wealth Managers in contact

Post by Dottie57 » Fri Jul 20, 2018 9:55 am

Delete
Last edited by Dottie57 on Fri Jul 20, 2018 9:57 am, edited 1 time in total.

Dottie57
Posts: 7519
Joined: Thu May 19, 2016 5:43 pm
Location: Earth Northern Hemisphere

Re: $800,000 Windfall. Love the 3-Fund portfolio approach. Wealth Managers in contact

Post by Dottie57 » Fri Jul 20, 2018 9:56 am

I went to a wealth management group and paid a good price for a plan to manage my 500k. I have a good conersation with the wealth manager and expressed my desire for using well known index funds. This guy was supposed to have knowdge I did not have. Well he certainly did - he knew about the firm’s highly expense proprietary funds which is where he said to put my money. Walked straight out of there.

OP should learn as much as possible , and set/forget.

User avatar
ruralavalon
Posts: 17087
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: $800,000 Windfall. Love the 3-Fund portfolio approach. Wealth Managers in contact

Post by ruralavalon » Fri Jul 20, 2018 10:04 am

Welcome to the forum :)

It's great that you want a simple portfolio of index funds, and understand the importance of diversification, of keeping investing expenses low, and of not trying to time the market. You already understand all of the basics. Don't undervalue the knowledge you already have.

A simple three-fund portfolio or other lazy portfolio is the way to go for long-term investing, whatever the present market dynamics or expectations and whatever the present international or trade climate.

You are properly skeptical of the sales pitches you have received.

It absolutely does not make sense to pay a 1% annual fee for management of your investments.

Maple1234 wrote:
Fri Jul 20, 2018 1:29 am
Hi - I'm very happy to have found this forum.

I recently had an $800,000 windfall in the US and am looking for a bit of advice. I am 25 years old and single. I studied "business" in undergrad and have taken plenty of finance classes, but I definitely feel that I need a bit of advice with this kind of money. My main knowledge ends after the basics of diversification, dollar-cost averaging, and keeping fees/costs low when it comes to investing.

I have met with several wealth managers and financial advisers. My main take-a-way is that they seem to charge a fairly large percentage for what seems like a good sales pitch. A bit of googling seems like I may be on to something.

I love the idea of the 3-fund portfolio and "lazy investing" in general. I work a job (not finance related) that requires me to work 60-80 hours/week and 6 days/week (I don't plan to leave it because of the money), so that investing style is appealing for a number of reasons. My main question is:

For someone my age that is not one to "day-trade" or make rash decisions with market up/downturns, is the 3 fund portfolio (In theory, I've read how it can be more than 3 or personalized) a good choice for me? I just cant see how paying 1% plus active management fees makes sense long-run. This is especially true for me as I plan to treat this money as if I never received it for a minimum of 10-15 years (likely more like 20-25 years assuming my day job income increases).

My main concern is: Do wealth managers make sense when the market seems to be close to a downturn? Or are index funds still the long term move? I'm nervous that I seem to be entering the market with a relatively large amount of money during what seems to be close to the end of a very long bull run. I know it's foolish to try and time the market (time in the market is better than timing the market and so on and so forth..), so I plan to dollar-cost average whichever route I choose. But does the crazy international trade and political climate warrant a wealth manager? or does a consistent 3-fund portfolio strategy make sense given my timeline? The top wealth manager I've considered is attached to an Investment Bank but does not use any of their internal products for fear of seeming like they're "double dipping". They have also outlined every way that they seem to be investing with my best interests at heart. Additionally, they are a separate entity from the bank with autonomy, allowing them to put the clients first. But at the end of the day, it still seems like regardless of what they say, it's still a pitch and I'm not sure what the real benefit is other than "piece of mind".

Which is the better choice for a 25 year old hoping to let a windfall grow until I'm 35-45 years old for an early retirement? My appreciation for any and all answers! I'll also add that I contribute 20% of my $55,000/yr income to my 401k which uses the Vanguard 2055 fund.
Here is some general advice on dealing with a windfall.
1) take your time, there is no rush;
2) temporarily park the money for a short time in a very safe place, such as federally insured savings accounts or federally insured short term CDs. (a good resource for comparing rates is http://www.bankrate.com), or a money market fund such as Vanguard Prime Money Market Fund (VMMXX) current Sec Yield = 2.05%;
3) educate yourself first. Here is a wiki article you could read to start educating yourself: "Bogleheads® investment philosophy. For a quick overview of investing basics for the new person read Dr. Bernstein's short book, "If You Can". I suggest reading one or two books on general investing. Wiki article, "Books: recommendations and reviews";
4) beware of anyone (family, friend, neighbor, co-worker, banker, anyone at all) trying to sell anything (real estate, stocks, bonds, insurance, annuity, mutual fund, ETF, anything at all); and
5) make a plan first, then act.
Pease see the wiki article, "Managing a Windfall".

Here is a guide to help in deciding if you want or need an advisor: "Chapter 10 – On Your Own or Hire an Advisor". It lists questions to ask.

Harry Sit, who sometimes posts here, offers a service thru his blog to help people locate an advisor in their locality. "Advice-Only Search and Screening".


Two links for finding an advisor:
http://www.napfa.org/consumer/index.asp
http://www.garrettplanningnetwork.com/
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

User avatar
BolderBoy
Posts: 4526
Joined: Wed Apr 07, 2010 12:16 pm
Location: Colorado

Re: $800,000 Windfall. Love the 3-Fund portfolio approach. Wealth Managers in contact

Post by BolderBoy » Fri Jul 20, 2018 11:26 am

Maple1234 wrote:
Fri Jul 20, 2018 1:29 am
I have met with several wealth managers and financial advisers. My main take-a-way is that they seem to charge a fairly large percentage for what seems like a good sales pitch. A bit of googling seems like I may be on to something.
You are definitely on to something. You don't need them.
For someone my age that is not one to "day-trade" or make rash decisions with market up/downturns, is the 3 fund portfolio (In theory, I've read how it can be more than 3 or personalized) a good choice for me?
Almost certainly it would be a perfectly fine choice for you. Since this sounds like a non-retirement money windfall, pay attention to tax-efficiency when selecting your stock & bond funds.

I'll be seconding another poster's advice to you as well.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

User avatar
BolderBoy
Posts: 4526
Joined: Wed Apr 07, 2010 12:16 pm
Location: Colorado

Re: $800,000 Windfall. Love the 3-Fund portfolio approach. Wealth Managers in contact

Post by BolderBoy » Fri Jul 20, 2018 11:27 am

Jack FFR1846 wrote:
Fri Jul 20, 2018 6:21 am
Not only do you not need some wealth stealer, you really need to stay away from these thieves.

The primary job of a wealth manager is:

1) Convince you that only he can fend off the boogie man
2) Create a huge number of fund/stock/non-liquid investments so you are too scared to touch it because mere humans can''t possibly understand all the moving parts.
3) Generate fees in as sneaky of a way as possible.
4) Never forget the wealth manager's creed: "It's my money, and my quest is to take if from the client while smiling to his face".
Agreed!
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

User avatar
cockersx3
Posts: 253
Joined: Sun Apr 17, 2016 3:55 pm

Re: $800,000 Windfall. Love the 3-Fund portfolio approach. Wealth Managers in contact

Post by cockersx3 » Fri Jul 20, 2018 7:04 pm

ruralavalon wrote:
Fri Jul 20, 2018 10:04 am
Welcome to the forum :)

It's great that you want a simple portfolio of index funds, and understand the importance of diversification, of keeping investing expenses low, and of not trying to time the market. You already understand all of the basics. Don't undervalue the knowledge you already have.

A simple three-fund portfolio or other lazy portfolio is the way to go for long-term investing, whatever the present market dynamics or expectations and whatever the present international or trade climate.

You are properly skeptical of the sales pitches you have received.

It absolutely does not make sense to pay a 1% annual fee for management of your investments.

Here is some general advice on dealing with a windfall.
1) take your time, there is no rush;
2) temporarily park the money for a short time in a very safe place, such as federally insured savings accounts or federally insured short term CDs. (a good resource for comparing rates is http://www.bankrate.com), or a money market fund such as Vanguard Prime Money Market Fund (VMMXX) current Sec Yield = 2.05%;
3) educate yourself first. Here is a wiki article you could read to start educating yourself: "Bogleheads® investment philosophy. For a quick overview of investing basics for the new person read Dr. Bernstein's short book, "If You Can". I suggest reading one or two books on general investing. Wiki article, "Books: recommendations and reviews";
4) beware of anyone (family, friend, neighbor, co-worker, banker, anyone at all) trying to sell anything (real estate, stocks, bonds, insurance, annuity, mutual fund, ETF, anything at all); and
5) make a plan first, then act.
Pease see the wiki article, "Managing a Windfall".

Here is a guide to help in deciding if you want or need an advisor: "Chapter 10 – On Your Own or Hire an Advisor". It lists questions to ask.

Harry Sit, who sometimes posts here, offers a service thru his blog to help people locate an advisor in their locality. "Advice-Only Search and Screening".


Two links for finding an advisor:
http://www.napfa.org/consumer/index.asp
http://www.garrettplanningnetwork.com/
This is good advice.

OP, I received a windfall bigger than this several years ago, so I can attest to how surreal this whole experience probably is for you. It's good to hear that you're skeptical of the financial advisors, and are already directing a good chunk of your salary to savings. Sounds like your instincts are good, which will help here.

Totally agree on these five steps to avoid mistakes and unnecessary churn. I did most of these and it helped. The only mistake I made was jumping into stocks too early (rather than parking the money in a safe place and waiting until my urge to DO SOMETHING died down), which led to a whole bunch of sales / repurchases once I eventually settled on an asset allocation and fund strategy. Luckily the sales / purchases were all among Vanguard index funds, so this wasn't a very big or expensive mistake or anything. But in retrospect, I really wish I had just taken my time and developed a more solid plan before acting, and would recommend the same to you.

Having that money is just not a big deal anymore for me, just a number on a screen that doesn't have much of an impact on how I live my daily life. Kinda weird to say that now, but it's true...the overall weirdness of this experience really does subside. The only difference is that I now know a lot more about investing and now have a solid plan on how to achieve my life's goals. So on balance it's all good. 8-)

I'd recommend The Bogleheads' Guide to Investing, which really helped me out when I was in your shoes. Have not (yet?) read the new Three Fund Portfolio book, but with Taylor as an author I'm sure it's very good as well. I actually use the three fund portfolio, using Vanguard index funds (for our brokerage acct) and their equivalents at Fidelity (my 401K and my wife's 403b/457's are with them) and it works out well.

Good luck! Feel free to reach out to the forum for any questions. There are a lot of people here who self-manage their own portfolios (some of which are quite large!), and they are all very willing to provide guidance and support.

User avatar
dratkinson
Posts: 4766
Joined: Thu Jul 26, 2007 6:23 pm
Location: Centennial CO

Re: $800,000 Windfall. Love the 3-Fund portfolio approach. Wealth Managers in contact

Post by dratkinson » Fri Jul 20, 2018 7:12 pm

BH $800,000 windfall. Love the 3-fund portfolio.


Question. Are you planning to retire in the US? I ask because you said this was a US windfall, implying you might have other country options. If “Yes, you will retire in another country”, then some answers might change to increase tax efficiency. (I’m don’t know which; I’ve only read some forum topics discussing the issue.)



Agree. Don't tell anyone that you have this money. Tell those that know you have it, that you've selected another FA.

Agree. Read the Wiki topic on managing a windfall. Take several months to decide your next move.

You may need to split your windfall into <$250K chunks, and place it with separate banks/CUs to stay under the FDIC/NCUA insurance limit. (Recall there may be a way to title each chunk differently, so you can keep all at one bank/CU, and stay under the insurance limit for each chunk. Will need to research this.)

While waiting, if not cash, then determine your cost basis of your inherited stocks/bonds. Why? You'll need this information if you sell stocks/bonds to rebalance into a 3-fund portfolio.



This is the structure I'd begin to target. Submitted as ideas for you to consider… to jump start your thinking.


First. (You can do this immediately, no need to wait.)
--Use a portion of your $800K to pay for your living expenses while you maximize your 401k contribution. Continue using your target date retirement fund.
--Use a portion of your $800K to pay for your living expenses while you maximize your IRA contribution. Use the same target date retirement fund.

Why? More tax-advantaged space is better than less. Your retired self will thank you.

You are currently contributing $11K/yr (=$55K x 20%) to your 401k, so you need to use $13K (= $18.5K + $5.5K - $11K) of your $800K this year to live on while you maximize your 401k and IRA contributions. Lather, rinse, repeat, annually.

Your FA (financial advisor) candidates probably didn't suggest this obvious first step because everything you do for yourself will take money out of their pocket. (You evil person, you. :twisted: )


Second. (You can do this immediately, no need to wait.)
--Increase your liquid (checking, savings, mmkt account, CDs,…) EFs (emergency funds) to 1yr of living expenses.
--Many like Ally bank. Can search bankrate.com and forum for other recommendations.

Why? It makes it easier to live knowing that you can easily pay for a new water heater or car repair. Why? They go from being a major financial obstacle, to being a minor annoyance.



Third. (Wait and think about this.)
--Use $200K of your $800K to create a 50/50 AA (stock/bond asset allocation) 3-fund portfolio in taxable.

Why? Your taxable retirement investments become an extended-tier of your EFs. Though more risky than bank savings, they should also see more growth.

Notice, with a $200K 50/50 AA, that means you have $100K in relatively safe bonds. That's almost 2yrs of living expenses. Which means your EFs are now ~3yr (= 1yr liquid + ~2yrs in relatively safe bonds) of living expenses. But the bonds are earning their market rate, which should be better than the rate paid on savings.


So of your $800K, and after the easy decisions:
$800K, windfall
- 13K, to maximize 401k and IRA for this year.
- 55K, to establish a liquid 1yr EF.
-200K, 3-fund portfolio in taxable, with an additional ~2yrs of living expenses in relatively safe bonds.
$532K, you only need to think seriously about deploying.

Lather, rinse, repeat with better numbers.

N.B. However you deploy it, I'd want to use some each year to maximize contributions to tax-advantaged space. Why? More tax-advantaged space is better than less.



Can you retire at age 35-45? If nothing else changes and you continue to invest $11K annually from your salary...


Scenario #1: Retire at age 35? Probably not. Why? You'll need a financial calculator to run these numbers.

Assume. 7% I (interest, annual growth rate), 10 N (number of years), $11K PMT (payment, annual contributions), 800K PV (present value, your windfall), 0 type/mode (contributions made at end of year, conservative).

Here is the Excel function: =FV(0.07,10,-11000,-800000,0). Note the use of a minus sign to indicate money out of your hand and into an investment. The answer will have a positive sign meaning money out of an investment and into your hand.

Answer. FV = $1.7M.

Since you will be retired early, you will have a long retirement so your 2.5% SWR (safe withdrawal rate) is ~$40K. Why? A 2.5% SWR is reported to never be depleted in retirement as withdrawals are offset by growth. (A SWR of 4% is expected to be depleted in 30yrs. Meaning, if you retire at 65, your money should last until age 95. But if you retire at 35, withdraw 4%/yr, then you are destitute at age 65.)

Since you only worked 10yrs, and you need 40 quarters (unless that has changed) to claim SS at age 67 (unless that changes), any time out of work between 25-35 means you may not qualify for SS benefits.

So ~$40K/yr, before tax and required medical insurance, and no SS means you are cutting it too close for comfort.


Scenario #2: Retire at age 45? Looks better. Why?

Assume. 7% I (interest, annual growth rate), 20 N (number of years), $11K PMT (payment, annual contributions), 800K PV (present value), 0 type/mode (contributions made at end of year, conservative).

Here is the Excel function: =FV(0.07,20,-11000,-800000,0).

Answer. FV = $3.5M.

Since you will be retired early, you will have a long retirement so your 2.5% SWR is ~$80K/yr.

$80K will probably be enough to live on, pay taxes and medical insurance, while you wait to collect SS at 67.

However a 50% market decline near your retirement date could cause your $3.5M to drop to 1.7M and you are back to scenario #1.

N.B. Above assume you are 100% stocks. But you should not be 100% stocks when you retire.

However, if you assume your AA is 50/50 stocks/bonds. Then your $3.5M retirement nest egg, is reduced to...

Before 50% stock market crash:
1.75M stocks before a 50% market crash
1.75M bonds
3.5M total retirement nest egg.

After a 50% stock market crash:
0.87M stocks (=1.75M x 50%)
1.75M bonds, stock/bond crashes not typically coincidental
2.62M retirement nest egg after 50% market crash.

And a 2.5% SWR gives you ~$65K/yr. (You’d want to withdraw from bonds during the crash to avoid losing money on your stocks.)

Will you be able to live on ~$65K/yr, 20yrs from now, after annual inflation until then? I don't know?


Bottom line. Plan for the worst; hope for the best. With a long retirement planned, you can only withdraw 2.5%/yr from your retirement nest egg. Period.

Idea. You could run your numbers every year and see what things look like for a successful early long retirement. And if things look bad, postpone retirement until age 55. Either way, your windfall gives you an early start toward an earlier retirement.

Idea. Since you are planning an early retirement, may want to change to a target date retirement fund that will be 50/50 as you near your early-retirement date. Then change to a LifeStrategy fund that will maintain a constant allocation to stocks. Why? With a longer retirement horizon, a constant allocation to more stocks would be beneficial for more growth. (You would handle your taxable AA manually.) But you can wait on this decision until later; no need to do anything immediately. You’ve got time to read/learn and think/plan before then.



Recommended books. What I wish someone had told me when I was in my 20s.

The Only Investment Guide You’ll Every Need, Andrew Tobias. Or…
How to Make the Most of Your Money, Jane Bryant Quinn. Both cover personal finance topics.

The Boglehead’s Guide to Investing. A structured overview of wise retirement investing.

Date… or Soul Mate, Warren. Priceless if it helps avoid bad marriage/divorce.

The Only Guide to a Winning Bond Strategy You'll Ever Need, Larry Swedroe. So you avoid bad bonds.



Welcome.
d.r.a., not dr.a. | I'm a novice investor, you are forewarned.

User avatar
nedsaid
Posts: 12973
Joined: Fri Nov 23, 2012 12:33 pm

Re: $800,000 Windfall. Love the 3-Fund portfolio approach. Wealth Managers in contact

Post by nedsaid » Sat Jul 21, 2018 10:10 am

Wealth managers are an appeal to ego. We all want special attention and customization. Not always easy to tell the good ones from the bad ones. Probably the biggest value from a wealth manager would be to keep you from making behavioral errors that individual investors make. Problem is, they are human too. What you get from an advisor is experience, they have looked at hundreds of portfolios and have seen the mistakes that individuals make.

The most efficient way to get advice is to pay for it by the hour. Be prepared to pay $150 to $400 an hour. If your wealth manager charges 1% to manage your $800,000, that is $8,000 every year. You can buy a lot of hourly advice for that. Much more efficient to pay for the advice and implement the plan yourself. Maybe meet with the advisor once a year for a checkup.

Why pay someone $8,000 a year for doing very little work in comparison to the fee. At $400 an hour, is an Assets Under Management advisor going to spend 20 hours a year to manage your portfolio? I don't think so. Probably more like 3-5 hours if that. Most of the work the advisor will do is to attract your business in the first place. If you met with the AUM advisor quarterly, there would be four meetings at an hour each. There would likely be 2-3 hours of preparation for each hour you meet with the advisor, but the prep work would mostly be done by others. Don't think $8,000 is worth even a quarterly meeting. Once the plan is in place, all you need is a check-up maybe once a year.
A fool and his money are good for business.

FireSekr
Posts: 1040
Joined: Tue Apr 02, 2013 9:54 am

Re: $800,000 Windfall. Love the 3-Fund portfolio approach. Wealth Managers in contact

Post by FireSekr » Sat Jul 21, 2018 11:30 am

If you’re working 60-80k hours a week for $55k you’re getting hosed.

User avatar
rkuklinski
Posts: 59
Joined: Fri Aug 24, 2012 12:03 pm

Re: $800,000 Windfall. Love the 3-Fund portfolio approach. Wealth Managers in contact

Post by rkuklinski » Sat Jul 21, 2018 12:40 pm

dratkinson wrote:
Fri Jul 20, 2018 7:12 pm
This is the structure I'd begin to target. Submitted as ideas for you to consider… to jump start your thinking.


First. (You can do this immediately, no need to wait.)
--Use a portion of your $800K to pay for your living expenses while you maximize your 401k contribution. Continue using your target date retirement fund.
--Use a portion of your $800K to pay for your living expenses while you maximize your IRA contribution. Use the same target date retirement fund.

Why? More tax-advantaged space is better than less. Your retired self will thank you.

You are currently contributing $11K/yr (=$55K x 20%) to your 401k, so you need to use $13K (= $18.5K + $5.5K - $11K) of your $800K this year to live on while you maximize your 401k and IRA contributions. Lather, rinse, repeat, annually.

Your FA (financial advisor) candidates probably didn't suggest this obvious first step because everything you do for yourself will take money out of their pocket. (You evil person, you. :twisted: )


Second. (You can do this immediately, no need to wait.)
--Increase your liquid (checking, savings, mmkt account, CDs,…) EFs (emergency funds) to 1yr of living expenses.
--Many like Ally bank. Can search bankrate.com and forum for other recommendations.

Why? It makes it easier to live knowing that you can easily pay for a new water heater or car repair. Why? They go from being a major financial obstacle, to being a minor annoyance.



Third. (Wait and think about this.)
--Use $200K of your $800K to create a 50/50 AA (stock/bond asset allocation) 3-fund portfolio in taxable.

Why? Your taxable retirement investments become an extended-tier of your EFs. Though more risky than bank savings, they should also see more growth.

Notice, with a $200K 50/50 AA, that means you have $100K in relatively safe bonds. That's almost 2yrs of living expenses. Which means your EFs are now ~3yr (= 1yr liquid + ~2yrs in relatively safe bonds) of living expenses. But the bonds are earning their market rate, which should be better than the rate paid on savings.
Great ideas here. OP - I suggest thinking through your various financial goals and how to incorporate those with this windfall. Maybe short-term goals including a house, car, education, etc and creating a separate account for each of these and selecting investments that are appropriate for the timeframe.

A fee-only planner (ideally using Harry Sit's service as I agree with his screening methodology) can add value by helping to sort through these goals and helping with the behavioral aspect of seeing a significantly larger pool of money fluctuate in the market. Watching 10k fall 10% in value in one day/week/month etc is a different feeling than watching 800k fall 10% in value. I suggest looking at this behavioral pitfalls link in the wiki as well:

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

I suffer with many of these pitfalls and am thankful for this article in that they name the unreasonable feeling that crops up.
'Who controls the past' ran the Party slogan, 'controls the future: who controls the present controls the past.'"

User avatar
celia
Posts: 9975
Joined: Sun Mar 09, 2008 6:32 am
Location: SoCal

Re: $800,000 Windfall. Love the 3-Fund portfolio approach. Wealth Managers in contact

Post by celia » Sat Jul 21, 2018 1:06 pm

Maple1234 wrote:
Fri Jul 20, 2018 1:29 am
My main concern is: Do wealth managers make sense when the market seems to be close to a downturn? Or are index funds still the long term move? I'm nervous that I seem to be entering the market with a relatively large amount of money during what seems to be close to the end of a very long bull run.
Their hunch is just as good as yours (or mine). FYI, after living through two bear markets, I've been expecting a downturn for the last 3 years or so. Even if we have one, it won't last forever and if you don't need the money for 10, 20, or 30 years, there is lots of time for it to recover. If you may need some of the money within 5 years, put that money in a bond fund or CD instead.
... does the crazy international trade and political climate warrant a wealth manager? or does a consistent 3-fund portfolio strategy make sense given my timeline?
No, there is always something "crazy" going on in the world. Some things are sudden and some appear gradually. Many of the wrong things make the news--after all the media needs to make money by getting viewers/listeners somehow.
The top wealth manager I've considered is attached to an Investment Bank but does not use any of their internal products for fear of seeming like they're "double dipping". They have also outlined every way that they seem to be investing with my best interests at heart. Additionally, they are a separate entity from the bank with autonomy, allowing them to put the clients first.
This guy/gal is slick. She's found a way to make more money by selling a competitor's product. She'll get a base fee depending on how much you invest with her, kickbacks from the loads the funds charge, and commissions each time she buys and sells something for you. She'll put smallish amounts into many different products so she can collect more commissions, then trade into something else when she needs more income (making a sell commission and a buy commission each time she "churns" your account). This will generate income taxes owed each time something is sold which is another expense you probably haven't considered.

Your portfolio will likely be so complicated that you will be confused as to what makes the most sense to sell, when you need to spend some money. And you likely won't be able to see what your Asst Allocation is overall, without asking. To "diversify", she'll need to buy lots of stock from individual companies instead of using an index fund.

If the bulk of the funds she suggests are with another company, why doesn't she work for them instead? I understand that the fees paid to the agent often come out of the company's fees, so that is likely why she doesn't want to invest in her Banks' funds or why she wouldn't work for the companies whose products she would buy for you. It seems to me, she would be incurring more fees for you by selling you competitor's products.
But at the end of the day, it still seems like regardless of what they say, it's still a pitch and I'm not sure what the real benefit is other than "piece of mind".
But, obviously, you don't have "piece of mind" after talking to this salesman since you continued to research your choices.

Which is the better choice for a 25 year old hoping to let a windfall grow until I'm 35-45 years old for an early retirement? My appreciation for any and all answers! I'll also add that I contribute 20% of my $55,000/yr income to my 401k which uses the Vanguard 2055 fund.
This means you contribute $11,000 a year to your 401K. That's a lot for someone with your income. But do you have a Roth option in the 401K? Do you have a Roth IRA? I suggest you contribute to those while you are young since your income will continue to grow, and at a later time you could switch back to traditional contributions. However, if you think you are going to retire at 45(??), that might also be a good time to convert to Roth although the amount you would convert would be more than what you can contribute each year now. Don't forget that since you will be investing this windfall in a taxable account, your taxable income will grow each year depending on the dividends and interest you earn each year.

With an amount this large, I would also cost-average over 4 to 8 quarters. That will "guarantee" that some shares are purchased for a lower cost than other shares (and some shares will cost the most).
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

pwill112
Posts: 24
Joined: Thu Sep 21, 2017 10:38 am

Re: $800,000 Windfall. Love the 3-Fund portfolio approach. Wealth Managers in contact

Post by pwill112 » Sat Jul 21, 2018 2:57 pm

You did not mention current and future housing costs.
I would review those costs and see if perhaps a small condo or something else makes sense.

Post Reply