Finally fired my Financial adviser.

[obkenobi]

I'm completely new here, but I finally fired my percentage based financial adviser. I'm in good shape financially, mainly because I've won some insurance bets that NO ONE wants to 'win', and I'm pretty frugal overall. I've read several books about financial planning, and feel like I have the general gist, so hopefully I can avoid huge mistakes (like the one in which I hired this adviser 20 years ago, ouch).

I have what I think is probably a stupid question, but here it is: I see that my adviser has me largely invested in ETFs with expense ratios that I could probably beat by reinvesting in similar products from vanguard (and others). Obviously though, if I sell these funds and reinvest, I'm going to incur gains and taxes galore. I'm only 59 yo now though. Is it worth it to start this process ? I'm usually in the 22-24% tax bracket. Or should I wait until I have some losses and just convert them, as (and if ) they occur?

I think the devil may be more in the details, but figure I'll post this question here in case it's a more obvious answer. I did try to search the forums for an answer but it's hard to figure out what terms to use for this question. Thank you in advance!!

[retired@50]

I'm completely new here, but I finally fired my percentage based financial adviser. I'm in good shape financially, mainly because I've won some insurance bets that NO ONE wants to 'win', and I'm pretty frugal overall. I've read several books about financial planning, and feel like I have the general gist, so hopefully I can avoid huge mistakes (like the one in which I hired this adviser 20 years ago, ouch).

I have what I think is probably a stupid question, but here it is: I see that my adviser has me largely invested in ETFs with expense ratios that I could probably beat by reinvesting in similar products from vanguard (and others). Obviously though, if I sell these funds and reinvest, I'm going to incur gains and taxes galore. I'm only 59 yo now though. Is it worth it to start this process ? I'm usually in the 22-24% tax bracket. Or should I wait until I have some losses and just convert them, as (and if ) they occur?

I think the devil may be more in the details, but figure I'll post this question here in case it's a more obvious answer. I did try to search the forums for an answer but it's hard to figure out what terms to use for this question. Thank you in advance!!

Welcome to the forum.

You might benefit from reading the Boglehead wiki page on paying a tax cost to switch funds.

The higher the expense ratio, the more sense it might make. There will be some guesswork, since nobody really knows what your future tax rates will be if you wait.

Regards,

[HomeStretch]

Welcome to the forum.

You may benefit from exchanging high-ER funds for low-ER diversified funds even if you pay taxes to do so. But to determine this, more information is needed. Consider posting in the “Asking Portfolio Questions” template format here:
https://www.bogleheads.org/wiki/Asking_ ... _questions
Include the unrealized capital gain or loss for each holding in your Taxable account. Not required for Roth or tax deferred accounts because you can exchange holdings without tax consequences.

In the meantime, turn off reinvestment of dividends/capital gain distributions so you don’t buy more of the high-ER funds. If you have any tax lots with a loss/no gain, you can sell those off with no income tax liability.

Have you transferred your accounts yet to a low cost brokerage? Print your cost basis records from your current brokerage before you transfer the accounts. Be sure the cost basis information transfers properly.

[livesoft]

It is not clear what kinds of accounts you have: 401(k), IRA, Roth IRA, taxable, HSA, 403(b), others have various tax consequences from changing investments within them from zero tax consequences to substantial tax consequences.

It might be worth your while to start with a full blown:

https://www.bogleheads.org/wiki/Asking_ ... _questions

because even if you don't ever post again the work of putting it altogether for yourself will be helpful to you.

[nedsaid]

I'm completely new here, but I finally fired my percentage based financial adviser. I'm in good shape financially, mainly because I've won some insurance bets that NO ONE wants to 'win', and I'm pretty frugal overall. I've read several books about financial planning, and feel like I have the general gist, so hopefully I can avoid huge mistakes (like the one in which I hired this adviser 20 years ago, ouch).

I have what I think is probably a stupid question, but here it is: I see that my adviser has me largely invested in ETFs with expense ratios that I could probably beat by reinvesting in similar products from vanguard (and others). Obviously though, if I sell these funds and reinvest, I'm going to incur gains and taxes galore. I'm only 59 yo now though. Is it worth it to start this process ? I'm usually in the 22-24% tax bracket. Or should I wait until I have some losses and just convert them, as (and if ) they occur?

I think the devil may be more in the details, but figure I'll post this question here in case it's a more obvious answer. I did try to search the forums for an answer but it's hard to figure out what terms to use for this question. Thank you in advance!!

Sounds to me like you took time to educate yourself and that now you don't need the Advisor anymore. The Assets Under Management fee that you have been paying, whatever it was, really adds up over time. The standard AUM fee is 1% a year, it can be more than that or less than that depending upon the firm and depending upon portfolio size. So if you can do these things yourself, you will save a lot of money.

From what little you have said, sounds to me like the Advisor didn't get you into expensive investment products, the fact that ETFs were used was a good sign, another good sign is that you said that you could "probably beat" the expense ratios on the ETFs you are in with similar Vanguard products. Sounds to me that the fees were a bit higher than Vanguard and not a lot higher. I would like to see you post the portfolio that the Advisor created for you so that we can check for differences in expense ratios with similar Vanguard products and see what strategy the Advisor was trying to implement.

Hopefully you have access to the tax basis for your investments in taxable accounts. Brokerages were required to track basis starting in 2011. Seeing that you hired the Advisor twenty years ago, you might have existing investments that were purchased before then. Hopefully you have good records. If not, I would start reconstructing those records as soon as possible.

[Alex GR]

I'm completely new here, but I finally fired my percentage based financial adviser. I'm in good shape financially, mainly because I've won some insurance bets that NO ONE wants to 'win', and I'm pretty frugal overall. I've read several books about financial planning, and feel like I have the general gist, so hopefully I can avoid huge mistakes (like the one in which I hired this adviser 20 years ago, ouch).

I have what I think is probably a stupid question, but here it is: I see that my adviser has me largely invested in ETFs with expense ratios that I could probably beat by reinvesting in similar products from vanguard (and others). Obviously though, if I sell these funds and reinvest, I'm going to incur gains and taxes galore. I'm only 59 yo now though. Is it worth it to start this process ? I'm usually in the 22-24% tax bracket. Or should I wait until I have some losses and just convert them, as (and if ) they occur?

I think the devil may be more in the details, but figure I'll post this question here in case it's a more obvious answer. I did try to search the forums for an answer but it's hard to figure out what terms to use for this question. Thank you in advance!!

Hi,
It's not clear from your post if you are currently working or living off of this portfolio?
It sounds like you may have had some sort of accident so my apologies for raising the question but if I was working and investing a decent portion of my income AND the ETFs you mention have an "OK" ER(expense ratio), so not the best like VTI but not something crazy like some of these funds w/0.98% , what I would do is just keep the existing funds (to avoid taxes) and direct all savings and portfolio income to Boglehead-style funds. Then turn on reinvestment on the new funds and direct all new money to new funds.
Depending on the portfolio size and how much you're saving, the amount in your new funds could eventually exceed the amt in your old funds. I personally wouldn't sell just to get a slightly lower ER, considering taxes on the gain, since you've had them for 20 years. But everyone is different.

[rai]

Lots of unanswered questions such as (I assume you are referring to a taxable account). Meaning if it was a tax deferred account you wouldn’t need to worry about capital gains until you get distributions.

Here’s one way to look at it, we don’t know your age or when you are planning to retire but I assume you ate in your 50s since you said you had the advisor for 20 years.

But my opinion is if you do plan on spending down your taxable accounts at some point in the future, you will be paying taxes at some point so you could look at it like you are paying taxes now that you won’t need to worry about in the future. Meaning example if you have $500k in gains and you trade up and pay, in the future you may get up to another $500k in gains but if you stand pat you’d owe $1m ($500k + $500k gains). So you’d be cutting your future tax liability.

However you’d have a lower sum growing if you paid out $100k tax bill that would be $100k less growing over time.

I’m not sure what the correct answer is but if it’s unclear you could always roll into it a bit over the next 5-10 years instead of all at once. Like if you had $500k gains, every year maybe do $50-100k gains tax per year until you get there. Or only do the ETFs that are the worse offenders.

In any case the taxes might probably cancel out any savings on the ER

[obkenobi]

Hey,
Just want to thank all of you for responding. Just to satisfy a couple of the questions- I was talking about the taxable accounts, and I did transfer to schwab because I've used them for some investing I did on the side over the years. Luckily, we're not talking 'crazy' ERs, so just fractional changes. I already checked NOT to reinvest dividends so I could transfer gains that I already have to pay taxes on, to similar types of accounts with lower ERS. In the meantime, I will DEFINITELY follow that link to input my entire portfolio. I am (theoretically) living off it. I was recently in an accident and loss the full use of one of my hands and I was a surgeon.... so I can't get SS disability, (and my own disability company ... sore subject..) But I'm not planning to work.
I have a lot to learn about investing, but even more to learn about when to spend money to decrease my tax burden. It turns out, I find this all pretty fascinating. I love numbers!! The main insurance game . I "won" is that my husband died young, and it was the life insurance that inspired me to hire a financial planner. I guess I also "won" the disability insurance (although to a lesser degree than I should have).
So far I read "everything you need to know about asset allocation", "the only investing book you'll ever need", and I'm in the middle of "the bogleheads guide to investing". Also read "die with Zero", and "the psychology of money". And one of the "dummies" books about retirement finances. I'm kind of a minimalist and the 'three fund portfolio" idea really appeals to me. But I think I'll probably be moving toward that still when I die LOL. Anyway, I love this forum and I WILL BE LURKING!!

[an_asker]

Sorry to hear about your accident. That's sad for a surgeon.

I think it would help those who would give you advice if you could share which funds you currently own, the expense ratios and approximate gains for each of them, so we can talk through which ones to get rid of (first) and which ones to keep (if any).

[obkenobi]

It could have been worse- at least I was I could afford to retire, having been a big cheapskate all of my life. Plus I still have my legs and I really like hiking and biking!
Here is the ETFS I have on the potential chopping block:
EFG up 21% 12K or so ER .36
EFV up 20% 11K ER .34
IBDT up 3% 2k ER .1 (I know that's low but it's a bond fund)
IBDU up 3% 2K ER .1
IBHI up 3% 2K ER .35
IWP up 290% up 140K ER .23
IYW up 68% 40K ER .39

My current allocation is like 62/38 which is probably more aggressive than I need but so far I've been focusing on deploying all the cash I was hoarding into fixed income vehicles (CDs and BND). I was raised with extreme financial insecurity, so I'm still learning to manage my own psychological fears around money!

I apologize in advance if I'm being ridiculous in some way. I'm just new to this, and I feel like I could've been a better money manager and I feel like I need to make up for the mistake of hiring someone to do all of this!

[nedsaid]

It could have been worse- at least I was I could afford to retire, having been a big cheapskate all of my life. Plus I still have my legs and I really like hiking and biking!
Here is the ETFS I have on the potential chopping block:
EFG up 21% 12K or so ER .36
EFV up 20% 11K ER .34
IBDT up 3% 2k ER .1 (I know that's low but it's a bond fund)
IBDU up 3% 2K ER .1
IBHI up 3% 2K ER .35
IWP up 290% up 140K ER .23
IYW up 68% 40K ER .39

My current allocation is like 62/38 which is probably more aggressive than I need but so far I've been focusing on deploying all the cash I was hoarding into fixed income vehicles (CDs and BND). I was raised with extreme financial insecurity, so I'm still learning to manage my own psychological fears around money!

I apologize in advance if I'm being ridiculous in some way. I'm just new to this, and I feel like I could've been a better money manager and I feel like I need to make up for the mistake of hiring someone to do all of this!

These are not at all bad expense ratios, particularly from an Advisor. iShares offers an excellent suite of ETFs and these seem to be good ones. Yes, you can get similar, cheaper products at Vanguard. What was really draining you was the Assets Under Management fee, that is your biggest savings from firing your Advisor. But from what I can see, the Advisor didn't choose at all poorly for you.

You mentioned that you have fears around money, I suspect this is why you hired the Advisor in the first place. The question is once you have settled on a new portfolio, can you stick with it? So perhaps what you need to do is reduce your allocation to stocks. You did say your allocation is probably more aggressive than you need. Why don't you let the Bogleheads look at what you have, list your portfolio holdings in the recommended format, and you will get some good ideas.

[obkenobi]

Yes, I will be able to stick with a plan when it comes to finance. Even when I had an adviser, I kept some money on the side to "play" with. I made a good amount in crypto, mostly by accident. But in my "pin" money account , I had invested in stocks I "liked" way back in the early 2000s, and I bought and held. Better lucky than smart, what I bought and held were things like Apple, Amazon, NVidia , and GBTC (this one in 2017 when I got into crypto). So this portfolio is up over 200%. My adviser knew I was buying single stocks and balanced with this in mind. So despite the fact that I was really heavy in tech stocks, my overall portfolio is balanced. The trick for me will be getting me to ever sell these stocks! I still regret the ones I sold to "take profits' ten years ago! But I know I'll have to sell some if they keep going up, if only to rebalance.

I also still own about a million dollars in bitcoin. Before anyone lectures me, this started as $20,000. So the problem for me, is that any time I 'take profits', I pay a boat load of taxes. My kids keep reminding me, that's a good problem to have. But it's also been hard to sell any of it, even though it is a speculative investment and I probably should take my chips and declare victory. When the price of a btc dropped to 2,600 a couple years ago, I stuck with it. So I think I can stick to a plan.

I am open to suggestions, especially if I am making any glaring mistakes! If you all think those funds above are 'good enough' to not worry about, that's what I'll do. I did like my financial adviser a lot, I just got tired of paying 30K a year to him!
Joan

[Dottie57]

Yes, I will be able to stick with a plan when it comes to finance. Even when I had an adviser, I kept some money on the side to "play" with. I made a good amount in crypto, mostly by accident. But in my "pin" money account , I had invested in stocks I "liked" way back in the early 2000s, and I bought and held. Better lucky than smart, what I bought and held were things like Apple, Amazon, NVidia , and GBTC (this one in 2017 when I got into crypto). So this portfolio is up over 200%. My adviser knew I was buying single stocks and balanced with this in mind. So despite the fact that I was really heavy in tech stocks, my overall portfolio is balanced. The trick for me will be getting me to ever sell these stocks! I still regret the ones I sold to "take profits' ten years ago! But I know I'll have to sell some if they keep going up, if only to rebalance.

I also still own about a million dollars in bitcoin. Before anyone lectures me, this started as $20,000. So the problem for me, is that any time I 'take profits', I pay a boat load of taxes. My kids keep reminding me, that's a good problem to have. But it's also been hard to sell any of it, even though it is a speculative investment and I probably should take my chips and declare victory. When the price of a btc dropped to 2,600 a couple years ago, I stuck with it. So I think I can stick to a plan.

I am open to suggestions, especially if I am making any glaring mistakes! If you all think those funds above are 'good enough' to not worry about, that's what I'll do. I did like my financial adviser a lot, I just got tired of paying 30K a year to him!
Joan

I really would start selling your Bitcoin. Stocks and bonds have real value behind them. What does Bitcoin have? Bitcoin , to me looks like a gamble. So please de-risk and start unwinding. Your kids are right, paying taxes is just the cost of investing and then retrieving the profits.

[Outer Marker]

I also still own about a million dollars in bitcoin. Before anyone lectures me, this started as $20,000. So the problem for me, is that any time I 'take profits', I pay a boat load of taxes. My kids keep reminding me, that's a good problem to have. But it's also been hard to sell any of it, even though it is a speculative investment and I probably should take my chips and declare victory.

The forum policy on banned topics pretty much says it all on bitcoin:

Greater Fool Investing Strategies
Eventually, one runs out of greater fools. - Burton Malkiel
Discussions of investment strategies based on securities or physical assets that have no underlying value or negative expected long term returns are prohibited. Examples include: cryptocurrencies; lottery tickets; tulip bulbs; Ponzi, pyramid, and multi-level marketing schemes; affinity frauds; and market manipulation schemes. #

I'd take your gambling winnings, pay your taxes, and get out. It will eventually go to zero. Google Charlie Munger and Warren Buffett quotes on bitcoin if you need more motivation.

[obkenobi]

Oh, so sorry I missed that rule! I never would've brought it up. Like I said, I've been lucky over smart in the past!
The point I was trying to make is that I'm more of a 'set it and forget it' type. I'm just trying to set it.

So is the general consensus that it's not worth selling the ETFs with a .3 ish ER ? If so, I'd probably just reinvest gains in the appropriate fund and let the portfolio change over time.....

Sorry again- mea culpa!
Joan

[nedsaid]

Oh, so sorry I missed that rule! I never would've brought it up. Like I said, I've been lucky over smart in the past!
The point I was trying to make is that I'm more of a 'set it and forget it' type. I'm just trying to set it.

So is the general consensus that it's not worth selling the ETFs with a .3 ish ER ? If so, I'd probably just reinvest gains in the appropriate fund and let the portfolio change over time.....

Sorry again- mea culpa!
Joan

If you have ETFs that you want to get out of, you will want to know how much unrealized Capital Gains you have and a good projection of how much tax you will owe if you sell. What you don't want is a nasty unexpected tax bill. If you want to switch these over to similar Vanguard products, you could do this over 3-5 years to spread out your tax bill.

As far as the investment that we aren't supposed to discuss, it is subject to the same Capital Gains treatment when you sell as you would have if you were selling other types of investments like stocks, bonds, mutual funds, ETFs, etc. If you wanted to trim your position, have a good idea of what the tax bill will be. In your case, if you sold all at once, it would be pretty large. So you could spread your sales out over 3-5 years to minimize the tax hit. For a tax person, it isn't too difficult to do a projection, it is like any other type of investment. If you get additional coins from activities like mining or staking, then those have to be reported as income. There is a question regarding this type of investment on the front page of your 1040 tax return that needs to be answered yes or no every year.

What I am trying to tell you, it is a good idea to get some tax advice before doing any large sales of your ETFs or that unmentionable investment. See what the potential tax hit might be and then you can make better decisions.

[Outer Marker]

Oh, so sorry I missed that rule! I never would've brought it up. Like I said, I've been lucky over smart in the past!
The point I was trying to make is that I'm more of a 'set it and forget it' type. I'm just trying to set it.

Not to worry. I didn't mention it to chide you about the rule! What I wanted to draw your attention to is why the rule exists and the concept of "the greater fool" investments.

[obkenobi]

As far as the investment that we aren't supposed to discuss, it is subject to the same Capital Gains treatment when you sell as you would have if you were selling other types of investments like stocks, bonds, mutual funds, ETFs, etc. If you wanted to trim your position, have a good idea of what the tax bill will be. In your case, if you sold all at once, it would be pretty large. So you could spread your sales out over 3-5 years to minimize the tax hit. For a tax person, it isn't too difficult to do a projection, it is like any other type of investment. If you get additional coins from activities like mining or staking, then those have to be reported as income. There is a question regarding this type of investment on the front page of your 1040 tax return that needs to be answered yes or no every year.

What I am trying to tell you, it is a good idea to get some tax advice before doing any large sales of your ETFs or that unmentionable investment. See what the potential tax hit might be and then you can make better decisions.

Thanks. Yes I know! I've been selling the unmentionable over time and paying a ton of taxes. And I know-- I would trigger taxes changing accounts in my taxable portfolio as well. That was kind of the point of my initial post. I mean, I'm essentially going to have to pay those taxes eventually anyway, and if I change into a lower cost index fund now, would I likely save enough money to make it worth doing now? But I guess, now that I've spent a bit more time on the forum, I can see maybe these funds are inexpensive enough and I'm just being overly zealous in my cost cutting.

Not to worry. I didn't mention it to chide you about the rule! What I wanted to draw your attention to is why the rule exists and the concept of "the greater fool" investments.

Got it. Thanks. I just wouldn't have brought it up. I was just trying to demonstrate that I have a harder time selling things than buying them. I'm not really the type that has a problem with 'selling low' but I have a problem 'selling high' ! Once I review my portfolio, aside from maybe an annual rebalance, and gradual allocation change, I don't see messing with it much.

Which kind of brings me to the next question. I have big gains in single stocks (NVDA comes to mind. I wonder if I should be harvesting profits and moving money into broader index funds. Not to time the market, but to lower the downside risk.