Learned some lessons... back for fresh approach

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Minisoda
Posts: 28
Joined: Sat Feb 11, 2017 9:45 am

Learned some lessons... back for fresh approach

Post by Minisoda » Thu Oct 04, 2018 10:43 am

Background:
$2.4M taxable portfolio (invested with a traditional broker)
$400k IRA (invested in simple three fund portfolio)
$400k private investments
42 yrs old
Solid earnings with additional future equity payouts (will be sizable if the business continues executing)
In 5-6 years would like to move to a more relaxed "consulting" lifestyle and work around 50%, but have quite a while before full retirement.

Long story short, 18 months ago I was very nervous about managing the larger chunk of funds and gave it to a broker. Leveraging the insights on this forum, I put the IRA into a simple three fund portfolio setup. Guess which performed better? In one of the best markets in recent history, the broker managed to lose $27k over 18 months (and half of it was basically sitting in cash). Not a huge loss, but unacceptable in current market conditions.

Started talking to a Morgan Stanley broker because I'm a glutton for punishment... they did some nice research and spent time walking through things with me, but came back with a pretty complex set of investments and were absolutely unclear on some of the fees. Funny enough, they liked the three fund portfolio in my IRA and recommended leaving as is (with some recommendations on the bond and international funds). The recommended putting a big chunk of the investment into a series of funds... I asked about the costs and they said there was an up front fee of roughly $20k to buy into those funds. That made zero sense to me. They also pushed a bunch of their "structured investments".

So.... I'm back to considering a self-managed portfolio. Still having some issues getting over the nervousness of managing this thing on my own. I'm very busy focused on building a business and there is a level of comfort knowing someone is looking out for things. That comfort level went way down after seeing the returns over the last 18 months.

Questions:
- The Morgan Stanley guys weren't thrilled about VXUS and thought there were better international vehicles available... like their structured investments that followed different international market indices. Stay the course with VXUS or are there better options for international exposure?
- Same as the above on BND and felt like mixing in some tax advantaged munis and other bonds made more sense.
- Current broker has 15k shares of RAD at a basis of $3.64. Any thoughts on whether I should just ride it out or take the tax loss and move on?
- Also lost a bunch in CO, NGD and INPCF and not sure if I should sell or let them ride.

Plan:
- take control of the portfolio
- figure out what I'm doing on a couple of positions (above)
- find an advisor that will work on an hourly fee basis to sit down and review the portfolio quarterly

Please let me know any thoughts, concerns, etc!

'Soda

Dottie57
Posts: 4655
Joined: Thu May 19, 2016 5:43 pm

Re: Learned some lessons... back for fresh approach

Post by Dottie57 » Thu Oct 04, 2018 10:50 am

Don’t go with Morgan Stanley FA.

Many advisors pick funds based geographic areas. I just have total international - the whole int’l haystack.

I would sell what you don’t want to hold long term. Cut losses and go to 3 fund portfolio.

barnaclebob
Posts: 3040
Joined: Thu Aug 09, 2012 10:54 am

Re: Learned some lessons... back for fresh approach

Post by barnaclebob » Thu Oct 04, 2018 10:52 am

The fewer people between you and your money the better. How is it possible morgan stanley can like one kind of portfolio for taxable but another for IRA? That directly shows they don't know what they are doing. If they think they have the best portfolios in town they should be recommending that for all accounts and only adjusting the asset allocation across all accounts to take advantage of the IRA rules.

2.4 million is the same as 240,000 in how you manage it. Don't be afraid to DIY if you can stay the course. If you need people to hold your hand, pat you on the back, and say you are on the right track, just make a post here every quarter.
Last edited by barnaclebob on Thu Oct 04, 2018 10:55 am, edited 2 times in total.

livesoft
Posts: 62776
Joined: Thu Mar 01, 2007 8:00 pm

Re: Learned some lessons... back for fresh approach

Post by livesoft » Thu Oct 04, 2018 10:54 am

What don't you like about Vanguard PAS managing your investments for you?
Wiki This signature message sponsored by sscritic: Learn to fish.

Living Free
Posts: 119
Joined: Thu Jul 19, 2018 7:31 pm

Re: Learned some lessons... back for fresh approach

Post by Living Free » Thu Oct 04, 2018 11:39 am

I will second the suggestion for vanguard PAS. You will still get someone there looking over your investments but at something like 0.3% fee. From every person who's written about their portfolio recommendations their advice seems pretty sound (though many here would probably say too many funds, but really not bad, maybe 5-8 funds instead of 3-4). also they use vanguard funds, none of which really are high cost (should operate at cost). You could also use the vanguard PAS for a couple of years and see how that goes and if you feel comfortable after that point then take over and manage on your own. I presume they'd leave you in far less of a mess than you currently seem to be in with a bunch of individual stocks that somehow lost money despite the S&P 500 doing very well since early 2016

pkcrafter
Posts: 13101
Joined: Sun Mar 04, 2007 12:19 pm
Location: CA
Contact:

Re: Learned some lessons... back for fresh approach

Post by pkcrafter » Thu Oct 04, 2018 12:24 pm

Minisoda wrote:
Thu Oct 04, 2018 10:43 am
Background:
$2.4M taxable portfolio (invested with a traditional broker)
If your broker is typical of almost all we see here, then your taxable portfolio contains tax-inefficient funds. Please list the holdings
$400k IRA (invested in simple three fund portfolio)
:thumbsup
$400k private investments
What is this?
42 yrs old
Solid earnings with additional future equity payouts (will be sizable if the business continues executing)
In 5-6 years would like to move to a more relaxed "consulting" lifestyle and work around 50%, but have quite a while before full retirement. Long story short, 18 months ago I was very nervous about managing the larger chunk of funds and gave it to a broker. Leveraging the insights on this forum, I put the IRA into a simple three fund portfolio setup. Guess which performed better? In one of the best markets in recent history, the broker managed to lose $27k over 18 months (and half of it was basically sitting in cash). Not a huge loss, but unacceptable in current market conditions.

Started talking to a Morgan Stanley broker because I'm a glutton for punishment...

Yes, you are. :happy
they did some nice research...
Uh-huh.
and spent time walking through things with me, but came back with a pretty complex set of investments and were absolutely unclear on some of the fees. Funny enough, they liked the three fund portfolio in my IRA and recommended leaving as is (with some recommendations on the bond and international funds). The recommended putting a big chunk of the investment into a series of funds... I asked about the costs and they said there was an up front fee of roughly $20k to buy into those funds. That made zero sense to me. They also pushed a bunch of their "structured investments".
Yes, that's the way it works. The show is to impress you, the goal is to transition some of your money to their money.
So.... I'm back to considering a self-managed portfolio. Still having some issues getting over the nervousness of managing this thing on my own. I'm very busy focused on building a business and there is a level of comfort knowing someone is looking out for things. That comfort level went way down after seeing the returns over the last 18 months.
If you can fully understand the Boglehead way, you will realize there is very little looking after to do. We promote buy and hold. Other then rebalancing back to target two or three times a year, there simply isn't anything else to do. When you hold index funds you know there will by no portfolio shifts or manager failure. You ride the market because in the long term it will rise.
Questions:
- The Morgan Stanley guys weren't thrilled about VXUS and thought there were better international vehicles available... like their structured investments that followed different international market indices. Stay the course with VXUS or are there better options for international exposure?
Do we really have to answer that? :happy Is this the same Morgan Stanley you refer to above? :shock: What you need to do is decide how much international you want, put it in the portfolio and forget about it. Recommendations run from 20-40% of equity.
- Same as the above on BND and felt like mixing in some tax advantaged munis and other bonds made more sense.
In taxable, yes, makes sense. Best not to hold BND in taxable. All accounts as one portfolio, so try to keep all bonds in tax-advantaged accounts, then you can do all rebalancing in those accounts.
- Current broker has 15k shares of RAD at a basis of $3.64. Any thoughts on whether I should just ride it out or take the tax loss and move on?
Just doing a Peter Lynch thing and going into a Rite Aid, I'd say they are hanging on by a thread.

https://finance.yahoo.com/quote/rad?ltr=1
- Also lost a bunch in CO, NGD and INPCF and not sure if I should sell or let them ride.
Sell if down, or at the next market drop.
Plan:
- take control of the portfolio
That is easily done.
- figure out what I'm doing on a couple of positions (above)
Please explain.
- find an advisor that will work on an hourly fee basis to sit down and review the portfolio quarterly
Not needed when you have Bogleheads. If you must, check out Garrett Planning Network.

You have a lot of assets in your portfolio, but it's all relative. There are investors here who have 2 or 3 times that, and they aren't doing anything different than those with far less.

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.

deltaneutral83
Posts: 873
Joined: Tue Mar 07, 2017 4:25 pm

Re: Learned some lessons... back for fresh approach

Post by deltaneutral83 » Thu Oct 04, 2018 1:14 pm

Minisoda wrote:
Thu Oct 04, 2018 10:43 am

Questions:
- The Morgan Stanley guys weren't thrilled about VXUS and thought there were better international vehicles available... like their structured investments that followed different international market indices. Stay the course with VXUS or are there better options for international exposure?
Of course they weren't thrilled. Are you thrilled when a client is thinking about using the services of another vendor or possibly not needing the goods/services you sell at all? I'm guessing they wore nice suits, had tons of charts, and maybe even tilted their glasses down at you when you brought up VXUS. Even with just the basic 1% AUM (before loads, churning commissions, 12-b1 fees, etc etc) they are making $25k off you per year. You're "guy" likes his $25k, trust me.

Minisoda
Posts: 28
Joined: Sat Feb 11, 2017 9:45 am

Re: Learned some lessons... back for fresh approach

Post by Minisoda » Fri Oct 05, 2018 11:08 am

Great feedback and appreciate everyone's insight.

What are folks doing for fixed income investments? Just seems like an area where it might make sense to have an active investor finding the right tax free municipal bonds and watching for issuances. Just not sure how I could keep an eye on that passively or use a fund to do it?

sarabayo
Posts: 67
Joined: Fri Jun 29, 2018 6:59 pm

Re: Learned some lessons... back for fresh approach

Post by sarabayo » Fri Oct 05, 2018 4:25 pm

Minisoda wrote:
Fri Oct 05, 2018 11:08 am
What are folks doing for fixed income investments? Just seems like an area where it might make sense to have an active investor finding the right tax free municipal bonds and watching for issuances. Just not sure how I could keep an eye on that passively or use a fund to do it?
You could make things simpler by just investing in a bond fund instead of individual bonds. There are bond funds for tax advantaged municipal bonds too. There are even some state-specific ones -- Vanguard has them for six states (California, Massachusetts, New Jersey, New York, Ohio, Pennsylvania), and I think other companies offer federal+state tax advantaged bond index funds for other states as well.

User avatar
TomatoTomahto
Posts: 7663
Joined: Mon Apr 11, 2011 1:48 pm

Re: Learned some lessons... back for fresh approach

Post by TomatoTomahto » Fri Oct 05, 2018 5:17 pm

sarabayo wrote:
Fri Oct 05, 2018 4:25 pm
Minisoda wrote:
Fri Oct 05, 2018 11:08 am
What are folks doing for fixed income investments? Just seems like an area where it might make sense to have an active investor finding the right tax free municipal bonds and watching for issuances. Just not sure how I could keep an eye on that passively or use a fund to do it?
You could make things simpler by just investing in a bond fund instead of individual bonds. There are bond funds for tax advantaged municipal bonds too. There are even some state-specific ones -- Vanguard has them for six states (California, Massachusetts, New Jersey, New York, Ohio, Pennsylvania), and I think other companies offer federal+state tax advantaged bond index funds for other states as well.
We have $3M in fixed income, and I don’t think that’s enough to buy individual bonds (other than annual I-bond). We have the tax deferred fixed income mostly in Total Bond Market, and some in a Stable Value. The taxable fixed income is in Vanguard’s MA fund (that’s where we live).

Maybe, just maybe, if we had $10M in fixed income, I’d consider letting an active manager handle it, but we don’t, and (based on our Liability Matching Portfolio) we won’t.

Don’t overthink this.
Zero Net Carbon by 2019.

pkcrafter
Posts: 13101
Joined: Sun Mar 04, 2007 12:19 pm
Location: CA
Contact:

Re: Learned some lessons... back for fresh approach

Post by pkcrafter » Fri Oct 05, 2018 6:17 pm

If you start buying individual bonds through a broker you have to be careful of potential 5% commish on each bond.

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.

bradtaylor1969
Posts: 4
Joined: Fri Oct 05, 2018 6:08 pm

Re: Learned some lessons... back for fresh approach

Post by bradtaylor1969 » Fri Oct 05, 2018 6:30 pm

Dottie57 wrote:
Thu Oct 04, 2018 10:50 am
Don’t go with Morgan Stanley FA.

Many advisors pick funds based geographic areas. I just have total international - the whole int’l haystack.

I would sell what you don’t want to hold long term. Cut losses and go to 3 fund portfolio.
Dottie, What 3 funds are you talking about???

sarabayo
Posts: 67
Joined: Fri Jun 29, 2018 6:59 pm

Re: Learned some lessons... back for fresh approach

Post by sarabayo » Fri Oct 05, 2018 7:28 pm

bradtaylor1969 wrote:
Fri Oct 05, 2018 6:30 pm
Dottie57 wrote:
Thu Oct 04, 2018 10:50 am
Don’t go with Morgan Stanley FA.

Many advisors pick funds based geographic areas. I just have total international - the whole int’l haystack.

I would sell what you don’t want to hold long term. Cut losses and go to 3 fund portfolio.
Dottie, What 3 funds are you talking about???
On this forum, "3 fund portfolio" generally refers to this: https://www.bogleheads.org/wiki/Three-fund_portfolio

In short, a portfolio consisting of a total US stock market index fund, a total ex-US ("International") stock market index fund, and a total US bond index fund.

User avatar
watchnerd
Posts: 1432
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

Re: Learned some lessons... back for fresh approach

Post by watchnerd » Fri Oct 05, 2018 7:29 pm

Minisoda wrote:
Fri Oct 05, 2018 11:08 am
Great feedback and appreciate everyone's insight.

What are folks doing for fixed income investments? Just seems like an area where it might make sense to have an active investor finding the right tax free municipal bonds and watching for issuances. Just not sure how I could keep an eye on that passively or use a fund to do it?
Vanguard's actively managed muni bond fund, VWIUX, is what I use for munis:

https://investor.vanguard.com/mutual-fu ... file/vwiux
Tax Sheltered: 35% US Stock | 35% ex-US Stock | 30% TTM || Taxable: 35% US Stock | 35% ex-US Stock | 15% TTM | 15% Munis

Dottie57
Posts: 4655
Joined: Thu May 19, 2016 5:43 pm

Re: Learned some lessons... back for fresh approach

Post by Dottie57 » Fri Oct 05, 2018 8:11 pm

bradtaylor1969 wrote:
Fri Oct 05, 2018 6:30 pm
Dottie57 wrote:
Thu Oct 04, 2018 10:50 am
Don’t go with Morgan Stanley FA.

Many advisors pick funds based geographic areas. I just have total international - the whole int’l haystack.

I would sell what you don’t want to hold long term. Cut losses and go to 3 fund portfolio.
Dottie, What 3 funds are you talking about???
Three fund portfolio from Boglehead wiki.

https://www.bogleheads.org/wiki/Three-f ... head-style

There are suggestions for 3 fund portfolio at Vanguard, Fidelity, Schwab, etc.

helloeveryone
Posts: 165
Joined: Sun Sep 04, 2016 5:16 pm

Re: Learned some lessons... back for fresh approach

Post by helloeveryone » Fri Oct 05, 2018 10:21 pm

barnaclebob wrote:
Thu Oct 04, 2018 10:52 am
The fewer people between you and your money the better. How is it possible morgan stanley can like one kind of portfolio for taxable but another for IRA? That directly shows they don't know what they are doing. If they think they have the best portfolios in town they should be recommending that for all accounts and only adjusting the asset allocation across all accounts to take advantage of the IRA rules.

2.4 million is the same as 240,000 in how you manage it. Don't be afraid to DIY if you can stay the course. If you need people to hold your hand, pat you on the back, and say you are on the right track, just make a post here every quarter.
+1 last line... and they won’t even charge you for the pat on the back.

Minisoda
Posts: 28
Joined: Sat Feb 11, 2017 9:45 am

Re: Learned some lessons... back for fresh approach

Post by Minisoda » Sat Oct 06, 2018 7:08 am

Ok, I’m tracking on the muni feedback. With a state income tax rate approaching 10%, I was fixated on finding a MN state fund.

With some quick research I see a fund like SMTFX with MN munis and compared it to VWIUX.

SMTFX has a higher expense ratio at .8 and a five yr return of 3.9 plus it would save almost 10% in tax on gains.
VWIUX has a much lower expense ratio at .09 with a five year return of 2.9.

In my situation, wouldn’t the slightly higher expense ratio make sense for the state tax savings in SMTFX?

Really appreciate all of the help and insight. I’m getting more comfortable by the day.

Soda

desiderium
Posts: 716
Joined: Sat Jan 04, 2014 11:08 am

Re: Learned some lessons... back for fresh approach

Post by desiderium » Sat Oct 06, 2018 1:32 pm

Minisoda wrote:
Sat Oct 06, 2018 7:08 am
Ok, I’m tracking on the muni feedback. With a state income tax rate approaching 10%, I was fixated on finding a MN state fund.

With some quick research I see a fund like SMTFX with MN munis and compared it to VWIUX.

SMTFX has a higher expense ratio at .8 and a five yr return of 3.9 plus it would save almost 10% in tax on gains.
VWIUX has a much lower expense ratio at .09 with a five year return of 2.9.

In my situation, wouldn’t the slightly higher expense ratio make sense for the state tax savings in SMTFX?

Really appreciate all of the help and insight. I’m getting more comfortable by the day.

Soda
You can’t really compare 5 year returns directly without more info on credit quality and duration. MN is a small state so risk is concentrated. Common advice is no more than half of muni investment in state fund with national fund for the rest.

Post Reply