Advisor or no advisor?

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imperialman56
Posts: 9
Joined: Sun Jan 05, 2014 8:45 pm

Advisor or no advisor?

Post by imperialman56 » Sun Aug 12, 2018 1:31 pm

Emergency funds: 8 months
Debt: Car loan at 2% interest, 2 years remaining (Could pay off but interest rate is low and frees up investment capital)
Tax Rate: 22% Federal, 7% State (MN) Married Filing Jointly
State of Residence: Minnesota
Age: Him: 62, Her: 60

Total Retirement Portfolio: Low seven figures

Current Retirement Assets:

His 401k:
Company match 50% of 6%
High 6 figures

His Regular IRA (Rollover from previous employer):
High 6 figures
Invested at Schwab with an independent advisor
Not making contributions

His Roth IRA:
High 5 figures
Invested at Fidelity
Contributing max each year

Her Roth IRA:
Low 6 figures
Invested at Fidelity
Contributing max each year

Her SEP-IRA (Small Company Plan):
Low 6 figures
Invested at Fidelity
Not able to contribute/company can make a contribution but based on business success and company has not made a contribution in past 5 years.

Asset allocation:
Domestic Stock - 59%
Foreign Stock – 10%
Bonds – 23%
Short Term – 2%
Other – 5%

Wife will retire in 2019 at age 60, husband will retire at 2021 at age 65. Health insurance through husband’s employer.

We have been working with a financial advisor for the past 2 years who is managing husband’s rollover IRA. We have been managing the balance of the portfolio ourselves.
Lately we have been second guessing our decision to hire an advisor. Originally we hired her because we wanted a professional to oversee our investments and keep us on track. We also felt we needed help making large decisions such as when to take social security.
We have been questioning whether we are getting a good value for our money. If we look just at straight returns her investments are lagging the returns in our other accounts. But to be fair we have been rather aggressive and since she has the whole picture she may be less aggressive to balance that out given our ages.

Question 1:
Is there a value to working with an advisor beyond the return on investment?

Question 2:
Are we too aggressive at 69% stock (59% domestic, 10% foreign) given our ages and planned retirement dates?

Question 3:
Does anyone see any glaring mistakes in our plan?

Thank you for your time.

livesoft
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Joined: Thu Mar 01, 2007 8:00 pm

Re: Advisor or no advisor?

Post by livesoft » Sun Aug 12, 2018 1:37 pm

You have asked questions which really have no answers that others can give you.

1. Only you know if an advisor is worth it to you. It seems like she is not. I would not have an advisor, but some people would. Some people would even separate the investment management from the advisor.

2. Only you know your risk tolerance. For some people 25% in fixed income at age 60 is fine. For some others, they would want much more in fixed income. It is a personal decision.

3. It does not appear that you have any investments in a taxable account. While that is not a mistake, I find it interesting.
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StormShadow
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Re: Advisor or no advisor?

Post by StormShadow » Sun Aug 12, 2018 1:45 pm

What I would do...

1. Wouldn’t bother having an advisor. But my DW has a pretty good idea of what to do if something were to happen to me. You might want to discuss this with your significant other. For most folks I think it’s a waste of money. The only real benefit a financial advisor provides is protecting you from yourself. They MAY keep you from making rash financial decisions.
2. I’d have no more than 60% stock funds at this stage of your career. Then no more than 50% when in full retirement.

imperialman56
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Joined: Sun Jan 05, 2014 8:45 pm

Re: Advisor or no advisor?

Post by imperialman56 » Sun Aug 12, 2018 2:49 pm

livesoft wrote:
Sun Aug 12, 2018 1:37 pm
You have asked questions which really have no answers that others can give you.

1. Only you know if an advisor is worth it to you. It seems like she is not. I would not have an advisor, but some people would. Some people would even separate the investment management from the advisor.

2. Only you know your risk tolerance. For some people 25% in fixed income at age 60 is fine. For some others, they would want much more in fixed income. It is a personal decision.

3. It does not appear that you have any investments in a taxable account. While that is not a mistake, I find it interesting.
Thanks for the response. Our emergency fund is in a taxable account but everything else is in 401k's or IRA's. Why do you find that interesting? Why do you think we should have a taxable account?

imperialman56
Posts: 9
Joined: Sun Jan 05, 2014 8:45 pm

Re: Advisor or no advisor?

Post by imperialman56 » Sun Aug 12, 2018 2:53 pm

StormShadow wrote:
Sun Aug 12, 2018 1:45 pm
What I would do...

1. Wouldn’t bother having an advisor. But my DW has a pretty good idea of what to do if something were to happen to me. You might want to discuss this with your significant other. For most folks I think it’s a waste of money. The only real benefit a financial advisor provides is protecting you from yourself. They MAY keep you from making rash financial decisions.
2. I’d have no more than 60% stock funds at this stage of your career. Then no more than 50% when in full retirement.
1. Part of the reason for an advisor is that DW is the one doing the managing with minimal input from me as she is more comfortable doing it. Her concern is that if something would happen to her, I would be a bit lost and having an advisor who knows what's going on would be helpful.
2. We have been discussing lowering our stock exposure but the bond market has been lagging and let's face it, we like the returns the stock market has been giving us.

MathWizard
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Joined: Tue Jul 26, 2011 1:35 pm

Re: Advisor or no advisor?

Post by MathWizard » Sun Aug 12, 2018 3:04 pm

I have an advisor assigned by me for my TIAA-CREF 403b. I have never used one.

My thought has been that I have spent decades crafting my plan, and countless hours reading various books on the subject, and
even writing my own programs for predictions. I do my own taxes (now with TurboTax).
I run simulations for different situations. I have also used different calculators to estimate retirement income.

If I go to an advisor, he/she would spend at most 30 minutes on my situation and give me generic advice.
Why would I bother?
This board provides much better advice that a single person could.

On stock exposure:

We recently lowered our stock exposure due to being near retirement , and what we believe are high valuations,
but are still at about 55% equities. We would rebalance into equities should P/E ratios drop back more into reasonable
values. Some would call this market timing, and that's OK. I prefer to think of this as backing off on risk, given that
I believe that P/E ratios are much more likely to go down than to go up.

livesoft
Posts: 61944
Joined: Thu Mar 01, 2007 8:00 pm

Re: Advisor or no advisor?

Post by livesoft » Sun Aug 12, 2018 3:48 pm

imperialman56 wrote:
Sun Aug 12, 2018 2:49 pm
Why do you find that interesting? Why do you think we should have a taxable account?
Because I think that In general if one has contributed the maximum possible to a typical 401(k) plan, then one can only reach about a million dollars in the plan. Yes, I know there are some exceptional 401(k) plans. So for one person to have high 6-figures in two plans (401(k) and rollover IRA from previous employer) is unusual. High savers who can have that kind of money in 2 accounts I think I see those in a 401(k)/IRA and a taxable account instead.
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JW-Retired
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Joined: Sun Dec 16, 2007 12:25 pm

Re: Advisor or no advisor?

Post by JW-Retired » Sun Aug 12, 2018 4:04 pm

imperialman56 wrote:
Sun Aug 12, 2018 2:53 pm
1. Part of the reason for an advisor is that DW is the one doing the managing with minimal input from me as she is more comfortable doing it. Her concern is that if something would happen to her, I would be a bit lost and having an advisor who knows what's going on would be helpful.
2. We have been discussing lowering our stock exposure but the bond market has been lagging and let's face it, we like the returns the stock market has been giving us.
The trouble is advisors often charge so darn much that it eats up a painful portion of your investment return. What are you invested in and what expenses are you paying now? That's generally the most important thing we want to look at here....... but you didn't mention it? If you already have a bunch of low cost investment funds that are spread across the market then IMO a typical advisor could only make your return worse.

Laura has a preferred format if you want to give us some more data. Any rough approximation of this would be fine.
viewtopic.php?f=1&t=6212
JW
welcome to the Forum!
Retired at Last

casoldier
Posts: 1
Joined: Sun Aug 12, 2018 7:01 pm

Re: Advisor or no advisor?

Post by casoldier » Sun Aug 12, 2018 7:20 pm

:moneybag
You don't say how much you are paying the advisor, so here's my experience with advisors. I used an advisor at Vanguard for 3/10th % of the managed assets. The advisor did not listen to my thoughts on asset allocation or how to invest my money. We did agree on a 60/40 allocation of stocks and bonds. Because he didn't listen to me, in the first year i was down $55k and after two years of "tax harvesting" we parted ways and i have recovered the loss. It's hard to pay someone $3 to $4K a year and they loose money. Doubt if i will ever turn over my $$ to another advisor.

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StormShadow
Posts: 575
Joined: Thu Feb 09, 2012 6:20 pm

Re: Advisor or no advisor?

Post by StormShadow » Sun Aug 12, 2018 7:25 pm

imperialman56 wrote:
Sun Aug 12, 2018 2:53 pm
1. Part of the reason for an advisor is that DW is the one doing the managing with minimal input from me as she is more comfortable doing it. Her concern is that if something would happen to her, I would be a bit lost and having an advisor who knows what's going on would be helpful.
2. We have been discussing lowering our stock exposure but the bond market has been lagging and let's face it, we like the returns the stock market has been giving us.
1. In that case, I’d ditch the advisor. Because you already have bogleheads to lean on for advice.
2. “All good things....” You’ve been lucky to experience a good run in stocks up to now. I’d cash some of that into bonds while you have the chance. Personally I’d get sick to my stomach if I lost a huge chunk of my portfolio, in the midst of another recession while in retirement. It’s going to happen and you’re probably not going to predict when that is.

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nedsaid
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Re: Advisor or no advisor?

Post by nedsaid » Sun Aug 12, 2018 11:30 pm

casoldier wrote:
Sun Aug 12, 2018 7:20 pm
:moneybag
You don't say how much you are paying the advisor, so here's my experience with advisors. I used an advisor at Vanguard for 3/10th % of the managed assets. The advisor did not listen to my thoughts on asset allocation or how to invest my money. We did agree on a 60/40 allocation of stocks and bonds. Because he didn't listen to me, in the first year i was down $55k and after two years of "tax harvesting" we parted ways and i have recovered the loss. It's hard to pay someone $3 to $4K a year and they loose money. Doubt if i will ever turn over my $$ to another advisor.
You lost money because of the markets. Your Vanguard advisor probably put you into a 4-6 fund portfolio that would have been close to a Vanguard LifeStrategy Fund, a pretty standard Boglehead portfolio. The advisor put you into an asset allocation that you both agreed on. You said the advisor didn't listen to you and then blamed him for your losses. Did you know something about the markets that he didn't know? Were you trying to time the markets?

I don't think the advisor caused the loss. Even the best of portfolios will lose money in bad markets. Just hiring an advisor won't protect you from that. The advisor would have set a portfolio and then told you to stay the course through thick and thin. The thing is, Vanguard has a model for their portfolios, for example they recommend that 40% of stocks and 30% of bonds be in International. This is a problem with working with advisors, you either get with the program or you don't. Unfortunately, their business needs economies of scale and they can't customize every customer's portfolio.

I think what happened was that you and the firm you hired were not in alignment. Vanguard had different opinions than you did about portfolio construction. That is fine but you needed someone who was more in agreement with your beliefs. You went to someone because presumably they know more than you about portfolio construction.

My portfolio is quirky and I want some customization. Most advisory firms probably aren't willing to do that beyond a certain point. They have invested their best thinking and many hours of research to come up with their portfolio model. They aren't going to reinvent themselves with every client. So pretty much, I have managed my retirement myself. Most advisors don't want to deal with my quirkiness. If I hire a portfolio manager then unfortunately I have to hand over the keys. It is a hard thing to do and so far I have been unwilling to do it.
A fool and his money are good for business.

carolinaman
Posts: 3142
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Location: North Carolina

Re: Advisor or no advisor?

Post by carolinaman » Mon Aug 13, 2018 8:13 am

You do not appear to need an adviser for investments, but at your age, it would be a good idea to do a full fledged retirement plan if you have not already done so. I think most people could benefit from a second set of eyes on their financial situation, readiness for retirement and retirement plan. The retirement plan should determine the adequacy of your assets and income streams to fund retirement, investments, retirement withdrawal rates, tax strategies, social security, insurance and other factors. A fee only CFP would be a good resource for that. My caution is to vet CFPs carefully to make sure their focus is on a good retirement plan and not on AUM or selling annuities or other tactics to transfer your wealth to them.

Based upon the information you provide, you appear to be in pretty good shape. Cannot say for sure without more information.

As to AA, are you familiar with the "sequence of return risk"? This risk is particularly relevant to those nearing or early in retirement. This is one article explaining it: https://www.investopedia.com/terms/s/sequence-risk.asp

The risk can vary depending upon your situation and retirement income needs. Perhaps one way to answer this would be how would a 40% decline in equity markets in the next few years affect your retirement? A common mitigation for SOR risk is to have a higher allocation of high quality fixed income.

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ruralavalon
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Location: Illinois

Re: Advisor or no advisor?

Post by ruralavalon » Mon Aug 13, 2018 5:21 pm

imperialman56 wrote:
Sun Aug 12, 2018 1:31 pm
. . . . .

Age: Him: 62, Her: 60

Total Retirement Portfolio: Low seven figures

. . . . .

Asset allocation:
Domestic Stock - 59%
Foreign Stock – 10%
Bonds – 23%
Short Term – 2%
Other – 5%

Wife will retire in 2019 at age 60, husband will retire at 2021 at age 65. Health insurance through husband’s employer.

We have been working with a financial advisor for the past 2 years who is managing husband’s rollover IRA ("High 6 figures,
Invested at Schwab with an independent advisor") . We have been managing the balance of the portfolio ourselves.
Lately we have been second guessing our decision to hire an advisor. Originally we hired her because we wanted a professional to oversee our investments and keep us on track. We also felt we needed help making large decisions such as when to take social security. [emphasis added]
We have been questioning whether we are getting a good value for our money. If we look just at straight returns her investments are lagging the returns in our other accounts. But to be fair we have been rather aggressive and since she has the whole picture she may be less aggressive to balance that out given our ages.

Question 1:
Is there a value to working with an advisor beyond the return on investment?
I would not make performance the test. Its not possible to say if the return in any account is good or bad, not knowing what investments are in each account.

Has the advisor been helpful in your decision about when to take Social Security? In what other areas for "making large decisions" do you feel you need professional advice? What fee does the advisor charge? Do you really want someone to manage your investments, or do you really just want someone to advise you about investment or retirement planning?

Here is a guide to help in deciding if you want or need an advisor: "The great paradox of using an advisor is that you must know some basics in order to evaluate the advice, and once you do, you also know enough to consider doing your own management." "Chapter 10 – On Your Own or Hire an Advisor".

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

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



imperialman56 wrote:
Sun Aug 12, 2018 1:31 pm
Question 2:
Are we too aggressive at 69% stock (59% domestic, 10% foreign) given our ages and planned retirement dates?
At ages 60 and 62, 1-3 years until retirement, I personally belive that 60/40 stocks/fixed income or 50/50 might be more reasonable. Graph, "An Efficient Frontier: the power of diversification". Please see the wiki articles Bogleheads® investment philosophy, part 3 "Never bear too much or too little risk", and "Asset allocation".

But 70/30 stocks/fixed income is probably within the range of what is reasonable. Asset allocation is a very personal decision. You must decide on an allocation that is comfortable for you based on your own ability, willingness and need to take risk.

What is the "Other – 5%"?

imperialman56 wrote:
Sun Aug 12, 2018 1:31 pm
Question 3:
Does anyone see any glaring mistakes in our plan?
Nothing is readily apparent, but you did not indicate what investments you are using.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

imperialman56
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Joined: Sun Jan 05, 2014 8:45 pm

Re: Advisor or no advisor?

Post by imperialman56 » Wed Aug 15, 2018 11:10 am

Thank you for the response.

imperialman56
Posts: 9
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Re: Advisor or no advisor?

Post by imperialman56 » Wed Aug 15, 2018 11:11 am

carolinaman wrote:
Mon Aug 13, 2018 8:13 am


As to AA, are you familiar with the "sequence of return risk"? This risk is particularly relevant to those nearing or early in retirement. This is one article explaining it: https://www.investopedia.com/terms/s/sequence-risk.asp

Thanks, this is exactly what my DW discussed with the advisor yesterday.

imperialman56
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Re: Advisor or no advisor?

Post by imperialman56 » Wed Aug 15, 2018 11:13 am

Thank you to everyone who took the time to comment on our post. My DW and I have had a lot of good discussions over the last few days and we have a lot to read up on too.

CedarWaxWing
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Re: Advisor or no advisor?

Post by CedarWaxWing » Wed Aug 15, 2018 2:47 pm

casoldier wrote:
Sun Aug 12, 2018 7:20 pm
:moneybag
You don't say how much you are paying the advisor, so here's my experience with advisors. I used an advisor at Vanguard for 3/10th % of the managed assets. The advisor did not listen to my thoughts on asset allocation or how to invest my money. We did agree on a 60/40 allocation of stocks and bonds. Because he didn't listen to me, in the first year i was down $55k and after two years of "tax harvesting" we parted ways and i have recovered the loss. It's hard to pay someone $3 to $4K a year and they loose money. Doubt if i will ever turn over my $$ to another advisor.
IF I my ask, since context is necessary to put your FA results into perspective for anyone reading your note:


1. What year was that first year? That matters lot.
2. What % drop was 55%? That also matters lot.

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