Mer. Lynch Buddy ... Bonds in Tax Account ... Stocks Only

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soladeogloria1
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Joined: Wed May 29, 2019 11:24 am

Mer. Lynch Buddy ... Bonds in Tax Account ... Stocks Only

Post by soladeogloria1 » Wed Aug 28, 2019 10:04 am

Hi all:

Had some lunch with a friend of mine that is an money manager at ML. We're the same age (33) and he manages high wealth clients. I was explaining that I was switching to a low cost index fund portfolio from my current FA. He totally understood the perspective but was trying to give me food for thought (sales pitch):
  • He suggested investing in the weighted stocks in the equity indices themselves (cut out the laggards, no exp)
    -He proposed a 1% AUM of course
    -More hands on wealth and tax planning
    -Suggested all equities until I'm ~40 being I have many earning years left, I do okay as a software sales guy (take advantage of income now)
    -He went on about 'investment grade bonds' in the taxable account, they're tax free or something like that, let equities grow in -pre-tax accounts
    - TLH benefit

    Pros
    -If i moved everything to ML / BOA, I could have my and my wife's accounts in one place + discount on mortgage rates (maybe 25 points) + better reward CC options + move my wife's LLC account + set her solo401k/SEP up ... so convenience ... but I'm not a millionaire yet
      -Wife (30yo) and I (33yo) combined NW at moment ~300k, no debt, no home. 350-400k NW by end of 2019.
        -80/20 allocation so far, I plan on moving to a more aggressive allocation
          -I max a 401k, I have a trad from a former 401k rollover and so does my wife, and I'd be setting up a Solo401 for wife and maxing that, and opening a tax account this year

          It sounds good, but it's probably a case of a small sample size where active trading has beaten the market in YTD.

          1) Does anyone ever consider a large cap growth VG fund rather than a total market fund to try and capture more upside with less funds, more weight given to the big blue chips?

          2) any other thoughts about the above?

          Thanks!
        Last edited by soladeogloria1 on Wed Aug 28, 2019 10:19 am, edited 1 time in total.

        Silk McCue
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        Re: Mer. Lynch Buddy ... Bonds in Tax Account ... Stocks Only

        Post by Silk McCue » Wed Aug 28, 2019 10:09 am

        Your post is incomplete.

        Cheers

        02nz
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        Re: Mer. Lynch Buddy ... Bonds in Tax Account ... Stocks Only

        Post by 02nz » Wed Aug 28, 2019 10:12 am

        Not sure I could've handled so much food for thought! :P

        Topic Author
        soladeogloria1
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        Re: Mer. Lynch Buddy ... Bonds in Tax Account ... Stocks Only

        Post by soladeogloria1 » Wed Aug 28, 2019 10:21 am

        02nz wrote:
        Wed Aug 28, 2019 10:12 am
        Not sure I could've handled so much food for thought! :P
        Sorry guys, I'm still getting the hang of the typing utility in this forum; I posted by accident instead of hitting preview (I can't figure out how to make the bulleting format work properly)

        rkhusky
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        Re: Mer. Lynch Buddy ... Bonds in Tax Account ... Stocks Only

        Post by rkhusky » Wed Aug 28, 2019 10:31 am

        Tax free bonds in taxable makes sense if you are in a high tax bracket. But so does Total stock market (TLH plus cap gain rates on withdrawal).

        100% stock is fine for a 30 year old, but so is 80/20 (or even 70/30).

        What looks like a laggard today might be a speedster tomorrow. Stock picking is very difficult and expensive.

        Many here prefer value over growth. Others prefer both value and growth.

        Jack FFR1846
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        Re: Mer. Lynch Buddy ... Bonds in Tax Account ... Stocks Only

        Post by Jack FFR1846 » Wed Aug 28, 2019 10:35 am

        My thoughts.

        Your idea of everything in one place, at first glance is good. But today, with excel spread sheets, you can have stuff "scattered all over the place", look on the spread sheet and see where it all is, total it all up, get an AA, get costs...everything. I currently use Fidelity, TDAmeritrade, Schwab and a number of credit unions and HYSAs and US Savings Bonds. I'm looking at my spread sheet right now. It's all very easy and has both my and my wife's info on it.

        For cost.....I'll use my numbers. I pay a grand total of $417.31 on $2,489,616.98 invested. Going with your guy....assuming the ERs are ZERO, his 1% would cost me $24,896.17 a year. I just (last Wednesday) bought a brand new car. I paid a couple thousand less than that total including the bogus doc fee, tax, title, everything. I would much rather be able to buy myself a car than give the money to someone else.

        Buying stock instead of paying the ERs. Let's all laugh about that. For an average Boglehead low cost mutual fund or ETF, we're talking 0.05%. So this clown is saying to save that 0.05%, you only have to pay him 1%. Oh, that sounds quite reasonable.......NOT. (use Wayne's voice from the movie Wayne's World for maximum affect)

        Your AA is fine. It's essentially AGE minus 10 (more or less). Very within what lots of people do.

        Remember that your friend wants your money. He wants a LOT of your money. Do you want to give him a LOT of your money?
        Bogle: Smart Beta is stupid

        Frank Grimes
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        Re: Mer. Lynch Buddy ... Bonds in Tax Account ... Stocks Only

        Post by Frank Grimes » Wed Aug 28, 2019 10:38 am

        You could probably just open a Merrill Edge account to get all your accounts under one roof and then implement your indexing strategy yourself.

        How will they (or you) know who will be the laggards in the index going forward?

        Whatever wealth and tax planning they'll provide at this stage is probably nothing you can't handle yourself after some reading on this forum or by just asking more questions. Same with TLH.

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        whodidntante
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        Re: Mer. Lynch Buddy ... Bonds in Tax Account ... Stocks Only

        Post by whodidntante » Wed Aug 28, 2019 10:48 am

        No, you should not overweight large cap growth. It's been leading the market for many years now. You missed the best part of the party in my opinion. The bandwagon could be heading over a cliff in terms of relative returns.

        Most people will be worse off owning munis.

        You will regret investing with your friend. His advice seems poor and I doubt he can consistently beat the market by any amount, much less cover his fee. I hope he paid for your lunch since he pitched you.

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        goingup
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        Re: Mer. Lynch Buddy ... Bonds in Tax Account ... Stocks Only

        Post by goingup » Wed Aug 28, 2019 11:21 am

        Jack FFR1846 wrote:
        Wed Aug 28, 2019 10:35 am
        For cost.....I'll use my numbers. I pay a grand total of $417.31 on $2,489,616.98 invested. Going with your guy....assuming the ERs are ZERO, his 1% would cost me $24,896.17 a year.
        That's the most important point. The onerous cost of a ML advisor. The OP's assets are modest now, but in 10 years the portfolio will likely be large and the will contain 50 stocks and 2 dozen high ER funds. It will be a nightmare to untangle with embedded capital gains. And very likely the portfolio return will be lower than a simple low-cost broad-based index portfolio would have yielded.

        OP, consolidate at Merrill Edge if you want the BOA benefits. Think very carefully about signing up with a ML advisor. It'll be very hard to end the relationship down the line.

        Dottie57
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        Re: Mer. Lynch Buddy ... Bonds in Tax Account ... Stocks Only

        Post by Dottie57 » Wed Aug 28, 2019 12:09 pm

        Your buddy is all wet. 1% AUM is horrible. There are very few individuals who can successfully stock pick over short haul and less the long haul.

        Forget the tax mgmt stuff. You can learn yourself.

        Merrill Edge is an ok DIY brokerage.

        Would your 401k be under AUM 1%?
        Last edited by Dottie57 on Wed Aug 28, 2019 12:21 pm, edited 1 time in total.

        deltaneutral83
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        Re: Mer. Lynch Buddy ... Bonds in Tax Account ... Stocks Only

        Post by deltaneutral83 » Wed Aug 28, 2019 12:18 pm

        There is nothing in the OP that overcomes 1% AUM. Absolutely nothing. And individual stock picking by dropping the "laggards" LOL. Good luck stock picking, no one ever talks about their losers.

        NotWhoYouThink
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        Re: Mer. Lynch Buddy ... Bonds in Tax Account ... Stocks Only

        Post by NotWhoYouThink » Wed Aug 28, 2019 3:10 pm

        First, as other posters have mentioned, the 1% AUM is more than you need to pay.

        Second, it is trivially easy to look back at what companies have done well over the last 1/5/10/25 years and propose portfolios that would have out-performed low cost index funds. Kind of like naming the past 5 Super Bowl winners AND the past 5 World Series winners. A high school intern could do it.
        Predicting which funds will beat the market over the next 1/5/10/25 years is so hard no one ever manages to do it for more than a few years in a row, and many fail spectacularly. Like picking the NEXT 5 Super Bowl winners and World Series winners. If anyone did know how to do that they wouldn't do it for you for 1%, they'd keep it a secret and get filthy rich on it. And good for them.

        If you want to be all stocks now that's fine, if you want 20% bonds or so that's fine too. Personal preference. Depends on how you and your wife will handle a 50% drop in the market, which is somewhat unlikely but well within the bounds of realism. See 2007-9.

        Finally, about your IRAs - assuming that's what you mean here.
        -I max a 401k, I have a trad from a former 401k rollover and so does my wife, and I'd be setting up a Solo401 for wife and maxing that, and opening a tax account this year
        Can you roll them into your 401Ks? That way you can both do backdoor Roth IRAs (see the wiki or the 1001 threads on this) and have some tax free growth from all your savings.

        Good luck.

        MotoTrojan
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        Re: Mer. Lynch Buddy ... Bonds in Tax Account ... Stocks Only

        Post by MotoTrojan » Wed Aug 28, 2019 3:16 pm

        There is so much wrong with this; run, don't walk. If they think they know which stocks to avoid in the S&P500 then they are delusional (or just trying to get your 1% AUM).

        Also it is a common misconception that growth stocks grow more than value stocks; historically value has actually outperformed, so no it doesn't make sense to hold less growth to get the same equity exposure. On the contrary, you'll often see people suggesting holding less overall equity but replacing the equity with small-VALUE to get more expected return via the increased risk-premium. Larry Swedroe's "Larry Portfolio" does just this.

        illumination
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        Re: Mer. Lynch Buddy ... Bonds in Tax Account ... Stocks Only

        Post by illumination » Wed Aug 28, 2019 4:57 pm

        FWIW, I've seen first hand up close and personal how some of the "top" financial planners for high net worth clients perform from a variety of those types of firms. I have never seen any of them outperform something like the S&P500, and that's not even really getting into the tax issues of buying and trading like that, which is significant. Most of these people aren't well versed in asset management or economics, they're just "good" salespeople and they aren't the ones really making these decisions anyway. That's probably the biggest misconception. Most of their time is finding other clients, it's not "managing" your money.

        My family had a managed account with Northern Trust that tries to manage its own approximation of the S&P500 within your account, it had just under 600 different securities, and I would have been far ahead with just something like SPY or VOO in that same timeframe. Now we have to unwind that.

        We are trained to think that the people that exclusively cater to the "rich" have some sort of huge edge, when they really don't. Look at something like hedge funds where 90% underperform. You can make the case that you can get in on some private equity deals or IPOs with some of these firms, but I would love to see the data on that and real returns. I tend to think by the time it gets to a more retail investor, most of the better deals have been picked over.

        ivk5
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        Re: Mer. Lynch Buddy ... Bonds in Tax Account ... Stocks Only

        Post by ivk5 » Wed Aug 28, 2019 5:09 pm

        MotoTrojan wrote:
        Wed Aug 28, 2019 3:16 pm
        There is so much wrong with this; run, don't walk.
        +1

        Or as someone commented in another thread recently- with friends like these, who needs enemies?

        HomeStretch
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        Re: Mer. Lynch Buddy ... Bonds in Tax Account ... Stocks Only

        Post by HomeStretch » Wed Aug 28, 2019 5:31 pm

        ivk5 wrote:
        Wed Aug 28, 2019 5:09 pm
        MotoTrojan wrote:
        Wed Aug 28, 2019 3:16 pm
        There is so much wrong with this; run, don't walk.
        +1

        Or as someone commented in another thread recently- with friends like these, who needs enemies?
        +2. If your friend presses you about handling your portfolio, an easy out is to say you don’t do business with friends.

        Topic Author
        soladeogloria1
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        Re: Mer. Lynch Buddy ... Bonds in Tax Account ... Stocks Only

        Post by soladeogloria1 » Wed Aug 28, 2019 7:47 pm

        Alright all,

        Thanks for straightening me out and validating the sales pitch from ML buddy and that I should stay the course with keeping things low cost and simple.

        In the next weeks, I'm ...

        1. Moving my, and my wife''s, Trad IRAs from Raymond James to Vanguard = ~95k

        2. My 401k is maxed in 2019 with employer plan (45k Fidelity), I need to open Solo401k (19k, will contribute additional profit share later) for wife and max it out (probably with Vanguard also) = 64k

        3. Joint cash ~ 165k ( i need to get this into a taxable account less emergency funds)

        4. will probably keep 30k in emergency and put the 135k in a taxable account, I have to dig into what our holdings are in retirement accounts but when I move assets to VG, i could always move any bond allocation desired into the IRA's.

        5. IF Taxable account is largely equities per my allocation, all in on VTI? (is international really doing much, if so, of my equities does 15-20% in VXUS seem reasonable?).

        6. When Bonds are neccesary, I supposed BND total market is the way to go unless there are better options for my taxable account (for when I hold bonds in there. 401k doesn't have that bond option).

        Resources:
        TLH
        Other ...

        I've read 3-fund portfolio book so far and some resources on this site. Any other recommendations to bring me up to speed on TLH and tax management? And, not that I have to deal with this yet, what are good resources to learn from to start thinking about re-balancing, withdraw schedules and strategies for when I'm nearing retirement?

        Thanks!

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        unclescrooge
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        Re: Mer. Lynch Buddy ... Bonds in Tax Account ... Stocks Only

        Post by unclescrooge » Wed Aug 28, 2019 10:05 pm

        goingup wrote:
        Wed Aug 28, 2019 11:21 am
        Jack FFR1846 wrote:
        Wed Aug 28, 2019 10:35 am
        For cost.....I'll use my numbers. I pay a grand total of $417.31 on $2,489,616.98 invested. Going with your guy....assuming the ERs are ZERO, his 1% would cost me $24,896.17 a year.
        That's the most important point. The onerous cost of a ML advisor. The OP's assets are modest now, but in 10 years the portfolio will likely be large and the will contain 50 stocks and 2 dozen high ER funds. It will be a nightmare to untangle with embedded capital gains. And very likely the portfolio return will be lower than a simple low-cost broad-based index portfolio would have yielded.

        OP, consolidate at Merrill Edge if you want the BOA benefits. Think very carefully about signing up with a ML advisor. It'll be very hard to end the relationship down the line.
        +1

        Managing individual stocks for dozens (if not hundreds of clients) is impossible. Eventually, you will be put on maintenance mode, meaning he will ignore your portfolio.

        It's a pretty stupid idea, IMHO. It might sound good now (wealth front, personal capital and Ken Fisher all pitch this), but it's terrible when it comes to rebalancing or unwinding in taxable accounts.

        How long how has your friend been managing money? It's possible he doesn't know what he's doing.

        geo5000
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        Re: Mer. Lynch Buddy ... Bonds in Tax Account ... Stocks Only

        Post by geo5000 » Tue Sep 03, 2019 2:51 pm

        I finally convinced my wife to get her money out of ML last week, she had two accounts, an IRA rollover and the other a regular brokerage acct, AUM fees of 1.85%, 22 ETF funds in each one, subpar performance the last 10 yrs after fees. Glad it only totaled 400K, could of been worse.

        Rudedog
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        Re: Mer. Lynch Buddy ... Bonds in Tax Account ... Stocks Only

        Post by Rudedog » Tue Sep 03, 2019 3:54 pm

        Don't do business with friends, it will not end well. You'll get tired of paying for his vacations, children's college educations, new car every year, etc, etc.

        User avatar
        Wiggums
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        Re: Mer. Lynch Buddy ... Bonds in Tax Account ... Stocks Only

        Post by Wiggums » Tue Sep 03, 2019 4:05 pm

        soladeogloria1 wrote:
        Wed Aug 28, 2019 7:47 pm
        Alright all,

        Thanks for straightening me out and validating the sales pitch from ML buddy and that I should stay the course with keeping things low cost and simple.

        In the next weeks, I'm ...

        1. Moving my, and my wife''s, Trad IRAs from Raymond James to Vanguard = ~95k

        2. My 401k is maxed in 2019 with employer plan (45k Fidelity), I need to open Solo401k (19k, will contribute additional profit share later) for wife and max it out (probably with Vanguard also) = 64k

        3. Joint cash ~ 165k ( i need to get this into a taxable account less emergency funds)

        4. will probably keep 30k in emergency and put the 135k in a taxable account, I have to dig into what our holdings are in retirement accounts but when I move assets to VG, i could always move any bond allocation desired into the IRA's.

        5. IF Taxable account is largely equities per my allocation, all in on VTI? (is international really doing much, if so, of my equities does 15-20% in VXUS seem reasonable?).

        6. When Bonds are neccesary, I supposed BND total market is the way to go unless there are better options for my taxable account (for when I hold bonds in there. 401k doesn't have that bond option).

        Resources:
        TLH
        Other ...

        I've read 3-fund portfolio book so far and some resources on this site. Any other recommendations to bring me up to speed on TLH and tax management? And, not that I have to deal with this yet, what are good resources to learn from to start thinking about re-balancing, withdraw schedules and strategies for when I'm nearing retirement?

        Thanks!
        +1
        That’s what I would do as well.

        decapod10
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        Re: Mer. Lynch Buddy ... Bonds in Tax Account ... Stocks Only

        Post by decapod10 » Tue Sep 03, 2019 4:24 pm

        soladeogloria1 wrote:
        Wed Aug 28, 2019 7:47 pm
        Alright all,

        Thanks for straightening me out and validating the sales pitch from ML buddy and that I should stay the course with keeping things low cost and simple.

        In the next weeks, I'm ...

        1. Moving my, and my wife''s, Trad IRAs from Raymond James to Vanguard = ~95k

        2. My 401k is maxed in 2019 with employer plan (45k Fidelity), I need to open Solo401k (19k, will contribute additional profit share later) for wife and max it out (probably with Vanguard also) = 64k

        3. Joint cash ~ 165k ( i need to get this into a taxable account less emergency funds)

        4. will probably keep 30k in emergency and put the 135k in a taxable account, I have to dig into what our holdings are in retirement accounts but when I move assets to VG, i could always move any bond allocation desired into the IRA's.

        5. IF Taxable account is largely equities per my allocation, all in on VTI? (is international really doing much, if so, of my equities does 15-20% in VXUS seem reasonable?).

        6. When Bonds are neccesary, I supposed BND total market is the way to go unless there are better options for my taxable account (for when I hold bonds in there. 401k doesn't have that bond option).

        Resources:
        TLH
        Other ...

        I've read 3-fund portfolio book so far and some resources on this site. Any other recommendations to bring me up to speed on TLH and tax management? And, not that I have to deal with this yet, what are good resources to learn from to start thinking about re-balancing, withdraw schedules and strategies for when I'm nearing retirement?

        Thanks!
        If all the perks that your friend mentioned sound useful to you, you could transfer some / all of your money to Merrill Edge and get all of those perks. It's called the Preferred Rewards program through Bank of America. If you have > $100k in assets, then you would qualify for the highest tier. We use B of A for our checking account along with their credit cards, so it was a pretty easy decision for us to do it (I put my Roth IRA there) but not everyone will find the perks valuable.

        Vanguard ETFs would be an option there.

        Platinum Honors Tier (> $100k)
        75% increase in credit card rewards
        100 free trades per month (I think it's 100, I don't come close to using them all)
        no account minimums
        free checks
        reimburse ATM fees
        free cashier checks

        those types of things, just little perks.

        retiredjg
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        Re: Mer. Lynch Buddy ... Bonds in Tax Account ... Stocks Only

        Post by retiredjg » Tue Sep 03, 2019 4:27 pm

        soladeogloria1 wrote:
        Wed Aug 28, 2019 7:47 pm
        2. My 401k is maxed in 2019 with employer plan (45k Fidelity), I need to open Solo401k (19k, will contribute additional profit share later) for wife and max it out (probably with Vanguard also) = 64k
        Whoa, not so fast there. Maybe this is not what you meant, but it sounds like you intend to make employee contributions of $19k to your employer plan and to a Solo 401k. You can't do that. The limit is $19k total per person.


        6. When Bonds are neccesary, I supposed BND total market is the way to go unless there are better options for my taxable account (for when I hold bonds in there. 401k doesn't have that bond option).
        You probably do not want total bond market in taxable. What bond options are in your 401k plans?

        elainet7
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        Re: Mer. Lynch Buddy ... Bonds in Tax Account ... Stocks Only

        Post by elainet7 » Tue Sep 03, 2019 4:50 pm

        Dump him ASAP 1%AUM over time is a boatload of $$$$$$$$$$$$$

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        firebirdparts
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        Re: Mer. Lynch Buddy ... Bonds in Tax Account ... Stocks Only

        Post by firebirdparts » Tue Sep 03, 2019 5:34 pm

        I’m amazed he only charges 1% to cut out the laggards. He’s obviously a genius beyond any who ever lived before now, if he can do that. 8-)

        P.S. “growth stocks” means relatively high priced stocks. We all invest in them but you would not expect them to outpace the market. They can, but we don’t predict that. We can only predict that they already did.
        A fool and your money are soon partners

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