Personal Finance Advice and Education! (2 Viewers)

[Nugget]

Daughter has saved almost 15k. We’ve convinced her to put it in a Roth.

Ours is through work so we have no clue where to start one.

Suggestions?

She won’t be able to put the whole amount in at once, though. Why are you suggesting Roth?

I’m a Neanderthal. I don’t know anything about any of this stuff. I just put in as much as I can every year and I don’t look at it.

Any suggestions would be extremely helpful.

How old is your daughter? I just opened a teen account through Fidelity for my son - it was pretty easy. My daughter has her Roth through Schwab.

18

My daughter is 19. She has 3 accounts - checking, savings, and a Roth IRA. The Roth helps for longer term savings and the money in the Roth doesn’t count towards her FAFSA. She can pull the contributions out of the Roth without penalty if she needs to, but hopefully they can start a nice investment base for her. She has just a US stock index fund in the Roth.

 

[Sand]

Daughter has saved almost 15k. We’ve convinced her to put it in a Roth.

Ours is through work so we have no clue where to start one.

Suggestions?

She won’t be able to put the whole amount in at once, though. Why are you suggesting Roth?

I’m a Neanderthal. I don’t know anything about any of this stuff. I just put in as much as I can every year and I don’t look at it.

Any suggestions would be extremely helpful.

How old is your daughter? I just opened a teen account through Fidelity for my son - it was pretty easy. My daughter has her Roth through Schwab.

18

My daughter is 19. She has 3 accounts - checking, savings, and a Roth IRA. The Roth helps for longer term savings and the money in the Roth doesn’t count towards her FAFSA. She can pull the contributions out of the Roth without penalty if she needs to, but hopefully they can start a nice investment base for her. She has just a US stock index fund in the Roth.

My kid also has a Roth seeded by his grandfather. He knows it's there but doesn't know he can pull money out without penalty. I'm not telling him, either.

 

[BeTheMatch]

Daughter has saved almost 15k. We’ve convinced her to put it in a Roth.

Ours is through work so we have no clue where to start one.

Suggestions?

She won’t be able to put the whole amount in at once, though. Why are you suggesting Roth?

I’m a Neanderthal. I don’t know anything about any of this stuff. I just put in as much as I can every year and I don’t look at it.

Any suggestions would be extremely helpful.

How old is your daughter? I just opened a teen account through Fidelity for my son - it was pretty easy. My daughter has her Roth through Schwab.

18

My daughter is 19. She has 3 accounts - checking, savings, and a Roth IRA. The Roth helps for longer term savings and the money in the Roth doesn’t count towards her FAFSA. She can pull the contributions out of the Roth without penalty if she needs to, but hopefully they can start a nice investment base for her. She has just a US stock index fund in the Roth.

My kid also has a Roth seeded by his grandfather. He knows it's there but doesn't know he can pull money out without penalty. I'm not telling him, either.

Same with my 18-year-old son.

 

[matttyl]

But in the case of all of your kids, no deposits can be made unless the child has earned income, correct?

 

[-OZ-]

But in the case of all of your kids, no deposits can be made unless the child has earned income, correct?

In the IRA, right. That’s why my 18yo doesn’t have one yet. Instead his $6000 he received in scholarships on top of the full ride (tuition) go into savings until he starts working.

 

[Sand]

But in the case of all of your kids, no deposits can be made unless the child has earned income, correct?

My kid had a UTMA that we slowly moved over to a Roth as he earned money. It's all in there now - just took time.

 

[-OZ-]

More I bond math. Presuming we actually want to keep some long term, I think it makes sense to sell when the ones we hold have hit 3 months at 3.4%, lose that $85 (3 months at $28/m) by selling $10k worth. Then the fixed rate of 0.9% makes an additional $90/year until we sell. Of course you’d need to hold another 12 months. But unless you need those funds this seems like an easy choice.

Am I missing anything?

I don’t think you’re missing anything, but is a .9% base enough to go through all that for?

Maybe, maybe not. One of the biggest risks in retirement is inflation. So far I haven’t seen better inflation hedges for the cash bucket part of our portfolio - first two years expenses (minus pensions). To lock in better than inflation seems a decent plan. But this is only going to be 5-10% of our retirement portfolio. Plus larger expenses between 1-5 years away, if the market has dropped (or not recovered by then)

Sounds good. You and I are just at different point in life, and our savings plans. So your above makes perfect sense.

Thanks. Been at this for twenty plus years.
Now I get to decide whether I want to put money into I bonds now, and be able to withdraw earlier, or put money into M1’s new HYSA and just wait until we cash out the other I bonds (I think in august). If the 5% were guaranteed to last I’d probably just go that way. We don’t need this money right now and IRAs are maxed. We’re building our safe accounts.
The “issue” becomes we’re probably going to need a new vehicle in the Not too distant future despite my trying to hold out. The 2011 odyssey is doing great but how long can we count on it for long trips? I’d love to wait another 3 years.
Of course, the primary goal with the I bonds is the first couple years of retirement which is more than 5 years out but they’re also our EF.

 

[Andrew74]

Daughter has saved almost 15k. We’ve convinced her to put it in a Roth.

Ours is through work so we have no clue where to start one.

Suggestions?

Any of the big firms are fine - Vanguard, Schwab, Fidelity. Since she’s 18, she can pick one and go online and set it up. As others have said, she can contribute up to $6,500 a year if she has earned income. If she earns less than $6,500, she can only contribute up to what she’s earned. Link a bank account and go to the Roth’s website and click “contribute to Roth.” Since she’ll never pay tax on this account, I’d recommend nothing but stocks at all times.

So jealous of my kids that they’ll be able to fund Roths as teens at 0% tax rates.

 

[matttyl]

So just to confirm my thinking on kids and ROTHs is correct - my kid is too young to work (still in elementary school). He has money in his own name from an inheritance. That money could be counted against him when looking at college funding/financial aid. Once he does start working and earning money, every dollar he earns in income is a dollar I can shift from his savings account (or other vehicle) into a ROTH in his name - which won’t be counted in the financial aid calculation?

 

[-OZ-]

So just to confirm my thinking on kids and ROTHs is correct - my kid is too young to work (still in elementary school). He has money in his own name from an inheritance. That money could be counted against him when looking at college funding/financial aid. Once he does start working and earning money, every dollar he earns in income is a dollar I can shift from his savings account (or other vehicle) into a ROTH in his name - which won’t be counted in the financial aid calculation?

For FAFSA, correct. For CSS nonfederal / college internal grants, the school can ask about retirement accounts.

FWIW, even with 5 kids, 2 in college and a moderate income, the FAFSA still came back way over the amount we’re willing to pay for college or state schools would cost.

 

[The Z Machine]

FWIW, even with 5 kids, 2 in college and a moderate income, the FAFSA still came back way over the amount we’re willing to pay for college or state schools would cost.

That's just sad. Helping your children pay for college shouldn't be a such a burden on the family. Nor should it put kids in crippling debt that they won't pay off for 30 years.

 

[-OZ-]

FWIW, even with 5 kids, 2 in college and a moderate income, the FAFSA still came back way over the amount we’re willing to pay for college or state schools would cost.

That's just sad. Helping your children pay for college shouldn't be a such a burden on the family. Nor should it put kids in crippling debt that they won't pay off for 30 years.

I hear you, but our oldest is in community college, getting into aerospace maintenance now; our senior will attend the local university with full tuition paid. It can definitely be done without crippling debt.

My point was more in reference to the FAFSA not being needed or helpful for many. So I wouldn’t make decisions solely to work the FAFSA.

 

[Mitchie]

Daughter has saved almost 15k. We’ve convinced her to put it in a Roth.

Ours is through work so we have no clue where to start one.

Suggestions?

Any of the big firms are fine - Vanguard, Schwab, Fidelity. Since she’s 18, she can pick one and go online and set it up. As others have said, she can contribute up to $6,500 a year if she has earned income. If she earns less than $6,500, she can only contribute up to what she’s earned. Link a bank account and go to the Roth’s website and click “contribute to Roth.” Since she’ll never pay tax on this account, I’d recommend nothing but stocks at all times.

So jealous of my kids that they’ll be able to fund Roths as teens at 0% tax rates.

they're paying taxes on the earned income.

 

[Andrew74]

Daughter has saved almost 15k. We’ve convinced her to put it in a Roth.

Ours is through work so we have no clue where to start one.

Suggestions?

Any of the big firms are fine - Vanguard, Schwab, Fidelity. Since she’s 18, she can pick one and go online and set it up. As others have said, she can contribute up to $6,500 a year if she has earned income. If she earns less than $6,500, she can only contribute up to what she’s earned. Link a bank account and go to the Roth’s website and click “contribute to Roth.” Since she’ll never pay tax on this account, I’d recommend nothing but stocks at all times.

So jealous of my kids that they’ll be able to fund Roths as teens at 0% tax rates.

they're paying taxes on the earned income.

I did make the assumption as an 18 yo their marginal tax bracket is low, if not zero.

 

[Instinctive]

So just to confirm my thinking on kids and ROTHs is correct - my kid is too young to work (still in elementary school). He has money in his own name from an inheritance. That money could be counted against him when looking at college funding/financial aid. Once he does start working and earning money, every dollar he earns in income is a dollar I can shift from his savings account (or other vehicle) into a ROTH in his name - which won’t be counted in the financial aid calculation?

If you really want there are ways to do a business and you can pay the kid income without breaking child labor laws if you have like a family business. Remember discussing at length in law school and bookmarking in my brain for when my kids are like 10.

 

[Mitchie]

Daughter has saved almost 15k. We’ve convinced her to put it in a Roth.

Ours is through work so we have no clue where to start one.

Suggestions?

Any of the big firms are fine - Vanguard, Schwab, Fidelity. Since she’s 18, she can pick one and go online and set it up. As others have said, she can contribute up to $6,500 a year if she has earned income. If she earns less than $6,500, she can only contribute up to what she’s earned. Link a bank account and go to the Roth’s website and click “contribute to Roth.” Since she’ll never pay tax on this account, I’d recommend nothing but stocks at all times.

So jealous of my kids that they’ll be able to fund Roths as teens at 0% tax rates.

they're paying taxes on the earned income.

I did make the assumption as an 18 yo their marginal tax bracket is low, if not zero.

10% b/t 0 and 15K

 

[Mitchie]

So just to confirm my thinking on kids and ROTHs is correct - my kid is too young to work (still in elementary school). He has money in his own name from an inheritance. That money could be counted against him when looking at college funding/financial aid. Once he does start working and earning money, every dollar he earns in income is a dollar I can shift from his savings account (or other vehicle) into a ROTH in his name - which won’t be counted in the financial aid calculation?

If you really want there are ways to do a business and you can pay the kid income without breaking child labor laws if you have like a family business. Remember discussing at length in law school and bookmarking in my brain for when my kids are like 10.

eh noone pays attention to those silly child labor laws these days

 

[stbugs]

FWIW, even with 5 kids, 2 in college and a moderate income, the FAFSA still came back way over the amount we’re willing to pay for college or state schools would cost.

That's just sad. Helping your children pay for college shouldn't be a such a burden on the family. Nor should it put kids in crippling debt that they won't pay off for 30 years.

I hear you, but our oldest is in community college, getting into aerospace maintenance now; our senior will attend the local university with full tuition paid. It can definitely be done without crippling debt.

My point was more in reference to the FAFSA not being needed or helpful for many. So I wouldn’t make decisions solely to work the FAFSA.

I’m not even applying for FAFSA for my middle son because we never got squat. I made my oldest take out the minimum loans we got for him because he went out of state and his scholarship didn’t fully cover the entire out of state difference. I told my middle son that if he went to App State over a couple out of state that he wouldn’t have any loans. Might not seem fair, but we’ll still pay a good amount less and I wanted to give him a choice. He chose in state along with a bunch of friends. Nowadays, I think coming out of school with $0 debt is huge. He’s also got a nice brokerage account from work and gifts which should cover all of his ancillary costs for all four years. If he keeps decent summer jobs, I’ll work with him on the Roth because he’ll have a real nice egg to start out after college.

 

[Orange&Blue]

So just to confirm my thinking on kids and ROTHs is correct - my kid is too young to work (still in elementary school). He has money in his own name from an inheritance. That money could be counted against him when looking at college funding/financial aid. Once he does start working and earning money, every dollar he earns in income is a dollar I can shift from his savings account (or other vehicle) into a ROTH in his name - which won’t be counted in the financial aid calculation?

For FAFSA, correct. For CSS nonfederal / college internal grants, the school can ask about retirement accounts.

FWIW, even with 5 kids, 2 in college and a moderate income, the FAFSA still came back way over the amount we’re willing to pay for college or state schools would cost.

what does this mean?

I'm starting to look at this and it looks daunting

 

[-OZ-]

So just to confirm my thinking on kids and ROTHs is correct - my kid is too young to work (still in elementary school). He has money in his own name from an inheritance. That money could be counted against him when looking at college funding/financial aid. Once he does start working and earning money, every dollar he earns in income is a dollar I can shift from his savings account (or other vehicle) into a ROTH in his name - which won’t be counted in the financial aid calculation?

For FAFSA, correct. For CSS nonfederal / college internal grants, the school can ask about retirement accounts.

FWIW, even with 5 kids, 2 in college and a moderate income, the FAFSA still came back way over the amount we’re willing to pay for college or state schools would cost.

what does this mean?

I'm starting to look at this and it looks daunting

The FAFSA gives you the “family expected contribution” which in turn shows the student’s need for various forms of federal aid. Many schools use it for the same purpose and even for non- need based funds. Some schools require the CSS instead, which can include other assets like retirement accounts.

The FAFSA isn’t that hard to complete, and I’m told that when the federal government gave schools COVID money, many schools only gave those funds to students who had completed the FAFSA, regardless of need. (I’m not sure if this is completely accurate)

 

[humpback]

Daughter has saved almost 15k. We’ve convinced her to put it in a Roth.

Ours is through work so we have no clue where to start one.

Suggestions?

Any of the big firms are fine - Vanguard, Schwab, Fidelity. Since she’s 18, she can pick one and go online and set it up. As others have said, she can contribute up to $6,500 a year if she has earned income. If she earns less than $6,500, she can only contribute up to what she’s earned. Link a bank account and go to the Roth’s website and click “contribute to Roth.” Since she’ll never pay tax on this account, I’d recommend nothing but stocks at all times.

So jealous of my kids that they’ll be able to fund Roths as teens at 0% tax rates.

they're paying taxes on the earned income.

I did make the assumption as an 18 yo their marginal tax bracket is low, if not zero.

10% b/t 0 and 15K

You aren't accounting for the standard deduction. Essentially that gives them the first $12,950 (for 2022, going up to $13,850 for 2023) of earned income a 0% federal tax rate, and most teenagers will fall well under that earned income amount.

 

[-OZ-]

Daughter has saved almost 15k. We’ve convinced her to put it in a Roth.

Ours is through work so we have no clue where to start one.

Suggestions?

Any of the big firms are fine - Vanguard, Schwab, Fidelity. Since she’s 18, she can pick one and go online and set it up. As others have said, she can contribute up to $6,500 a year if she has earned income. If she earns less than $6,500, she can only contribute up to what she’s earned. Link a bank account and go to the Roth’s website and click “contribute to Roth.” Since she’ll never pay tax on this account, I’d recommend nothing but stocks at all times.

So jealous of my kids that they’ll be able to fund Roths as teens at 0% tax rates.

they're paying taxes on the earned income.

I did make the assumption as an 18 yo their marginal tax bracket is low, if not zero.

10% b/t 0 and 15K

You aren't accounting for the standard deduction. Essentially that gives them the first $12,950 (for 2022, going up to $13,850 for 2023) of earned income a 0% federal tax rate, and most teenagers will fall well under that earned income amount.

Don’t forget it’s slightly different if you’re claiming the kid. But your point remains.
Dependents – If you can be claimed as a dependent by another taxpayer, your standard deduction for 2022 is limited to the greater of: (1) $1,150, or (2) your earned income plus $400 (but the total can't be more than the basic standard deduction for your filing status).

 

[Nugget]

I put money into Treasury Direct yesterday to purchase some 4 week treasuries. I put in an order for the next two auctions, and then added some money to the “C of I” account. Plan is to buy 2 more weeks of the 4 week and have my mini ladder. I figure while the short term rates are above the iBond rates, I’ll let them play here until October. Debt ceiling fears are keeping short term rates high.

 

[The Z Machine]

I put money into Treasury Direct yesterday to purchase some 4 week treasuries. I put in an order for the next two auctions, and then added some money to the “C of I” account. Plan is to buy 2 more weeks of the 4 week and have my mini ladder. I figure while the short term rates are above the iBond rates, I’ll let them play here until October. Debt ceiling fears are keeping short term rates high.

Look at you, part time bond trader.

 

[Nugget]

I put money into Treasury Direct yesterday to purchase some 4 week treasuries. I put in an order for the next two auctions, and then added some money to the “C of I” account. Plan is to buy 2 more weeks of the 4 week and have my mini ladder. I figure while the short term rates are above the iBond rates, I’ll let them play here until October. Debt ceiling fears are keeping short term rates high.

Look at you, part time bond trader.

I bailed on that plan and just bought iBonds. I don’t want to deal with more tax documents and I really should be simplifying my finances.

 

[The Z Machine]

I put money into Treasury Direct yesterday to purchase some 4 week treasuries. I put in an order for the next two auctions, and then added some money to the “C of I” account. Plan is to buy 2 more weeks of the 4 week and have my mini ladder. I figure while the short term rates are above the iBond rates, I’ll let them play here until October. Debt ceiling fears are keeping short term rates high.

Look at you, part time bond trader.

I bailed on that plan and just bought iBonds. I don’t want to deal with more tax documents and I really should be simplifying my finances.

Don't you want to eek out that extra $12.43???

 

[-OZ-]

Anyone else thinking about cashing their I bonds in June 1? Not too worried about the ceiling but when all 3 of my incomes are federal, there’s a little concern. Besides, I’m cashing out at some point anyway - and will probably buy back in before November.

 

[Orange&Blue]

Anyone else thinking about cashing their I bonds in June 1? Not too worried about the ceiling but when all 3 of my incomes are federal, there’s a little concern. Besides, I’m cashing out at some point anyway - and will probably buy back in before November.

i have 3 months of expenses in checking or I would do that.

 

[-OZ-]

Anyone else thinking about cashing their I bonds in June 1? Not too worried about the ceiling but when all 3 of my incomes are federal, there’s a little concern. Besides, I’m cashing out at some point anyway - and will probably buy back in before November.

i have 3 months of expenses in checking or I would do that.

it’s never been an issue for us but we do have one - two months (if we cut back a little)

 

[jm192]

Anyone else thinking about cashing their I bonds in June 1? Not too worried about the ceiling but when all 3 of my incomes are federal, there’s a little concern. Besides, I’m cashing out at some point anyway - and will probably buy back in before November.

I need to figure out where ours are on the interest spectrum.

I'll probably let them ride until we're drawing crap interest to minimize the 3 month penalty.

I'm at a bit of a yellow light situation. I took a new job that is 30 minutes away. Wife found a house that she really likes that is closer to said job. I've got some pause about moving/buying a new house. But having 40K in Ibonds will be useful to pull from should we decide to move forward with it.

 

[NutterButter]

I thought 8/1 was the correct play so the 3 months you lose is at the new lower rate?

 

[Nugget]

I thought 8/1 was the correct play so the 3 months you lose is at the new lower rate?

Not everyone had their rate transfer on May 1. It is in 6 month increments of when you bought the i-bonds.

 

[-OZ-]

I thought 8/1 was the correct play so the 3 months you lose is at the new lower rate?

Not everyone had their rate transfer on May 1. It is in 6 month increments of when you bought the i-bonds.

Yeah, that’s the hard part. Hypothetically, you bought in October (2021 or earlier) so you get last April’s rate to March; November’s rate to October; but then wait 3 months or lose 3 months aT November’s rate. By the time you could sell without losing that rate, it’s January.

 

[Desert_Power]

You want to pull it three calendar months after when it resets to the lower rate (assuming you want to withdraw)

 

[-OZ-]

You want to pull it three calendar months after when it resets to the lower rate (assuming you want to withdraw)

I think, assuming you’ll hold another year, it makes sense to sell if you can rebuy with the 0.9% fixed

 

[culdeus]

Curious what you all would do here. My sister is not the sharpest financial tool. She and husband are both teachers and inherited a small windfall. This was a mix of stocks and cash, about 100k.

They had small stuff at Schwab, Roths, some index funds whatever.

They moved this into an account there and setup a discussion with the local advisor, and opened a robo advisor account.

The above here is all I'm confident is fact. What happens next is both critical and fuzzy.

So in the office in August, they claim one of the helpers showed them how to move this stock and cash into the robo account. They claim they did this all with the team there, and things looked ok. The objective was to lockbox that up and let it go to boost their retirement. ok. They were to fund the Roth IRA from proceeds, I think.

But then it gets really weird. They asked me to go take a look and see how they were doing as they were out for summer, and maybe wanted to revisit this. ok. I immediately noted they had a margin loan on this, and asked why. They were clueless.

So what happened here, apparently, was they held the stocks, but transferred the market value to the robo fund resulting in a massive margin loan. For the entire school year they paid about 11% interest on this, but the stocks they held and the robo advisory each yielded in the 11-12% range.

So for the moment the amount of money they are "out" is likely negligible, but I mean WWYD?

 

[Sand]

So for the moment the amount of money they are "out" is likely negligible, but I mean WWYD?

Straight up malpractice by the advisor. He should cover the loan interest. How and why that wasn't caught? How did that institution allow a massive amount of margin?

Having said that if there was a massive margin loan that means they were double exposed to the market and should have made out like bandits. They should have gains on the other side of the book, too.

 

[Chadstroma]

Curious what you all would do here. My sister is not the sharpest financial tool. She and husband are both teachers and inherited a small windfall. This was a mix of stocks and cash, about 100k.

They had small stuff at Schwab, Roths, some index funds whatever.

They moved this into an account there and setup a discussion with the local advisor, and opened a robo advisor account.

The above here is all I'm confident is fact. What happens next is both critical and fuzzy.

So in the office in August, they claim one of the helpers showed them how to move this stock and cash into the robo account. They claim they did this all with the team there, and things looked ok. The objective was to lockbox that up and let it go to boost their retirement. ok. They were to fund the Roth IRA from proceeds, I think.

But then it gets really weird. They asked me to go take a look and see how they were doing as they were out for summer, and maybe wanted to revisit this. ok. I immediately noted they had a margin loan on this, and asked why. They were clueless.

So what happened here, apparently, was they held the stocks, but transferred the market value to the robo fund resulting in a massive margin loan. For the entire school year they paid about 11% interest on this, but the stocks they held and the robo advisory each yielded in the 11-12% range.

So for the moment the amount of money they are "out" is likely negligible, but I mean WWYD?

That is criminal. And I am not really exaggerating much there. There are tons of 'checks and balances' that are supposed to happen on investment products and making sure you are advising the correct product for the client. This is clearly not the right fit for your sister and BIL. Financial advising should never happen in a way that those being advised have no clue what the heck is going on. Whatever the details are, it is clear that they have no clue. You can't advise something complicated like a margin loan when they don't even know they have a freaking margin loan. This is a brokerage that is getting a 11% income on about $100K and the clients are clueless so it is even further suspicious that the advising was for their own enrichment versus the best interest of the client.

I would consider filing a complaint with the SEC and CFPB if you want to go that route but I would 100% move the brokerage account. Schwab has a reputation for being over priced anyways but I happened to see this earlier today (funny enough) https://www.thinkadvisor.com/2023/06/16/schwab-robo-advisor-hidden-fees-case-moves-to-federal-court/

 

[culdeus]

So for the moment the amount of money they are "out" is likely negligible, but I mean WWYD?

Straight up malpractice by the advisor. He should cover the loan interest. How and why that wasn't caught? How did that institution allow a massive amount of margin?

Having said that if there was a massive margin loan that means they were double exposed to the market and should have made out like bandits. They should have gains on the other side of the book, too.

Yeah, that's the thing they were basically 2x leveraged since August, and the market is up like 12% since then. So more or less it all washes at most it's 1k here or there.

I mean it could have gone any number of other ways, all of them really bad.

They are not the type to really get confrontational.

I don't know how it would exactly go from here with CFPB. I feel like everyone in that office is probably ****ting bricks though.

 

[Sand]

So for the moment the amount of money they are "out" is likely negligible, but I mean WWYD?

Straight up malpractice by the advisor. He should cover the loan interest. How and why that wasn't caught? How did that institution allow a massive amount of margin?

Having said that if there was a massive margin loan that means they were double exposed to the market and should have made out like bandits. They should have gains on the other side of the book, too.

Yeah, that's the thing they were basically 2x leveraged since August, and the market is up like 12% since then. So more or less it all washes at most it's 1k here or there.

I hope I'm getting you right. In one account they're even and in the other they should be +12% or something close? So they should be up by their asset allocation on the whole. If they're actually at +-zero in total during this market move I'd be bouncing off the moon pissed. I'd want the advisor to cover the interest which would make the +12% come true. Heck, even if I was up in both I'd want those bums to make up the interest and walk away with 24%. What they did is heart stopping if the market had tanked.

If the market went the other way they'd be looking at -35%. Eesh.

 

[Mitchie]

Curious what you all would do here. My sister is not the sharpest financial tool. She and husband are both teachers and inherited a small windfall. This was a mix of stocks and cash, about 100k.

They had small stuff at Schwab, Roths, some index funds whatever.

They moved this into an account there and setup a discussion with the local advisor, and opened a robo advisor account.

The above here is all I'm confident is fact. What happens next is both critical and fuzzy.

So in the office in August, they claim one of the helpers showed them how to move this stock and cash into the robo account. They claim they did this all with the team there, and things looked ok. The objective was to lockbox that up and let it go to boost their retirement. ok. They were to fund the Roth IRA from proceeds, I think.

But then it gets really weird. They asked me to go take a look and see how they were doing as they were out for summer, and maybe wanted to revisit this. ok. I immediately noted they had a margin loan on this, and asked why. They were clueless.

So what happened here, apparently, was they held the stocks, but transferred the market value to the robo fund resulting in a massive margin loan. For the entire school year they paid about 11% interest on this, but the stocks they held and the robo advisory each yielded in the 11-12% range.

So for the moment the amount of money they are "out" is likely negligible, but I mean WWYD?

could've been a disaster, seems like it's come up as a wash so far fortunately, count their blessings and move money to a new advisor asap.

 

[culdeus]

So for the moment the amount of money they are "out" is likely negligible, but I mean WWYD?

Straight up malpractice by the advisor. He should cover the loan interest. How and why that wasn't caught? How did that institution allow a massive amount of margin?

Having said that if there was a massive margin loan that means they were double exposed to the market and should have made out like bandits. They should have gains on the other side of the book, too.

Yeah, that's the thing they were basically 2x leveraged since August, and the market is up like 12% since then. So more or less it all washes at most it's 1k here or there.

I hope I'm getting you right. In one account they're even and in the other they should be +12% or something close? So they should be up by their asset allocation on the whole. If they're actually at +-zero in total during this market move I'd be bouncing off the moon pissed. I'd want the advisor to cover the interest which would make the +12% come true. Heck, even if I was up in both I'd want those bums to make up the interest and walk away with 24%. What they did is heart stopping if the market had tanked.

If the market went the other way they'd be looking at -35%. Eesh.

Account A. Robo +12 ish
Account B. Brokerage w loan. 0. (+11 and -11)

 

[jm192]

Curious what you all would do here. My sister is not the sharpest financial tool. She and husband are both teachers and inherited a small windfall. This was a mix of stocks and cash, about 100k.

They had small stuff at Schwab, Roths, some index funds whatever.

They moved this into an account there and setup a discussion with the local advisor, and opened a robo advisor account.

The above here is all I'm confident is fact. What happens next is both critical and fuzzy.

So in the office in August, they claim one of the helpers showed them how to move this stock and cash into the robo account. They claim they did this all with the team there, and things looked ok. The objective was to lockbox that up and let it go to boost their retirement. ok. They were to fund the Roth IRA from proceeds, I think.

But then it gets really weird. They asked me to go take a look and see how they were doing as they were out for summer, and maybe wanted to revisit this. ok. I immediately noted they had a margin loan on this, and asked why. They were clueless.

So what happened here, apparently, was they held the stocks, but transferred the market value to the robo fund resulting in a massive margin loan. For the entire school year they paid about 11% interest on this, but the stocks they held and the robo advisory each yielded in the 11-12% range.

So for the moment the amount of money they are "out" is likely negligible, but I mean WWYD?

Absolutely unbelievable.

Agree with filing a complaint. That "advisor" needs to be stopped.

 

[culdeus]

Googling around here, is FINRA not the right place for this to land?

 

[Sand]

So for the moment the amount of money they are "out" is likely negligible, but I mean WWYD?

Straight up malpractice by the advisor. He should cover the loan interest. How and why that wasn't caught? How did that institution allow a massive amount of margin?

Having said that if there was a massive margin loan that means they were double exposed to the market and should have made out like bandits. They should have gains on the other side of the book, too.

Yeah, that's the thing they were basically 2x leveraged since August, and the market is up like 12% since then. So more or less it all washes at most it's 1k here or there.

I hope I'm getting you right. In one account they're even and in the other they should be +12% or something close? So they should be up by their asset allocation on the whole. If they're actually at +-zero in total during this market move I'd be bouncing off the moon pissed. I'd want the advisor to cover the interest which would make the +12% come true. Heck, even if I was up in both I'd want those bums to make up the interest and walk away with 24%. What they did is heart stopping if the market had tanked.

If the market went the other way they'd be looking at -35%. Eesh.

Account A. Robo +12 ish
Account B. Brokerage w loan. 0. (+11 and -11)

That makes sense. Personally I'd lean on the advisor to cover some of the interest loan as that setup appears to be purely exploitative and probably illegal, but in the end I'd be pretty happy to just get my stuff out of there. And when they do make sure they don't liquidate things and completely hose them down with short term cap gains taxes.

 

[stbugs]

So for the moment the amount of money they are "out" is likely negligible, but I mean WWYD?

Straight up malpractice by the advisor. He should cover the loan interest. How and why that wasn't caught? How did that institution allow a massive amount of margin?

Having said that if there was a massive margin loan that means they were double exposed to the market and should have made out like bandits. They should have gains on the other side of the book, too.

Yeah, that's the thing they were basically 2x leveraged since August, and the market is up like 12% since then. So more or less it all washes at most it's 1k here or there.

I hope I'm getting you right. In one account they're even and in the other they should be +12% or something close? So they should be up by their asset allocation on the whole. If they're actually at +-zero in total during this market move I'd be bouncing off the moon pissed. I'd want the advisor to cover the interest which would make the +12% come true. Heck, even if I was up in both I'd want those bums to make up the interest and walk away with 24%. What they did is heart stopping if the market had tanked.

If the market went the other way they'd be looking at -35%. Eesh.

Account A. Robo +12 ish
Account B. Brokerage w loan. 0. (+11 and -11)

They really didn’t lose anything and by simple math they gained 1%. I disagree with the brokerage paying interest back, except as a “penalty” for allowing this. That brokerage with loan basically should never have happened. They made the 12% on the Robo account and it should have been funded by the stocks in the brokerage account but it was funded by the loan. The increase in the stocks covered the loan.

So, in the end, it looks like they got a little extra and didn’t miss out on the gain in the Robo account. Yes, they had a huge effin risk of losing way more than expected but they also could have accidentally made out. August was choppy so early August and late August were better than middle. If they had accidentally waited into September they could have lucked into a huge gain.

Anyway, I would fix it as it’s been a big run up so higher chance of getting whacked and then I’d contact a manager. Since there was no true loss, I’d see if they’d cover the interest and you get a bonus. I might file a complaint somewhere just to let them know as this could be costing other people a bunch without them knowing. Hopefully, it’s just one idiot advisor that made a legit mistake.

 

[culdeus]

So for the moment the amount of money they are "out" is likely negligible, but I mean WWYD?

Straight up malpractice by the advisor. He should cover the loan interest. How and why that wasn't caught? How did that institution allow a massive amount of margin?

Having said that if there was a massive margin loan that means they were double exposed to the market and should have made out like bandits. They should have gains on the other side of the book, too.

Yeah, that's the thing they were basically 2x leveraged since August, and the market is up like 12% since then. So more or less it all washes at most it's 1k here or there.

I hope I'm getting you right. In one account they're even and in the other they should be +12% or something close? So they should be up by their asset allocation on the whole. If they're actually at +-zero in total during this market move I'd be bouncing off the moon pissed. I'd want the advisor to cover the interest which would make the +12% come true. Heck, even if I was up in both I'd want those bums to make up the interest and walk away with 24%. What they did is heart stopping if the market had tanked.

If the market went the other way they'd be looking at -35%. Eesh.

Account A. Robo +12 ish
Account B. Brokerage w loan. 0. (+11 and -11)

They really didn’t lose anything and by simple math they gained 1%. I disagree with the brokerage paying interest back, except as a “penalty” for allowing this. That brokerage with loan basically should never have happened. They made the 12% on the Robo account and it should have been funded by the stocks in the brokerage account but it was funded by the loan. The increase in the stocks covered the loan.

So, in the end, it looks like they got a little extra and didn’t miss out on the gain in the Robo account. Yes, they had a huge effin risk of losing way more than expected but they also could have accidentally made out. August was choppy so early August and late August were better than middle. If they had accidentally waited into September they could have lucked into a huge gain.

Anyway, I would fix it as it’s been a big run up so higher chance of getting whacked and then I’d contact a manager. Since there was no true loss, I’d see if they’d cover the interest and you get a bonus. I might file a complaint somewhere just to let them know as this could be costing other people a bunch without them knowing. Hopefully, it’s just one idiot advisor that made a legit mistake.

I'm inclined to have them go in and ask for all the interest back, and have Schwab tell them no because they made too much money on the loan. If they say no, then can hit them with govt. complaints and walk to somewhere else.

What is still so fuzzy is how they were able to draw this much margin, what are the applicable guidelines here? Can the average person legit borrow their whole portfolio like this?

 

[Sand]

I'm inclined to have them go in and ask for all the interest back, and have Schwab tell them no because they made too much money on the loan. If they say no, then can hit them with govt. complaints and walk to somewhere else.

What is still so fuzzy is how they were able to draw this much margin, what are the applicable guidelines here? Can the average person legit borrow their whole portfolio like this?

No - 50% is typically the limit for initial margin.

SEC.gov | Margin: Borrowing Money to Pay for Stocks

"Margin" is borrowing money from you broker to buy a stock and using your investment as collateral. Learn how margin works and the risks you may encounter.

www.sec.gov

 

[culdeus]

I'm inclined to have them go in and ask for all the interest back, and have Schwab tell them no because they made too much money on the loan. If they say no, then can hit them with govt. complaints and walk to somewhere else.

What is still so fuzzy is how they were able to draw this much margin, what are the applicable guidelines here? Can the average person legit borrow their whole portfolio like this?

No - 50% is typically the limit for initial margin.

SEC.gov | Margin: Borrowing Money to Pay for Stocks

"Margin" is borrowing money from you broker to buy a stock and using your investment as collateral. Learn how margin works and the risks you may encounter.

www.sec.gov

So something for sure broke on their side.

 

[culdeus]

Yeah I'm gonna have them send a letter basically asking

1. State that the intention expressed in August was to move the stocks and cash, period.
2. Provide your notes of the instructions given in August timeline, and where they conflict.
3. Provide any direct contact (calls, texts, emails) which were not followed up on outside of auto-generated items.
4. Provide the source of the margin, need a way to describe the question (Why could they pull so much)
5. Provide a to-the-penny amount of interest charged
6. State that our intention is to seek compensation of the amount above
7. Note that we expect this figure to be in excess of $5000, and would expect a response from your compliance team rather than customer service. Ideally within the next working day.

Anything else?