Help my broker is trying to freak me out

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Sandtrap
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Re: Help my broker is trying to freak me out

Post by Sandtrap » Wed May 15, 2019 7:23 pm

Step 1 and 2 to "ripping that bandaid off".
. . .
GETTING STARTED
https://www.bogleheads.org/wiki/Getting_started

Asking Portfolio Questions
https://www.bogleheads.org/forum/viewt ... =1&t=6212

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dogagility
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Re: Help my broker is trying to freak me out

Post by dogagility » Wed May 15, 2019 8:02 pm

Almond wrote:
Wed May 15, 2019 7:20 pm
My partner wants to know when I got my series seven license, and is still skeptical about doing it ourselves.
You can absolutely do this. Read the links given by Sandtrap, and have your partner read this thread.
Taking "risk" since 1995.

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celia
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Re: Help my broker is trying to freak me out

Post by celia » Thu May 16, 2019 4:21 am

Almond wrote:
Wed May 15, 2019 3:43 pm
... If so why do most people not mange their own funds. Which is the question my partner keeps asking and I don’t know how to answer
Most people don’t have the confidence to manage it themselves. They look at the portfolio a broker set up for them and it looks very confusing to them. Well, it IS CONFUSING because the broker made it that way to look too complex for the account owner to understand it. Most brokers buy way too many different assets when an index fund could do the same thing (and for less cost).

Keep in mind that no-one cares about your money as much as you do. So who better to manage it than you?

It is also recommended that you do your own income taxes. They, too, look hard for a novice to understand, but they aren’t once you understand the different sections (incomes, deductions, credits, tax withholdings). After you do your taxes a couple of times, you can go through the whole year and know what expenses impact your taxes. Maybe you’ll buy a house. Wait, how do mortgage payments impact the taxes? I need to go see a doctor. Wait, how do medical payments impact my taxes? Look, I got a raise! How does that impact my taxes?

My point here is that by understanding your own tax situation, you can become a better financial manager of your assets.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

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Wiggums
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Re: Help my broker is trying to freak me out

Post by Wiggums » Thu May 16, 2019 4:56 am

celia wrote:
Thu May 16, 2019 4:21 am
My point here is that by understanding your own tax situation, you can become a better financial manager of your assets.
+1

This is very true and I wish I had taken the time to learn earlier.

-ryan-
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Re: Help my broker is trying to freak me out

Post by -ryan- » Thu May 16, 2019 8:30 am

At the end of the day, investing effectively is actually an easy activity. Making the big decisions can be a little more difficult (aka: how much do I need to save/invest, what asset allocation will make me comfortable and allow me to reach my goals, etc. etc.) but I still believe the vast majority of people are more than capable of making these decisions without paid help.

While working as a licensed rep I was told, in so many words, that we wouldn't use index funds because clients are generally aware that they can invest in them without our help. We also tended to build portfolios that looked complex or had a complex sounding strategy, and that was at least partly related to giving the illusion that we were earning our 1.00-1.50% take. At one point I believed the rationale behind the portfolios we were creating, but costs do matter, and between fund costs, trading costs and our direct cost, the average person was paying 2.00-3.50% per year on their investments for something that (due to the number of funds involved) acted a lot like an index fund but with much lower compound returns (due to the aforementioned costs).

It was an interesting experience though, and strengthened my resolve that indexing is generally the way to go. We do own a Primecap fund though, and generally I do believe they have done a great job for an active fund, both in terms of reasonable costs and relative performance.

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ruralavalon
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Re: Help my broker is trying to freak me out

Post by ruralavalon » Thu May 16, 2019 10:32 am

Almond wrote:
Wed May 15, 2019 3:38 pm
ruralavalon wrote:
Wed May 15, 2019 11:34 am
Almond wrote:
Wed May 15, 2019 11:15 am
Katietsu wrote:
Sat May 11, 2019 4:33 pm
Please pay attention to the post that pointed out that if you sell non-US stocks and invest the proceeds in VTI, you may be selling low and buying high. At minimum, you will be making a significant change to your asset allocation and should be doing so consciously.

You do not need to continue paying management fees even if you decide not to sell everything right away. You are invested in what appear to be pretty main stream funds. It is quite possible that you can transfer them to a discount brokerage without selling first. You would need to check on each fund.

And I would continue to do more reading and learning.
I think you are going in the right direction. But I think you need a bit more knowledge to take this to the next step.

Thank you for this. I plan to sell international funds, did not list them here, into international such as VUSTX, and us funds into voo or similar. I agree about not selling all at once but some funds have fees close to or at 1% which will hurt over time.

My other concern is % in fixed income. It is almost 50% and I want 70/30. If I sell those at a loss it does offset some gains but will be getting into something like VOO at higher level. So not sure what to do.
I suggest making an overall plan for all accounts first, before buying or selling anything in the taxable account.

Vanguard 500 ETF (VOO) is a reasonable choice for Investing in U.S. stocks. But I suggest instead Vanguard Total Stock Market ETF (VTI) because a little more diversified with the same very low expense ratio.

Turn off any automatic reinvestment of dividends or gains that may have been set up in the taxable account. There is no sense in buying more of anything you might sell soon.

Then you can sell any fund with an unrealized capital loss, and that will offset some of the unrealized capital gains if you sell a funds with gains.

It might help if you simply listed each fund currently in the taxable account (giving fund name, ticker symbol, and expense ratio), along with the amount invested, and the unrealized capital gain/loss status and amount for each investment.

In selling concentrate on high expense and less diversified funds.

There may be some funds in the taxable account worth keeping, such as PrimeCap Odyssey Stock Fund (POSKX) or Dodge & Cox International Stock Fund (DODFX).
I have about $14, 000 in unrealized gains if I sold everything. I think most of that is long term but hard to get a straight answer.

For US stocks I have unrealized gains as follows

T. Rowe Price Blue Chip Growth I TBCIX $3,300 the fee is .57
PRIMECAP Odyssey Stock POSKX $5,214. Fee is .66
CIPX $1,600. Fee is .90
Bridgeway Blue Chip 35 Index BRLIX $2,440 fee is .15
Dodge & Cox Stock Fund DODGX $260 fee .52
total = $12,814 unrealized gains

The rest are at a loss
REIPX -$328 fee .54.
APMRX -$1,205 fee1.05. This is not a US stock fund but I am not sure why I even have it?
APDQX - $582. Fee 1.05
NOSGX -$18 fee 1.00
TORIX -$72 loss fee .96
total = $2,205 loss

I just realized they sold some fund s this year for a total loss of $1,800 in addition to loss listed so I have about $4000. What would you suggest.

In international my biggest gain is
PRIZX $1,500 fee 1.07
OIGIX $800 fee 1.11
total = $2,300 unrealized gains

I have about $700 in losses in other international funds to offset this.
What is your federal tax bracket?

What are the fund names? What is CIPX?

What are the "other international funds"?

What other accounts and investments do you have? Please see "Asking Portfolio Questions".

Please just amend your post using the edit button (the pencil icon near the upper right corner of your post).
Last edited by ruralavalon on Thu May 16, 2019 11:13 am, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

atdharris
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Re: Help my broker is trying to freak me out

Post by atdharris » Thu May 16, 2019 10:58 am

Your broker wants to scare you because he wants to keep you as a client. Depending on his pay structure, he may make a cut off your account. I remember when I cashed out my whole life insurance policy for about $80,000 years ago. My family set me up to talk to our trust account manager about my options. They were pushing an annuity on me, claiming if I did that, I would save on the $10k tax bill I faced on the gains, which was true.

I asked them to send me information on the annuity. Then I looked at the fees - 1.85% management fee, 4.25% transaction fee on fund purchases and sales, and the funds themselves were 1.5% fees minimum. Despite paying the $10k in taxes, I would still come out way ahead if I just took the money and invested it myself. I did that and have no regrets.

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Darth Xanadu
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Re: Help my broker is trying to freak me out

Post by Darth Xanadu » Thu May 16, 2019 11:08 am

Almond wrote:
Wed May 15, 2019 3:38 pm

I have about $14, 000 in unrealized gains if I sold everything. I think most of that is long term but hard to get a straight answer.
This alone would make me want to jump ship. Inexcusable that they can't give you this information in a matter of seconds.
"A courageous teacher, failure is."

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onthecusp
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Re: Help my broker is trying to freak me out

Post by onthecusp » Thu May 16, 2019 11:02 pm

Almond wrote:
Wed May 15, 2019 7:20 pm
jibantik wrote:
Wed May 15, 2019 6:45 pm
Almond wrote:
Wed May 15, 2019 5:51 pm
thank you everyone this has been really helpful. Thinking of moving to Merrill Edge. Need to check what I can move in kind. It is hard to believe paying 1% fee on $600k cost about $150k it seems so high and the fact it might be true is so shocking to me I can’t believe anyone would use a broker.
Almond, you may find this chart interesting (or shocking :D). You are taking 100% of the risk, putting up 100% of the capital, and your advisor wants to take 1/3rd of your retirement?? :annoyed

Image

(taken from here)

Wow seeing it like that is just shocking. Do most people just have no idea how much the pair broker is costing them? My partner wants to know when I got my series seven license, and is still skeptical about doing it ourselves. I don’t think managed funds have outdone the three portfolio mix.
Just piling on, but another way to look at a 1% fee comes a little later when you start exploring the concept of 'safe withdrawal rates' in retirement. A rate of 4% is a common selection, sometimes lower, rarely higher. Though we hope and expect better returns in good times a low withdrawal rate gets us safely through down markets for the long run. So after you quit putting money in, the broker will continue to want 1% when you are taking out 4%, so you get to spend only 75 cents out of every dollar you withdraw from your investments. It's the gift you keep on giving to the broker.

retiredjg
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Re: Help my broker is trying to freak me out

Post by retiredjg » Fri May 17, 2019 5:46 am

onthecusp wrote:
Thu May 16, 2019 11:02 pm
So after you quit putting money in, the broker will continue to want 1% when you are taking out 4%, so you get to spend only 75 cents out of every dollar you withdraw from your investments. It's the gift you keep on giving to the broker.
I too find this to be an effective example to use. But you actually have less than 75 cents to spend because your taxes are included in that 4% as well.

barnaclebob
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Re: Help my broker is trying to freak me out

Post by barnaclebob » Fri May 17, 2019 8:50 am

Don't trust anyone who uses fear to make money from you.

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onthecusp
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Re: Help my broker is trying to freak me out

Post by onthecusp » Fri May 17, 2019 9:10 am

retiredjg wrote:
Fri May 17, 2019 5:46 am
onthecusp wrote:
Thu May 16, 2019 11:02 pm
So after you quit putting money in, the broker will continue to want 1% when you are taking out 4%, so you get to spend only 75 cents out of every dollar you withdraw from your investments. It's the gift you keep on giving to the broker.
I too find this to be an effective example to use. But you actually have less than 75 cents to spend because your taxes are included in that 4% as well.
More precisely the taxes don't come from the 1% they take, taxes come out of the 3% left over for the "customer" aka "mark".

pkcrafter
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Re: Help my broker is trying to freak me out

Post by pkcrafter » Fri May 17, 2019 10:20 am

Almond, the mechanics of investing are not difficult, the emotional aspects are what cause the difficulty. You are seeing the light; your partner isn't even looking. Every investor is ultimately responsible for his/her own money, so it's far better to know some simple fundamentals than to pass this responsibility to someone else who makes a living from your money.

You have been given good information and useful links, and here's a few more: the S&P Index Versus Active (SPIVA) report. Look at page 9 and below. You will find that about 90% of active funds underperform their related index benchmark over time, and that's without advisory fees.

https://www.spglobal.com/_assets/docume ... h-2019.pdf

The three fund portfolio

viewtopic.php?f=10&t=88005

What you need to do--

Help your partner understand the basics - Use this forum and the Bogleheads' Wiki
Bogleheads' pilosophy

https://www.bogleheads.org/wiki/Boglehe ... philosophy

create a plan, write it down (investment policy statement- Wiki)

implement

Stay the course

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.

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ruralavalon
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Re: Help my broker is trying to freak me out

Post by ruralavalon » Fri May 17, 2019 10:32 am

Almond wrote:
Wed May 15, 2019 7:20 pm
Wow seeing it like that is just shocking. Do most people just have no idea how much the pair broker is costing them? My partner wants to know when I got my series seven license, and is still skeptical about doing it ourselves. I don’t think managed funds have outdone the three portfolio mix.
Suggest that your partner read this very short free pdf book: William Bernstein, "If you Can".
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Michael Patrick
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Re: Help my broker is trying to freak me out

Post by Michael Patrick » Fri May 17, 2019 10:45 am

Almond wrote:
Wed May 15, 2019 3:43 pm
Also I just did a calculation using nerd wallet if I leave $600k at 1% AUM fee, not including fund fees, over 15 years the total cost is $208k. WOW is that correct. If so why do most people not mange their own funds. Which is the question my partner keeps asking and I don’t know how to answer
They are very effective at selling their services. If you watch any TV at all, you'll see commercials with images of brokers working nights and weekends on how to maximize income while the clients go play with elephants or some such. Everyone looks so happy, and it's all so reassuring.

zachslow
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Re: Help my broker is trying to freak me out

Post by zachslow » Fri May 17, 2019 11:45 am

Almond wrote:
Sat May 11, 2019 4:04 pm
Thank you everyone for the great advice. I felt I had read and learned a lot about the three fund portfolio but once I was talking with broker I got nervous and him saying such things as — obviously you can do as you want but not the first time I have see clients dump their well managed portfolio only for their new approach to tank etc etc. Yeah, he was freaking me out and It is a joint portfolio so made me even more concerned.

It is a taxable account so will have to pay CG, but agree with the strategy to hold onto any funds with a low fee for now so as to minimize CG. Alternatively I could wait for a market down turn, but that might be a while and in the meantime I am paying fund fees and management fees.

appreciate all the advice and confirmation that I am on the right path.
Hey there. I'm late to the party, but I went through this exact same thing two weeks ago.You can read about the exchange here.
viewtopic.php?f=1&t=280549

It's been really easy to get everything figured out once leaving my broker. Best of luck to you,

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jakehefty17
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Re: Help my broker is trying to freak me out

Post by jakehefty17 » Fri May 17, 2019 2:02 pm

Almond wrote:
Wed May 15, 2019 3:43 pm
Also I just did a calculation using nerd wallet if I leave $600k at 1% AUM fee, not including fund fees, over 15 years the total cost is $208k. WOW is that correct. If so why do most people not mange their own funds. Which is the question my partner keeps asking and I don’t know how to answer
FUD. Fear, uncertainty, and doubt.

Salespeople will try to convince you that it's too difficult to do yourself. They will take advantage of human weakness.

"I do this and the portfolio blows up they will probably think I am to blame" - Fear
"I would be getting in at the top of the market, that I wouldn't be fully diversified" - Uncertainty
"...is he right? Am I mad to rip the band aid off?" - Doubt

Some people want their hand held when they cross the road. Others choose to do it themselves. To alleviate FUD, you need to educate yourself.

I'll leave some links from the wiki that helped me get started.
https://www.bogleheads.org/wiki/Boglehe ... philosophy
https://www.bogleheads.org/wiki/Risk_tolerance
https://www.bogleheads.org/wiki/Asset_allocation
https://www.bogleheads.org/wiki/Priorit ... nvestments
https://www.bogleheads.org/wiki/Tax-eff ... _placement
https://www.bogleheads.org/wiki/Asset_a ... e_accounts

Suggested readings will help you understand why index funds make sense. Some also overview savings rates/budgeting techniques/risk tolerance.
I'm partial to "The Only Investment Guide You'll Ever Need" - Andrew Tobias and "The Little Book of Common Sense Investing" - John Bogle.
https://www.bogleheads.org/wiki/Books:_ ... t-up_Books

Share the basics with your partner when you understand it well enough yourself. Be sure-footed in the road ahead and stay the course.
"The problem with the world is that the intelligent people are full of doubts, while the stupid ones are full of confidence." -Charles Bukowski

ImUrHuckleberry
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Re: Help my broker is trying to freak me out

Post by ImUrHuckleberry » Fri May 17, 2019 5:07 pm

Do most people actually pay somebody to manage their finances? Nearly everyone I know rolls their own. It would surprise me if most people pay somebody.

dbr
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Re: Help my broker is trying to freak me out

Post by dbr » Fri May 17, 2019 5:34 pm

ImUrHuckleberry wrote:
Fri May 17, 2019 5:07 pm
Do most people actually pay somebody to manage their finances? Nearly everyone I know rolls their own. It would surprise me if most people pay somebody.
I know lots of people who mention "my/our financial advisor." I just lays low and says nuthin.

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BolderBoy
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Re: Help my broker is trying to freak me out

Post by BolderBoy » Sat May 18, 2019 10:13 am

Watty wrote:
Sat May 11, 2019 9:56 am
A broker needs to make things seem complex and scary to justify their costs. If you decide to invest in index funds you will not need your broker.
+1. This is a fundamental investing truth.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

Sandi_k
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Re: Help my broker is trying to freak me out

Post by Sandi_k » Sat May 18, 2019 11:25 am

Almond wrote:
Wed May 15, 2019 7:20 pm

Wow seeing it like that is just shocking. Do most people just have no idea how much the pair broker is costing them? My partner wants to know when I got my series seven license, and is still skeptical about doing it ourselves. I don’t think managed funds have outdone the three portfolio mix.
I second the recommendation for Bernstein's If You Can article for your partner. If she won't read that (~14 pages, IIRC), then show her this (John Oliver's epic rant on investment advisors):

https://www.youtube.com/watch?v=gvZSpET11ZY

inbox788
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Re: Help my broker is trying to freak me out

Post by inbox788 » Tue May 21, 2019 8:03 pm

Almond wrote:
Sat May 11, 2019 9:22 am
... I was making a grave mistake...

I looked at his portfolio vs VTI over the past few years and I think his did better by a few thousand.
I believe you may be mistaken. Your "grave mistake" might be believing this myth. Did you actually make a real comparison? I checked a few of the funds and a couple outperformed, but not by much, and most others underperformed. Since we don't know your weighing or timing, it's hard to make a true comparison.

What was your portfolio size? If you simply had $50,000 invested in VTI 5 years ago, you'd be looking at about $20,000 in capital gains plus about another 5,000 in dividends. If you had an average of over $30,000 invested in this timeframe, you likely would have done as well if not better yourself.

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Misenplace
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Re: Help my broker is trying to freak me out

Post by Misenplace » Tue May 21, 2019 8:40 pm

Almond wrote:
Wed May 15, 2019 5:51 pm
It is hard to believe paying 1% fee on $600k cost about $150k it seems so high and the fact it might be true is so shocking to me I can’t believe anyone would use a broker.
Yeah, it is hard to believe. But most folks get that deer in the headlights look when you try to explain it to them. One is really better off in a target date fund using index funds than using a broker. Once you do the arithmetic, you realize that there really is no alpha to these brokers/advisors/salespeople, and at best you will lose their management fee, and at worst you will lose many times that fee to loads, 12b-1 fees, and churn. Let me tell you, I see a lot of that doing taxes for the elderly for TaxAide.

The one advantage of brokers/so-called advisors is that they encourage you to save and invest. They do that because they can earn more fees from your savings/investments. However, some folks need someone pushing them to save, so I guess that is a good thing.

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bertilak
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Re: Help my broker is trying to freak me out

Post by bertilak » Wed May 22, 2019 10:26 am

goodenyou wrote:
Sat May 11, 2019 10:20 am
I will bet that your performance after ALL fees and taxes will be inferior to VTI.
Early on, my father's investments were at Merrill Lynch. He was comfortable with ML after decades of investing with them, specifically his advisor, and that advisor's father before him!

BUT ... ML was expensive. They put my father into heavily loaded, high expense ratio, funds. ML reporting sidestepped fees and loads. For example, they reported great returns on a fund but when I looked carefully I saw that the current value of my father's holding in this great-performing fund was below what it cost three years in the past! It had a ways to go before it would break even! That did not take into account the 1.25% AUM fee!

MY POINT: Take what your broker tells you with a grain of salt!

P.S. eventually, after my father switched his allegiance from ML to me -- he stopped caring about ML statements :), I got him out of ML and over to Vanguard.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker, the Cowboy Poet

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