Looking for advice

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FXL
Posts: 7
Joined: Sun Mar 04, 2007 7:44 pm
Location: Chicago

Looking for advice

Post by FXL »

After many years I left an advisor and firm that uses Factor Investing. I left because expenses were increasing, the investing model was becoming complicated, and I sensed complacency on their part. I am retired and near 80 and I am looking for a safe and simpler investment approach.
I am aware of the Bogleheads philosophy and have listened to videos at Bogleheads University. Also I have read other educational material available at this site.
I am considering an advisor at a large brokerage company. They believe in Market Capitalization Investing. I find I have large embedded capital gains in legacy small and value funds.Transitioning would incur significant taxes. They suggest that taxes can be mitigated by using a product they call SMA Sleeves.
Would any forum readers have a similar situation and have any insights or suggestions regarding a methodology to effectively develop a safe and simpler investment plan? Is it necessary to invest by totally adopting one or the other philosophies? Thank you.
mikejuss
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Joined: Tue Jun 23, 2020 1:36 pm

Re: Looking for advice

Post by mikejuss »

You left one adviser, and you're now looking to work with another one, OP. Why? What does your portfolio look like?
50% VTSAX | 25% VTIAX | 25% VBTLX (retirement), 25% VTEAX (taxable)
goblue100
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Re: Looking for advice

Post by goblue100 »

I searched SMA sleeve and found this at Fidelity:
What is a Separately Managed Account (SMA) sleeve?
An SMA sleeve is a portfolio of individual stocks held within an eligible taxable Portfolio Advisory Services account. You can own one or more
stock SMA sleeves within your Portfolio Advisory Services account instead of a stock mutual fund or stock ETF. Investing in SMA sleeves allows for:
§ Direct ownership of stocks, which gives you the ability to personalize your holdings.
§ Increased potential for tax-loss harvesting1 opportunities, which can be a good way to offset capital gains.
§ If you fund your account with stocks you currently own, it may be possible to build around those holdings, which could reduce the tax
impact of building your portfolio.
https://www.fidelity.com/bin-public/060 ... tarter.pdf

Not something I'm familiar with. I agree with the previous poster, I'd be looking to cut the advisor cord. Maybe go with Fidelity or Vanguard PAS to keep expenses low?
"Confusion has its cost" - Crosby, Stills and Nash
mikejuss
Posts: 3084
Joined: Tue Jun 23, 2020 1:36 pm

Re: Looking for advice

Post by mikejuss »

goblue100 wrote: Mon Jun 10, 2024 8:17 am I searched SMA sleeve and found this at Fidelity:
What is a Separately Managed Account (SMA) sleeve?
An SMA sleeve is a portfolio of individual stocks held within an eligible taxable Portfolio Advisory Services account. You can own one or more
stock SMA sleeves within your Portfolio Advisory Services account instead of a stock mutual fund or stock ETF. Investing in SMA sleeves allows for:
§ Direct ownership of stocks, which gives you the ability to personalize your holdings.
§ Increased potential for tax-loss harvesting1 opportunities, which can be a good way to offset capital gains.
§ If you fund your account with stocks you currently own, it may be possible to build around those holdings, which could reduce the tax
impact of building your portfolio.
https://www.fidelity.com/bin-public/060 ... tarter.pdf

Not something I'm familiar with. I agree with the previous poster, I'd be looking to cut the advisor cord. Maybe go with Fidelity or Vanguard PAS to keep expenses low?
Taxes within a brokerage account are not really an issue unless you're regularly buying and selling stocks; of course, Bogleheads are buy-and-hold investors.
50% VTSAX | 25% VTIAX | 25% VBTLX (retirement), 25% VTEAX (taxable)
Colorado Guy
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Re: Looking for advice

Post by Colorado Guy »

Being ignorant regarding this idea, I do see that the definition of Separately Managed Account (SMA) sleeve includes the word "Managed". You may want to check what their management fees are.

Per https://smartasset.com/investing/separa ... ed-account,
"SMAs are also a bit more work since investors are privy to each individual trade. So if you’re an investor who prefers simplicity and a set-it-and-forget-it approach (other than periodic portfolio rebalancing and meetings with your financial advisor, of course), then a SMA may not be for you."
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WoodSpinner
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Re: Looking for advice

Post by WoodSpinner »

OP,

Please consider the added complications a portfolio using an SMA approach will bring!!

At some point, you will be unlikely to Tax Loss Harvest and be left with a very complex portfolio that is much harder to manage.

WoodSpinner
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mhadden1
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Location: North Alabama

Re: Looking for advice

Post by mhadden1 »

OP, I think you could benefit from a full portfolio review, by posting your financial details in the format shown in the BH wiki, https://www.bogleheads.org/wiki/Asking_ ... _questions.

I rather doubt that the price you are paying for your financial advice is worth it. If you post your details, others will chime in and agree or disagree.

It's likely not necessary to transform your holdings to honor full Boglehead principles in order to improve your situation.
Retired 12/31/2015, age 58 years 77 days (but who's counting?)
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ruralavalon
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Location: Illinois

Re: Looking for advice

Post by ruralavalon »

Welcome to the forum :D .

FXL wrote: Mon Jun 10, 2024 8:00 am After many years I left an advisor and firm that uses Factor Investing. I left because expenses were increasing, the investing model was becoming complicated, and I sensed complacency on their part. I am retired and near 80 and I am looking for a safe and simpler investment approach. [emphasis added]
I am aware of the Bogleheads philosophy and have listened to videos at Bogleheads University. Also I have read other educational material available at this site.
I am considering an advisor at a large brokerage company. They believe in Market Capitalization Investing. I find I have large embedded capital gains [emphasis added] in legacy small and value funds.Transitioning would incur significant taxes. They suggest that taxes can be mitigated by using a product they call SMA Sleeves.
Would any forum readers have a similar situation and have any insights or suggestions regarding a methodology to effectively develop a safe and simpler investment plan? Is it necessary to invest by totally adopting one or the other philosophies? Thank you.
I am not familiar with "SMA Sleeves" .

mhadden1 wrote: Mon Jun 10, 2024 9:25 am OP, I think you could benefit from a full portfolio review, by posting your financial details in the format shown in the BH wiki, https://www.bogleheads.org/wiki/Asking_ ... _questions.

I rather doubt that the price you are paying for your financial advice is worth it. If you post your details, others will chime in and agree or disagree.

It's likely not necessary to transform your holdings to honor full Boglehead principles in order to improve your situation.
I agree, it's best if you post your financial details using the Asking Asking Portfolio Questions format. Please also include the UNrealized capital gain/loss status and amount for each investment held in a taxable brokerage account. That may enable is to give ideas on transitioning to a "safe and simpler investment approach" while minimizing using the tax cost of the transition.

You can simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
jimkinny
Posts: 1869
Joined: Sun Mar 14, 2010 1:51 pm

Re: Looking for advice

Post by jimkinny »

I would just call Vanguard and talk to them, maybe someone in their personal advisor service (PAS). Talk to them about taxes and see what they have to say. They may be able to transfer those funds with large capital gains but maybe not. You could sign up for the PAS and discontinue the service anytime you wanted.

If Vanguard can not transfer the funds, could you keep the funds with a large capital gain at your current broker? I see people suggest a charitable donation for these situations also. Our heirs get a tax break in that the cost basis for our heirs is the value when we die, not when we bought.

I think that sleeve stuff is just a way to extract fees.
Topic Author
FXL
Posts: 7
Joined: Sun Mar 04, 2007 7:44 pm
Location: Chicago

Re: Looking for advice

Post by FXL »

I am appreciative to all who have offered insight and suggestions. Regarding posting the extent of the long term capital gains, I will look into that. Regarding the SMA Sleeves, I did not seek them out but was told it was the best way to minimize taxes. I agree with the comments that it may not be as good choice for me as it is for them. It certainly doesn't"t strike me as simple. Regarding the value or need for an advisor, I am not a skilled investor and certainly I am concerned about my ability to unravel the funds I have been put in over the years.
A few additional Bogleheads' sites were mentioned and I will look into them. Thank you all again.
exodusing
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Re: Looking for advice

Post by exodusing »

It sounds like they will buy a bunch of individual stocks to make your overall portfolio closer to a total market portfolio. This would require either new money or some sales. An advantage of individual stocks is that it can present the opportunity to tax loss harvest and use the loss to offset gains of sales of your small value holdings (the market as a whole may go up, but some stock may go down while others go up). Whether there's the chance to do enough of this to be worthwhile is unclear at best. The disadvantage are fees, complexity and being locked into their system.

You may be better of just buying either a large growth index or an S&P index to balance your current holdings. The question is how to finance the purchase. New money might be a source, if applicable. Sales of some of your holdings at a loss or at least a small gain might help. Dividends from your holdings is a possibility, but that can be slow, especially given your age. It's a question of numbers. Donating to charity can be a way to use some of your holdings with the highest embedded gain.

Posting more information on your holdings and basis would provide information that may allow for more focused advice.
Topic Author
FXL
Posts: 7
Joined: Sun Mar 04, 2007 7:44 pm
Location: Chicago

Re: Looking for advice

Post by FXL »

Today I met with our accountant and included a discussion about an advisor. Since I no longer have one he expressed an opinion that echos what has been said here. He felt it was an unnecessary expense. I feel capable of creating a passive investment plan and he would help recommend a tax efficient way to create that plan. He would charge only for his time.
I do have a good number of DFA funds. I believe I can keep what I have and if I wish sell shares but could not buy any new DFA funds or add to what I have because I no longer have an advisor. Does anyone know if this is accurate?
Outer Marker
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Re: Looking for advice

Post by Outer Marker »

The classic Boglehead portfolio is Taylor's 3-fund model. This is well worth a read as you consider your new portolio. viewtopic.php?t=88005

I managned a very complicated multi-factor portfolio for decades -- and all the extra effort produced a small disbenefit. I am now consolidated into a 3-funder with Berkshire Hathaway as a small outlying position.

Once it is set up, you probably don't need help to manage it, but a capable accountant could help you unwind your complicated positions while minimizing tax consequences.
backpacker61
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Re: Looking for advice

Post by backpacker61 »

FXL wrote: Tue Jun 11, 2024 4:05 pm I do have a good number of DFA funds. I believe I can keep what I have and if I wish sell shares but could not buy any new DFA funds or add to what I have because I no longer have an advisor. Does anyone know if this is accurate?
There is an old thread that suggests that you can hold DFA funds in Vanguard Brokerage (but not buy more). Not sure if it's current, though. You should contact the concierge service at Vanguard to find out if that is still current.

viewtopic.php?t=51870
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