Dad is looking to move money out of Fisher Investments...need advice

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PackersFan12
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Dad is looking to move money out of Fisher Investments...need advice

Post by PackersFan12 » Sun Nov 10, 2019 3:44 pm

My dad has a fair amount of his and my mom's retirement money at Fisher Investments. I recommended to him that he read "The Little Book of Common Sense Investing", and I think he's starting to catch on. He asked that I give him some proposed asset allocations in the event he decides to move some or all of his money out of Fisher.

Here is some of the background info:

My dad is 65 (will be 66 in December) and my mom is 60 (will be 61 in February 2020). They are both still working. They are thinking about retiring in the near future.
They have ~$905K at Fisher (~$805K in traditional IRA; ~$100K in Roth IRA).
They have ~$250K at workplace 401Ks.
They have ~$90K in cash.
They have ~$150K in individual stock (stock from company in the DOW).
No debt. Mortgage for main property paid off.
They also own a second property worth ~$180K. Mortgage is paid off for this property as well.
They are projecting to have ~$45K to ~$50K in yearly expenses once in retirement.
My dad is not currently collect social security. They are expecting to receive ~$40K to ~$50K a year between the two of them when they do start collecting (my dad is thinking of collecting when he's 68 and my mom may also wait longer to collect as well).

I have come up with a few different possible asset allocations for my dad with Vanguard funds, and I wanted to get the opinion of the Bogleheads forum. My understanding is that almost all or all of the money at Fisher is in equities, and the allocation is roughly 70% US and 30% international. My dad indicated to me that he does not want to be in bonds due to the low yields of bonds, though he is open to changing this. He is also OK with a ~30% international allocation, though he is open to ideas on this as well. The main goals he has with this money is growth and for use in retirement for expenses. He is willing to go through volatility that equity markets will surely give us in the future.

Asset Allocation #1:
Vanguard Total Stock Market Index Fund 60%
Vanguard Total International Stock Market Index Fund 20%
Vanguard Total Bond Market Index Fund 20%

Asset Allocation #2
Vanguard Total Stock Market Index Fund 50%
Vanguard Total International Stock Market Index Fund 20%
Vanguard Small Cap Index Fund 15%
Vanguard Total Bond Market Index Fund 15%

Asset Allocation #3
Vanguard Total Stock Market Index Fund 50%
Vanguard Total International Stock Market Index Fund 25%
Vanguard Small Cap Index Fund 25%

Would any of these allocations suffice, or are there others that should be considered? Thanks.

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fortfun
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Re: Dad is looking to move money out of Fisher Investments...need advice

Post by fortfun » Sun Nov 10, 2019 3:57 pm

How about this life strategy (conservative growth). That way, no re-balancing necessary.

https://investor.vanguard.com/mutual-fu ... file/VSCGX
Last edited by fortfun on Sun Nov 10, 2019 4:14 pm, edited 1 time in total.

HomeStretch
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Re: Dad is looking to move money out of Fisher Investments...need advice

Post by HomeStretch » Sun Nov 10, 2019 4:05 pm

All three asset allocations seem aggressive for 60-somethings nearing retirement.

Asset allocation is a personal decision. Your parents don’t need to take a lot of risk (but they could) as their SS income covers a significant portion of their expenses. Your dad doesn’t like the low yields on bonds but how does he feel about losing 40-50% of his portfolio’s equity allocation in a downturn? Is he (and your mom) ok with that level of risk with the suggested portfolios containing equity allocations ranging from 80% to 100%?

A transition from Fisher should be easy as there are no tax consequences to consider with the accounts.

Suggest your parents review their SS claiming strategy using the calculator at opensocialsecurity.com regarding the best ages to claim SS after retirement. SS benefits generally receive cost-of-living increases. Delaying benefits up to age 70 results in a larger SS benefit (and possibly survivor benefit).

dbr
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Re: Dad is looking to move money out of Fisher Investments...need advice

Post by dbr » Sun Nov 10, 2019 4:17 pm

I agree with homestretch.

Your parents have a lot of money relative to what is needed to cover their planned spending. That means they can allocate that money about any way they want to. Your three scenarios are so similar there is no real choice among them. The real question is how much tolerance they have for volatility and what objectives they have for the money. I agree with the previous comment that your suggestions seem to be high risk to no purpose, but if your dad is effectively expressing the objective that he wants his wealth to grow as much as possible even if risky, then an aggressive asset allocation meets that need. If they are accustomed to holding risky investments as evidenced by the stock account, then that would be the choice. Is this what he really wants or is he just emotionally dissuaded by low interest rates on bonds right now?

mhalley
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Re: Dad is looking to move money out of Fisher Investments...need advice

Post by mhalley » Sun Nov 10, 2019 4:41 pm

I agree that the proposed aa are very aggressive. I would say anywhere between 40 to 60% equities would be more appropriate. Either 1 or 2 aa adjusted to be more conservative would be fine, but you might use the small cap value fund instead if the sc index.

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CAsage
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Re: Dad is looking to move money out of Fisher Investments...need advice

Post by CAsage » Sun Nov 10, 2019 6:06 pm

Read some/any of the many threads on leaving Edward Jones to flesh out your expectations of the process and issues. In particular, the capital gains on the current non-IRA assets, you need to get all the data together before the accounts close.
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.

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PackersFan12
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Re: Dad is looking to move money out of Fisher Investments...need advice

Post by PackersFan12 » Sun Nov 10, 2019 9:46 pm

dbr wrote:
Sun Nov 10, 2019 4:17 pm
I agree with homestretch.

Your parents have a lot of money relative to what is needed to cover their planned spending. That means they can allocate that money about any way they want to. Your three scenarios are so similar there is no real choice among them. The real question is how much tolerance they have for volatility and what objectives they have for the money. I agree with the previous comment that your suggestions seem to be high risk to no purpose, but if your dad is effectively expressing the objective that he wants his wealth to grow as much as possible even if risky, then an aggressive asset allocation meets that need. If they are accustomed to holding risky investments as evidenced by the stock account, then that would be the choice. Is this what he really wants or is he just emotionally dissuaded by low interest rates on bonds right now?
He did say to me that if he wanted to protect some of his money from stock market volatility, he would cash out some of the stocks and put the proceeds in a CD.

I feel that there should still be at least some part of the allocation in bonds if for no other reason than to be able to buy back into stocks on the cheap in the event of a stock market downturn.

dbr
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Re: Dad is looking to move money out of Fisher Investments...need advice

Post by dbr » Mon Nov 11, 2019 8:46 am

PackersFan12 wrote:
Sun Nov 10, 2019 9:46 pm
dbr wrote:
Sun Nov 10, 2019 4:17 pm
I agree with homestretch.

Your parents have a lot of money relative to what is needed to cover their planned spending. That means they can allocate that money about any way they want to. Your three scenarios are so similar there is no real choice among them. The real question is how much tolerance they have for volatility and what objectives they have for the money. I agree with the previous comment that your suggestions seem to be high risk to no purpose, but if your dad is effectively expressing the objective that he wants his wealth to grow as much as possible even if risky, then an aggressive asset allocation meets that need. If they are accustomed to holding risky investments as evidenced by the stock account, then that would be the choice. Is this what he really wants or is he just emotionally dissuaded by low interest rates on bonds right now?
He did say to me that if he wanted to protect some of his money from stock market volatility, he would cash out some of the stocks and put the proceeds in a CD.

I feel that there should still be at least some part of the allocation in bonds if for no other reason than to be able to buy back into stocks on the cheap in the event of a stock market downturn.
A long term approach to this sort of thing is to set an asset allocation and rebalance when things are too far out of target. It is true that CDs have the inconvenience if not actual problem of needing to be redeemed early in that case. I personally think a portfolio of low cost, diversified stock and intermediate term bond funds works fine without trying to mess with market timing, valuations, "getting back in" when things are cheap, etc.

However, the words you are hearing from him start with "if" and I guess that is what he means.

student
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Re: Dad is looking to move money out of Fisher Investments...need advice

Post by student » Mon Nov 11, 2019 9:07 am

I agree with others who said the proposed AA is aggressive. If you are willing to use ETF, I would suggest getting a transfer bonus from ETrade/Merrill Edge/Schwab.

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David Jay
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Re: Dad is looking to move money out of Fisher Investments...need advice

Post by David Jay » Mon Nov 11, 2019 9:15 am

PackersFan12 wrote:
Sun Nov 10, 2019 3:44 pm
My dad is not currently collect social security. They are expecting to receive ~$40K to ~$50K a year between the two of them when they do start collecting (my dad is thinking of collecting when he's 68 and my mom may also wait longer to collect as well).
If there is a significant difference in lifetime income between two spouses, it often makes sense for the lower earner to file early and the higher earner to wait until 70. In our case my wife claimed at 62 and I am waiting. There is a great tool for evaluating claiming strategies here (the creator Mike Piper is a regular here at BH): http://opensocialsecurity.com
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

HomeStretch
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Re: Dad is looking to move money out of Fisher Investments...need advice

Post by HomeStretch » Mon Nov 11, 2019 9:38 am

Your parents have $1,395k million in cash/investments. The Fisher accounts moving to Vanguard represent ~65% of their portfolio. You are discussing an asset allocation (AA) for their Vanguard accounts, but you need to look at the overall AA for the $1,395k.

While they decide on asset allocation, your parents can initiate the transfer at Vanguard to move the $905k from Fisher to eliminate the high fees/ERs ASAP.

The accounts moving to Vanguard are tax advantaged so there are no tax consequences for fund changes. They can initially invest the Vanguard accounts in the range of 70/30 to 50/50 while you/they look at how their workplace 401k is invested. Consider 100% equity for the Roth IRA (for highest expected growth, tax free) and holding the entire bond allocation in their tax deferred accounts (Traditional IRA or 401k).

For simplicity, the $150k single stock can be moved to a Vanguard Taxable account. That stock is risky as it represents 10% of their portfolio. Consider reducing the holding to < 5%. They can turn off dividend reinvestment so they don’t buy more. In the Taxable account, reinvest in VTSAX and/or VTIAX US/International Total Stock Market Funds for diversification and tax efficiency.

If their $90k cash is not in a high-yield account, a Vanguard Taxable account will also give them access to money market funds (MMF) with good yields like VMMXX Prime MMF or, if they pay state taxes, VUSXX Treasury MMF which is state/local tax exempt. Money can be transferred between Vanguard and a bank account by linking the bank account.

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Re: Dad is looking to move money out of Fisher Investments...need advice

Post by Wiggums » Mon Nov 11, 2019 9:49 am

mhalley wrote:
Sun Nov 10, 2019 4:41 pm
I agree that the proposed aa are very aggressive. I would say anywhere between 40 to 60% equities would be more appropriate. Either 1 or 2 aa adjusted to be more conservative would be fine, but you might use the small cap value fund instead if the sc index.
+1

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Stinky
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Re: Dad is looking to move money out of Fisher Investments...need advice

Post by Stinky » Mon Nov 11, 2019 10:13 am

OP, your draft portfolios are way too heavy in stocks, with 75-85% in equities.

Most BHs would lighten that up considerably, probably with a maximum of 60% or so in equities. And I wouldn’t see increasing that allocation if/when the stock market goes down.
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PackersFan12
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Re: Dad is looking to move money out of Fisher Investments...need advice

Post by PackersFan12 » Mon Nov 11, 2019 2:14 pm

Thanks for the advice everyone. I'll be sharing this post with him, so thanks.

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Leif
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Re: Dad is looking to move money out of Fisher Investments...need advice

Post by Leif » Mon Nov 11, 2019 3:50 pm

It seems that SS will meet most or all of their needs. If this is the case then a high equity allocation is acceptable if the goal is to pass the bulk of the estate to the younger generation and/or charity.

I would need to know more about their goals in retirement. But I do agree moving out of Fisher is a good move if they feel comfortable with managing the portfolio themselves. Looks like the Fisher investments are all in retirement accounts. If that is the case then there should be no tax issues.

Make sure they have thought about the medical insurance cost for your mom until she reaches 65.

miket29
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Re: Dad is looking to move money out of Fisher Investments...need advice

Post by miket29 » Tue Nov 12, 2019 1:29 pm

"My dad indicated to me that he does not want to be in bonds due to the low yields of bonds"

I'll quote from Allan Roth (an author on the Boglehead wiki) in an article worth reading
Client: I don’t want bonds because they produce little income. Interest rates have to go up from our current all-time low.

Me: Real after-tax rates are nowhere near an all-time low. The purpose of fixed income has never been income. The purpose of fixed income is to stabilize one’s portfolio and to keep up with inflation and taxes. When stocks tank, those boring high-quality bonds act as a shock absorber and allow one to rebalance to buy stocks while they’re on sale.

https://www.advisorperspectives.com/art ... by-clients
Your parents need for income from their portfolio is pretty low once they start taking Social Security, so in that sense they can take as much risk with their portfolio as they want. On the other end of the risk spectrum, even if they held it in cash they would have more than enough to fund their needs and plenty of splurges at an estimated draw of $10K or less per year on over a million dollars in savings.

"He is willing to go through volatility that equity markets will surely give us in the future." If he stays heavily in stock, I hope so. Maybe as a test calculate what the portfolio would be in 2020 if the markets decline 20%. Then for 2021 let them go down some more. And same for 2022. A 50% drop that lasted 5 years is not unprecedented. I have no idea if this will ever repeat, if it could be worse, or if the down years could last longer. But if your dad can look at an estimate of their portfolio in 2024 with the stocks down 50+% and with the understanding it could continue for years, is he still willing to wait it out?

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Re: Dad is looking to move money out of Fisher Investments...need advice

Post by pkcrafter » Tue Nov 12, 2019 4:37 pm

PackersFan12 wrote:
Sun Nov 10, 2019 3:44 pm
My dad has a fair amount of his and my mom's retirement money at Fisher Investments. I recommended to him that he read "The Little Book of Common Sense Investing", and I think he's starting to catch on. He asked that I give him some proposed asset allocations in the event he decides to move some or all of his money out of Fisher.

No one here will argue with transferring out of EJ. The two accounts must be transferred separately by using a custodian to custodian transfer. The transfers are initiated by the company you want to move to - Vanguard or Fidelity are best options. Dad can go to all cash or transfer existing investments if the new company carries all of them.

Here is some of the background info:

My dad is 65 (will be 66 in December) and my mom is 60 (will be 61 in February 2020). They are both still working. They are thinking about retiring in the near future.
They have ~$905K at Fisher (~$805K in traditional IRA; ~$100K in Roth IRA).
They have ~$250K at workplace 401Ks.
They have ~$90K in cash.
They have ~$150K in individual stock (stock from company in the DOW). Is this one company stock or many? If one, it's too much.
No debt. Mortgage for main property paid off.
They also own a second property worth ~$180K. Mortgage is paid off for this property as well.
They are projecting to have ~$45K to ~$50K in yearly expenses once in retirement. This withdrawal rate is doable, even without SS.

My dad is not currently collect social security. They are expecting to receive ~$40K to ~$50K a year between the two of them when they do start collecting (my dad is thinking of collecting when he's 68 and my mom may also wait longer to collect as well).

I have come up with a few different possible asset allocations for my dad with Vanguard funds, and I wanted to get the opinion of the Bogleheads forum. My understanding is that almost all or all of the money at Fisher is in equities, and the allocation is roughly 70% US and 30% international. My dad indicated to me that he does not want to be in bonds due to the low yields of bonds, though he is open to changing this.

Bonds are for diversification and safety. His only other option is cash, which produces even less return.

He is also OK with a ~30% international allocation, though he is open to ideas on this as well. The main goals he has with this money is growth and for use in retirement for expenses. He is willing to go through volatility that equity markets will surely give us in the future.

International allocation is usually recommended at about 25-30% of equity, although Vanguard will recommend 40%.

Your parents do have ability to go with higher stock allocations, but they don't really have need.


Asset Allocation #1:
Vanguard Total Stock Market Index Fund 60%
Vanguard Total International Stock Market Index Fund 20%
Vanguard Total Bond Market Index Fund 20%

For their age, this is aggressive, but they could probably withstand a 40% drop in assets.


Asset Allocation #2
Vanguard Total Stock Market Index Fund 50%
Vanguard Total International Stock Market Index Fund 20%
Vanguard Small Cap Index Fund 15%
Vanguard Total Bond Market Index Fund 15%

This one will introduce more tracking error and some sustained periods of underperformance due to quirky nature of small cap returns. I don't recommend it for retirees.

Asset Allocation #3
Vanguard Total Stock Market Index Fund 50%
Vanguard Total International Stock Market Index Fund 25%
Vanguard Small Cap Index Fund 25%

Nnnnno.

Would any of these allocations suffice, or are there others that should be considered? Thanks.

My suggestion would be an allocation of about 45-50% equity

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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