High expense ratio worth it/Portfolio review

[sand575]

Hey everyone, first time poster here, long time lurker on the forums. I had a question about our current investment strategy that wanted to get your opinion on. Some background, I am 33, married, no kids. I have an individual IRA that has rollovers from previous employment, a SEP IRA that I am currently putting funds into monthly and my wife has a personal IRA. We have about $80,000 spread across those accounts. We have been using an DFA investment advisor for the last year who has us invested in their DFA funds with an 85/15 stocks bonds split. Overall with his fee (1%) and the expense ratio for the various funds our overall expense ratio is 1.78. Our advisor has stated that even with the high expense ratio, their funds should still outperform the market. Do you guys think that this makes sense or I would be better served to set up our own accounts through Vanguard with a mix of the VTSAX, VGTSX, and VBMFX? Thanks for the input.

Emergency funds: Have about 1 month, adding monthly
Debt: All expenses on credit cards, pay off each month in full
My student loans: $449,6000, rate of 4.4%, paying $4000/month
Wife student loans: $120,000, rate 5%, in deferment for next three years during her education
Car: 29,000, 0%, 5.5 years
Mortgage: 389,300, 3.375%, 30 year
Tax Filing Status: Married filing jointly
Tax Rate: 24% Federal, 7% State
State of Residence: South Carolina
Age: 33
Desired Asset allocation: 85% stocks / 15% bonds
Desired International allocation: 20% of stocks
~$80,000 currently invested with current investment group, spread over mine and hers IRA and my SEP, planning on contributing $24,000 annually
~$9,000 in wife employee matched 401k

Current retirement assets

Her IRA-rollover from previous employment
100% SA U.S. CORE MARKET FUND SELECT CLASS (SAALX) (0.68%)

My IRA-rollover from previous employment
14%: SA INTERNATIONAL SMALL COMPANY FUND SELECT CLASS (SACLX) (1.04%)
11%: SA INTERNATIONAL VALUE FUND SELECT CLASS (SATLX) (0.88%)
17%: SA U.S. CORE MARKET FUND SELECT CLASS (SAALX) (0.68%)
17%: SA U.S. SMALL COMPANY FUND SELECT CLASS (SASLX) (0.92%)
25%: SA U.S. VALUE FUND SELECT CLASS (SAVLX) (0.75%)
4%: SA EMERGING MARKETS VALUE FUND SELECT CLASS (SAELX) (1.15%)
5%: SA GLOBAL FIXED INCOME FUND SELECT CLASS (SAFLX) (0.51%)
3% SA REAL ESTATE SECURITIES FUND SELECT CLASS (SARLX) (0.75%)
4%: SA U.S. FIXED INCOME FUND SELECT CLASS (SAULX) (0.43%)

My SEP-currently contributing to ~2,000.month
40%: SA INTERNATIONAL VALUE FUND SELECT CLASS (SATLX) (0.88%)
13%: SA GLOBAL FIXED INCOME FUND SELECT CLASS (SAFLX) (0.51%)
13%: SA EMERGING MARKETS VALUE FUND SELECT CLASS (SAELX) (1.15%)
12% SA U.S. FIXED INCOME FUND SELECT CLASS (SAULX) (0.43%)
11%: SA REAL ESTATE SECURITIES FUND SELECT CLASS (SARLX) (0.75%)
7%: SA U.S. CORE MARKET FUND SELECT CLASS (SAALX) (0.68%)
4%: SA U.S. VALUE FUND SELECT CLASS (SAVLX) (0.75%)


Three above accounts with financial planner, taking 1% fee, overall with expense ratio comes to 1.78%)

Her work 401k, 9% contribution with a 5% employee match
100% VANGUARD TGT RTMT INC (VTINX) (0.13%)

Fund options for her 401k
VANGUARD TGT RTMT INC/VTINX: 0.13
VANGUARD INST IDX/VINIX: 0.04
VANGUARD TGT RTMT 2045/VTIVX: 0.15
VANGUARD TGT RTMT 2035/VTTHX: 0.14
VANGUARD TGT RTMT 2025/VTTVX: 0.14
VANGUARD TGT RTMT 2015/VTXVX: 0.13
VANGUARD HEALTH CARE ADM/VGHAX: 0.32
VANGUARD MIDCAP INDEX INS/VMCIX: 0.05
VANGUARD SMALL CAP INSTL/VSCIX: 0.05
VANGUARD TGT RTMT 2050/VFIFX: 0.15
VANGUARD TGT RTMT 2040/VFORX: 0.15
VANGUARD TGT RTMT 2030/VTHRX: 0.14
VANGUARD TGT RTMT 2020/VTWNX: 0.13
VANGUARD TOTAL BOND INDEX I/VBTIX: 0.04
AMERICAN EUROPACIFIC GROWTH R6/RERGX: 0.5
VANGUARD TGT RTMT 2055/VFFVX: 0.15
VANGAURD VALUE INDEX INSTL/VIVIX: 0.05
T ROWE PRICE INSTL LG CP GRWTH/TRLGX: 0.56
VANGUARD TGT RTMT 2060/VTTSX: 0.15
DFA INFLATION PROTECTED SEC I/DIPSX: 0.12
VANGUARD EMRG MKT STK IDX ADM/VEMAX: 0.14

Contributions

New annual Contributions
$20,000 his SEP
$5,000 to her 401k with 5% employee match


Questions:
1. Should I keep spending the 1.78% through the DFA group or change to a low fee vanguard account? I was thinking of a three fund strategy with 85/15 stock/bone with 20% international. Was thinking of using VTSAX, VGTXS, VBMFX. Would have enough in the various accounts to purchase the admiral shares. Does this approach make sense with our current assets?

[bloom2708]

It is very, very difficult to make up 1.7% over the long haul. Your advisor wants your fees.

Run scenarios with this calculator:

https://www.dinkytown.net/java/compare- ... -fees.html

Our all up cost at Vanguard is .07%. Use whatever expected return you think your 85/15 mix of stocks/bonds might average over the long term.

The affect of the 1% advisor fee and .7% expense ratios over 30, 40 years is enormous. That money does not stay in your account to grow.

[mhalley]

The key phrase is SHOULD. The one factor that generally predicts performance is cost.
https://investor.vanguard.com/investing ... t-of-costs

[Jack FFR1846]

Overall with his fee (1%) and the expense ratio for the various funds our overall expense ratio is 1.78. Our advisor has stated that even with the high expense ratio, their funds should still outperform the market.

Liar, Liar, pants on fire.

This guy is a thief. Move all of your money out of there today. Like....right now. No, I'm not kidding.

As a comparison, I have a couple million dollars for which I pay $805 a year in total. For your $80k, you're paying $1400. Nope.

[Meg77]

Their funds might outperform the market net of fees - lots of actively managed mutual funds do. But it's doubtful that your funds will outperform the market after expense ratios AND the advisor's 1% fee.

However, you aren't comparing apples to apples. If you have the support and guidance of a qualified, hands on financial coach/planner, then you are getting a service that doesn't come with a portfolio of index funds you buy yourself. You're paying for that advisor through the funds just like an expense ratio, but it's really a separate service. I'd look at the total amount you're paying the advisor via the 1% AUM fee (around $1400) and determine if you think that amount is worth it for the advice and legwork the advisor is providing. It very well might be at that level (at the $800,000 level or the $8 million level a 1% fee is a lot harder for an advisor to earn). If the person is making sure you're funding Roth IRAs, helping you set up 529s, talking you out of timing the market, helping you create an IPS and measuring your values and risk tolerance, answering questions when you have them, and so on, then that may be worth $1400 - $2000 a year easily to most folks who don't want to learn and manage things on their own.

A separate discussion would be whether the funds he recommends are worth their expense ratios. (Lots of financial advisors will put you in a basket of cheap, passive ETFs and index funds, after all, which you could demand.)

[delamer]

No, it isn’t.

I recommend you read this short paper by an analyst highly respected by Bogleheads:

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

Pay particular attention to Hurdle Number Five.

Your instinct that you can do better on your own is absolutely right.

[sand575]

Thanks for the info. That all makes a lot of sense. Looks like running the numbers through the calculator with what they quoted for the returns for the last 16 years on their profile (8.85% returns) would have me down almost $230,000 over the next 30 years. Seems like a little too much for what they are offering.

They do offer a flat rate $100/month for financial advising/lifestyle planning, ect, so might just stick with that but get the rest of the money out. Thanks for advice.

[FIREchief]

They do offer a flat rate $100/month for financial advising/lifestyle planning, ect, so might just stick with that but get the rest of the money out. Thanks for advice.

That's better, but we'll do the same for you here on the forum for a WHOLE lot less (i.e. $100 less)!!

[unclescrooge]

Hey everyone, first time poster here, long time lurker on the forums. I had a question about our current investment strategy that wanted to get your opinion on. Some background, I am 33, married, no kids. I have an individual IRA that has rollovers from previous employment, a SEP IRA that I am currently putting funds into monthly and my wife has a personal IRA. We have about $80,000 spread across those accounts. We have been using an DFA investment advisor for the last year who has us invested in their DFA funds with an 85/15 stocks bonds split. Overall with his fee (1%) and the expense ratio for the various funds our overall expense ratio is 1.78. Our advisor has stated that even with the high expense ratio, their funds should still outperform the market. Do you guys think that this makes sense or I would be better served to set up our own accounts through Vanguard with a mix of the VTSAX, VGTSX, and VBMFX? Thanks for the input.

Most DFA funds have expense ratios under 0.5%, and quite a few around 0.25%.

What is the line up of funds?

[Sandtrap]

Hey everyone, first time poster here, long time lurker on the forums. I had a question about our current investment strategy that wanted to get your opinion on. Some background, I am 33, married, no kids. I have an individual IRA that has rollovers from previous employment, a SEP IRA that I am currently putting funds into monthly and my wife has a personal IRA.

We have about $80,000 spread across those accounts. We have been using an DFA investment advisor for the last year who has us invested in their DFA funds with an 85/15 stocks bonds split. Overall with his fee (1%) and the expense ratio for the various funds our overall expense ratio is 1.78.

Ouch

Our advisor has stated that even with the high expense ratio, their funds should still outperform the market.
Really?
Proven market data does not support this sales approach

Do you guys think that this makes sense
No
or I would be better served to set up our own accounts through Vanguard with a mix of the VTSAX, VGTSX, and VBMFX?
Yes. Absolutely. You can do it better and at less cost.

Thanks for the input.

Suggest posting a portfolio review in the forum format and get started on a better path. . . today.
Asking Portfolio Questions
https://www.bogleheads.org/forum/viewt ... =1&t=6212
Bogle Philosophy
https://www.bogleheads.org/wiki/Bogleh ... hilosophy
Here are links to the wiki's "Getting Started" and "Investing Startup Kit" pages:
https://www.bogleheads.org/wiki/Getting_started
https://www.bogleheads.org/wiki/Bogleh ... rt-up_kit

aloha
j

[ruralavalon]

Welcome to the forum .

Hey everyone, first time poster here, long time lurker on the forums. I had a question about our current investment strategy that wanted to get your opinion on. Some background, I am 33, married, no kids. I have an individual IRA that has rollovers from previous employment, a SEP IRA that I am currently putting funds into monthly and my wife has a personal IRA. We have about $80,000 spread across those accounts. We have been using an DFA investment advisor for the last year who has us invested in their DFA funds with an 85/15 stocks bonds split. Overall with his fee (1%) and the expense ratio for the various funds our overall expense ratio is 1.78. Our advisor has stated that even with the high expense ratio, their funds should still outperform the market. Do you guys think that this makes sense or I would be better served to set up our own accounts through Vanguard with a mix of the VTSAX, VGTSX, and VBMFX? Thanks for the input.

It's not possible to be very specific in answering your question, without knowing exactly what funds you are using in what amounts.

What funds are you using? Please give fund names tickers and expense ratios. Please also state the relative amounts in each fund, and which account each fund is in.

Please see this forum discussion, "DFA vs. Vanguard -The Whitecoat investor viewpoint", and the linked article. "So in the end, if you are an educated and disciplined investor, don’t go out and hire an advisor just to get DFA funds. There is probably an advantage there, especially in certain asset classes, but it isn’t large enough to pay for the advisory fees by itself. But before you decide to do it on your own, you’d better be sure you’re sufficiently educated and disciplined to implement and maintain an intelligent portfolio over the long run."

In general I believe that an overall expense of 1.78% is probably too high, so the fund performance is unlikely to be high enough to overcome the high expense. In general low expense ratios are critical to long-term investing performance. Seemingly small annual fees have a large cumulative impact over time. Here is a calculator you could use to estimate the impact of investing expenses. Bankrate.com, "Mutual fund fees calculator".

Also, low expense ratios are the best predictor of future performance. Morningstar, 8/9/10 . “If there's anything in the whole world of mutual funds that you can take to the bank, it's that expense ratios help you make a better decision. In every single time period and data point tested, low-cost funds beat high-cost funds.” “Investors should make expense ratios a primary test in fund selection. They are still the most dependable predictor of performance.”

"The expense ratio is the most proven predictor of future fund returns." "There are many other things to consider, but investors should make expense ratios their first or second screen." Morningstar, 5/5/18.

[deltaneutral83]

Thanks for the info. That all makes a lot of sense. Looks like running the numbers through the calculator with what they quoted for the returns for the last 16 years on their profile (8.85% returns) would have me down almost $230,000 over the next 30 years. Seems like a little too much for what they are offering.

They do offer a flat rate $100/month for financial advising/lifestyle planning, ect, so might just stick with that but get the rest of the money out. Thanks for advice.

Another key aspect is that the accumulation phase is mostly boring and uneventful granted you can withstand bear markets. When the finish line becomes visible and taxes, social security, medicare, RMDs, rollovers, Pro Rata, will/trusts, legacies, etc. etc. are present, that's when fee only guys and other counsel have real value for someone like me. I am completely capable of managing a 3F and went through the Oct 2007-March 2009 markets. The 1% your guy is charging you is likely a waste during accumulation if you've found BHs. You can know this in that he will spend 3 minutes a year on your accounts for the next few decades and have his admin prepare nice and pretty powerpoint charts for when you sit down with him for the annual 45 minute visit. On a $500k account, that comes out to be $5k for an hours worth of work (and this assumes his funds keep up with the indexes after the ER). No thanks.

[sand575]

Suggest posting a portfolio review in the forum format and get started on a better path. . . today.

Emergency funds: Have about 1 month, adding monthly
Debt: All expenses on credit cards, pay off each month in full
My student loans: $449,6000, rate of 4.4%, paying $4000/month
Wife student loans: $120,000, rate 5%, in deferment for next three years during her education
Car: 29,000, 0%, 5.5 years
Mortgage: 389,300, 3.375%, 30 year
Tax Filing Status: Married filing jointly
Tax Rate: 24% Federal, 7% State
State of Residence: South Carolina
Age: 33
Desired Asset allocation: 85% stocks / 15% bonds
Desired International allocation: 20% of stocks
~$80,000 currently invested with current investment group, spread over mine and hers IRA and my SEP, planning on contributing $24,000 annually
~$9,000 in wife employee matched 401k

Current retirement assets

Her IRA-rollover from previous employment
100% SA U.S. CORE MARKET FUND SELECT CLASS (SAALX) (0.68%)

My IRA-rollover from previous employment
14%: SA INTERNATIONAL SMALL COMPANY FUND SELECT CLASS (SACLX) (1.04%)
11%: SA INTERNATIONAL VALUE FUND SELECT CLASS (SATLX) (0.88%)
17%: SA U.S. CORE MARKET FUND SELECT CLASS (SAALX) (0.68%)
17%: SA U.S. SMALL COMPANY FUND SELECT CLASS (SASLX) (0.92%)
25%: SA U.S. VALUE FUND SELECT CLASS (SAVLX) (0.75%)
4%: SA EMERGING MARKETS VALUE FUND SELECT CLASS (SAELX) (1.15%)
5%: SA GLOBAL FIXED INCOME FUND SELECT CLASS (SAFLX) (0.51%)
3% SA REAL ESTATE SECURITIES FUND SELECT CLASS (SARLX) (0.75%)
4%: SA U.S. FIXED INCOME FUND SELECT CLASS (SAULX) (0.43%)

My SEP-currently contributing to ~2,000.month
40%: SA INTERNATIONAL VALUE FUND SELECT CLASS (SATLX) (0.88%)
13%: SA GLOBAL FIXED INCOME FUND SELECT CLASS (SAFLX) (0.51%)
13%: SA EMERGING MARKETS VALUE FUND SELECT CLASS (SAELX) (1.15%)
12% SA U.S. FIXED INCOME FUND SELECT CLASS (SAULX) (0.43%)
11%: SA REAL ESTATE SECURITIES FUND SELECT CLASS (SARLX) (0.75%)
7%: SA U.S. CORE MARKET FUND SELECT CLASS (SAALX) (0.68%)
4%: SA U.S. VALUE FUND SELECT CLASS (SAVLX) (0.75%)


Three above accounts with financial planner, taking 1% fee, overall with expense ratio comes to 1.78%)

Her work 401k, 9% contribution with a 5% employee match
100% VANGUARD TGT RTMT INC (VTINX) (0.13%)


Contributions

New annual Contributions
$20,000 his SEP
$5,000 to her 401k with 5% employee match


Questions:
1. Should I keep spending the 1.78% through the DFA group or change to a low fee vanguard account? I was thinking of a three fund strategy with 85/15 stock/bone with 20% international. Was thinking of using VTSAX, VGTXS, VBMFX. Would have enough in the various accounts to purchase the admiral shares. Does this approach make sense with our current assets?

Thanks everyone for the input so far.

[Sasquatch]

P 35 of the bogle heads guide to the three fund portfolio by Taylor Larimore

Re: A study done by Financial Research Corporation

Concluded. “ the expense ratio is the only reliable predictor of future mutual fund performance”

Highly recommend you pick up a copy of this book. 73 pages chocked full of information explained in plain English that the average person can understand. Surprisingly easy read given how much material is covered. Thank you for the kind gift Mr. Larimore.

IMHO A “fiduciary” would never charge 1.78% in good faith. It may not hit you much now but when you put that number up against a low 7 figure portfolio that is a giant sum.

[Nate79]

OMG. $570k in student loans, $390k in home mortgage, $29k car loan.

I think this is more important to discuss. Dump the advisor, move to Vanguard and focus on more important things. Those ER are horrible and advisor fee even worse.

Is your income at the high end of the bracket?

[sand575]

OMG. $570k in student loans

Sadly this is the cost of a medical education these days. I just finished my training so am starting to make in income and my wife is about 3 years out from the same.

Is your income at the high end of the bracket?

It is and will probably move to the 32% bracket this year.

[Nate79]

OMG. $570k in student loans

Sadly this is the cost of a medical education these days. I just finished my training so am starting to make in income and my wife is about 3 years out from the same.

Is your income at the high end of the bracket?

It is and will probably move to the 32% bracket this year.

Well that is good news. I would personally starting hitting that student loan debt hard and heavy. Live like poor med students, not rich doctor.

[sand575]

OMG. $570k in student loans

Sadly this is the cost of a medical education these days. I just finished my training so am starting to make in income and my wife is about 3 years out from the same.

Is your income at the high end of the bracket?

It is and will probably move to the 32% bracket this year.

Well that is good news. I would personally starting hitting that student loan debt hard and heavy. Live like poor med students, not rich doctor.

Thats the plan. I just refinanced my loans down to 4.4% with a 15 year repayment and paying of as aggressively as possible to try to get rid of in 5-7 years.

[Sandtrap]

Suggest posting a portfolio review in the forum format and get started on a better path. . . today.

Emergency funds: Have about 1 month, adding monthly
Debt: All expenses on credit cards, pay off each month in full
My student loans: $449,6000, rate of 4.4%, paying $4000/month
Wife student loans: $120,000, rate 5%, in deferment for next three years during her education
Car: 29,000, 0%, 5.5 years
Mortgage: 389,300, 3.375%, 30 year
Tax Filing Status: Married filing jointly
Tax Rate: 24% Federal, 7% State
State of Residence: South Carolina
Age: 33
Desired Asset allocation: 85% stocks / 15% bonds
Desired International allocation: 20% of stocks
~$80,000 currently invested with current investment group, spread over mine and hers IRA and my SEP, planning on contributing $24,000 annually
~$9,000 in wife employee matched 401k

Current retirement assets

Her IRA-rollover from previous employment
100% SA U.S. CORE MARKET FUND SELECT CLASS (SAALX) (0.68%)

My IRA-rollover from previous employment
14%: SA INTERNATIONAL SMALL COMPANY FUND SELECT CLASS (SACLX) (1.04%)
11%: SA INTERNATIONAL VALUE FUND SELECT CLASS (SATLX) (0.88%)
17%: SA U.S. CORE MARKET FUND SELECT CLASS (SAALX) (0.68%)
17%: SA U.S. SMALL COMPANY FUND SELECT CLASS (SASLX) (0.92%)
25%: SA U.S. VALUE FUND SELECT CLASS (SAVLX) (0.75%)
4%: SA EMERGING MARKETS VALUE FUND SELECT CLASS (SAELX) (1.15%)
5%: SA GLOBAL FIXED INCOME FUND SELECT CLASS (SAFLX) (0.51%)
3% SA REAL ESTATE SECURITIES FUND SELECT CLASS (SARLX) (0.75%)
4%: SA U.S. FIXED INCOME FUND SELECT CLASS (SAULX) (0.43%)

My SEP-currently contributing to ~2,000.month
40%: SA INTERNATIONAL VALUE FUND SELECT CLASS (SATLX) (0.88%)
13%: SA GLOBAL FIXED INCOME FUND SELECT CLASS (SAFLX) (0.51%)
13%: SA EMERGING MARKETS VALUE FUND SELECT CLASS (SAELX) (1.15%)
12% SA U.S. FIXED INCOME FUND SELECT CLASS (SAULX) (0.43%)
11%: SA REAL ESTATE SECURITIES FUND SELECT CLASS (SARLX) (0.75%)
7%: SA U.S. CORE MARKET FUND SELECT CLASS (SAALX) (0.68%)
4%: SA U.S. VALUE FUND SELECT CLASS (SAVLX) (0.75%)


Three above accounts with financial planner, taking 1% fee, overall with expense ratio comes to 1.78%)

Her work 401k, 9% contribution with a 5% employee match
100% VANGUARD TGT RTMT INC (VTINX) (0.13%)


Contributions

New annual Contributions
$20,000 his SEP
$5,000 to her 401k with 5% employee match


Questions:
1. Should I keep spending the 1.78% through the DFA group or change to a low fee vanguard account? I was thinking of a three fund strategy with 85/15 stock/bone with 20% international. Was thinking of using VTSAX, VGTXS, VBMFX. Would have enough in the various accounts to purchase the admiral shares. Does this approach make sense with our current assets?

Thanks everyone for the input so far.

Great job.
You might want to cut and paste what you posted here into your original post (lst post) for better visibility. (just use the pencil icon). Not everyone will scroll down to find this great info.

You can also "add" to the title to give it a better description of what you need. IE: high expense ratio worth it . . . portfolio review request".

Thanks again,
aloha
j

[BrainDrain]

These are not DFA funds and this is probably not a DFA advisor. This looks like some sort of expensive wrapper around DFA funds, much like you can find Vanguard “funds” that are much more expensive than the real thing inside of annuities or retirement plans. If you want look up a real DFA fund, instead of SARLX the Real Estate Fund in your portfolio with an expense ratio of .75 percent take a look at DFREX, which is the real deal at .18 percent.

Not only are his fees 1 percent, but you’re paying inflated investment fees.

Besides your real financial issue is not effective management of this portfolio, but a myriad other factors as a young doc such as managing that debt. If you’re too busy to figure this out on your own, try looking for hourly advice in the Garrett Planning Network or for ongoing advice consider Alliance of Comprehensive Planners, who are fee-only CFPs that work on flat fee retainers.

[sand575]

Great job.
You might want to cut and paste what you posted here into your original post (lst post) for better visibility. (just use the pencil icon). Not everyone will scroll down to find this great info.

You can also "add" to the title to give it a better description of what you need. IE: high expense ratio worth it . . . portfolio review request".

Thanks again,
aloha
j

Got it, added to original post. Thanks.

These are not DFA funds and this is probably not a DFA advisor. This looks like some sort of expensive wrapper around DFA funds, much like you can find Vanguard “funds” that are much more expensive than the real thing inside of annuities or retirement plans. If you want look up a real DFA fund, instead of SARLX the Real Estate Fund in your portfolio with an expense ratio of .75 percent take a look at DFREX, which is the real deal at .18 percent.

Not only are his fees 1 percent, but you’re paying inflated investment fees.

Besides your real financial issue is not effective management of this portfolio, but a myriad other factors as a young doc such as managing that debt. If you’re too busy to figure this out on your own, try looking for hourly advice in the Garrett Planning Network or for ongoing advice consider Alliance of Comprehensive Planners, who are fee-only CFPs that work on flat fee retainers.

As our (soon to be ex) advisor explained to me, the SA funds mirrored the DFA funds but had a lower buy-in than the DFA. Once we reached a total of 300k would switch over to the DFA funds.

I feel the debt is manageable, just funneling any and all extra money into it and it will take a while. Once my wife has finished her training we should be able to be even more aggressive and get it out of the way faster.

[BrainDrain]

I see that these are Loring Ward funds that essentially charge an investor tax as a percentage of the assets, and then they invest in the corresponding DFA fund. So you may be paying this adviser in two ways: the 1 percent plus some portion of the aforementioned investor tax. There’s nothing special industrywide about the $300k portfolio size that qualifies you for DFA. It’s more a matter of finding a qualified advisor to take you on at that asset level, which can be hard. I’d recommend Vanguard supplemented by hourly planning as needed.

Good luck!

[Sandtrap]

Welcome.
Getting great advice so far.
Next.. . suggest.
1. Post estimated annual income if you care to.
2. Post what funds are available to you in your tax advantaged space, also non if available.
3. Overall, eliminate or reduce fund overlap, redundancy, those with high expense ratios, and those that are 4-5% or less of total portfolio valuation. (Generally, 4% or less does not move the "needle" by much).
4. Eliminate financial advisor fee (in progress). Alternative is "Bogle free" or Vanguard VPAS to establish an initial framework (.3%) then discontinue as needed.
5. As you move your funds to the Vanguard or Schwab or other, pay attention to any capital gains and other fees you might incur. Does not have to be done all at once, but incrementally.

Here are some tools to help organize your funds, what role they play in the overall picture, how things might look with various scenarios going forward, and so forth.

ONLINE FINANCIAL TOOLS
PORFOLIO VISUALIZERS, PROJECTIONS, AND ANALYSIS
https://www.portfoliovisualizer.com
Firecalc. Retirement. How long will your money last?
https://www.firecalc.com
Morningstar Instant Xray
http://www.morningstar.com/portfolio.ht ... Entry.aspx
Optimal Retirement Planner (I-ORP)
https://www.i-orp.com/paper/index.html

I hope this is helpful.
j

[sand575]

1. Post estimated annual income if you care to.

~425,000

2. Post what funds are available to you in your tax advantaged space, also non if available.

Only tax advantaged space we currently have is her work 401k with about 8k in it. I am 1099 and am contributing to a SEP. Here is a list of the available funds through her plan. She is only going to be contributing for the next two years before her training ends and she will be getting a job somewhere else so could wither keep those funds there or roll over to her IRA

VANGUARD TGT RTMT INC/VTINX
VANGUARD INST IDX/VINIX
VANGUARD TGT RTMT 2045/VTIVX
VANGUARD TGT RTMT 2035/VTTHX
VANGUARD TGT RTMT 2025/VTTVX
VANGUARD TGT RTMT 2015/VTXVX
VANGUARD HEALTH CARE ADM/VGHAX
VANGUARD MIDCAP INDEX INS/VMCIX
VANGUARD SMALL CAP INSTL/VSCIX
VANGUARD TGT RTMT 2050/VFIFX
VANGUARD TGT RTMT 2040/VFORX
VANGUARD TGT RTMT 2030/VTHRX
VANGUARD TGT RTMT 2020/VTWNX
VANGUARD TOTAL BOND INDEX I/VBTIX
AMERICAN EUROPACIFIC GROWTH R6/RERGX
VANGUARD TGT RTMT 2055/VFFVX
VANGAURD VALUE INDEX INSTL/VIVIX
T ROWE PRICE INSTL LG CP GRWTH/TRLGX
VANGUARD TGT RTMT 2060/VTTSX
DFA INFLATION PROTECTED SEC I/DIPSX
VANGUARD EMRG MKT STK IDX ADM/VEMAX

3. Overall, eliminate or reduce fund overlap, redundancy, those with high expense ratios, and those that are 4-5% or less of total portfolio valuation. (Generally, 4% or less does not move the "needle" by much).

Sorry, don't understand what you mean. I was planning on moving to Vanguard and using a three fund approach with VTSAX,VGTSX, and VBMFX. Are you saying we should try to emulate the portfolio that they have set up at Vanguard? Would that be ebtter than using a three fund approach in our situation?

4. Eliminate financial advisor fee (in progress). Alternative is "Bogle free" or Vanguard VPAS to establish an initial framework (.3%) then discontinue as needed.

Yea, I am getting the sense that I am getting ripped off by these guys.

5. As you move your funds to the Vanguard or Schwab or other, pay attention to any capital gains and other fees you might incur. Does not have to be done all at once, but incrementally.

So, if I roll over from a IRA to an IRA or the SEP to another SEP at Vanguard, would I have to pay capital gains on the funds?

Other question. Since we have both the IRA and the SEP accounts, we were advised that we were unable to fund a backdoor Roth because of the aggregation rule. Because of this, our advisors recommended a variable universal life policy (in addition to disability and term). We are currently contributing $12,000 a year to this. Their reasoning is that the gains would be tax free and starting in our mid 50s we could start taking money out of it tax free. Does this make sense or do you all think this is another scam?

[Sandtrap]

1. Post estimated annual income if you care to.

~425,000

2. Post what funds are available to you in your tax advantaged space, also non if available.

Only tax advantaged space we currently have is her work 401k with about 8k in it. I am 1099 and am contributing to a SEP. Here is a list of the available funds through her plan. She is only going to be contributing for the next two years before her training ends and she will be getting a job somewhere else so could wither keep those funds there or roll over to her IRA

VANGUARD TGT RTMT INC/VTINX
VANGUARD INST IDX/VINIX
VANGUARD TGT RTMT 2045/VTIVX
VANGUARD TGT RTMT 2035/VTTHX
VANGUARD TGT RTMT 2025/VTTVX
VANGUARD TGT RTMT 2015/VTXVX
VANGUARD HEALTH CARE ADM/VGHAX
VANGUARD MIDCAP INDEX INS/VMCIX
VANGUARD SMALL CAP INSTL/VSCIX
VANGUARD TGT RTMT 2050/VFIFX
VANGUARD TGT RTMT 2040/VFORX
VANGUARD TGT RTMT 2030/VTHRX
VANGUARD TGT RTMT 2020/VTWNX
VANGUARD TOTAL BOND INDEX I/VBTIX
AMERICAN EUROPACIFIC GROWTH R6/RERGX
VANGUARD TGT RTMT 2055/VFFVX
VANGAURD VALUE INDEX INSTL/VIVIX
T ROWE PRICE INSTL LG CP GRWTH/TRLGX
VANGUARD TGT RTMT 2060/VTTSX
DFA INFLATION PROTECTED SEC I/DIPSX
VANGUARD EMRG MKT STK IDX ADM/VEMAX

3. Overall, eliminate or reduce fund overlap, redundancy, those with high expense ratios, and those that are 4-5% or less of total portfolio valuation. (Generally, 4% or less does not move the "needle" by much).

Sorry, don't understand what you mean. I was planning on moving to Vanguard and using a three fund approach with VTSAX,VGTSX, and VBMFX. Are you saying we should try to emulate the portfolio that they have set up at Vanguard? Would that be ebtter than using a three fund approach in our situation?
Sorry. Missed that. Yes. 3 fund it is.

4. Eliminate financial advisor fee (in progress). Alternative is "Bogle free" or Vanguard VPAS to establish an initial framework (.3%) then discontinue as needed.

Yea, I am getting the sense that I am getting ripped off by these guys.
BMW and Mercedes payments. Trips to Europe. Yes.

5. As you move your funds to the Vanguard or Schwab or other, pay attention to any capital gains and other fees you might incur. Does not have to be done all at once, but incrementally.

So, if I roll over from a IRA to an IRA or the SEP to another SEP at Vanguard, would I have to pay capital gains on the funds?

Other question. Since we have both the IRA and the SEP accounts, we were advised that we were unable to fund a backdoor Roth because of the aggregation rule. Because of this, our advisors recommended a variable universal life policy (in addition to disability and term). We are currently contributing $12,000 a year to this. Their reasoning is that the gains would be tax free and starting in our mid 50s we could start taking money out of it tax free. Does this make sense or do you all think this is another scam?

[delamer]

1. Post estimated annual income if you care to.

~425,000

2. Post what funds are available to you in your tax advantaged space, also non if available.

Only tax advantaged space we currently have is her work 401k with about 8k in it. I am 1099 and am contributing to a SEP. Here is a list of the available funds through her plan. She is only going to be contributing for the next two years before her training ends and she will be getting a job somewhere else so could wither keep those funds there or roll over to her IRA

VANGUARD TGT RTMT INC/VTINX
VANGUARD INST IDX/VINIX
VANGUARD TGT RTMT 2045/VTIVX
VANGUARD TGT RTMT 2035/VTTHX
VANGUARD TGT RTMT 2025/VTTVX
VANGUARD TGT RTMT 2015/VTXVX
VANGUARD HEALTH CARE ADM/VGHAX
VANGUARD MIDCAP INDEX INS/VMCIX
VANGUARD SMALL CAP INSTL/VSCIX
VANGUARD TGT RTMT 2050/VFIFX
VANGUARD TGT RTMT 2040/VFORX
VANGUARD TGT RTMT 2030/VTHRX
VANGUARD TGT RTMT 2020/VTWNX
VANGUARD TOTAL BOND INDEX I/VBTIX
AMERICAN EUROPACIFIC GROWTH R6/RERGX
VANGUARD TGT RTMT 2055/VFFVX
VANGAURD VALUE INDEX INSTL/VIVIX
T ROWE PRICE INSTL LG CP GRWTH/TRLGX
VANGUARD TGT RTMT 2060/VTTSX
DFA INFLATION PROTECTED SEC I/DIPSX
VANGUARD EMRG MKT STK IDX ADM/VEMAX

3. Overall, eliminate or reduce fund overlap, redundancy, those with high expense ratios, and those that are 4-5% or less of total portfolio valuation. (Generally, 4% or less does not move the "needle" by much).

Sorry, don't understand what you mean. I was planning on moving to Vanguard and using a three fund approach with VTSAX,VGTSX, and VBMFX. Are you saying we should try to emulate the portfolio that they have set up at Vanguard? Would that be ebtter than using a three fund approach in our situation?

4. Eliminate financial advisor fee (in progress). Alternative is "Bogle free" or Vanguard VPAS to establish an initial framework (.3%) then discontinue as needed.

Yea, I am getting the sense that I am getting ripped off by these guys.

5. As you move your funds to the Vanguard or Schwab or other, pay attention to any capital gains and other fees you might incur. Does not have to be done all at once, but incrementally.

So, if I roll over from a IRA to an IRA or the SEP to another SEP at Vanguard, would I have to pay capital gains on the funds?

Other question. Since we have both the IRA and the SEP accounts, we were advised that we were unable to fund a backdoor Roth because of the aggregation rule. Because of this, our advisors recommended a variable universal life policy (in addition to disability and term). We are currently contributing $12,000 a year to this. Their reasoning is that the gains would be tax free and starting in our mid 50s we could start taking money out of it tax free. Does this make sense or do you all think this is another scam?

Variable universal life policies are not liked on the forum.

Read this: https://www.whitecoatinvestor.com/varia ... t-account/

[ruralavalon]

1. Post estimated annual income if you care to.

~425,000

2. Post what funds are available to you in your tax advantaged space, also non if available.

Only tax advantaged space we currently have is her work 401k with about 8k in it. I am 1099 and am contributing to a SEP. Here is a list of the available funds through her plan. She is only going to be contributing for the next two years before her training ends and she will be getting a job somewhere else so could wither keep those funds there or roll over to her IRA

VANGUARD TGT RTMT INC/VTINX
VANGUARD INST IDX/VINIX
VANGUARD TGT RTMT 2045/VTIVX
VANGUARD TGT RTMT 2035/VTTHX
VANGUARD TGT RTMT 2025/VTTVX
VANGUARD TGT RTMT 2015/VTXVX
VANGUARD HEALTH CARE ADM/VGHAX
VANGUARD MIDCAP INDEX INS/VMCIX
VANGUARD SMALL CAP INSTL/VSCIX
VANGUARD TGT RTMT 2050/VFIFX
VANGUARD TGT RTMT 2040/VFORX
VANGUARD TGT RTMT 2030/VTHRX
VANGUARD TGT RTMT 2020/VTWNX
VANGUARD TOTAL BOND INDEX I/VBTIX
AMERICAN EUROPACIFIC GROWTH R6/RERGX
VANGUARD TGT RTMT 2055/VFFVX
VANGAURD VALUE INDEX INSTL/VIVIX
T ROWE PRICE INSTL LG CP GRWTH/TRLGX
VANGUARD TGT RTMT 2060/VTTSX
DFA INFLATION PROTECTED SEC I/DIPSX
VANGUARD EMRG MKT STK IDX ADM/VEMAX

Please add the expense ratio for each fund. The expense ratios in a 401k are sometimes different than those offered to the general public.

Her 401k account could be left where it is and reinvested in different funds, or could be rolled over to an IRA at a low cost provider like Vanguard, Fidelity or Schwab. Is there an account maintenance fee if the 401k is left where it is, and if so how much?

In my opinion the better funds to consider using in her 401k include:
1) Vanguard Institutional Index Fund (a S&P 500 index fund) (VINIX);
2) American Funds EuroPacific Growth Fund R6 (RERGX); and
3) Vanguard Total Bond Market Index Fund Institutional (VBTIX).

3. Overall, eliminate or reduce fund overlap, redundancy, those with high expense ratios, and those that are 4-5% or less of total portfolio valuation. (Generally, 4% or less does not move the "needle" by much).

Sorry, don't understand what you mean. I was planning on moving to Vanguard and using a three fund approach with VTSAX,VGTSX, and VBMFX. Are you saying we should try to emulate the portfolio that they have set up at Vanguard? Would that be ebtter than using a three fund approach in our situation?

No, the idea is to both simplify (to reduce unnecessary duplication in an account) and to coordinate investments among all accounts.

4. Eliminate financial advisor fee (in progress). Alternative is "Bogle free" or Vanguard VPAS to establish an initial framework (.3%) then discontinue as needed.

Yea, I am getting the sense that I am getting ripped off by these guys.

Yes you are paying more than necessary in fees

5. As you move your funds to the Vanguard or Schwab or other, pay attention to any capital gains and other fees you might incur. Does not have to be done all at once, but incrementally.

So, if I roll over from a IRA to an IRA or the SEP to another SEP at Vanguard, would I have to pay capital gains on the funds?

If you rollover your rollover IRA and your SEP IRA to IRAs at Vanguard, Fidelity, or Schwab there will be no tax consequences. You will not have to pay capital gains.

Call Vanguard, Fidelity, or Schwab and tell them what accounts you have and that you want to rollover those accounts to IRAs with them, and ask for a "trustee to trustee" transfer. They can help you with the paperwork.

My own personal preference is Vanguard, over either Fidelity or Schwab.

Other question. Since we have both the IRA and the SEP accounts, we were advised that we were unable to fund a backdoor Roth because of the aggregation rule. Because of this, our advisors recommended a variable universal life policy (in addition to disability and term). We are currently contributing $12,000 a year to this. Their reasoning is that the gains would be tax free and starting in our mid 50s we could start taking money out of it tax free. Does this make sense or do you all think this is another scam?

Variable universal life policies are not liked on the forum.

Read this: https://www.whitecoatinvestor.com/varia ... t-account/

I think that a disability policy and a term life policy are both good ideas.

They are right that your traditional IRAs inhibit use of a backdoor Roth IRA.

In spite of that a variable universal life policy is a horrible investment idea. In addition to the whitecoat investor link, please see TFB blog post "$10,000 Lesson On Variable Universal Life (VUL)", and for other forum discussions use the term "variable universal life" in the Google search box. .

What fees are charged for dropping the variable universal life policy and cashing out the policy?

A better investing idea is to use very tax-efficient stock index funds in a taxable brokerage account. Examples include Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04% and Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) ER 0.11%. Wiki article "Tax-efficient fund placement".

[Nate79]

Good lord. Your advisor gives one red flag after another. Not only extremely high fees, dubius funds (hey let's invest in these high expense versions of the funds instead of the actual funds from DFA) and now throws out the HORRIBLE idea of Universal life insurance.

This guy is really a salesman and you need to think of him like that. High expense funds and permanent life insurance. Lies, lies, and more lies.

[sand575]

Please add the expense ratio for each fund. The expense ratios in a 401k are sometimes different than those offered to the general public.

Added to original post

Her 401k account could be left where it is and reinvested in different funds, or could be rolled over to an IRA at a low cost provider like Vanguard, Fidelity or Schwab. Is there an account maintenance fee if the 401k is left where it is, and if so how much?

Not sure about the account maintenance fee on the 401k. Will probably end up rolling over to a Vanguard account when she is finished with her training.

What fees are charged for dropping the variable universal life policy and cashing out the policy?

Not sure, trying to figure that out. We currently have about $9,000 in the VUL. Looking at the file that I was sent it looks like the Surrender Charge is $11,407.20. Does this mean that I have to cover the difference in what I have put in and the 11k?

A better investing idea is to use very tax-efficient stock index funds in a taxable brokerage account. Examples include Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04% and Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) ER 0.11%. Wiki article "Tax-efficient fund placement".

I think that is what we are going to do moving forward. From what I am hearing from everyone, sounds like need to dump the VUL and FA, max out the SEP and 401k and throw everything else into loans.

[delamer]

Please add the expense ratio for each fund. The expense ratios in a 401k are sometimes different than those offered to the general public.

Added to original post

Her 401k account could be left where it is and reinvested in different funds, or could be rolled over to an IRA at a low cost provider like Vanguard, Fidelity or Schwab. Is there an account maintenance fee if the 401k is left where it is, and if so how much?

Not sure about the account maintenance fee on the 401k. Will probably end up rolling over to a Vanguard account when she is finished with her training.

What fees are charged for dropping the variable universal life policy and cashing out the policy?

Not sure, trying to figure that out. We currently have about $9,000 in the VUL. Looking at the file that I was sent it looks like the Surrender Charge is $11,407.20. Does this mean that I have to cover the difference in what I have put in and the 11k?

A better investing idea is to use very tax-efficient stock index funds in a taxable brokerage account. Examples include Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04% and Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) ER 0.11%. Wiki article "Tax-efficient fund placement".

I think that is what we are going to do moving forward. From what I am hearing from everyone, sounds like need to dump the VUL and FA, max out the SEP and 401k and throw everything else into loans.

I have no expertise with VULs, but it seems that stopping future contributions is the most important thing to do rather than worrying about getting your money out (for now). Fortunately, you aren’t in too deep.

[Katietsu]

Having a DFA Advisor is not a bad thing. Having your advisor is a disaster.

One more suggestion. Are you being paid as a contractor? No employees? If so, then go to Fidelity or Etrade and open a individual 401k instead of the SEP IRA. Roll over the money from the SEP and your traditional IRA into the new 401k. Research and get advice on the transition from the SEP to the i401k so that it is done correctly. Then you will be able to do a back door Roth.

[galeno]

Get rid of that advisor ASAP.

[sand575]

One more suggestion. Are you being paid as a contractor? No employees? If so, then go to Fidelity or Etrade and open a individual 401k instead of the SEP IRA. Roll over the money from the SEP and your traditional IRA into the new 401k. Research and get advice on the transition from the SEP to the i401k so that it is done correctly. Then you will be able to do a back door Roth.

I am being payed as an independent contractor with no employees. What is the benefit (besides being able to do a backdoor conversion) on the i401k vs the SEP? Also as my wife also has an individual IRA would that not stop us from being able to use the backdoor conversion? Would it make sense for me to roll over her account to her employer plan?

[BrainDrain]

A solo 401k permits you to contribute $18,500 more a year (if under 50) than a SEP. Plus you get the choice of the employee contribution being a Roth 401k account. Backdoor Roth also becomes a possibility for you vs a SEP.

May make sense to roll your spouse’s IRA into 401k for backdoor Roth reasons if investment options are good in 401k and fees are low.

VULs are generally a lousy deal, with often most of the first year’s premium going toward commission. Anyone selling VULs is not fee only, and is not a fiduciary all of the time (maybe not even any of the time). Before we could offer the trick of using a VUL policy loss to conduct a 1035 exchange to a cheap non qualified annuity that you could cash it out, and take a loss as a miscellaneous itemized deduction but I fear this has been eliminated under the new tax law.

[TwstdSista]

I would suggest opening a solo 401k and rolling your IRAs into it -- I'm not sure if you are permitted to contribute to a SEP IRA and a solo 401k in the same year though. I'm also not sure which solo 401k plans allow incoming rollover funds. (Hopefully someone can chime in with those answers). Having a $0 balance in traditional/SEP IRAs as of 12-31 would open the availability of a Backdoor Roth contribution.

If your wife can roll her IRA into her 401k the the Backdoor Roth option would be open for her.

IRAs are individual, so Backdoor Roth contributions are considered individually. If either you or your wife can get your traditional-type IRA balances down to $0 by 12-31-2018 then that person can make a Backdoor Roth contribution for 2018.

Oh, and ditch the advisor!

[CyclingDuo]

We have been using an DFA investment advisor for the last year who has us invested in their DFA funds with an 85/15 stocks bonds split. Overall with his fee (1%) and the expense ratio for the various funds our overall expense ratio is 1.78. Our advisor has stated that even with the high expense ratio, their funds should still outperform the market. Do you guys think that this makes sense or I would be better served to set up our own accounts through Vanguard with a mix of the VTSAX, VGTSX, and VBMFX? Thanks for the input.

1. Should I keep spending the 1.78% through the DFA group or change to a low fee vanguard account? I was thinking of a three fund strategy with 85/15 stock/bone with 20% international. Was thinking of using VTSAX, VGTXS, VBMFX. Would have enough in the various accounts to purchase the admiral shares. Does this approach make sense with our current assets?

Don't beat yourself up over having used an advisor. We all have overpaid for investments at some point in our life be it front-end loads, back-end load funds, high expense ratio funds, made emotional decisions when we should not have, and on and on. A good bull market or two can make up for a lot of mistakes along the way. Going forward, the option to DIY and lowering your investment expenses for the funds is a good path to pursue. Plenty of analogies, but if I can DIY and spread a few bags of Scott treatments on my lawn every year for let's say $100 and what - a total of 90 minutes of my time per year - why would I want to pay $400+ for a lawn service (hello TruGreen!) to do the same thing? At least in terms of choosing a DIY lazy portfolio such as the Three Fund Portfolio, why pay the additional 1% AUM for somebody to more or less do the same thing? We sat through the DFA spiel as well where the claim was made they could outperform the markets as well. Please!

Keep in mind that the ER fees (and if you add in the AUM fees) can total up to one having to save up to 2x as much as those paying low cost index fund fees. This chart shows that:



Like the Scott bags of fertilizer/weed control that you apply yourself vs. the TruGreen (or whatever service company you want to insert here: ____________) application at a much higher expense - the grass is going to be green either way. So why not save some money and DIY?

Boglehead Member and Bogleheads Conference Panel Member Alan Roth simplifies it here:

https://www.aarp.org/money/investing/in ... sting.html

[sand575]

I would suggest opening a solo 401k and rolling your IRAs into it -- I'm not sure if you are permitted to contribute to a SEP IRA and a solo 401k in the same year though. I'm also not sure which solo 401k plans allow incoming rollover funds. (Hopefully someone can chime in with those answers). Having a $0 balance in traditional/SEP IRAs as of 12-31 would open the availability of a Backdoor Roth contribution.

If your wife can roll her IRA into her 401k the the Backdoor Roth option would be open for her.

IRAs are individual, so Backdoor Roth contributions are considered individually. If either you or your wife can get your traditional-type IRA balances down to $0 by 12-31-2018 then that person can make a Backdoor Roth contribution for 2018.

Oh, and ditch the advisor!

Thanks for all the good info. Couple of questions.
-The funds in my SEP are coming in through my IC job, all 1099 funds. If I open up a i401k through vanguard, can I roll the funds from my previous jobs (all w2) that are in my IRA into the i401k?
-If my wife is able to roll the 10k in her IRA into her current job 401k, does that count towards the yearly limit on contributions?
-If we do roll her IRA over to her work plan, which funds would you recomend using there as none of the once I was planning on using (VTSAX, VGTSX, and VBMFX) are options?
-Once we get the funds over to Vanguard, I plan on setting up a three fund portfolio with total stock, total bond and total international stock. Does it matter which funds are in which account as long as the overall AA is where I want it (80/20 with 20% international)?
-For funding a backdoor conversion, can I add to it multiple times a year or do I have to put the 5500 lump sump in at once?

[TwstdSista]

-The funds in my SEP are coming in through my IC job, all 1099 funds. If I open up a i401k through vanguard, can I roll the funds from my previous jobs (all w2) that are in my IRA into the i401k?

A solo 401k that accepts incoming Rollover money will accept from both a SEP IRA and a Rollover IRA. Last I knew though, Vanguard's solo 401k did not accept incoming funds. Vanguard also does not allow you to purchase admiral class funds in their solo 401k.

-If my wife is able to roll the 10k in her IRA into her current job 401k, does that count towards the yearly limit on contributions?

Nope. Rolling money into an account is a separate transaction from the contribution limits.

-If we do roll her IRA over to her work plan, which funds would you recomend using there as none of the once I was planning on using (VTSAX, VGTSX, and VBMFX) are options?

VANGUARD INST IDX/VINIX: 0.04
VANGUARD TOTAL BOND INDEX I/VBTIX: 0.04
or any of the Target Date funds

-Once we get the funds over to Vanguard, I plan on setting up a three fund portfolio with total stock, total bond and total international stock. Does it matter which funds are in which account as long as the overall AA is where I want it (80/20 with 20% international)?

I would keep equities (stocks) in your Roth accounts as well as your taxable account. Bonds are generally preferred in traditional-type IRAs. Other than that, just keep your overall AA where you want it to be.

-For funding a backdoor conversion, can I add to it multiple times a year or do I have to put the 5500 lump sump in at once?

I believe multiple time per year is allowed. Very good questions!

[sand575]

Thanks for all the info I am definitely learning more here than I did through the financial advisor. One more question. Instead of rolling al of my money currently in the SEP and IRA into an i401k could I use some of it for a roth conversion if I pay taxes on it? Might be a silly question but how do I pay those taxes? Do I have to cut a check to the IRS now or will that just come through with next year's taxes. Or am I just making it too complicated and should add post tax money to it for the rest of the year.

From what I am looking at, it looks like fidelity has the best option for the i401k. Anyone have experience, good or bad with them? Am I correct in thinking of the fidelity funds: FSTVX, FSGDX, and FSITX as analogous to VTSAX, VGTSX, and VBMFX. They all look similar with low expense ratios.

[Eagle33]

Instead of rolling al of my money currently in the SEP and IRA into an i401k could I use some of it for a roth conversion if I pay taxes on it? Might be a silly question but how do I pay those taxes? Do I have to cut a check to the IRS now or will that just come through with next year's taxes. Or am I just making it too complicated and should add post tax money to it for the rest of the year.

A simple way is to increase the withholds of your paycheck for the remainder of the year.

[sand575]

Thanks for all the good info. I think I am going to use Fidelity for an i401k and then set up roth accounts for myself and my wife. Any advantage of using Vanguard over Fidelity for these? Also, once I get the funds set up, what is the difference of buying either the admiral/premium stocks or bond indexes vs ETF? Thanks.

[ruralavalon]

Thanks for all the good info. I think I am going to use Fidelity for an i401k and then set up roth accounts for myself and my wife. Any advantage of using Vanguard over Fidelity for these?

In my opinion it is an advantage to have all accounts a single location, to the extent you have a choice of account location.

Both Vanguard and Fidelity offer good total market index funds, so if you want total market index funds then stay with Fidelity for the Roth IRAs.

Vanguard has a much larger selection of other low cost index funds, if you want to use other kinds of index funds like sector funds, value funds, etc.

Also, once I get the funds set up, what is the difference of buying either the admiral/premium stocks or bond indexes vs ETF? Thanks.

My own personal preference is traditional mutual funds rather than ETFs (Exchange Traded Funds). I have no need for intra-day trading.

In my opinion traditional mutual funds are easier to use and have simpler trading mechanics. With traditional mutual funds you can buy or sell fractional shares, you can easily set up automatic investment, and you can easily set up automatic reinvestment of dividends and gains. Wiki article, Wiki article, "ETFs vs Mutual Funds". In my opinion it is important if in the accumulation phase to have investing on autopilot, as automatic as possible.

The choice of traditional mutual fund or ETF is largely a matter of personal preference.

[sand575]

Perfect, thanks. One more question. I would like to contribute to a Roth account both for myself and my wise. I am planning on converting my SEP and IRA to an i401k to avoid the pro-rata tax burden. I was planning on rolling over her current IRA plan (~10k) to her work plan however I am not sure if we can still do a roth conversion with how her work account is set it. I talked with them today and it is not a traditional 401k but an optional retirement plan that both she and her employer pays into. Here is a link to all the info regarding the plan I could find.

https://www.peba.sc.gov/assets/stateorpplandocument.pdf

https://www.peba.sc.gov/sorp.html

If we put all of her money into this plan would we still be able to set up a roth account for her?

[ruralavalon]

Perfect, thanks. One more question. I would like to contribute to a Roth account both for myself and my wise. I am planning on converting my SEP and IRA to an i401k to avoid the pro-rata tax burden. I was planning on rolling over her current IRA plan (~10k) to her work plan however I am not sure if we can still do a roth conversion with how her work account is set it. I talked with them today and it is not a traditional 401k but an optional retirement plan that both she and her employer pays into. Here is a link to all the info regarding the plan I could find.

https://www.peba.sc.gov/assets/stateorpplandocument.pdf

https://www.peba.sc.gov/sorp.html

If we put all of her money into this plan would we still be able to set up a roth account for her?

I don't know. I am not a tax expert, I don't even prepare my own tax returns.

The plan document says "The State of South Carolina established the South Carolina State Optional Retirement Program pursuant to Section 401(a) of the Internal Revenue Code of 1986 (“IRC”) . . . ." I don't believe that is an Individual Retirement Arrangement (IRA).

But you had best check with an attorney or CPA knowledgeable in this.

[balbrec2]

Hey everyone, first time poster here, long time lurker on the forums. I had a question about our current investment strategy that wanted to get your opinion on. Some background, I am 33, married, no kids. I have an individual IRA that has rollovers from previous employment, a SEP IRA that I am currently putting funds into monthly and my wife has a personal IRA. We have about $80,000 spread across those accounts. We have been using an DFA investment advisor for the last year who has us invested in their DFA funds with an 85/15 stocks bonds split. Overall with his fee (1%) and the expense ratio for the various funds our overall expense ratio is 1.78. Our advisor has stated that even with the high expense ratio, their funds should still outperform the market. Do you guys think that this makes sense or I would be better served to set up our own accounts through Vanguard with a mix of the VTSAX, VGTSX, and VBMFX? Thanks for the input.

Emergency funds: Have about 1 month, adding monthly
Debt: All expenses on credit cards, pay off each month in full
My student loans: $449,6000, rate of 4.4%, paying $4000/month
Wife student loans: $120,000, rate 5%, in deferment for next three years during her education
Car: 29,000, 0%, 5.5 years
Mortgage: 389,300, 3.375%, 30 year
Tax Filing Status: Married filing jointly
Tax Rate: 24% Federal, 7% State
State of Residence: South Carolina
Age: 33
Desired Asset allocation: 85% stocks / 15% bonds
Desired International allocation: 20% of stocks
~$80,000 currently invested with current investment group, spread over mine and hers IRA and my SEP, planning on contributing $24,000 annually
~$9,000 in wife employee matched 401k

Current retirement assets

Her IRA-rollover from previous employment
100% SA U.S. CORE MARKET FUND SELECT CLASS (SAALX) (0.68%)

My IRA-rollover from previous employment
14%: SA INTERNATIONAL SMALL COMPANY FUND SELECT CLASS (SACLX) (1.04%)
11%: SA INTERNATIONAL VALUE FUND SELECT CLASS (SATLX) (0.88%)
17%: SA U.S. CORE MARKET FUND SELECT CLASS (SAALX) (0.68%)
17%: SA U.S. SMALL COMPANY FUND SELECT CLASS (SASLX) (0.92%)
25%: SA U.S. VALUE FUND SELECT CLASS (SAVLX) (0.75%)
4%: SA EMERGING MARKETS VALUE FUND SELECT CLASS (SAELX) (1.15%)
5%: SA GLOBAL FIXED INCOME FUND SELECT CLASS (SAFLX) (0.51%)
3% SA REAL ESTATE SECURITIES FUND SELECT CLASS (SARLX) (0.75%)
4%: SA U.S. FIXED INCOME FUND SELECT CLASS (SAULX) (0.43%)

My SEP-currently contributing to ~2,000.month
40%: SA INTERNATIONAL VALUE FUND SELECT CLASS (SATLX) (0.88%)
13%: SA GLOBAL FIXED INCOME FUND SELECT CLASS (SAFLX) (0.51%)
13%: SA EMERGING MARKETS VALUE FUND SELECT CLASS (SAELX) (1.15%)
12% SA U.S. FIXED INCOME FUND SELECT CLASS (SAULX) (0.43%)
11%: SA REAL ESTATE SECURITIES FUND SELECT CLASS (SARLX) (0.75%)
7%: SA U.S. CORE MARKET FUND SELECT CLASS (SAALX) (0.68%)
4%: SA U.S. VALUE FUND SELECT CLASS (SAVLX) (0.75%)


Three above accounts with financial planner, taking 1% fee, overall with expense ratio comes to 1.78%)

Her work 401k, 9% contribution with a 5% employee match
100% VANGUARD TGT RTMT INC (VTINX) (0.13%)

Fund options for her 401k
VANGUARD TGT RTMT INC/VTINX: 0.13
VANGUARD INST IDX/VINIX: 0.04
VANGUARD TGT RTMT 2045/VTIVX: 0.15
VANGUARD TGT RTMT 2035/VTTHX: 0.14
VANGUARD TGT RTMT 2025/VTTVX: 0.14
VANGUARD TGT RTMT 2015/VTXVX: 0.13
VANGUARD HEALTH CARE ADM/VGHAX: 0.32
VANGUARD MIDCAP INDEX INS/VMCIX: 0.05
VANGUARD SMALL CAP INSTL/VSCIX: 0.05
VANGUARD TGT RTMT 2050/VFIFX: 0.15
VANGUARD TGT RTMT 2040/VFORX: 0.15
VANGUARD TGT RTMT 2030/VTHRX: 0.14
VANGUARD TGT RTMT 2020/VTWNX: 0.13
VANGUARD TOTAL BOND INDEX I/VBTIX: 0.04
AMERICAN EUROPACIFIC GROWTH R6/RERGX: 0.5
VANGUARD TGT RTMT 2055/VFFVX: 0.15
VANGAURD VALUE INDEX INSTL/VIVIX: 0.05
T ROWE PRICE INSTL LG CP GRWTH/TRLGX: 0.56
VANGUARD TGT RTMT 2060/VTTSX: 0.15
DFA INFLATION PROTECTED SEC I/DIPSX: 0.12
VANGUARD EMRG MKT STK IDX ADM/VEMAX: 0.14

Contributions

New annual Contributions
$20,000 his SEP
$5,000 to her 401k with 5% employee match


Questions:
1. Should I keep spending the 1.78% through the DFA group or change to a low fee vanguard account? I was thinking of a three fund strategy with 85/15 stock/bone with 20% international. Was thinking of using VTSAX, VGTXS, VBMFX. Would have enough in the various accounts to purchase the admiral shares. Does this approach make sense with our current assets?

I didn't see in any responses but what is your profession and income? It matters!
what is your debt to income ratio?

[Doctor Rhythm]

They do offer a flat rate $100/month for financial advising/lifestyle planning, ect, so might just stick with that but get the rest of the money out. Thanks for advice.

I'm a physician in a state which is somewhat infamous for self-absorbed kookiness among the affluent and chattering classes. However, I have never met anyone who pays a monthly fee for "lifestyle planning."

[sand575]

I didn't see in any responses but what is your profession and income? It matters!
what is your debt to income ratio?

We are both doctors, combined income of about 350k now, will increase in about 4 more years when wife finishes her training.

[sand575]

They do offer a flat rate $100/month for financial advising/lifestyle planning, ect, so might just stick with that but get the rest of the money out. Thanks for advice.

I'm a physician in a state which is somewhat infamous for self-absorbed kookiness among the affluent and chattering classes. However, I have never met anyone who pays a monthly fee for "lifestyle planning."

They sold it to us as wealth management and building a comprehensive financial plan. I do think it was good initial investment to get a plan set up, our disability and lift insurance plans set up. Moving forward however I think I am more than capable to do it myself.

[sand575]

Hey guys, in thinking about our situation, does it make sense to convert my SEP to a i401k to be able to contribute to a Roth? Since we are in the 32% federal tax bracket would it make more sense to keep funds in the SEP and max that out?