32 yr old daughter's IRAs

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tdo1966
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32 yr old daughter's IRAs

Post by tdo1966 » Tue Jun 11, 2019 7:52 am

About 18 months ago my daughter (a single mother) switched jobs, and we rolled her 401k into Schwab Intelligent Portfolio IRA's (Approx. $6,000 Roth & $31,000 Traditional). We put them in the most aggressive model. I started to put them in a 3-4 fund portfolio of index funds; however, I thought that to be safe I would be more comfortable having 'professionals' (computers) manage her IRA's for a modest fee (approx 30bps). Last night we checked the performance, and, since inception, her IRA's have returned just 3.49%, while the S&P 500 has returned 17.96% for the same period (using comparison chart in her Schwab account). I was shocked at the poor performance, especially, when compared to the S&P 500. Am I missing something? I am aware that about 7% of the Intelligent Portfolio is in cash and a higher percentage in Int'l than I like, but that is still a large difference. I thought that I was doing the right thing by letting the 'professionals' manage her investments, but now I'm not so sure. Any advice/insight would be greatly appreciated.

sjt
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Re: 32 yr old daughter's IRAs

Post by sjt » Tue Jun 11, 2019 8:03 am

S&P has obviously done better than cash, and you can chart S&P vs international (try VTIAX) over the past 12 months and see that S&P has outperformed by about 12%.

Schwab also talked me into using their management tools until I saw the light due to underperformance. Now I stick with a simple 3 fund type portfolio.

You can go in and look at which funds they have invested in to understand the poor performance, but that doesn't change things now. I'd recommend developing a plan that she can be comfortable with moving forward - once it's set, don't react to certain market segments outperforming because by nature with an index fund type plan, at any given time some segments will be outperforming and some will be underperforming.
"The one who covets is the poorer man, | For he would have that which he never can; | But he who doesn't have and doesn't crave | Is rich, though you may hold him but a knave." - Wife of Bath tale

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BL
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Re: 32 yr old daughter's IRAs

Post by BL » Tue Jun 11, 2019 10:14 am

You are comparing apples to oranges here. Large caps have done very well, and the other fund has a % of other things such as international and cash. Don't know if they charge a management fee as well as the cash gains they have.

Nevertheless, she might choose either the 3-fund portfolio (see Wiki) or a Target Date fund such as Vanguard's fund. V has many other low-Expense Ratio (ER) balanced funds such as Life Strategy or Balanced fund. An advantage to choosing Target date is that those are often found in 401ks as well, and may be one of the better choices there as well (not all companies have low-ER target funds, however).

Here is a nice little pdf which has lots of good advice for newer investors. Suggest you both read it and discuss:
https://www.etf.com/docs/IfYouCan.pdf

dbr
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Re: 32 yr old daughter's IRAs

Post by dbr » Tue Jun 11, 2019 10:18 am

You can't compare her portfolio to the S&P 500 because she isn't invested in the S&P 500, evidently. What is relevant is to list what she is invested in and see where the performance or lack of same comes from. Different assets that may be equally good or even a better choice over time can be quite different over any short time, so your comparison is probably meaningless. If you want to match the S&P 500 you have to buy the S&P 500. If you want more return than the S&P 500, then there is no investment that does that over any and all short terms.

It is also possible that the comparison is miscalculated by looking at inconsistent starting and ending dates or at variable amount of money in the account over time.

A last comment is that I would not imagine that "professional" management is going to produce more return for the risk involved except as an accident.

KingRiggs
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Re: 32 yr old daughter's IRAs

Post by KingRiggs » Tue Jun 11, 2019 10:18 am

No offense meant, but why is your 32-year-old daughter in need of you to manage her investments for her?

retiredjg
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Re: 32 yr old daughter's IRAs

Post by retiredjg » Tue Jun 11, 2019 10:18 am

Not sure that paying a fee is doing much good. I'd suggest moving the money out of "intelligent portfolios" and putting it into a Target Index fund. Don't accidentally get into the higher cost other target series that they also offer.

delamer
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Re: 32 yr old daughter's IRAs

Post by delamer » Tue Jun 11, 2019 10:22 am

Presumably you know what funds/ETFs Schwab has her invested in and in what proportions.

So look at the return on each.

What has been the big drag on returns? Is there a reason to maintain that position over the long run? The point of diversification isn’t to match the S&P 500, but to balance risk and return over the long haul.

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tdo1966
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Re: 32 yr old daughter's IRAs

Post by tdo1966 » Tue Jun 11, 2019 10:22 am

Thanks for the information. I get that I am not comparing apples to apples. I guess my point was that I didn't expect such a large difference in performance. We would be better off just putting her in a S&P 500 Index fund (or better yet, a total market index fund or etf i.e. VTI) and a bond fund/etf (BND). Especially w/ 30+ years before retirement.

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Kitty Telltales
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Re: 32 yr old daughter's IRAs

Post by Kitty Telltales » Tue Jun 11, 2019 10:31 am

KingRiggs wrote:
Tue Jun 11, 2019 10:18 am
No offense meant, but why is your 32-year-old daughter in need of you to manage her investments for her?
My thoughts exactly. Let this be a learning experience and teach that it doesn't have to be overly complicated to invest. She should feel in control over her own decisions. Buy her Taylor's 3 Fund Portfolio. It's the greatest gift you could give her.

Flyer24
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Re: 32 yr old daughter's IRAs

Post by Flyer24 » Tue Jun 11, 2019 10:36 am

She should just put it in a simple target index fund and leave it alone. Don’t make it so complicated for her. She needs to learn to manage it herself. Keep it simple.

deltaneutral83
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Re: 32 yr old daughter's IRAs

Post by deltaneutral83 » Tue Jun 11, 2019 10:58 am

I'm sensing this is a closet "how much international" type thread. Vanguard uses 40% of equity allocation for Intl. This is why OP's portfolio is getting kicked in the teeth over any time frame of 1-9 years vs the S&P (well that and whatever cash drag is present).

sjt
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Re: 32 yr old daughter's IRAs

Post by sjt » Tue Jun 11, 2019 11:13 am

tdo1966 wrote:
Tue Jun 11, 2019 10:22 am
Thanks for the information. I get that I am not comparing apples to apples. I guess my point was that I didn't expect such a large difference in performance. We would be better off just putting her in a S&P 500 Index fund (or better yet, a total market index fund or etf i.e. VTI) and a bond fund/etf (BND). Especially w/ 30+ years before retirement.
You would have done well to buy google, apple, amazon, microsoft etc at the right times too. So why not just buy them now? They will surely continue to outperform, right???


Nobody knew that the S&P was going to outperform during that time. It's possible that International beats S&P over the next day, month, year, and maybe 30+ years.

Nobody knows nothin - make a plan and stick to it. Emotional responses = bad.
"The one who covets is the poorer man, | For he would have that which he never can; | But he who doesn't have and doesn't crave | Is rich, though you may hold him but a knave." - Wife of Bath tale

Flyer24
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Re: 32 yr old daughter's IRAs

Post by Flyer24 » Tue Jun 11, 2019 11:25 am

tdo1966 wrote:
Tue Jun 11, 2019 10:22 am
Thanks for the information. I get that I am not comparing apples to apples. I guess my point was that I didn't expect such a large difference in performance. We would be better off just putting her in a S&P 500 Index fund (or better yet, a total market index fund or etf i.e. VTI) and a bond fund/etf (BND). Especially w/ 30+ years before retirement.
That is your problem. You are focusing on performance. Her importance at her age is her savings rate. She is in the share accumulation stage of her life.

dbr
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Re: 32 yr old daughter's IRAs

Post by dbr » Tue Jun 11, 2019 11:58 am

tdo1966 wrote:
Tue Jun 11, 2019 10:22 am
Thanks for the information. I get that I am not comparing apples to apples. I guess my point was that I didn't expect such a large difference in performance. We would be better off just putting her in a S&P 500 Index fund (or better yet, a total market index fund or etf i.e. VTI) and a bond fund/etf (BND). Especially w/ 30+ years before retirement.
Probably, but respondents here are in the dark because we don't know what they do have her in. Note that on average if you dilute the investment with a bond fund the return will average less and be less variable than if you invested everything in the S&P 500, so don't do that and then make that comparison.

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FelixTheCat
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Re: 32 yr old daughter's IRAs

Post by FelixTheCat » Tue Jun 11, 2019 12:11 pm

tdo1966 wrote:
Tue Jun 11, 2019 10:22 am
We would be better off just putting her in a S&P 500 Index fund (or better yet, a total market index fund or etf i.e. VTI) and a bond fund/etf (BND). Especially w/ 30+ years before retirement.
You're absolutely right. Now, you need to decide which guru to follow based on the volatility your daughter can handle. Warren Buffett will tell you to put it all in the S&P 500 fund. Bogleheads will tell you about the three fund portfolio.
Felix is a wonderful, wonderful cat.

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CAsage
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Re: 32 yr old daughter's IRAs

Post by CAsage » Tue Jun 11, 2019 1:10 pm

Your daughter's future net worth will be immeasurably influenced by how much she saves each year, for the next 30, vs what she invests in today. One way to understand exactly the return on her IRA is simply by determining what % of that account is in what asset class. Then, you can see the impact of the gain/loss of that sector on the total. As in, add up all the (% total )times(sector gain) to get the total. There is a sector return "quilt" chart that shows how, each year, some different sector does better or worse; it dramatically shows how unpredictable investment returns are for a specific sector. The best way to make money long term, go for the lowest fees and buy the whole market proportionally. In addition to the Vanguard 3 fund, check out the "couch potato" funds for some fun and inspirational portfolios. You don't really need anyone to manage this for her.
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.

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