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This thread has been encouraging for me to read as I have always managed our finances with help from the T. Rowe Price Advisory Service and I think we have done well but there is always the nagging thought that we could have done better with an advisor.
We got turned off on financial advisors early in our marriage. Those of you who are military may be familiar with First Command. It's an advisory service aimed at the military and the assigned advisors tend to be retired military from the same specialty as the target customer. The advisor who visited with us came prepared with allotment forms already filled out in the amount that he was recommending that we put into "the plan" each month. (for those not familiar with the military, an allotment is an automatic deduction from your pay check).
As people we knew were signing up left and right for this plan, I guess he thought we were an easy mark but when I pulled out from under the table a stack of financial magazines and began questioning him, he no doubt realized that he was not dealing with what at that time was the typical military wife .He would have gotten a 13% commission on
our first year's contributions. Needless to say, we declined his services.
^^ Speaking of military.....
I've always felt they were easy marks for financial planners.
My BIL is ARMY through and through, so ANYTHING a former Army person would recommend he'd 'trust' that they have his best interest at heart...because of course he's former Army and had a business table on base somewhere, or at the gym on post
Decades ago a former Army guy who represented -- I THINK it was AIM (not sure) recommend load funds for him. I just happened to be at their house for the holiday and the topic came up. I tried to explain load funds, and said look at Vang, Fidel, and T. Rowe.....I was able to get them to put some money with T. Rowe I think. But he put most of his dollar-cost-averageing allotment into the load funds the former Army guy suggested.
Many, many military young people don't have much financial savvy. I think it's a darn shame that -- in my opinion -- they are preyed upon by people using the "fellow military" connection to get an "IN" with them. AND with young families and deployments, many young military people feel they won't have the time to do their own research. And I DO get that deployments and moving all the time -- does put a lot of other priorities on their plate. To me that just makes them doubly vulnerable to what could be misguided advice.
My BIL IS pleased with how his savings/investments/retirement planning has turned out. (Anything is better than nothing) BUT -- as many of you have commented..... could he have gotten the same results...that actually might have been better, if he hadn't paid loads all these years.
Well I hope your friend decided to stay with Vanguard and called them for guidance to determine if he needed to diversify his funds or go with the Vanguard Personal Planner. The only thing he might want to do is reduce his stocks from 80% since he is less than 10 years away from retirement.
The Boglehead 2 and 3 fund investing fund portfolio is a simple system for the average person to understand where their money will grow with low expense ratios and no financial planner fees. The fees whether through mutual funds or a financial planner can eat up your retirement money.
Years ago I started reading about mutual fund fees and 401K fees that can cause a slow leak in your retirement savings. It might seem small but 3000.00 a year loss is a 30,000 loss in 10 years. Once I looked at my mutual funds the fees charged by the mutual fund managers were between 1.90% to 2.45% which was eye opening. Sold all my funds slowly and moved them into Vanguard Stock Index funds VTSMX and Vanguard Bond Index Fund VBMFX. Both of these funds have an expenses ratio of .15%. My current ratio is at 60 stocks and 40 bonds.
There are low expense ratio mutual funds at Vanguard, Schwab and Fidelity if you are inclined to use other companies. Currently my retirement money is at all three.
I think most people do not want to learn how to manage their money and it is easier to pay a financial planner to invest their money. If you go this route you need to know that you are paying high fees for a service you can do yourself with some education.
Also with your friend having 80% in stocks he is probably doing extremely well with his money, until the stock market drops. AND it will drop. Maybe he did not have much money during the crash in 2008/2009 but the average loss of invested money was between 30 - 50% of total value. It took most people 4-5 years to recoup the money they lost. At his age it would be hard to recover before his retirement.
Last edited by littlebebe; 12-10-2017 at 12:36 PM..
It took most people 4-5 years to recoup the money they lost. At his age it would be hard to recover before his retirement.
If it takes about 5 years to recover -- and he's at least 8 years from retirement, then how is he too heavy in stocks?
He's 57 1/2 today, and the earliest he'll retire is age 65. (when his pension will start)
He also keeps at least 2 1/2 years worth of living expenses in an emergency fund MMA.
Because he's very conservative with his EF, he's willing to stay in stocks longer.
That being the situation, I don't see anything too wrong with him staying in stocks either.
Is there something I'm missing?
If it takes about 5 years to recover -- and he's at least 8 years from retirement, then how is he too heavy in stocks?
He's 57 1/2 today, and the earliest he'll retire is age 65. (when his pension will start)
He also keeps at least 2 1/2 years worth of living expenses in an emergency fund MMA.
Because he's very conservative with his EF, he's willing to stay in stocks longer.
That being the situation, I don't see anything too wrong with him staying in stocks either.
Is there something I'm missing?
Nothing wrong with keeping 80% in stocks if he can handle the downfall. Most people can't. 80% in stock allocation is considered high risk for a reason and is usually how younger people invest. When you are young and you lose a huge portion of your retirement dollars you still have 20-40 years for the money to grow.
In 2008/2009 most people who lost a large portion of their retirement value were not invested in 80% stocks. They were more conservative in their asset allocation. The recession was a scary time for people watching their retirement money drop day to day and week to week. The higher your retirement dollars the greater the drop. Losing 20,000 in one day was a normal scenario. Everyone with a large 401k or retirement account talked about it. You were too scared to take your money out, you were to scared to leave it in and watch it fall. If you had plenty of cash on hand with nerves to overlook your daily losses it was a great time to invest.
We are all riding a bull stock market right now. For me personally, my net worth looks exceptional. However, I know the stock market will drop in the future. History proves it. Maybe not as extreme as 2008 but we will have a large correction.
80% is fine if you can handle the drop.
Last edited by littlebebe; 12-10-2017 at 03:44 PM..
80% in diversified funds IS NOT HIGH RISK . it is high volatility , there is a big difference .
over a typical accumulation stage or 30 year retirement equities smooth out so much as to be quite low risk .the odds of losing money over decades is slim to none .
volatility can become risk when you try to match long term assets to short term money needs , that is definitely bad investor behavior not markets .
even at 65 you have money that will not be used to eat for 20 to 30 years . that is still long term money .
but even if you didn't cut back . 100% equities has a 92% success rate of surviving the 117 30 year cycles we had . 50/50 is a 96% success rate .
fixed income was the riskiest and that has a 45% success rate. it failed to last more than half those 117 cycles we had without a pay cut at a 4% draw rate. under 90% is considered un-acceptable
80% in diversified funds IS NOT HIGH RISK . it is high volatility , there is a big difference .
over a typical accumulation stage or 30 year retirement equities smooth out so much as to be quite low risk .the odds of losing money over decades is slim to none .
volatility can become risk when you try to match long term assets to short term money needs , that is definitely bad investor behavior not markets .
even at 65 you have money that will not be used to eat for 20 to 30 years . that is still long term money .
but even if you didn't cut back . 100% equities has a 92% success rate of surviving the 117 30 year cycles we had . 50/50 is a 96% success rate .
fixed income was the riskiest and that has a 45% success rate. it failed to last more than half those 117 cycles we had without a pay cut at a 4% draw rate. under 90% is considered un-acceptable
I am using the same terminology that brokerage firms use when determining the risk potential of a stock, bond or some mutual funds. The same terminology is used when a brokerage asks a person their risk tolerance to determine the best asset allocation for their money. They do not use volatility.
brokerage firms try to simplify everything in to the path of least liability , not what makes sense or is logical .
the natural cycles of a diversified fund is volatile . it has never not performed well , over typical accumulation and retirement time frames .
but brokerages have to consider poor investor behavior and that makes risk where there would be none from markets .
liability is the reason brokerage firms like target funds . they can put a 25 year old with little pucker factor in to an age based investment that is 100% stock , have them bail and lose money in a downturn and never be held accountable for a poor choice for them in their 401k's.
like i said fixed income , that asset brokerages call safe has failed to stand up to so many rolling 30 year retirement periods without taking a pay cut that they are considered un-safe at 4% draws .
Last edited by mathjak107; 12-10-2017 at 04:35 PM..
It isn’t just stocks v bonds in allocation and risk, it is the Beta of the stock or bond. There are stock mutual funds that are safer than high yield bond funds buying at the margin of risk.
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