Doctor Detroit
Please remove your headgear
FUBAR are you planning on continuing your career or doing something else when you leave service? Or are you hanging it up for good?
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PBS Frontline : The Retirement Gamble, sorta Must See (1 Viewer)
- Thread starter Smack Tripper
- Start date
FUBAR
Footballguy
I'll only be 42 and not done completely.
Really I don't know what I'm going to do right now. I'll be fairly marketable with a few basic ideas of what we want from life. Might pursue federal employment if the right job is available, location is a big factor.
Tracking those concerns, you're right.
I assumed the company was fee only but it doesn't say so on their site.
The one thing that it does say throughout is that their emphasis is on capital preservation (presumably low risk) which isn't our highest priority right now, nor will it be for another decade or so.
Still, it will be interesting to see another party's perspective.
I'll check out the Napfa too, thanks.
FUBAR
Footballguy
What's the normal practice with financial advisers as to the initial meeting?
I'll want the first session to be free and I'll treat it as a job interview for the FA. Make sure they're the right fit for us.
I also won't want to give up control. Their job will be pure advice and to find us better ways to meet our goals.
I'll want the first session to be free and I'll treat it as a job interview for the FA. Make sure they're the right fit for us.
I also won't want to give up control. Their job will be pure advice and to find us better ways to meet our goals.
Don't be afraid to ask. I know many accountants and attorneys who give free initial consultations.
I'd be very surprised if the FA was going to charge you but ask and be courteous of their time/schedule.
wilked
Footballguy
It will be free, they would tell you otherwise.
They will spend half the time gathering info (as prepared as you can be, the better). Second half they will be selling you their services. I would have your questions printed ahead of time and try to leave 10-15 mins for Q&A
They will spend half the time gathering info (as prepared as you can be, the better). Second half they will be selling you their services. I would have your questions printed ahead of time and try to leave 10-15 mins for Q&A
FUBAR
Footballguy
I'm never afraid.
My questions are fairly straight forward, mostly tax concerns and a general appraisal.
wilked
Footballguy
I hope your first question is on how the FA would be paid, and all fees involved
edit to add: here's a once-over
https://www.youtube.com/watch?v=Ttfjhdht8PA
edit to add: here's a once-over
https://www.youtube.com/watch?v=Ttfjhdht8PA
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NewlyRetired
Footballguy
sorry I missed this when you asked the question.Did you create a bond ladder or "something similar" to bridge when you retried to when you can take $ out of retirement accounts?She sounds identical to my financial adviser. Same wording/reasoning/stratgey etc regarding bonds.CNBCBonds, the seemingly boring and inscrutable partner to equities, don't usually generate much excitement. But they play important roles in portfolio planning, offering diversification and fixed-income opportunities.
The wide variety of bond instruments provides the opportunity for age-appropriate strategies throughout the client's life span. CNBC consulted with several advisors on how they employ bonds when working with pre-retirees.
Zero Creatives | Getty Images
'Bridge' strategy
"I like individual bonds, but I don't like bond funds, because of the fluctuation of the principal," said Helen Simon, certified financial planner, retirement management analyst and CEO of Personal Business Management Services.
She uses individual bonds to bridge the time between when clients retire and when they start taking money out of their qualified accounts, such as 401(k) plans, individual retirement accounts and pensions.
"I like to use zero coupon tax-free municipal bonds because when the money comes through, it is all tax-free," she said.
Zero coupon bonds, long-term fixed-income securities, are purchased at a deep discount and pay out interest only once, at maturity.
Simon purchases these securities for her clients monthly, creating a "bond ladder."
"The ideal situation being bonds coming due monthly or close thereto once the client begins tapping their retirement income stream," she said.
For example, a 45-year-old client who wished to make $10,000 a month available at age 60 could assign a bucket of cash to start purchasing zero coupon bonds through the next 15 years that mature monthly.
The client could purchase a bond today with a 5 percent coupon (interest) rate for $4,800, which will yield $10,000 tax-free when it matures in 2030. Similarly, a 20-year bond at 5 percent, purchased for $3,750, will yield $10,000 in 2045 tax-free.
Market response
"A 40- to 50-year-old should consider more than age and time to retirement but also market conditions," said R. M. Zalatimo, managing director, National Securities Corp.
"We are in a potential rising-interest-rate environment, and initially this will have a negative impact on bond and equity markets," he said. "If interest rates go up, your bond portfolios will drop in value and you will take a loss."
For example, a 4 percent corporate bond can only sell at a discount if next year's bonds are offered at 5 percent, Zalatimo said.
Therefore, to increase liquidity, he advises pre-retirees to reduce their bond portfolio duration to short-term positions of five to seven years.
"I wouldn't recommend too large of a percentage of investment in bonds prior to 10 years before retirement." -Russell D. Francis, owner of Portland Fixed Income Specialists
Other advisors suggest even shorter terms.
Herb White, CFP and president of Life Certain Wealth Strategies, advises his pre-retiree clients to hold short-term (one- to three-year) or intermediate (three- to five-year) positions in bonds.
"As an overall strategy, you still need equities for growth, but you don't want to overlook bonds," he said.
Zalatimo at National Securities also suggests looking into convertible bondscorporate bonds that can be converted into its issuer's common stock.
"This is an overlooked asset class," he said. "It reduces exposure to the market by converting to stock later when the market may be better.
"It gives the income and stability of a bond with the potential for appreciation from the stock market," Zalatimo said. "It allows you to increase your exposure to bonds, but not necessarily lose out" in times of low yield.
Yes, the FA created a bond ladder. The bonds provide the income we need to live until the time comes I can start taking from my IRA's (which I obviously want to hold off as long as possible).
We know if worse comes to worst we can access the IRA early if needed but I hope that does not occur.
FUBAR
Footballguy
stubby
Footballguy
He makes some good general points, as there are definitely a lot of awful "advisors" out there that are just in it for themselves/money. However, considering he holds just a 65 license, his conclusions could possibly be biased/slanted.
KCitons
Footballguy
I was able to get some answers on my companies "matching" money. They will kick in 2% match at their discretion. In the past four years, there have been 3 quarters where they did not match the 2%.
The investment options are somewhat limited and have fairly high fees, except for two Vanguard Admiral options. (VFIAX and VSGAX). The other concern I have is any administrative fees BMO will charge. It looks like it will fall in the .35 range just for having an account.
I'm probably going to have to go with it. We have my wife's TSP which is pretax, but all of my other investments are post. I'm looking at contributing at or close to the max allowed and putting everything into the Vanguard funds. I already own a good bit of Vanguard through our Roth accounts at Vanguard and through my own investments at Wells Fargo.
Anything I may be missing?
The investment options are somewhat limited and have fairly high fees, except for two Vanguard Admiral options. (VFIAX and VSGAX). The other concern I have is any administrative fees BMO will charge. It looks like it will fall in the .35 range just for having an account.
I'm probably going to have to go with it. We have my wife's TSP which is pretax, but all of my other investments are post. I'm looking at contributing at or close to the max allowed and putting everything into the Vanguard funds. I already own a good bit of Vanguard through our Roth accounts at Vanguard and through my own investments at Wells Fargo.
Anything I may be missing?
Dentist
***Official FBG Dentist***
I'm a financial DIY guy also, so you're preaching to the choir when we're anti financial "guys" and hate that they are seemingly ripping people off.
Having said that we also have a firm interest in finance so in a way it's a bit of a hobby for people like us.. one that we may even enjoy.. and given the cost of financial advice, it's a hobby that pays pretty well especially when you're working with a 6-7 figure portfolio.
Now, to be fair though.... would you say the average person who has absolutely no interest in finance, refuses to read the books.. aren't going to pay attention to their accounts... would you say that they might be better off even working with a salesman adviser rather than the alternative.. which would probably be doing absolutely nothing?
I mean I have smart friends who even ask me for financial advice because they know I'm "into it" but it's like that initial hurdle of just setting up the Roth IRA account, putting it on auto fund, and even picking the most BASIC single catch-all fund like a Target Date fun is just too much to jump through. Which is why auto enrollment in 401k's at work is generally such a winner.
It's shocking though the amount of hand-holding required to get started!
mquinnjr
Footballguy
wilked
Footballguy
I would say those that have no interest in doing it themselves could be in a better spot if they visit a fee-only advisor
The problem is that the majority of advisors (no data to back this up, just gut) are commission based and do not give advice in the best interest of their client, but rather in the best interest of skimming funds off for him/herself
The problem is that the majority of advisors (no data to back this up, just gut) are commission based and do not give advice in the best interest of their client, but rather in the best interest of skimming funds off for him/herself
Dentist
***Official FBG Dentist***
Correct, I know that and you know that.
But i'm guessing the type of person who won't read a personal finance book and know to look for something like that is just going to end up in the hands of a commission based adviser.
And I'm speculating as to if in the long term if they aren't better off with even a rip-off adviser than maybe doing almost nothing.
For instance, as bad as the financial services industry is... is it still better than doing nothing? I think the answer is probably that it is.
If I was a commission based adviser that's at least the logic I'd use to be able to sleep well at night.
FUBAR
Footballguy
FUBAR
Footballguy
You're right. When we were first married my wife had no interest in investing (still doesn't, but appreciates that I do) and almost refused to do it. I started doing it anyway, then we eventually met with a commission-based salesman who caters to the military. the officer's basic course had actually brought in this company to "teach" us financial management. (really shouldn't have been allowed as it was just a sales pitch) but, we did meet and he helped convince my wife that investing was the right thing to do.
We quit the company a few years later but at least it set things in motion for me to invest without the wife worrying too much about losing money. TBH, she's never once asked me how much we lost - including during 2008. I tell her how much we have and where it is, what it's invested in but she won't remember anything other than blah blah we should be able afford a house on the beach in a few years blah blah money blah.
More people are like her than us, so the sharks do provide a service.
mquinnjr
Footballguy
I would have to think that it is. An erosion of some gain is definitely better than a goose egg in principal + gains.
KCitons
Footballguy
Wife's TSP has been maxed for awhile. If not, Im not sure if the low match + fees would make a difference.
If that makes sense?
kutta
Footballguy
So for you "do it yourselfers," do you think most CEO types are managing their own money? Do you think Bill Gates manages his own money? How about your average high net worth CEO?
It just seems to me that an expert is better equipped to handle my money than I am. If someone wants some software written or a tooth pulled, they should call Kutta or Dentist instead of doing it themselves. Why is managing money so much different?
It just seems to me that an expert is better equipped to handle my money than I am. If someone wants some software written or a tooth pulled, they should call Kutta or Dentist instead of doing it themselves. Why is managing money so much different?
FUBAR
Footballguy
It's a question of cost / benefit.
I don't know if billionaires manage their own money but even if they pay 10x what is pay, their time is still much more valuable.
There's a lot of reasons I won't practice self dentistry. Finance doesn't have the same reasons. There's actually a lot of things I don't do myself - electric work, most auto maintenence, home schooling my kids, to name a few. Likewise if you don't want to manage your own finances, hire someone, but monitor and know what you're paying for.
kutta
Footballguy
What makes you confident? Have you compared your returns to those of specific financial advisors? I'm curious because I would have no idea on how to determine if I'm doing better or worse than an FA could.
wilked
Footballguy
Here's the thing Kutta... You could go today (tonight) to bogleheads.org, lay your financial picture out, and receive a dozen very well informed opinions / advice about what to tweak / do. This would be for free. This advice is at least as good, and I would say better since it is unbiased, than any money manager could perform.
Why pay for it if you can get it for free? Of course if you believe there is a guy out there that can get you in and out of IPOs, buy junk bonds that are risk-free, and has a buddy at the FDA who feeds him tips on drug approvals, that is out there too.
Everything I have read tells me that the winning investing formula is very boring, fairly conservative, and fairly simple. Control the one thing you can (fees), avoid taxes as possible, invest heavily and early, and live below your means. You don't need a money manager to execute that. If you want a professional, at the most have him or her simply build you a plan, review it with you, then wave goodbye and execute the plan yourself, perhaps calling them back up in 10 years to see if the plan needs adjusting.
Why pay for it if you can get it for free? Of course if you believe there is a guy out there that can get you in and out of IPOs, buy junk bonds that are risk-free, and has a buddy at the FDA who feeds him tips on drug approvals, that is out there too.
Everything I have read tells me that the winning investing formula is very boring, fairly conservative, and fairly simple. Control the one thing you can (fees), avoid taxes as possible, invest heavily and early, and live below your means. You don't need a money manager to execute that. If you want a professional, at the most have him or her simply build you a plan, review it with you, then wave goodbye and execute the plan yourself, perhaps calling them back up in 10 years to see if the plan needs adjusting.
wilked
Footballguy
I invest in index funds, basically in 4 funds (total stock market, international, total bonds, reit). Most FAs will put you into mutual funds, individual stocks, etc (if they simply put you into index funds you might wise up and ditch them!)There are hundreds of studies, here is one
http://www.nerdwallet.com/blog/investing/2013/active-mutual-fund-managers-beat-market-index/
Actively managed funds lag their indices. 3 out of 4 will underperform, and there is no way to predict the 1 out of 4. The 1 out of 4 that beat the market the last 5 years has no predictive power over which will beat it the next 5 years.
I am sure your FA can show you how he beat the market the last 5 years (his job is to sell, after all). Hell, maybe he even did, but I wouldn't bet on him doing it again. FAs conveniently leave the fees off, or they compare an aggressive fund against the S&P index, or they choose the time period that fits the data, etc
Anyway, that is just my opinion, if you feel good with what you got I have the impression that you can afford to have a small hole in your pocket, my focus is on educating those that struggle to get a downpayment together and are more grossly mismanaging their finances
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Doctor Detroit
Please remove your headgear
I would hire a financial adviser if I owned commercial real estate, had complex taxes, needed financial trust advice, wanted to invest in things like IPOs, or traded a lot of individual stocks. I think getting a check up even for those very astute in the ways of investing is a good idea, but the timeline depends on circumstances. Life changing events like a career change, retirement, receiving a large inheritance, etc are optimum times to seek outside help IMO.
NewlyRetired
Footballguy
Your understanding of what a good adviser can do for you is a bit biased (and I am being kind in my wording here not to ruin a good thread).
I don't blame you, I thought exactly as you did for two decades. I am glad I educated myself before I retired on the topic.
The thing is you can do well with out an adviser and you can do well with an adviser. There is no need to act like there is only one good path.
NewlyRetired
Footballguy
I can't speak for anyone else but myself. I managed my money fairly well on my own and was able to retire by 42.
In the 5 years in retirement when I have had an adviser I am doing better than I could have on my own. And that is ignoring the bonds I could not purchase on my own. That is just comparing the regular investments my FA is using to the ones I had when I retired.
I've spoken to maybe four or five financial advisers over the years and none of them impressed me enough to want to pay them to manage my money. Mostly they just parrot the maxims that we all know by heart. True, occasionally, I will learn of a bond product that the adviser can get for me that I couldn't do myself. So when I get old enough to want to diversify into bonds, then maybe I'll go that direction. But for now, I don't need another talking head telling me to invest in index or mutual funds, etc. And I also have a degree of pride investing my own money and feel more OK with gains and loses than I think I would if someone else was making that happen.
Doctor Detroit
Please remove your headgear
You really stink, but I think you're delicious.
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wilked
Footballguy
Possible to give examples? As I've said I think an an FA can be good, but I would strongly advocate for a fee-only one.
So far the only specific advantages I have heard are)
1) if you don't have the time/inclination, and otherwise the finances simply wouldn't get managed
2) advisor can get you into bonds you can't get otherwise
I am a little skeptical of the second, but so be it. What other specifics are there?
DD's points above make good sense, though it starts to blur the lines between FA and Accountant. If you have a complicated situation or large estate, you need someone very tax savvy to keep Obama's hand out of your pocket
Dentist
***Official FBG Dentist***
I definitely think there are some value added things that a cpa/cfp type could gain you for estate planning, tax management, etc. I think if you're a successful business owner, have an 8 digit portfolio, or have an otherwise complicated situation with a divorce, or weird child situation that there is probably a lot to be gained.
But I would say the average person with the 5 to low 7 digit portfolio and who is just an employee and doesn't have anything particularly complex can most likely manage their portfolio perfectly fine if they have the interest and are wiling to read a few basic investing books.
I've read enough about finance that I probably have a minor in it. Not only books, but consistently read new articles from sources i follow on twitter or blogs, or in magazines like Kiplingers or Money.
Furthermore, I'm not entirely sure what money guys do, but the overwhelming majority of my investable dollars are either in a 401k, 529, or some other type of plan where i have a limited menu of choices. I just have to pick the ones that meet my needs, it's not that hard really.
Only a small amount of my money in my Roth and Cash Management account do I truly have a range of "any investment I want".
NewlyRetired
Footballguy
I can't do anything about your skepticism but I am unsure why you think I am lying.
As for other specifics, I already mentioned that my FA simply is doing better than I was in terms of investments. In the end that is all that really matters. She is more than paying for herself right now.
NewlyRetired
Footballguy
I am sure all FA's are different, but some (like the one I have) require you to have a minimum amount of assets before they will take you on as a client. I think when we went to see her, we were slightly under her limit, but she was willing to take us on because of our young ages.
I also think it is worth managing your own money for a while (say 10-15 years) just so you can properly judge how your FA is doing. Because I managed all our money for 20ish years, it is very easy for me to determine if my FA is worth the money we are spending.
Without that knowledge, you might have no idea if your FA is doing better or worse than you would have on your own. (this ignores that group of people that simply won't manage their own money for what ever reason, I think we all agree that any FA is better than no investing).
wilked
Footballguy
I don't think you are lying, but I am not convinced you are getting what you think you are getting.
You already know this, but there is a relationship between bond yield and risk. The higher the risk, the larger the yield (and vice versa). You can get bonds yielding 10% (Greek 10 yr being an example) and you can get bonds that struggle to pace inflation (10 yr treasury being an example). I believe the bond market to be very efficient, and as such there are no 'deals' to be had in bonds. Now I could be wrong, I am an amateur at all of this, but that is everything I have read and understand.
What I hear you describing is an FA that is promising a bond with a higher yield without the associated risk, and that is what I struggle with. Again, I may be wrong here, and I certainly am not implying you are lying.
FUBAR
Footballguy
Dentist
***Official FBG Dentist***
Wilked, there are individual bonds that are a lot harder to access with a self directed account than through some advisers. I know this is true from listening to dealings my grandfather and a few other older high net worth individuals has had.
Bonds that you need 50-100K to invest in that most people don't have. it's not necessarily that they are higher yield.. it's that there just isn't as big of a market for them so you're not going to find them on fidelity or scottrade.
For creating a bond ladder for income that people like newlyretired needs, they are important.. especially if you don't like "bond funds" and agree with Suze Orman and other experts on the weaknesses of bond funds.
I think that's what he is talking about here.
Now you could argue that he could buy other types of investments to generate yield like ETF's, preferred stocks, or exchage traded debt, but I do know the bond market is a lot different than the stock market.
NewlyRetired
Footballguy
You are not wrong, you are just exaggerating the performance difference.
Some basic low risk bonds have very high buyins, in the multi million dollar area. If memory serves the buyin was $2.5 million for one of our bonds, which was way way way way beyond what I could afford given I needed a bond ladder.
When the municipalities/companies who issue the bonds set such a high buyin, they also deliver a slightly better yield when maturing. And by slightly I mean in the .5%-1.5% area over comparable risk bonds. It was that slight difference that helped it make financial sense to use an adviser.
I have no bonds anywhere near close to 10% returns. Good lord
I don't know any more about bonds than you do to be honest and my bond ignorance was the main reason we decided to use a FA because we knew it had to be an important part of our retirement income generation.
If it was not for bonds (and the 33/33/33 mix) I may have tried to do it myself which would have been an huge mistake seeing how much better she has done than I would have for the regular mutual fund investment part of the portfolio.
In the end though this is a meaningless discussion. Each person needs to decide on their own what is best for their own situation and knowledge level.
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Maybe you don't, but many people do. Maybe 10X your salary is the right amount, but it's not for everybody. And not everyone should have term, and not everyone should own the policy in the same way. And not everyone needs their beneficiaries set up the same, and not everyone has the same tolerance for risk to stick it out when the market turns, and everyone does not have the same needs when it comes to disability insurance or long term care, or estate planning, etc. The best FAs realize that you are not everyone.
A good FA does way more than manage money. And while it's perfectly acceptable for you to not need one far more people do, preceisly because they are not you. As eoMMan says, they llok at the complete picture and how it all fits together.
FUBAR
Footballguy
If I could get bonds with 10% yield and less risk than stocks, I'd probably be all in on bonds.You are not wrong, you are just exaggerating the performance difference.
Some basic low risk bonds have very high buyins, in the multi million dollar area. If memory serves the buyin was $2.5 million for one of our bonds, which was way way way way beyond what I could afford given I needed a bond ladder.
When the municipalities/companies who issue the bonds set such a high buyin, they also deliver a slightly better yield when maturing. And by slightly I mean in the .5%-1.5% area over comparable risk bonds. It was that slight difference that helped it make financial sense to use an adviser.
I have no bonds anywhere near close to 10% returns. Good lord
I don't know any more about bonds than you do to be honest and my bond ignorance was the main reason we decided to use a FA because we knew it had to be an important part of our retirement income generation.
If it was not for bonds (and the 33/33/33 mix) I may have tried to do it myself which would have been an huge mistake seeing how much better she has done than I would have for the regular mutual fund investment part of the portfolio.
In the end though this is a meaningless discussion. Each person needs to decide on their own what is best for their own situation and knowledge level.
wilked
Footballguy
All this makes sense, but for Allah's sake, please don't pay someone a percentage of your assets annually for this. Budgets don't change year-year, life insurance, beneficiaries, etc etc. Use a fee-based advisor, pay him/her for their time, ask them to educate you in the process, then check in with them again on life-event changes / every 10 years
NewlyRetired
Footballguy
I think you are confusing terms Wilked.
A fee only based financial adviser, by definition, takes a percentage of the assets. That differs them from commission based financial advisers. Everyone should use a fee only adviser if they are using an FA.
I think what you mean instead is that he should just do a one time payment for services. That is different from a fee only FA who will have ongoing management of your money.
wilked
Footballguy
xulf
Footballguy
I hate having the Roth 401k as an option, because it just stares at me and I feel like I need to be contributing something to it.
My wife is grad school to become an NP (graduates next May) and this will likely be the last year we are eligible for a Roth IRA. I'm maxing out my 401k and have only put a couple thousand into the Roth version over the last couple of years because I like having the additional cash flow.
I wish there was a simple and straight-forward solution for the allocation percentages by age.
My wife is grad school to become an NP (graduates next May) and this will likely be the last year we are eligible for a Roth IRA. I'm maxing out my 401k and have only put a couple thousand into the Roth version over the last couple of years because I like having the additional cash flow.
I wish there was a simple and straight-forward solution for the allocation percentages by age.
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