Vanguard Advisor

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Duffydog1
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Joined: Sat Dec 03, 2016 1:42 pm

Vanguard Advisor

Post by Duffydog1 » Thu Aug 09, 2018 7:23 am

By introduction I am 78 and my wife is 71 years of age. Our Vanguard advisor(VA) provided us with his recommendation for a AA of 30(equity) and 70 bonds. The lower equity component is at our request. He also recommended that we liquidate about 7 blue chip stocks that we have held for ver 10 years such as Apple and McDonalds because a stock fund is more diversified. When asked what his portfolio would yield in todays environment or even in the last several years he would not do that and said all of Vanguards recommendations are based on a 90 year history of the market. My estimate of the return in todays world is about 3%. I asked if he would help select CD's with similar returns, and he said Vanguard does not do this. So my question is very simple if we can live with a 3% return why not buy CD's? I also told him that we have in excess of 2.5 million and simply getting a return of 3% from CD's,and withdrawing 2% and adding in social security I did not have to take any risk in either the bond or equity market and asked for his advice. He did not like this scenario because our funds are not growing and referred us to the 90 year history of the market. Vanguard also uses a conservative 100 year age for their projections. That is fair but not practical for most of us older folks with health problems. I have lived long enough know that we can not recover from a major downside in the market and have sufficient time to recover at our age. I was considering using the VA advisory service, but found that with rising interest rates I can do better by myself at least for the next 5 years without any substantial risk and sleep at night. Even Vanguards Prime MM is at 2%. Would appreciate your thoughts.

neilpilot
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Location: Memphis area

Re: Vanguard Advisor

Post by neilpilot » Thu Aug 09, 2018 7:26 am

Assuming you have no need for growth, i.e. to provide an estate, then why consider paying Vanguard for advise you don't want or need. Just construct a simple CD ladder and remain 100% cash.

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dwickenh
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Location: Illinois

Re: Vanguard Advisor

Post by dwickenh » Thu Aug 09, 2018 7:36 am

If your assets have enough cushion to make inflation a moot point, then by all means do what makes you sleep well. I think you can construct 5 year CD ladders and do better than money market, but it depends on how much time you are willing to spend on the additional return.

Best to you,

Dan
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

Jack FFR1846
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Re: Vanguard Advisor

Post by Jack FFR1846 » Thu Aug 09, 2018 7:43 am

Boy, am I pleased to see that this Vanguard Advisor told you the truth, rather than making up numbers to sell you something. Of course he can't predict the future. Neither can you. What will a certain asset allocation (AA) return? Who knows? Nobody. If you want guaranteed, then as mentioned, CDs is your strategy. If you're looking for potentially more growth, add equity to the level you're comfortable.
Bogle: Smart Beta is stupid

GmanJeff
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Re: Vanguard Advisor

Post by GmanJeff » Thu Aug 09, 2018 7:47 am

While you may be skeptical with regard to the prospect of either of you living to or beyond age 100, longevity risk is as real as other types of risk and should not be discounted unless you have a very good reason to anticipate a much earlier demise. You are being conservative with regard to your asset allocation, so perhaps should also be conservative with regard to your estimates of your longevity.

If you accept that living for a good while longer is a possibility, your financial plan should account for that. One way to do that is to be prepared for potential high medical or long-term care expenses which could require a more balanced portfolio than one which is all cash.

Heeding Vanguard's observation that your individual stocks represent an undiversified, and consequently higher risk, facet of your portfolio, would also be consistent with a conservative approach to managing your assets holistically.

With respect to the Personal Advisor Services (PAS), one reason to consider that is the potential for you to lose capacity to actively monitor and manage your portfolio as you age. While none of of us like to think about that prospect, the reality is that many older people develop cognitive deficiencies as they age, which can result in an inability to manage their finances effectively or efficiently. A spouse who retains their faculties may not be interested or capable of replacing their partner's role as portfolio manager. In such circumstances, having an established relationship with a low-cost, trustworthy investment management firm can potentially more than repay the fees involved by ensuring that the portfolio is reviewed regularly, is adjusted as personal or market circumstances require, and can address financial questions which arise. Consequently, an argument can be made that it is prudent to engage with PAS or the like in advance of an obvious need, to reduce the risk that an extended period of time may go by while portfolio oversight and management is deficient.

livesoft
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Re: Vanguard Advisor

Post by livesoft » Thu Aug 09, 2018 7:52 am

I see nothing wrong for you with using the Vanguard Advisor advice, but I also see nothing wrong with your idea of just using CDs for a while. Besides, you can always change your mind.

And you can do a combination of both ideas.

In other words, with your wealth, your income, and your ages, it really probably doesn't matter what you do.
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delamer
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Joined: Tue Feb 08, 2011 6:13 pm

Re: Vanguard Advisor

Post by delamer » Thu Aug 09, 2018 10:21 am

Are there CDs now that pay 3%?

How long do you need to tie up your cash to get that rate?

duplin county
Posts: 25
Joined: Sat Jan 18, 2014 11:40 am

Re: Vanguard Advisor

Post by duplin county » Thu Aug 09, 2018 10:47 am

Why not use Vanguard Target Retirement Income Fund? It is 30% stocks and 70% bonds using 5 index funds.

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nedsaid
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Re: Vanguard Advisor

Post by nedsaid » Thu Aug 09, 2018 10:50 am

Duffydog1 wrote:
Thu Aug 09, 2018 7:23 am
By introduction I am 78 and my wife is 71 years of age. Our Vanguard advisor(VA) provided us with his recommendation for a AA of 30(equity) and 70 bonds. The lower equity component is at our request. He also recommended that we liquidate about 7 blue chip stocks that we have held for ver 10 years such as Apple and McDonalds because a stock fund is more diversified. When asked what his portfolio would yield in todays environment or even in the last several years he would not do that and said all of Vanguards recommendations are based on a 90 year history of the market. My estimate of the return in todays world is about 3%. I asked if he would help select CD's with similar returns, and he said Vanguard does not do this. So my question is very simple if we can live with a 3% return why not buy CD's? I also told him that we have in excess of 2.5 million and simply getting a return of 3% from CD's,and withdrawing 2% and adding in social security I did not have to take any risk in either the bond or equity market and asked for his advice. He did not like this scenario because our funds are not growing and referred us to the 90 year history of the market. Vanguard also uses a conservative 100 year age for their projections. That is fair but not practical for most of us older folks with health problems. I have lived long enough know that we can not recover from a major downside in the market and have sufficient time to recover at our age. I was considering using the VA advisory service, but found that with rising interest rates I can do better by myself at least for the next 5 years without any substantial risk and sleep at night. Even Vanguards Prime MM is at 2%. Would appreciate your thoughts.
I would not go below 20% stocks as the research says that a 20% stock/80% bond portfolio is actually less risky than 100% bonds. I think a recommendation of 30% stocks/70% bonds is about right for someone your age.

Vanguard's assumption that you will live to 100 is a conservative assumption. The thing is, you say you are having health issues, it is amazing how many years I have seen people with major health issues linger. The medical technology is keeping people around longer than we would have thought possible. Don't just assume you won't live to 100.

With your net worth, 100% CDs would probably work for you just fine. Worth keeping 20% to 30% in stocks to help with inflation, inflation doesn't retire just because you have. Low inflation rates of 2% will erode your buying power by about 22% over a decade. Little leaks hurt a lot over time.

You could also go with 30% stocks and 70% FDIC Insured Certificates of Deposit. CDs are a fine alternative to bonds, particularly with FDIC Insurance and Uncle Sam standing behind the insurance.
A fool and his money are good for business.

megabad
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Joined: Fri Jun 01, 2018 4:00 pm

Re: Vanguard Advisor

Post by megabad » Thu Aug 09, 2018 11:15 am

According to Vanguard's website, a 30/70 portfolio model indicates the following under their test data from 1926-2017:

Average Annual Return: 7.3%
Best Year: 28.4%
Worst Year: -14.2%
Years with loss: 13 of 92

It seems that you disagree with Vanguard advisor's assumptions. This is ok. You think his/her prediction of the future is worse than yours and you may be correct. You may live to 100 or you may not. The stock market may plunge or soar. That said, it is a dramatic step to move all of your assets into CDs. This would give you a disproportionate exposure to inflation risk. I am sure you remember times when inflation has doubled in the time span of a calendar year. If you were locked into a 5 year CD at the time, it is possible that your CD would return half the inflation rate for the majority of its duration. Then again, it is possible that your withdrawal rate will be so low that this will not matter. Of course, I would take into account that the "4% rule" was not based on a portfolio of only CDs.

An anecdotal side note, my neighbor currently 84 has just begun a stay in an assisted living facility. I was shocked to hear from her son that the bill is currently $7,000 per month for her stay. Her son is footing the entire bill from his own pocket until the sale of her house. Unexpected expenses can arise, but who knows.

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Alexa9
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Re: Vanguard Advisor

Post by Alexa9 » Thu Aug 09, 2018 11:30 am

At your age, I would consider CD's as well. A market correction could be devastating. But I wouldn't go 100% CD's. All your eggs in one basket, etc. CD's generally underperform Total Bond Market and significantly underperform Total Stock Market. I would recommend something like 40% CD Ladder, 30% Total Bond Market, 15% Total US Market, 15% Total International.

blackcat allie
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Joined: Wed Jan 24, 2018 11:54 pm

Re: Vanguard Advisor

Post by blackcat allie » Thu Aug 09, 2018 12:32 pm

Wouldn't it be possible to only have some smaller portion of your assets in the Advisor Service? There would be less AUM fee and you could still have your *very safe* portion/bucket in MM or CD's. (This might not be the optimal plan, but it might give you some sense of structure/growth with guidance for planning & RMDs, while maintaining your comfort level). I believe you could be very clear and definitive, and they would be able to accommodate with separately defined managed and non-managed accounts.

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