Nervous about not using a personal wealth manager. How do I do this myself?

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maxsamson
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Nervous about not using a personal wealth manager. How do I do this myself?

Post by maxsamson » Wed Aug 01, 2018 1:04 am

[See updates on pages 2 and 3 --admin LadyGeek]

My new wife and I just spent about $2k on a financial planner to get an investment plan in place. We really liked the advisor we worked with and found the process very helpful. We're unsure of whether to do this. It appears that the general opinion on this forum is that private wealth management is a waste of money because you can easily do it yourself. I suppose this post is my attempt to get greater assurance of that :)

My questions are:

1. Now that we have established a plan, what are the main things we need to do? Just save the planned amount and rebalance once in a while? The wiki start-up kit doesn't say much more than this.

2. How do we know how future changes to our income/expenses will affect our retirement goals, e.g. kids, students loan refinancing, job changes? I know the internet is filled with retirement calculators, but our financial planner used what appears to be a much more sophisticated monte carlo simulation. The wiki lists this free online Monte Carlo simulation. Is that a sufficient replacement?

3.What investment and planning resources should I look into at this point, now that we already have an initial investment plan established?


The plan we established with the financial planner (not including insurance, which we did cover) is as follows:

Ages: 35 and 33
Combined annual income: $310k
Debt: $325k (med school loans... going to get them refinanced)

Checking: $25k
Currently maxed out (goal is to maintain 2.5x monthly expenses at the start of the month)

Emergency Fund 1: $25k (checking account, 3.3% APY)
Currently maxed out

Emergency Fund 2: $25k (85% fixed income, 10% stock, 5% cash & equivalents)
Currently maxed out

Large Purchase Savings: $30k (75% fixed income, 8% US stock, 8% international stock, 8% alternatives, 1% cash & equivalents)
Goal of $120k in 2021 for a house down payment
Contribute $3,653/month

Taxable Retirement Savings: $62k (34% US stock, 33% International stock, 24% fixed income, 8% alternatives, 1% cash & equivalents)
Contribute $2k/month

401k: 40k (same allocations as taxable retirement savings)
Max out annually

Traditional IRA: 40k (same allocations as taxable retirement savings)
Max out annually

Roth IRA: $20k (same allocations as taxable retirement savings)
Further contributions via back-door


For what it's worth, my financial planner's private wealth management fees are:

0.90% < $1,000,000
0.75% $1,000,000 ≤ $2,000,000
0.60% $2,000,000 ≤ $5,000,000
0.45% > $5,000,000
Last edited by maxsamson on Wed Aug 01, 2018 2:45 pm, edited 2 times in total.

abonder
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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by abonder » Wed Aug 01, 2018 1:15 am

I’d say you’re already off to a good start. You have emergency find, some savings, and a plan. You don’t need to overthink it. Have you spent some time at Whitecoatinvestor.com? It’s geared for people in your position. I won’t offer any specifics other than two things:

1. There is no need to make a decision right away. If you don’t feel ready to go it alone you can go with the advisor. I personally don’t think you need it and the cost will have an impact, it many people are well-serves by the *right* advisor. Just know that the longer you use the advisor, the harder it will be to get out of the relationship (both emotionally and logistically in terms of transferring funds, taxes, etc). You can spend some time learning now and get off on your own and reevaluate how you’re feeling in a year. This stuff is way easier than med school and training. You can do it if you choose to.

2. The most important thing to do is not spend and save/service debt. Live like a resident as long as you can. Everything else will fall into place. Avoid all the new doctor trappings and you’ll be all good!

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BeBH65
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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by BeBH65 » Wed Aug 01, 2018 1:39 am

You seem to have a sound financial plan.

Many Bogleheads prefer indeed a lazy approach to investing.
It has been proven that frequent tinkering to ones investments often leads to underperformance.
"stay the course" is one of the Boglehead Principles.
Not spending a lot of time to the investements allows the Bgleheads to focus on (the important aspect of) our lives.


Could you update your opening post with the actual funds (with % of portfolio, and ER %). This will allow us to give you feedback on your actual investements.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

mhalley
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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by mhalley » Wed Aug 01, 2018 1:49 am

If you really need some hand holding until you feel you have a handle on everything, try using vanguard pas for 0.3% plus very low cost funds instead of the .9% plus 1% fund fees. Once you have educated yourself, then drop pas.
Alternatively, get a fee only planner that you pay for a tune up when your circumstances change. It’s the AUM fee that will eat you up over the long run.

DJN
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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by DJN » Wed Aug 01, 2018 1:56 am

Hi Maxsamson,
I have been through this issue very recently, for my part I had to get advice on certain complexities to do with my offshore jurisdiction and my intended retirement location which are not of any concern to a US investor. I would say that the advisor opened my eyes to a number of estate planning and tax planning issues which then lead me to review my tax position and my jurisdiction with other advisers. Apart from that the adviser adds more costs and more unnecessary complexity. If I were you I would learn here what you need to do from an investment point of view and don't give away a considerable percentage of your returns to an adviser who takes no risk. Also the simplicity of the approach here allows you to involve your partner even if they are not all that interested.
DJN

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iceport
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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by iceport » Wed Aug 01, 2018 2:22 am

This stuff isn't rocket science. You definitely have the ability to do this yourself, with a little reading.

Your advisor's plan has many strengths. Two things I would question:

— Why wouldn't your advisor have you continue maxing out your Roth, through backdoor contributions if needed, before contributing to a taxable account for retirement savings?

— It looks like the proposal is to simplistically duplicate your overall AA in all accounts. That will likely place tax-inefficient funds (fixed income and alternatives) in your taxable account. Why isn't your advisor looking at all of your accounts as parts of one large whole portfolio, and allocating across all accounts to minimize expenses and taxes? It's usually best to hold only broad market index funds in taxable accounts. It's also possible that your 401k holds a combination of higher and lower cost funds, or limited index funds. If so, it's usually best to select only the cheapest options in the 401k.

Other than that, it should be as simple as selecting a few low cost index funds to flesh out your asset allocation (AA) and implement it across your accounts.

As far as planning tools go, I relied almost exclusively on two similar calculators, FIRECalc and cFIREsim, that use actual historic market conditions to reproduce retirement sequences. (This is the same type of analysis used in the Trinity Study that produced the 4% withdrawal rule.)

https://www.firecalc.com/index.php

http://www.cfiresim.com/input.php
"Discipline matters more than allocation.” ─William Bernstein

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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by Grt2bOutdoors » Wed Aug 01, 2018 4:59 am

Why are you putting money into “taxable” retirement savings when you can fund a “Backdoor” Roth IRA? Pick the low hanging fruit.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

student
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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by student » Wed Aug 01, 2018 5:22 am

You don't need a personal wealth manager. Now that you have a plan. Just follow it. Many on this forum perfers a 3-fund portfolio or something close to it. I think even a target fund is better than a wealth manager.

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TomatoTomahto
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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by TomatoTomahto » Wed Aug 01, 2018 6:39 am

student wrote:
Wed Aug 01, 2018 5:22 am
You don't need a personal wealth manager. Now that you have a plan. Just follow it. Many on this forum prefer a 3-fund portfolio or something close to it. I think even a target fund is better than a wealth manager.
As I often say on this forum: I'm dumber than a sack of hammers and I still successfully manage a large portfolio. It's not rocket science, not even close. Read about the 3-fund portfolio.
Zero Net Carbon by 2019.

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BL
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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by BL » Wed Aug 01, 2018 7:46 am

Agree that Roth IRA is the best you can get, but some advisors (and tax people) don't seem to know about the backdoor Roth (search our Wiki) as a way for higher-income folks without non-Roth IRAs to keep investing. IRS form 8606 is needed to report contributions here.

If you have high-deductible health insurance, perhaps you are eligible for HSA medical savings. Use it as a great form of tax-saving investing!

Check out WhiteCoatInvestor and his book. Good advice for high-income docs. Also read some in Wiki, pick out a couple suggested books like the Boglehead's one or my favorite reference, Jane Bryant Quinn, for common-sense advice on personal finance. For a quick check, read through Dr. Bernstein's If You Can pdf:
https://www.etf.com/docs/IfYouCan.pdf

See Taylor's quotes from many sources in the Wiki for a quick, broad overlook of many sources.

Agree that if you want some help Vanguard's Personal Advisory Services won't do you wrong at 0.3% AUM and very low-ER funds (0.04-0.11 ER for each fund). They will set you up with a reasonable handful or so of index funds that covers the total market. If you drop them, you won't have to undo what they set up.

Your "advisor" may sell you the best of what is available through his company, but the math of paying 0.9% annually plus the probability of higher ER funds (that often have 0.25-1.0% 12b-1 kick-backs to broker/advisor and/or front or back loads as well) means it will cost you plenty over the years. Advisors make their money with managing and/or selling high-cost investment or insurance products. You can look up expenses on Morningstar.com on almost any fund.

You might want to search for the company you are considering to see if there are individuals who are going through the "break-up" after being with an advisor/friend for a few years. There is guilt over the "divorce" as well as a big mess of funds to handle left over from the experience. Advisors notoriously like to give you dozens of funds so it looks very complicated. Some are sold permanent life insurance rather than term, or annuities as well.

"Fee-only" advisers that do not "manage" funds are sometimes available, but they are hard to find and hard to evaluate. A good one to see every few years would probably be worthwhile, but you have to know enough about investing to be able to judge what they say and do. Being a "nice guy" is just what makes a salesman successful, even if they don't have your best interests in mind (fiduciary). There is no requirement that they act as your fiduciary, just that they sell you something "suitable" which has a very broad definition and is rarely enforced. When you are "accredited" (rich), even that goes out the window!

You might want to look at this Wiki table for tax-efficient placement. I expect some of the funds suggested for taxable account are not very tax-efficient (REIT funds would be an example). These would be better placed in a Roth or other tax-advantaged account.
https://www.bogleheads.org/wiki/Tax-eff ... _placement

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Hyperborea
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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by Hyperborea » Wed Aug 01, 2018 8:44 am

maxsamson wrote:
Wed Aug 01, 2018 1:04 am
2. How do we know how future changes to our income/expenses will affect our retirement goals, e.g. kids, students loan refinancing, job changes? I know the internet is filled with retirement calculators, but our financial planner used what appears to be a much more sophisticated monte carlo simulation. The wiki lists this free online Monte Carlo simulation. Is that a sufficient replacement?
Fancy bells and whistles used to try and convince you that the advisor has special powers or abilities. The advisor likely has little idea of what is going on and just enters some numbers and presses a button and generates you some impressive looking report. Monte Carlo "simulation" is just a big random number generator that doesn't do a good job of accurately modelling the economy*. You would be better off using one of the historical data based calculators available (e.g. FireCalc, CFiresim). If you really want to play with Monte Carlo simulation then those are available too.


* Usually at best a gaussian distribution of returns with no skew or kurtosis (or a log-normal distribution) or fat tails. There is no interaction between elements of the portfolio so, for example, simulated inflation has no effect on stock or bond returns. These simulators are also stateless so a year of 20% stock returns is as likely following 10 simulated years of 20% returns as it is following 10 simulated years of -20% returns. So, no reversion to the mean as is observed in the real world.
"Plans are worthless, but planning is everything." - Dwight D. Eisenhower

niceguy7376
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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by niceguy7376 » Wed Aug 01, 2018 9:02 am

So you already paid 2k as fees to the financial planner.
How can your planner manage the funds in your 401k? I am trying to understand where the wealth management fees come into picture.

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nedsaid
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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by nedsaid » Wed Aug 01, 2018 9:06 am

I will say again that financial advice is best paid for by the hour. Once your portfolio gets to a large size, the Assets Under Management fees will pay for an awful lot of financial advice. Be prepared to pay $150-$400 an hour. I have balked at Asset Under Management arrangements as they are a big drag on returns, 0.90% is a lot particularly when you consider that the expense ratios of your underlying funds are on top of that. Nevertheless, there is value to having an advisor but there is a lot of debate here how much that is worth. That is something you have to decide.
A fool and his money are good for business.

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teen persuasion
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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by teen persuasion » Wed Aug 01, 2018 9:14 am

maxsamson wrote:
Wed Aug 01, 2018 1:04 am

The plan we established with the financial planner (not including insurance, which we did cover) is as follows:

Ages: 35 and 33
Combined annual income: $310k
Debt: $325k (med school loans... going to get them refinanced)

Checking: $25k
Currently maxed out (goal is to maintain 2.5x monthly expenses at the start of the month)

Emergency Fund 1: $25k (checking account, 3.3% APY)
Currently maxed out

Emergency Fund 2: $25k (85% fixed income, 10% stock, 5% cash & equivalents)
Currently maxed out

Large Purchase Savings: $30k (75% fixed income, 8% US stock, 8% international stock, 8% alternatives, 1% cash & equivalents)
Goal of $120k in 2021 for a house down payment
Contribute $3,653/month

Taxable Retirement Savings: $62k (34% US stock, 33% International stock, 24% fixed income, 8% alternatives, 1% cash & equivalents)
Contribute $2k/month

401k: 80k (same allocations as taxable retirement savings)
Max out annually

Roth IRA: $20k (same allocations as taxable retirement savings)
No further contributions


For what it's worth, my financial planner's private wealth management fees are:

0.90% < $1,000,000
0.75% $1,000,000 ≤ $2,000,000
0.60% $2,000,000 ≤ $5,000,000
0.45% > $5,000,000
It is interesting looking at the advisor's conscious (or unconscious?) ordering of priorities. I agree that emergency funds should be at the top of the list, but see how he creates a sub EF with investments? Then comes the short term savings goal (with investments to manage). Then taxable retirement accounts (for him to manage). Only after that comes your 401k accounts (outside his reach), and Roth IRAs are recommended against!

It's also interesting how detailed the recommendations are in some areas (down to 1%), but vague in others - what does max out 401k annually really mean here? To the match only (some people refer to "max" in this way), to your pre-tax contribution limit of $18,500, or do you have the option to make post-tax contributions after reaching the pre-tax limit?

Did your advisor look at tax effects of his recommended investments, for example bonds and alternatives in taxable accounts? Read up on tax efficient placement of investments.

BuckyBadger
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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by BuckyBadger » Wed Aug 01, 2018 9:52 am

This looks like it may not be a very good plan that he's set you up on - regardless of how much money you paid him already...

As others have said, this isn't tax optimized, and it looks like he's added a ton of complexity so that he can get you to pay him to manage it.

Can you add the actual funds and fees?

It does not have to be complicated. I know very little about investments and I manage a 3 fund lazy portfolio spread across 6 accounts: his and hers 401k/403b, his and hers ROTH IRAs, an HSA, and a taxable account. It is tax optimized. I choose to not add the complexity of tax loss harvesting, and I don't think it's going to hurt me very much in the end and it gives me confidence that I can continue to manage it. It's literally just three funds.

Really, you can do this alone. But I'm worried that his entire plan was a waste of money, especially if he's got you in funds with unnecessarily high ERs...

ETA: Also, our annual income is a little more than yours, so the lazy portfolio is perfectly scale-able. Just because you have greater assets doesn't mean you need greater complexity.

senex
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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by senex » Wed Aug 01, 2018 10:03 am

What, in particular, makes you nervous? That you'll stop saving? That you'll miss important tax advantages? That you'll miss "hot" stock tips?

In these latter days, advisors provide no informational advantage. They don't know anything that isn't plastered all over the internet. They don't know any secret legitimate tax shelters. Their funds will not (on expectation) perform better than an index fund. etc.

What they do provide is psychology. Some people simply cannot control themselves; they spend whatever they touch. (I hear this is particularly common among new doctors, who after years of spartan existence, splurge on Land Rover leases and other massively wealth-destroying behaviors.) Or they churn, chase performance, panic-sell upon every market decline, or generally make rash financial decisions. An advisor can provide much-needed discipline and accountability to such people.

The accountability comes at a price. Within a decade the advisor could easily be costing you $20-30k / year and complexifying your life. If the alternative is that you'll spend most of your money and make rash decisions with savings, the advisor may be a net win for your wealth. On the other hand, if you have some patience, desire, and self-control, the cost and complexity is hard to justify.

There are no more secrets in finance. Buffett routinely points out that hedge funds, as a group, underperform the S&P. Get some insurance (term life and umbrella liability), avoid debt, save at least 20% of your income (for high incomes like you, I'd save 50%+), and invest in low-cost stocks & bonds, and you will do great. There aren't any tricks that you'll be missing.

Good luck.
Last edited by senex on Wed Aug 01, 2018 10:18 am, edited 1 time in total.

Jack FFR1846
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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by Jack FFR1846 » Wed Aug 01, 2018 10:17 am

You can manage this yourself. There are a bunch of ways to go about it.

Let's attack some chunks.

Kids' education. The traditional method these days is to put money into 529 plans to avoid taxes on gains over the years. This is a good method. Pick a target college for estimated costs and put money in to match the need once college starts.

I never did a 529. Instead, I put money into US Savings bonds. The interest is always state tax free and if used for education (and in the names of parents only), then there's no federal tax either. The rest has been cash flowed and grandparent funded (a surprise).

Beyond this, I'm firmly in the 3 fund camp. I have one large IRA where I rebalance. All other accounts have only one fund each. If you are going to backdoor Roth, this won't work for you. Your goal should be to fill your 401k's as much as possible so you can rebalance there while retaining the ability to backdoor Roth.

I keep a spreadsheet and manually update it every couple months. I rebalance on my birthday.

I honestly cannot think of a single thing a "wealth manager" can do for me. With the amount of money I have in Fidelity, I can get free advice anytime I want. I see no need for anything.
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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by pkcrafter » Wed Aug 01, 2018 10:37 am

Welcome, maxsamson,

Yes, you can manage your assets.

What is your overall asset allocation?

Buy, hold, stay on track.
Think of all retirement accounts as one portfolio. Don't include emergency funds or house savings.
Rebalance with new money and/or rebalance if necessary once or twice a year.
Only tax-efficient funds in taxable retirement account.

I think you will find that after 3-4 months of managing your portfolio, you will be comfortable with it.

Taxable Retirement Savings: $62k (34% US stock, 33% International stock, 24% fixed income, 8% alternatives, 1% cash & equivalents)
Contribute $2k/month

401k: 80k (same allocations as taxable retirement savings)
Max out annually

Roth IRA: $20k (same allocations as taxable retirement savings)
No further contributions
Please list these holdings by name and ticker.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

maxsamson
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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by maxsamson » Wed Aug 01, 2018 2:47 pm

iceport wrote:
Wed Aug 01, 2018 2:22 am
— Why wouldn't your advisor have you continue maxing out your Roth, through backdoor contributions if needed, before contributing to a taxable account for retirement savings?
This is indeed the plan. I have updated my original post accordingly.
iceport wrote:
Wed Aug 01, 2018 2:22 am
— It looks like the proposal is to simplistically duplicate your overall AA in all accounts. That will likely place tax-inefficient funds (fixed income and alternatives) in your taxable account. Why isn't your advisor looking at all of your accounts as parts of one large whole portfolio, and allocating across all accounts to minimize expenses and taxes? It's usually best to hold only broad market index funds in taxable accounts. It's also possible that your 401k holds a combination of higher and lower cost funds, or limited index funds. If so, it's usually best to select only the cheapest options in the 401k.
Hmm, this might be my fault. I have a traditional IRA and my Roth in Betterment, buy the financial advisor's firm uses Schwab. The "80k" i put down for my 401k is actually 40k in a Betterment IRA and 40k in the 401k's my wife and I have through our current employers. So perhaps if I were to move my Betterment accounts over to Schwab then the "on large whole portfolio" approach would be doable? Or is there a mistake you think the financial planner is making beyond that?

maxsamson
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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by maxsamson » Wed Aug 01, 2018 2:55 pm

teen persuasion wrote:
Wed Aug 01, 2018 9:14 am
It is interesting looking at the advisor's conscious (or unconscious?) ordering of priorities. I agree that emergency funds should be at the top of the list, but see how he creates a sub EF with investments? Then comes the short term savings goal (with investments to manage). Then taxable retirement accounts (for him to manage). Only after that comes your 401k accounts (outside his reach), and Roth IRAs are recommended against!
No, maxing out 401k is the top priority. By max out I mean contribute the pre-tax limit of $18.5k. And I updated my original post to clarify that back-door Roths are part of the plan. Do you still see an issue with the prioritization?

maxsamson
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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by maxsamson » Wed Aug 01, 2018 3:01 pm

BuckyBadger wrote:
Wed Aug 01, 2018 9:52 am
As others have said, this isn't tax optimized, and it looks like he's added a ton of complexity so that he can get you to pay him to manage it.

Can you add the actual funds and fees?
See the end of my comment here. I might be partly to blame for tax inefficiency by not having my traditional and roth IRAs in the same schwab account for the financial advisor to manage. I can't list the actual funds and fees yet because they haven't been selected -- the adviser is waiting for us to decide whether we will do private wealth management or not because that will apparently affect what gets purchased.

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Taylor Larimore
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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by Taylor Larimore » Wed Aug 01, 2018 3:04 pm

See Taylor's quotes from many sources in the Wiki for a quick, broad overlook of many sources.
maxsamson:
This is the link:

viewtopic.php?t=156576

Best wishes
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

maxsamson
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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by maxsamson » Wed Aug 01, 2018 3:06 pm

senex wrote:
Wed Aug 01, 2018 10:03 am
What, in particular, makes you nervous? That you'll stop saving? That you'll miss important tax advantages? That you'll miss "hot" stock tips?
Not worried about "hot" stock tips or our ability to save appropriately. But maybe there are other finer details I'm not aware of. For example, imagine I didn't know about back-door roths. I worry there are investment vehicles or tax-related things like that which I may not be aware of.

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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by TomatoTomahto » Wed Aug 01, 2018 3:16 pm

maxsamson wrote:
Wed Aug 01, 2018 3:06 pm
senex wrote:
Wed Aug 01, 2018 10:03 am
What, in particular, makes you nervous? That you'll stop saving? That you'll miss important tax advantages? That you'll miss "hot" stock tips?
Not worried about "hot" stock tips or our ability to save appropriately. But maybe there are other finer details I'm not aware of. For example, imagine I didn't know about back-door roths. I worry there are investment vehicles or tax-related things like that which I may not be aware of.
My accountant didn't know about back-door Roths until I told him about them, discovered here. Hang out here. I promise you that, not only will you get great advice, but there are (barring whole-life and LTCi threads) seldom any conflicts of interest. On the rare occasion when there is a conflict of interest, someone will call the salesman on it.
Zero Net Carbon by 2019.

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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by Meg77 » Wed Aug 01, 2018 3:18 pm

Just want to point out that paying for financial planning and paying for investment management are two different things. It can be very valuable to pay (as you have) for planning services and for advice. But paying/charging for investment management is increasingly a losing proposition both for the consumer and the advisor. It's just so much cheaper, more efficient and easier - with much quicker trading/response times - to let an algorithm or other process do the investment management once you/they determine your AA and fund choices.
"An investment in knowledge pays the best interest." - Benjamin Franklin

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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by retiredjg » Wed Aug 01, 2018 3:19 pm

maxsamson wrote:
Wed Aug 01, 2018 1:04 am
My new wife and I just spent about $2k on a financial planner to get an investment plan in place. We really liked the advisor we worked with and found the process very helpful.
It seems you found the $2k investment planning worthwhile. And the plan you have shown us is reasonable. But paying .9% AUM to a wealth management service is unnecessary and quite expensive. In addition to the AUM, they might put you in funds that are high cost. And they might put you in dozens of funds that would be difficult to understand and expensive to unravel when you decide to move on. Not every advisor does this, but we see it pretty much every other day here.

If you choose wealth management temporarily or long term, it should be at Vanguard where the cost of the service is very low (.3%) and the cost of the products they sell you is very low. They would set up up in a simple portfolio that you can understand and could manage yourself after watching how it works for a year or so. Think "training wheels".

Traditional IRA: 40k (same allocations as taxable retirement savings)
Max out annually

Roth IRA: $20k (same allocations as taxable retirement savings)
Further contributions via back-door
HUH????? Your traditional IRA needs to disappear if you intend to use the back door....

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iceport
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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by iceport » Wed Aug 01, 2018 3:20 pm

maxsamson wrote:
Wed Aug 01, 2018 2:47 pm
iceport wrote:
Wed Aug 01, 2018 2:22 am
— Why wouldn't your advisor have you continue maxing out your Roth, through backdoor contributions if needed, before contributing to a taxable account for retirement savings?
This is indeed the plan. I have updated my original post accordingly.
OK, well that's good!
maxsamson wrote:
Wed Aug 01, 2018 2:47 pm
iceport wrote:
Wed Aug 01, 2018 2:22 am
— It looks like the proposal is to simplistically duplicate your overall AA in all accounts. That will likely place tax-inefficient funds (fixed income and alternatives) in your taxable account. Why isn't your advisor looking at all of your accounts as parts of one large whole portfolio, and allocating across all accounts to minimize expenses and taxes? It's usually best to hold only broad market index funds in taxable accounts. It's also possible that your 401k holds a combination of higher and lower cost funds, or limited index funds. If so, it's usually best to select only the cheapest options in the 401k.
Hmm, this might be my fault. I have a traditional IRA and my Roth in Betterment, buy the financial advisor's firm uses Schwab. The "80k" i put down for my 401k is actually 40k in a Betterment IRA and 40k in the 401k's my wife and I have through our current employers. So perhaps if I were to move my Betterment accounts over to Schwab then the "on large whole portfolio" approach would be doable? Or is there a mistake you think the financial planner is making beyond that?
To allocate efficiently across all accounts (for both you and your spouse) as one large portfolio does not depend on where the accounts are located — at least it shouldn't. Anecdotally, folks seem to report that advisors just don't want to deal with the (minor) headache. Shame on them! Around here, there are frequent posters that could do it in their sleep! It's a little like fitting a puzzle together. We could certainly help to show you how it could be done, but that's where we'd need to know all the specifics about your target AA and what options (and their costs) exist in the employer account(s).
"Discipline matters more than allocation.” ─William Bernstein

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iceport
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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by iceport » Wed Aug 01, 2018 3:24 pm

retiredjg wrote:
Wed Aug 01, 2018 3:19 pm
Traditional IRA: 40k (same allocations as taxable retirement savings)
Max out annually

Roth IRA: $20k (same allocations as taxable retirement savings)
Further contributions via back-door
HUH????? Your traditional IRA needs to disappear if you intend to use the back door....
Good catch!

Just for my own info, is it really "needs to," or could it be "really should, in the interest of simplicity and avoiding additional taxes"?

https://www.bogleheads.org/wiki/Roth_IR ... tributions
Last edited by iceport on Wed Aug 01, 2018 3:33 pm, edited 1 time in total.
"Discipline matters more than allocation.” ─William Bernstein

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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by retiredjg » Wed Aug 01, 2018 3:30 pm

maxsamson wrote:
Wed Aug 01, 2018 3:01 pm
I can't list the actual funds and fees yet because they haven't been selected -- the adviser is waiting for us to decide whether we will do private wealth management or not because that will apparently affect what gets purchased.
I suggest you and/or your spouse spend a few hours a week here at the forum for the next 3 months and see how much you learn. This is NOT rocket science. Good investing can be very simple. Learning about taxes and all those other things you mentioned can happen here as well. Here is a good place to start - find the link near the top called "getting started".

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

Also do an internet search for "the white coat investor" - a physician with and extensive blog on financial matters (and an occasional poster here).

Once you see how easy this can be, I doubt you'll be interested in paying .9% to and advisor.

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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by retiredjg » Wed Aug 01, 2018 3:34 pm

iceport wrote:
Wed Aug 01, 2018 3:24 pm
retiredjg wrote:
Wed Aug 01, 2018 3:19 pm
Traditional IRA: 40k (same allocations as taxable retirement savings)
Max out annually

Roth IRA: $20k (same allocations as taxable retirement savings)
Further contributions via back-door
HUH????? Your traditional IRA needs to disappear if you intend to use the back door....
Good catch!

Just for my own info, is it really "needs to," or could it be "really should, in the interest of simplicity"?
It is certainly legal to go through the back door steps in the presence of IRAs. But it results in pro-rating the conversion step and pretty much negates the purpose of doing the back door in the first place.

So my opinion is that it needs to be moved out of the way, but no....it does not have to be moved out of the way. I just don't know of anyone who does that though.

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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by BogleBike » Wed Aug 01, 2018 3:39 pm

Just to support the recommendations not to pay advisor fees every year, think of it this way.

The fee schedule you gave starts out at .9%/year. Over a 20 year period, that's about 18% of your wealth that will go to the advisor! (Because .9 x 20 = 18.)

If the funds that the advisor puts you in charge another 1%, that's another .8% or so more than the funds that you can buy from Vanguard (or Schwab, or Fidelity) yourself. The advisor's advice would then cost you about 1.7%/year total, or in 20 years, close to 34%... close to a third of your new wealth!

There are some bits of math that should be more exact than what I gave. It might end up losing you "only" a quarter of your wealth in the first 20 years, then another quarter in the 20 years after that. Those are still examples of how fees add up.

Over time, fees aren't 1% or 2%. When they pile up over time, they can eat away a third or half of your wealth.

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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by BuckyBadger » Wed Aug 01, 2018 3:43 pm

Think about the fees as a portion of what you're expecting to make.

Let's say you hope to earn a conservative 6 percent a year. If your fees are nearly 2 percent, that's a full third of the profits you need to live on in retirement.

It's not 2 percent of a hundred percent. It's a full third or quarter of everything your portfolio earns.

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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by maxsamson » Wed Aug 01, 2018 3:46 pm

BogleBike wrote:
Wed Aug 01, 2018 3:39 pm
The fee schedule you gave starts out at .9%/year. Over a 20 year period, that's about 18% of your wealth that will go to the advisor! (Because .9 x 20 = 18.)
That's a helpful way to think about it. I guess my wife and I have been wondering whether having expert management of the portfolio could increase returns beyond the fee, thus causing the math to work out to our advantage. The response on this forum is pretty clear about that likelihood though :)

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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by BuckyBadger » Wed Aug 01, 2018 3:49 pm

I'm not trying to push my strategy on you, but I'm a visual learner and it helped me to see people's allocations to really understand what they meant. This is my allocation and how it's spread over all our accounts.

Image

It doesn't get much simpler than that. (You can use only two funds!) One fund in every account. All rebalancing happens in my 403b. No fees beyond the stated ERs. Optimized for taxes.

If you simplify there's absolutely nothing that you can't handle.

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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by maxsamson » Wed Aug 01, 2018 3:55 pm

BuckyBadger wrote:
Wed Aug 01, 2018 3:43 pm
Think about the fees as a portion of what you're expecting to make.

Let's say you hope to earn a conservative 6 percent a year. If your fees are nearly 2 percent, that's a full third of the profits you need to live on in retirement.

It's not 2 percent of a hundred percent. It's a full third or quarter of everything your portfolio earns.
Wow, thanks. That's pretty eye opening.

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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by maxsamson » Wed Aug 01, 2018 3:56 pm

retiredjg wrote:
Wed Aug 01, 2018 3:34 pm
iceport wrote:
Wed Aug 01, 2018 3:24 pm
retiredjg wrote:
Wed Aug 01, 2018 3:19 pm
Traditional IRA: 40k (same allocations as taxable retirement savings)
Max out annually

Roth IRA: $20k (same allocations as taxable retirement savings)
Further contributions via back-door
HUH????? Your traditional IRA needs to disappear if you intend to use the back door....
Good catch!

Just for my own info, is it really "needs to," or could it be "really should, in the interest of simplicity"?
It is certainly legal to go through the back door steps in the presence of IRAs. But it results in pro-rating the conversion step and pretty much negates the purpose of doing the back door in the first place.

So my opinion is that it needs to be moved out of the way, but no....it does not have to be moved out of the way. I just don't know of anyone who does that though.
Ok, this might all be my fault for being confused. I just know that back-door roths were discussed. I'm not clear on the details for how/when they'd get implemented. I'd obviously need to learn more about this if we don't go with wealth management.

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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by maxsamson » Wed Aug 01, 2018 3:57 pm

Meg77 wrote:
Wed Aug 01, 2018 3:18 pm
It's just so much cheaper, more efficient and easier - with much quicker trading/response times - to let an algorithm or other process do the investment management once you/they determine your AA and fund choices.
So are you recommending something like Betterment?

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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by maxsamson » Wed Aug 01, 2018 4:00 pm

BuckyBadger wrote:
Wed Aug 01, 2018 3:49 pm
All rebalancing happens in my 403b. No fees beyond the stated ERs. Optimized for taxes.
Thanks! How does all your rebalancing happen in your 403b? If your taxable account grows extra fast, won't you need to rebalance that? I'm sure I'm just misunderstanding what you're saying :)

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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by BuckyBadger » Wed Aug 01, 2018 4:04 pm

maxsamson wrote:
Wed Aug 01, 2018 3:57 pm
Meg77 wrote:
Wed Aug 01, 2018 3:18 pm
It's just so much cheaper, more efficient and easier - with much quicker trading/response times - to let an algorithm or other process do the investment management once you/they determine your AA and fund choices.
So are you recommending something like Betterment?
Just do it yourself, seriously. It'll take a couple evenings on this board to figure out what you want to do, a few hours to get it all sorted out, and like 15 minutes a month for the rest of your life.

It's really not hard, and you don't have to do everything that everyone talks about.

For example, i don't do tax loss harvesting. Maybe it would do a little bit better for me, but I'd rather be comfortable and understand what I'm doing. The difference would be negligible with a portfolio like mine.

You don't need robo advisors, human advisors, it anything else.

I promise you that you can handle it!!

If you post a portfolio review with all your available funds people will show you EXACTLY what to do! We love doing that over here!

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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by BuckyBadger » Wed Aug 01, 2018 4:09 pm

maxsamson wrote:
Wed Aug 01, 2018 4:00 pm
BuckyBadger wrote:
Wed Aug 01, 2018 3:49 pm
All rebalancing happens in my 403b. No fees beyond the stated ERs. Optimized for taxes.
Thanks! How does all your rebalancing happen in your 403b? If your taxable account grows extra fast, won't you need to rebalance that? I'm sure I'm just misunderstanding what you're saying :)
You see those percentages at the bottom? As those start to get off, either from gains or from contributions, i can do do things.

First i would change the contributions in my 403b to the asset that i was low in. If that wasn't enough i would sell and buy in my 403b. So if international stocks went crazy and my taxable account made that portion too high, i would sell international stocks in my 403b and buy what i needed of us stock or bonds to re balance.

I suppose if something really bonkers happened maybe I'd need to add a fund to the 401k, or add us stocks to my taxable account (not bonds for tax reasons!) or add a fund to my IRA but I've never had to do that yet.
Last edited by BuckyBadger on Wed Aug 01, 2018 4:11 pm, edited 1 time in total.

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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by retiredjg » Wed Aug 01, 2018 4:09 pm

maxsamson wrote:
Wed Aug 01, 2018 3:46 pm
That's a helpful way to think about it. I guess my wife and I have been wondering whether having expert management of the portfolio could increase returns beyond the fee, thus causing the math to work out to our advantage. The response on this forum is pretty clear about that likelihood though :)
This is a legitimate question. In general, people believe that a paid money manager actually MAKES THEM MONEY. But it is simply not the case. They can occasionally juice the system enough to more than cover their extra expenses. But none of them can do it year after year.

As you start learning about investing, you should realize that the biggest contributor to success is how much is saved. If you save enough, almost any plan will do. If you don't save enough, even the best plan combined with the best manager on the planet will not make up for too little money.

The next contributor is keeping costs low. This has actually been demonstrated (sorry, I do not have the link(s)

The next contributor is picking a stock to bond ratio that you can live with in good times and bad times (so that you do not do stupid stuff when the bad times come).

Everything after that is just details. Unfortunately, it is those details that we spend hour after hour debating and discussing, so they rise to a level of apparent importance that is undeserved.

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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by retiredjg » Wed Aug 01, 2018 4:11 pm

maxsamson wrote:
Wed Aug 01, 2018 3:56 pm
Ok, this might all be my fault for being confused. I just know that back-door roths were discussed. I'm not clear on the details for how/when they'd get implemented. I'd obviously need to learn more about this if we don't go with wealth management.
There is information in the Wiki (be sure to follow the links to outside blogs). And people here ask questions all the time. You can learn this.

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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by cherijoh » Wed Aug 01, 2018 4:21 pm

mhalley wrote:
Wed Aug 01, 2018 1:49 am
If you really need some hand holding until you feel you have a handle on everything, try using vanguard pas for 0.3% plus very low cost funds instead of the .9% plus 1% fund fees. Once you have educated yourself, then drop pas.
Alternatively, get a fee only planner that you pay for a tune up when your circumstances change. It’s the AUM fee that will eat you up over the long run.
+1

As medical professionals you need to stop thinking of managing your own investments as someone trying to diagnose their own illness or do brain surgery on themselves. Most people who call themselves wealth managers or financial planners are simply slick sales people who have invested some money into some financial software. It may look sophisticated, but all your planner did was plug a few numbers into the software and then let it create a cookie cutter plan that will generate a lot of fees for very little effort on their part. In fact, one dirty little secret is that you may be able to purchase the same software your planner is using. ESPlanner is one company that markets planning tools to both individuals and financial planners.

I bet your wealth manager specializes in medical professionals because you make excellent clients - your earn lots of money, are very busy, and strongly believe in the concept of paying for specialized expertise.

But the rate you save, your overall asset allocation (eg. amount of stocks vs. bonds), and your ability to keep all expenses (including expense ratio of funds, tax efficiency of funds, and any fees to advisors or plan sponsors) has far more impact on your financial success than the exact investments you make. The recommendation to check out White Coat investor is a good one. I also recommend you read some books by Dr. William Bernstein, a neurosurgeon turned Boglehead author. He shows up multiple times in the recommended authors list on the Wiki.

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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by iceport » Wed Aug 01, 2018 4:23 pm

retiredjg wrote:
Wed Aug 01, 2018 4:09 pm
The next contributor is picking a stock to bond ratio that you can live with in good times and bad times (so that you do not do stupid stuff when the bad times come).
Actually, I would put "not doing stupid stuff" just below saving enough and way above keeping costs low. Most people attribute the biggest benefit of hiring a professional to being able to talk their customers off the ledge when they want to do stupid stuff.

Here's the thing: as long as you learn enough to keep from doing stupid stuff (and that's not hard to do), and have a little confidence and discipline, that whole justification for hiring a professional investment manager goes away, and you're just throwing money away.

Your asset allocation and the market determines your portfolio performance. Over the long term, and barring an extreme rarity here and there, your advisor is just along for the ride.
"Discipline matters more than allocation.” ─William Bernstein

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BL
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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by BL » Wed Aug 01, 2018 4:25 pm

Taylor Larimore wrote:
Wed Aug 01, 2018 3:04 pm
See Taylor's quotes from many sources in the Wiki for a quick, broad overlook of many sources.
maxsamson:
This is the link:

viewtopic.php?t=156576

Best wishes
Taylor
Thanks for the link, Taylor. There is a wealth of knowledge in those quotes.

Somewhere there is a quote that in investing you get what you don't pay for (unlike most products).

The simplest solution, such as a Target Date (Index) fund, may well do better than many adviser's results. Even though target date may not be tax-efficient, many advisers don't pay attention to tax-efficiency in taxable accounts, either.
Last edited by BL on Wed Aug 01, 2018 4:39 pm, edited 1 time in total.

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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by Katietsu » Wed Aug 01, 2018 4:29 pm

My opinion is that you should not have a taxable retirement account while you have student loans. I would restrict your retirement savings at this point to only tax advantaged accounts, ie 401k, 403b, and IRA’s. The rest should be used to reduce your student loan balance. Maybe I am cynical, but I can’t help but thinking that the advice might be influenced by the fact that a reduced student loan balance produces no fees for the WMA.

You do not want to do the back door Roth with a traditional IRA balance. See if your 401k can accept a rollover from your IRA. You would then move everything from the traditional IRA to the 401k. Then you could do a back door Roth that made sense. If this is not an option, come back here and get advice on alternatives.

Getting advice from student loan expert, a tax advisor, or a disability insurance expert can be more useful than a WMA. Investment management in this day and age is the easy part of financial planning.

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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by maxsamson » Wed Aug 01, 2018 4:39 pm

Katietsu wrote:
Wed Aug 01, 2018 4:29 pm
My opinion is that you should not have a taxable retirement account while you have student loans.
But if the interest on the loans is lower than the expected gains in the taxable retirement account, isn't it beneficial to pay the loans back more slowly?

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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by Grt2bOutdoors » Wed Aug 01, 2018 5:06 pm

maxsamson wrote:
Wed Aug 01, 2018 4:39 pm
Katietsu wrote:
Wed Aug 01, 2018 4:29 pm
My opinion is that you should not have a taxable retirement account while you have student loans.
But if the interest on the loans is lower than the expected gains in the taxable retirement account, isn't it beneficial to pay the loans back more slowly?
Interest owed: known. Let’s say it’s $13k a year.
Gain on investment: unknown. What Investment is going to return 25% this year? (62k * 25%). And that is a pre-tax gain.
How much in taxable investments would you need to have to earn the same level of interest expense? Expected gains over next ten years are less than 5% with volatility included. Loans paid off, the returns are known and very real when debt has been extinguished.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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teen persuasion
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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by teen persuasion » Wed Aug 01, 2018 9:05 pm

maxsamson wrote:
Wed Aug 01, 2018 2:55 pm
teen persuasion wrote:
Wed Aug 01, 2018 9:14 am
It is interesting looking at the advisor's conscious (or unconscious?) ordering of priorities. I agree that emergency funds should be at the top of the list, but see how he creates a sub EF with investments? Then comes the short term savings goal (with investments to manage). Then taxable retirement accounts (for him to manage). Only after that comes your 401k accounts (outside his reach), and Roth IRAs are recommended against!
No, maxing out 401k is the top priority. By max out I mean contribute the pre-tax limit of $18.5k. And I updated my original post to clarify that back-door Roths are part of the plan. Do you still see an issue with the prioritization?
The question is: does the advisor's prioritization match your prioritization?

Regarding the backdoor Roth IRAs - until you find a way to eliminate the traditional IRAs, backdoor Roth IRAs will be difficult/messy. If you can roll an IRA into an employer's 401k, then you can cleanly execute backdoor Roth IRAs. Further clarification needed: do each of you have a tIRA, or only one of you? If one of you has no tIRA, that person can execute a backdoor Roth IRA at least.

If you cannot roll the tIRA into your 401k plan, does either spouse's 401k allow after tax contributions and either conversions of that after tax amount to Roth 401k or in-service distributions (to a Roth IRA). This would be an alternative way to increase Roth space and retirement contributions.


As evidenced by the backdoor Roth discussion, details matter. What are the details of the proposed investments: indexed or active, expense ratios, any extraneous fees, etc.? Bogleheads have seen many bad funds (read:expensive) recommended by advisors whose first priority is the income they earn from your investments. We'd just like to evaluate what type of investments your advisor wants you to buy, as a proxy for whether his advice is worth listening to. More expensive funds are not better, for the investor at least, they just cost more (which cuts into your growth). They are better for the salesman, though.

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Re: Nervous about not using a personal wealth manager. How do I do this myself?

Post by Dottie57 » Wed Aug 01, 2018 9:33 pm

As others have said , the order and complexity is not right.

1 Emergency fund. Cash or cash equivalents.
Savings for house - at most put it in bonds. I myself might use higher interest CDs. No stocks if purchase within 5 years.
401k - max it out.
Roth IRA or backdoor IRA
Taxable investments.

I went through 4 advisors. All of whom pushed me into products which benefitted them more than me.

Believe me, a 3-5 fund index portfolio will work just fine and is simpler to manage than what your Advisor has suggested. Do note that your 401k is clse to the bottom of the list .

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