Use Vanguard Advisory Service?

[The White Coat Investor]

This one came by email from someone having trouble posting:

 

After many hours of reading WCI, bogleheads, and sitting with local advisors happy to charge 1-2%AUM, I have looked into fully investing with Vanguard. A little background info:

Emergency funds: 6-12 months of expenses covered (separate checking account that covers mortgage for 1 year)
Debt: Only liabilities are the mortgage $287k balance 15 yr fixed @3% (Home valued at $400k)
Tax Filing Status: Married filing jointly
Tax Rate: 28% Federal, 0% State
Gross income: $220K
Monthly expenses: $4,800(includes mortgage)
Age: Me:35 Husband: 27
Desired Asset allocation: Unsure
Desired International allocation: Unsure
SEP-IRA: 180k cash
Money Market: 180k cash
HSA: $6,500 invested through TD Ameritrade(VTI ETF)

Our main dilemma is coming up with a solid portfolio allocation strategy. Most importantly, I am not experienced with re-balancing of a portfolio and tax-loss harvesting.
1) Would it be wise to start with Vanguards personal advisor services at a AUM of 0.3%. Mainly to get us started on the right track and use their services until we 'catch on'.
2) After reading through WCI, I noticed lump sum investing may be superior to dollar cost averaging. Since we have the ability to save $10-12K a month how should we go about investing on a timeline(ie quarterly/semi-annually...)?
3) Would it be a good idea to invest all $360k in the upcoming months?
4) I have switched from a 1099 to W2 with 401k and no match. Would Vanguard be able to correctly allocate our portfolio's taxable and tax-deferred accounts. It appears that are taxable account will be substantially larger since I can no longer contribute $50k to SEP-IRA.
5) Is it too late to open a backdoor Roth IRA account for the 2015 year?

Thanks for all your help and we value your input/suggestions!

[The White Coat Investor]

1) That's a great use of the Vanguard advisory service or a roboadvisor.

2) Why not invest $10K every month? Although I'm impressed that you seem to be saving/wanting to save 50% of your gross income. No reason to wait until the quarter.

3) Yes. If it feels too scary, do it with a less aggressive asset allocation and you can make that more aggressive after your first bear market.

4) I think so. It's not that hard.

5) No. But you now have a pro-rata problem with the SEP-IRA. If you have even a little 1099 income for 2016 you can open an individual 401(k) and roll the SEP-IRA money in there.

 

BTW- I think you have too much cash sitting around. Why not set aside a 6 month emergency fund and invest the rest?

[Hatton]

Vanguard is an excellent choice.  I plan on using their Personal Advisor Service when I feel my capacity to manage money starts to slip.  One option you might consider is using the PAS until you feel comfortable with your asset allocation etc. When you accumulate 500K you will qualify for a Flagship account which means have access to a free finanacial plan and CFPs when you have a question.  I have used both since moving all my funds to Vanguard a couple years ago.

1.  Good idea.

2. I would invest every month.

3. Yes we are in a correction.

4. If PAS is like financial plan that I mentioned they will help you.

5. Ask WCI about this.  I have a large SEP/IRA so I can't backdoor Roth.  This is an example how tax laws frequently change and planning on retirement accounts has to be reexamined from time to time.

[Rifampin]

Hey thanks WCI for posting on my behalf and responding to my questions. I suppose I should have mentioned my new job does not start till Feb so I have not had a opportunity to review current 401k options through my new employer. However, I am working a PRN home health job as a 1099 so perhaps I can create an individual 401k through Vanguard. We have a phone appointment with Vanguard in late Jan. I assume that based on our risk tolerance, they will propose a sample portfolio allocation. If possible I will post it here and have y'all critique it.

[Rifampin]

Hey thanks WCI for posting on my behalf and responding to my question. I suppose I should have mentioned my new job does not start till Feb so I have not had a opportunity to review current 401k options through my new employer. However, I am working a PRN home health job as a 1099 so perhaps I can create an individual 401k through Vanguard. We have a phone appointment with them in late Jan and I assume that based on our risk tolerance, they will propose a sample portfolio allocation. If possible I will post it here and have y'all critique it.

[Hatton]

Rifampin,  when I got a financial plan through Vanguard they initially sent a questionaire to determine my risk tolerance and then they followed with a computer generated plan.  I "met" with a CFP via a skype-like connection and discussed what I wanted to do.  They then sent a detailed sell this, buy that recommendations. Then another skype call to further refine the plan.  I implemented most of the plan.  I now just tinker around the edges. This process was more complicated for me because I had a lot of junk from Merrill Lynch that had to be addressed in a tax efficient manner. Your situation sounds straight forward.  You will set up a diversified asset allocation and get your cash deployed. Good job on no debt and savings rate.

[Rifampin]

hatton1 wrote:

Rifampin,  when I got a financial plan through Vanguard they initially sent a questionaire to determine my risk tolerance and then they followed with a computer generated plan.  I “met” with a CFP via a skype-like connection and discussed what I wanted to do.  They then sent a detailed sell this, buy that recommendations. Then another skype call to further refine the plan.  I implemented most of the plan.  I now just tinker around the edges. This process was more complicated for me because I had a lot of junk from Merrill Lynch that had to be addressed in a tax efficient manner. Your situation sounds straight forward.  You will set up a diversified asset allocation and get your cash deployed. Good job on no debt and savings rate.

Click to expand...

Thanks for your input. I will update this post as soon as Vanguard comes back to me with their plan. The mutual fund recommendation through the website came back as:

	48%	$172,800.00	Vanguard Total Stock Market Index Fund Investor Shares (VTSMX)
	32%	$115,200.00	Vanguard Total International Stock Index Fund Investor Shares (VGTSX)
	14%	$50,400.00	Vanguard Total Bond Market Index Fund Investor Shares (VBMFX)
	6%	$21,600.00	Vanguard Total International Bond Index Fund Investor Shares (VTIBX)

 

[nyu04]

Rifampin wrote:

Hey thanks WCI for posting on my behalf and responding to my questions. I suppose I should have mentioned my new job does not start till Feb so I have not had a opportunity to review current 401k options through my new employer. However, I am working a PRN home health job as a 1099 so perhaps I can create an individual 401k through Vanguard. We have a phone appointment with Vanguard in late Jan. I assume that based on our risk tolerance, they will propose a sample portfolio allocation. If possible I will post it here and have y’all critique it.

Click to expand...

Please let me/us know how your experience goes if you decide to use the service!

[Hatton]

The 80/20 stock/bond recommendation is very reasonable at your ages.  You realize that could save the 0.03 percent and use this allocation if you overcome your fear of taking care of your own money. Just remember to put the bonds into the retirement account.

[griva]

Don't mean to hijack the thread, but I thought this question was relevant to the topic and others might appreciate the info as well.

 

Does anyone know of other low AUM services that have a retail office and offer similar low-cost index funds?   I am looking for a Vanguard-like place for family that are older and prefer face-to-face interactions.  Would love a 0.3% AUM like Vanguard but would be ok with a little higher.  I just don't want to see them pay 1-1.25%.  I understand Vanguard does not have B&M offices.

[JKG]

Rifampin wrote:

hatton1 wrote:

Rifampin,  when I got a financial plan through Vanguard they initially sent a questionaire to determine my risk tolerance and then they followed with a computer generated plan.  I “met” with a CFP via a skype-like connection and discussed what I wanted to do.  They then sent a detailed sell this, buy that recommendations. Then another skype call to further refine the plan.  I implemented most of the plan.  I now just tinker around the edges. This process was more complicated for me because I had a lot of junk from Merrill Lynch that had to be addressed in a tax efficient manner. Your situation sounds straight forward.  You will set up a diversified asset allocation and get your cash deployed. Good job on no debt and savings rate.

Click to expand…

Thanks for your input. I will update this post as soon as Vanguard comes back to me with their plan. The mutual fund recommendation through the website came back as:

	48%	$172,800.00	Vanguard Total Stock Market Index Fund Investor Shares (VTSMX)
	32%	$115,200.00	Vanguard Total International Stock Index Fund Investor Shares (VGTSX)
	14%	$50,400.00	Vanguard Total Bond Market Index Fund Investor Shares (VBMFX)
	6%	$21,600.00	Vanguard Total International Bond Index Fund Investor Shares (VTIBX)

 

Click to expand...

I like the allocation, just make sure you get the cheaper admiral shares instead of the slightly more expensive investor shares.

[wbenutley]

I like what Jim has recommended so far, and the asset allocation Vanguard calculated seems very close to reasonable, given your age. However, I note:

1. The 80/20 allocation, for which you would pay 0.3% yearly, can be had for 0% by buying the appropriate LifeStrategy fund whose underlying asset allocation is nearly identical and requires zero rebalancing. You could literally own one fund and be done with this exercise for the next several decades, in so far as your SEP-IRA is concerned.

2. The recommended funds may be okay for a qualified account but are inappropriate for a taxable account. The two bond funds both generate taxable dividends. From the standpoint of after-tax yield, you would be better off with one of their tax-exempt bond funds. To make this easier, you might use one of their global equity funds in lieu of the two equity funds.

3. You have an opportunity for tax-located investing. You could own the taxable bond funds in your SEP and own the naturally tax-advantaged equity funds in your taxable account. I don't know if Vangaurd offers this level of service.

Physician Family Financial Advisors Inc.

[Carlos]

Rifampin, I am just wondering, are you considering to add REITs into your plan? and if so, would you put it into the taxable vs non taxable accounts?

 

 

[Hatton]

Reits need to go in a tax protected account since they pay significant dividends

[Rifampin]

W Ben Utley wrote:

I like what Jim has recommended so far, and the asset allocation Vanguard calculated seems very close to reasonable, given your age. However, I note:

1. The 80/20 allocation, for which you would pay 0.3% yearly, can be had for 0% by buying the appropriate LifeStrategy fund whose underlying asset allocation is nearly identical and requires zero rebalancing. You could literally own one fund and be done with this exercise for the next several decades, in so far as your SEP-IRA is concerned.

2. The recommended funds may be okay for a qualified account but are inappropriate for a taxable account. The two bond funds both generate taxable dividends. From the standpoint of after-tax yield, you would be better off with one of their tax-exempt bond funds. To make this easier, you might use one of their global equity funds in lieu of the two equity funds.

3. You have an opportunity for tax-located investing. You could own the taxable bond funds in your SEP and own the naturally tax-advantaged equity funds in your taxable account. I don’t know if Vangaurd offers this level of service.

Click to expand...

I will certainly have to ask the Vanguard advisors about this. Thanks for your input. With the recent volatility in the markets, I wonder if I should hold out a little. I understand you can't "time the market" but with oil taking a nose dive and people flocking to government bonds today, it wouldn't hurt to be patient.