3 fund vs EJ

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Mr400meterdash
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3 fund vs EJ

Post by Mr400meterdash » Fri Sep 14, 2018 11:55 am

Hello All,

I have finally gotten my dad to switch from EJ to Vanguard but he likes the funds he is in as they are performing well for him. His expense ratio is still higher and I really don't have a good answer for him to why he should switch to the 3 fund portfolio.

His funds are:

ABNDX: 11%
CWGIX: 9%
ANCFX: 22%
AGTHX: 29%
AMRMX: 11%
NEWFX: 6%
SMCWX: 2%
AMUSX: 10%

I showed him portfolio visualizer and he put in those funds and the three fund and it showed that he would have a lot more if he stuck with the EJ funds at Vanguard. If he started with $100,000 in 2001, his balance would be $44,000 more than the 3 fund. I believe portfolio visualizer takes into account the ER associated with all of the funds. I also realize this is looking in the past but 17 years of history is a lot for my dad to think 3 funds would beat that if both are at 70/30

Any help as to show him why three funds are better?

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Alexa9
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Re: 3 fund vs EJ

Post by Alexa9 » Fri Sep 14, 2018 11:58 am

Find out the front end loads and fees EJ is charging. They're not very transparent.

http://kronstantinople.blogspot.com/p/e ... -saga.html

Mr400meterdash
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Re: 3 fund vs EJ

Post by Mr400meterdash » Fri Sep 14, 2018 12:02 pm

Alexa9 wrote:
Fri Sep 14, 2018 11:58 am
Find out the front end loads and fees EJ is charging. They're not very transparent.

http://kronstantinople.blogspot.com/p/e ... -saga.html
Well he is not with EJ anymore so he is not paying any of the advisor fees. He will still pay a front end load but that doesn't seem to phase him as much. Plus portfolio advisor takes into account the expense ratio with each fund.

I am wondering if it is worth it to push since he has still gotten away from EJ and saved himself around a 1.2% advisor fee

Jack FFR1846
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Re: 3 fund vs EJ

Post by Jack FFR1846 » Fri Sep 14, 2018 12:03 pm

Past performance is no guarantee of future returns.

High indicated fees are a guarantee of high indicated fees.
Bogle: Smart Beta is stupid

Flyer24
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Re: 3 fund vs EJ

Post by Flyer24 » Fri Sep 14, 2018 12:12 pm

I stay out of my parents’ investments.

mhalley
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Re: 3 fund vs EJ

Post by mhalley » Fri Sep 14, 2018 12:14 pm

Abndx and amusx have underperformed total bond, so he could start there.

NotWhoYouThink
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Re: 3 fund vs EJ

Post by NotWhoYouThink » Fri Sep 14, 2018 12:27 pm

First, it helps if you put the name of the fund and not just the ticker symbols, which most of us have not memorized. Also if you indicate what kind of asset allocation or tilts are in the current portfolio.

How long has he been with EJ? Did he put $100,000 in the portfolio in 2001 and nothing since? If not, what does that metric have to do with anything?

EJ is great at putting clients in things that have done well in the past, which they determine from checking past performance on the internet just like anyone can do. Then they can put together color glossy booklets telling you how well you would have done if you had gone with this portfolio at some date that makes that particular portfolio look like a knock-out. But they aren't any better at predicting future performance than Jim Cramer, Dave Ramsey, Jack Bogle, or Tiger Woods. They don't know, you don't know, nobody knows. But we do know the fees with the funds they use.

So. Either he believes that he can pick an asset allocation that is reasonable for him, stick with it in good times and bad, and be happy paying low fees, or he believes smart people at EJ and the actively managed fund companies can make better choices than he would, and those better choices are worth paying for. It's his money, he gets to decide.
Last edited by NotWhoYouThink on Fri Sep 14, 2018 2:01 pm, edited 1 time in total.

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cheese_breath
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Re: 3 fund vs EJ

Post by cheese_breath » Fri Sep 14, 2018 12:28 pm

Mr400meterdash wrote:
Fri Sep 14, 2018 12:02 pm
Alexa9 wrote:
Fri Sep 14, 2018 11:58 am
Find out the front end loads and fees EJ is charging. They're not very transparent.

http://kronstantinople.blogspot.com/p/e ... -saga.html
Well he is not with EJ anymore so he is not paying any of the advisor fees. He will still pay a front end load but that doesn't seem to phase him as much....
Tell him his portfolio visualizer shouldn't start with $100,000 for EJ. The starting number is $100,000 minus the loads. And then have him compare the results to his original EJ number. That's what the loads cost him.
The surest way to know the future is when it becomes the past.

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whodidntante
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Re: 3 fund vs EJ

Post by whodidntante » Fri Sep 14, 2018 12:44 pm

You wouldn't be able to convince me to buy a three fund portfolio either.

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BL
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Re: 3 fund vs EJ

Post by BL » Fri Sep 14, 2018 12:52 pm

A compromise might be to keep the funds he has now at V and try your suggestion with new purchases.

mortfree
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Re: 3 fund vs EJ

Post by mortfree » Fri Sep 14, 2018 1:30 pm

Mr400meterdash wrote:
Fri Sep 14, 2018 11:55 am

Any help as to show him why three funds are better?
I don't think you are using the term better correctly.

better as in higher returns?

better as in simplicity?

better as in less risk/volatility, perhaps?

better as in Expense Ratio?

the three-fund is simple.

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Alexa9
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Re: 3 fund vs EJ

Post by Alexa9 » Fri Sep 14, 2018 2:14 pm

You can cherry pick funds that beat the 3 fund. The majority do not do it over the long term. I'd be interested to see a statistic but I would guess close to 90% underperform since the 70's (including the ones that get closed). Same idea for picking stocks.

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vineviz
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Re: 3 fund vs EJ

Post by vineviz » Fri Sep 14, 2018 2:32 pm

Mr400meterdash wrote:
Fri Sep 14, 2018 11:55 am
I showed him portfolio visualizer and he put in those funds and the three fund and it showed that he would have a lot more if he stuck with the EJ funds at Vanguard.
Most likely he was specifically sold those funds on their superior PAST returns to begin with.

The relevant question is "how have they performed, relative to a low-cost index portfolio, SINCE HE BOUGHT THEM?"

Because your dad's portfolio has a VERY heavy growth tilt, any sort of untitled portfolio will have a hard time looking good in the rear view mirror during a period in which growth has performed exceptionally well.

But compare the past 10 years to an index portfolio with a similar growth tilt:

VASGX Vanguard LifeStrategy Growth Inv 50.00%
VIGRX Vanguard Growth Index Investor 40.00%
VFISX Vanguard Short-Term Treasury Inv 10.00%

https://www.portfoliovisualizer.com/bac ... ion11_2=10

You'll see that the American Funds are fine, but nothing special.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

aristotelian
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Re: 3 fund vs EJ

Post by aristotelian » Fri Sep 14, 2018 2:37 pm

Nobody can predict future returns. He may be right that his funds will overperform. Then again, they might not. There are two known disadvantages despite the past returns. 1) They charge higher fees that will drag on future returns. 2) He is taking risk of underperforming the market. I would go with the known advantages of lower cost and diversification over the possibility of beating the market.

pkcrafter
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Re: 3 fund vs EJ

Post by pkcrafter » Fri Sep 14, 2018 2:56 pm

cheese_breath wrote:
Fri Sep 14, 2018 12:28 pm
Mr400meterdash wrote:
Fri Sep 14, 2018 12:02 pm
Alexa9 wrote:
Fri Sep 14, 2018 11:58 am
Find out the front end loads and fees EJ is charging. They're not very transparent.

http://kronstantinople.blogspot.com/p/e ... -saga.html
Well he is not with EJ anymore so he is not paying any of the advisor fees. He will still pay a front end load but that doesn't seem to phase him as much....
Tell him his portfolio visualizer shouldn't start with $100,000 for EJ. The starting number is $100,000 minus the loads. And then have him compare the results to his original EJ number. That's what the loads cost him.
This is correct. Commissions are extracted and the remainder is invested, but it's done in such a way that the client never realizes it. In addition to the loads there are EJ fees, which the client never sees as well. Note that if clients did see these fees, places like EJ would have a lot fewer clients.



Paul
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bloom2708
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Re: 3 fund vs EJ

Post by bloom2708 » Fri Sep 14, 2018 4:31 pm

Add the expense ratios and 12b-1 fees for each fund along with the fund names. (Edit button/pencil icon)

Is this a taxable brokerage account or a Traditional IRA/Roth IRA.

Is this everything or are their other parts to the portfolio?
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michaeljc70
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Re: 3 fund vs EJ

Post by michaeljc70 » Fri Sep 14, 2018 4:37 pm

Flyer24 wrote:
Fri Sep 14, 2018 12:12 pm
I stay out of my parents’ investments.
My Father is at T Rowe Price. He has his money in umpteen funds (Tech, Healthcare, Consumer Staples, Energy, Industrials, etc.) saying he is spreading his risk around. In the end, he probably has just about every sector fund (I think he has 14 funds total) and it is equal to the TSM (he also has some FI funds). I told him as much, but having 14 funds makes him feel his investments are more diversified. :shock: I won't mention it again to him.

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