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Too much of portfolio in Vanguard?

Posted: Tue Jul 25, 2017 8:22 pm
by goshenBogle
This may seem like a silly question but I am not sure how to answer it in a convincing way.

About 80% of our $4.5 million portfolio is invested in Vanguard funds. My wife feels that we should invest no more, that maybe 80% concentrated in one mutual fund company is too much. I feel that Vanguard is very stable and see no problem increasing the 80% to even 90%.

What is the best argument to counter my wife's fears?

Thank you.

Re: Too much of portfolio in Vanguard?

Posted: Tue Jul 25, 2017 8:28 pm
by mcraepat9

Re: Too much of portfolio in Vanguard?

Posted: Tue Jul 25, 2017 8:29 pm
by arcticpineapplecorp.
you can have her read all the previous threads when others have asked the same question:

https://www.google.com/search?sitesearc ... n+vanguard
https://www.google.com/search?q=all+mon ... 66&bih=635

Basically, you do realize that Vanguard doesn't hold your money right? "Each fund's custodian holds that funds assets" -- Mel Lindauer source: https://www.bogleheads.org/wiki/Vanguard_safety

Essentially the money that the value of all shares of a fund is held in trust by a third part custodian. That means if anything ever happens to Vanguard your shares are safe because they're not held by Vanguard.

In addition, technically, no one's actually holding any of your money because you don't have any money with Vanguard. They're not a bank. You gave Vanguard your money already when you exchanged that money for shares in whatever investments you purchased. And yes, even money you used to purchase money market mutual fund shares went to Vanguard and now you just have shares, not money.

So knowing that, are you afraid of losing shares because Vanguard goes out of business? Whether you buy shares with them or someone else, you've already given up your money the moment you bought your investments (shares).

Don't feel bad though. Anytime you transact you have to give up your money to get something else. Buy a hamburger? You give up your money to get the hamburger. And so on. So what is she worried about exactly? Losing money? It's already long gone. But you're sitting on lots of shares that do have value and can/will be re-exchanged back into money. But then you won't have the shares because you'll give them back to Vanguard and they'll give you the value of the shares at the time you sell them back to Vanguard. Make sense?

Re: Too much of portfolio in Vanguard?

Posted: Tue Jul 25, 2017 8:55 pm
by SimplicityNow
arcticpineapplecorp. wrote:you can have her read all the previous threads when others have asked the same question:

https://www.google.com/search?sitesearc ... n+vanguard
https://www.google.com/search?q=all+mon ... 66&bih=635

Basically, you do realize that Vanguard doesn't hold your money right? "Each fund's custodian holds that funds assets" -- Mel Lindauer source: https://www.bogleheads.org/wiki/Vanguard_safety

Essentially the money that the value of all shares of a fund is held in trust by a third part custodian. That means if anything ever happens to Vanguard your shares are safe because they're not held by Vanguard.

In addition, technically, no one's actually holding any of your money because you don't have any money with Vanguard. They're not a bank. You gave Vanguard your money already when you exchanged that money for shares in whatever investments you purchased. And yes, even money you used to purchase money market mutual fund shares went to Vanguard and now you just have shares, not money.

So knowing that, are you afraid of losing shares because Vanguard goes out of business? Whether you buy shares with them or someone else, you've already given up your money the moment you bought your investments (shares).

Don't feel bad though. Anytime you transact you have to give up your money to get something else. Buy a hamburger? You give up your money to get the hamburger. And so on. So what is she worried about exactly? Losing money? It's already long gone. But you're sitting on lots of shares that do have value and can/will be re-exchanged back into money. But then you won't have the shares because you'll give them back to Vanguard and they'll give you the value of the shares at the time you sell them back to Vanguard. Make sense?

Great explanation!

Re: Too much of portfolio in Vanguard?

Posted: Wed Jul 26, 2017 7:26 am
by afan
It is even safer than that. I have not checked for a long time, but the last time I did, Vanguard used more than one custodial firm. So even the failure of such a firm would not inconvenience all Vanguard investors.

But if there were some temporary disruption of Vanguard itself, say a massive hack, then you might be happier if you did not lose access to all your accounts at once. If you set things up so that Schwab, for example, held some of your assets then you could only get frozen out of everything if both S and V got hacked at the same time.

Yes, your money would be safe and ultimately you would regain access, but in the meantime it could be unpleasant. Much more so if you were making regular withdrawals for living expenses.

The same logic would apply to where you hold emergency money. At more than one institution.

Re: Too much of portfolio in Vanguard?

Posted: Wed Jul 26, 2017 7:35 am
by azanon
I believe you have 500K SIPC insurance per account; even at Vanguard. In other words, If you have more than 500K in one account, you have some degree of increased risk than you could have otherwise. I am, of course, assuming that SIPC insurance is not worthless, which I hope is a safe assumption.

See https://investor.vanguard.com/investing ... on?lang=en for Vanguard information on account protection.

Re: Too much of portfolio in Vanguard?

Posted: Wed Jul 26, 2017 9:10 am
by jhfenton
For short-term cash-flow problems--e.g., identity theft, hacking, IT problems, the rumors of my demise being "greatly exaggerated," etc.--I would not want 100% of my assets with one custodian in retirement. When we get to retirement, I'll make sure we have some small amount, at least, with Fidelity, Schwab, or TD Ameritrade, to cover us for any access issues with Vanguard accounts.

Right now, though, I don't particularly care. We don't pull from our retirement accounts, so a temporary account access problem wouldn't cause any cash-flow problems.

And even in retirement, the issue wouldn't be having too much invested in Vanguard funds. I might even end up holding Vanguard ETFs at TD Ameritrade (where many are commission-free).

Re: Too much of portfolio in Vanguard?

Posted: Wed Jul 26, 2017 10:13 am
by saltycaper
To clarify, you feel one way, your wife feels a different way, and rather than establish some facts you both can use to make a more informed and somewhat objective decision, you just want support for your feelings. :P

Now that I got that poke out of the way, in addition to the concerns above, I'd review Vanguard's fraud policy.

Re: Too much of portfolio in Vanguard?

Posted: Wed Jul 26, 2017 11:13 am
by Doc
goshenBogle wrote:What is the best argument to counter my wife's fears?
The best thing to do is not argue with your wife but move some of your assets to some other firm's low cost index funds/ETFs.

Re: Too much of portfolio in Vanguard?

Posted: Wed Jul 26, 2017 11:25 am
by bligh
Vanguard has something over 4 Trillion dollars under management. Let that number sink in.

That money isn't going to just disappear. If it does, and the government doesn't/is unable to step in to ensure a safe transition of the assets to another management entity, you'll wish you had stocked more bullets and alcohol instead of had some of your assets held at another institution. If the underlying assets you have invested in become worthless, then being invested with a different company isn't going to matter either.

That doesn't rule out short to intermediate term disruptions in access to the funds at Vanguard due to unforeseen reasons. So you shouldn't hold your emergency fund at Vanguard.

Re: Too much of portfolio in Vanguard?

Posted: Wed Jul 26, 2017 11:41 am
by FelixTheCat
What would make her feel safer? Happy wife = happy life.

Suggestions
Path 1 ~ She can read about Vanguard's multiple custodial firms, Fidelity bonds, Investment Company Act of 1940, etc.
Path 2 ~ You can always have some money in another company.

Re: Too much of portfolio in Vanguard?

Posted: Wed Jul 26, 2017 8:32 pm
by chinto
goshenBogle wrote:This may seem like a silly question but I am not sure how to answer it in a convincing way.

About 80% of our $4.5 million portfolio is invested in Vanguard funds. My wife feels that we should invest no more, that maybe 80% concentrated in one mutual fund company is too much. I feel that Vanguard is very stable and see no problem increasing the 80% to even 90%.

What is the best argument to counter my wife's fears?

Thank you.
Wow, really? I am assuming you have been married along time based on your assets, but your questions seems to stem from someone who is a neophyte to marriage. The correct answer is, "You know my love, one of the reasons I married you is for your foresight and logic. I think you are right my love, we should diversify not only our portfolio but the financial institutions we do business with. I love you dear". Then transfer some assets and brag about her at every party you go to for the next year. In fact, if you play your cards right, you can get a cash transfer bonus and take her out for an excellent dinner (or Godiva)with the proceeds and let her know it was because of her. Collect those bonus points come Saturday night.

Seriously, if there ever ins even a minor financial hiccup, sex is going to be something you vaguely remember you like to do, but it will have been so long you ago you won't even remember exactly why you liked it.

Re: Too much of portfolio in Vanguard?

Posted: Wed Jul 26, 2017 8:54 pm
by indexonlyplease
goshenBogle wrote:This may seem like a silly question but I am not sure how to answer it in a convincing way.

About 80% of our $4.5 million portfolio is invested in Vanguard funds. My wife feels that we should invest no more, that maybe 80% concentrated in one mutual fund company is too much. I feel that Vanguard is very stable and see no problem increasing the 80% to even 90%.
Does it matter is you have 4.5 million or 500,000, either way if you lose it you are broke.

What is the best argument to counter my wife's fears?
I don't know what it is about women. But they have something inside them that gives them the feeling that something is not right. I hate to admit to it but my wife has been correct every time. It took me 20 years to start listening to her. But now I ask her and avoid mistakes she does not feel good about.
On the fears she has. They will not go away.

Thank you.

Re: Too much of portfolio in Vanguard?

Posted: Wed Jul 26, 2017 9:11 pm
by samsmith
I would be thankful for my spouse's interest. Understanding and accepting all of the reason's Vanguard is safe, I would absolutely move some assets to Schwab, Fidleity, TD Ameritrade, etc. Each has low cost index funds. Some of the brokerages even offer bonus's for moving assets to them. Make your wife happy and earn a bonus and still invest in low cost index funds. Kind of a win - win - win.

Re: Too much of portfolio in Vanguard?

Posted: Wed Jul 26, 2017 9:34 pm
by Quantumfizz
Yes there is a risk - depending on what you are invested in if the portfolio manager leaves the firm then you risk an outflow of assets to follow them forcing the fund to harvest positions prematurely. Granted, in an index fund the impact would likely be slim to none but there have been funds that have went from rockstar AUM numbers to nothing just do to a well known portfolio manager leaving. Also, the fact of the matter is that financial services is a highly regulated environment undergoing constant regulatory changes. Every firm responds to new regulations differently and it never hurts to be hedged just in case one slips up.

Re: Too much of portfolio in Vanguard?

Posted: Wed Jul 26, 2017 9:36 pm
by garlandwhizzer
goshenBogle wrote:

About 80% of our $4.5 million portfolio is invested in Vanguard funds. My wife feels that we should invest no more, that maybe 80% concentrated in one mutual fund company is too much. I feel that Vanguard is very stable and see no problem increasing the 80% to even 90%.
I don't think that either you or your wife have any realistic worries from a financial point of view. Vanguard is as solid as a granite boulder when it comes to fiduciary responsibility. A 4.5 million portfolio is more than adequate to meet the realistic needs for both of you, now and in the future, unless you become profligate in spending. Assuming a conservative long term portfolio return target of 3% real, that should supply an annual gain of $135K/yr. without ever touching the the 4.5 Mil of principal which is, to put it mildly, a substantial cushion in case of a rainy day.

I suggest that instead of fretting over your financial safety, it may be more rational for you and your wife to relax your financial concerns and take a wonderful vacation together or do whatever else gives the two of you satisfaction and pleasure. Happiness and contentment in life correlates closely with filling ones life with great experiences, much more so than filling it with possessions or maximizing the size of ones asset base. Some things are worth worrying about. Personally, I do not believe that this problem is one of them.

Sorry for throwing philosophy into the discussion of your earnest question.

Garland Whizzer

Re: Too much of portfolio in Vanguard?

Posted: Sun Jul 30, 2017 4:02 pm
by tadamsmar
One issue is that you have some responsibility for the prevention of online fraud. Here is Vanguard's policy:

https://personal.vanguard.com/us/help/S ... ontent.jsp

Reimbursement is only guaranteed if you fulfill you responsibilities.

For comparison, here is Schwab's policies:

http://www.schwab.com/public/schwab/nn/ ... antee.html

Note that your responsibilities are less for a personal bank accounts or credit cards per federal regulations. You only have a timely reporting requirement.

Most people don't consider this a big risk, but some might consider it a reason for diversification.

Re: Too much of portfolio in Vanguard?

Posted: Sun Jul 30, 2017 4:46 pm
by Doc
tadamsmar wrote:For comparison, here is Schwab's policies:
Schwab: Safeguard your account access information.
If you share this information with anyone, we’ll consider their activities to have been authorized by you. (We may hold you responsible if we determine that you shared this information, or unauthorized activity was caused by your fraudulent conduct or gross negligence.)

Vanguard:
1) Make sure your user name, password, and answers to your security questions are unique and strong.
2) Never share your user name, password, or other account-related information with anyone.
3) Never store your user name, password, or answers to security questions in your browser.
4) Clear any temporarily stored copies of online information by closing your browser after signing off. Do not leave your computer unattended while logged on to Vanguard.com.

Looks like Vanguard puts a lot more conditions on the client than Schwab. Am I looking at this correctly?

Re: Too much of portfolio in Vanguard?

Posted: Sun Jul 30, 2017 5:57 pm
by munemaker
Doc wrote: 1) Make sure your user name, password, and answers to your security questions are unique and strong.
2) Never share your user name, password, or other account-related information with anyone.
3) Never store your user name, password, or answers to security questions in your browser.
4) Clear any temporarily stored copies of online information by closing your browser after signing off. Do not leave your computer unattended while logged on to Vanguard.com.
I was not aware of those rules. I consistently violate every one of them. How did Vanguard communicate them? Guess I will have to rethink my practices.

Re: Too much of portfolio in Vanguard?

Posted: Sun Jul 30, 2017 6:37 pm
by Doc
munemaker wrote: How did Vanguard communicate them?
The credit goes to tadasmsar.

Re: Too much of portfolio in Vanguard?

Posted: Sun Jul 30, 2017 7:34 pm
by samsoes
FelixTheCat wrote:What would make her feel safer? Happy wife = happy life.
"When the Queen is happy, there is peace in the kingdom."

Re: Too much of portfolio in Vanguard?

Posted: Mon Jul 31, 2017 4:04 pm
by tadamsmar
munemaker wrote:
Doc wrote: 1) Make sure your user name, password, and answers to your security questions are unique and strong.
2) Never share your user name, password, or other account-related information with anyone.
3) Never store your user name, password, or answers to security questions in your browser.
4) Clear any temporarily stored copies of online information by closing your browser after signing off. Do not leave your computer unattended while logged on to Vanguard.com.
I was not aware of those rules. I consistently violate every one of them. How did Vanguard communicate them? Guess I will have to rethink my practices.
Vanguard communicated them by putting them on their website:

https://personal.vanguard.com/us/help/S ... ontent.jsp

Re: Too much of portfolio in Vanguard?

Posted: Wed Aug 02, 2017 3:02 pm
by tadamsmar
Note that you can beef up security and activity alerts on your Vanguard accounts. Look under Account Maintenance for Alerts and Security Profile.

Activity text messages in particular are not an inconvenience, so I consider them to be a no-brainer if you have a cell phone. There are also email alerts.

Edit: correction : added "not"