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  • Financial advice for family

    I need help on how to assist my sister-in-law with regard to investing. She is a single 35 year old pharmacist. Aside from her 401k she has not invested anything else. No Roth IRA. No taxable account. When this came to my attention I was alarmed as she has a good income for 10 years now and has most of her savings in cash. She has her house and car paid off.

    She has absolutely no interest in DIY investing. She is a very smart individual, but admittedly ignorant about investing and is at high risk for getting taken advantage of by a financial advisor. Here were the first few attempts:

    1. chase bank— she met with financial advisor who was going to “cut her a deal” on AUM fees from 2% to 1.5% per annum. I told her to not go back.

    2. local advisor she sought out— this person was touted as the best one to help young females starting out with investments. My sister-in-law showed me the proposed initial investment of about $35,000 split up into three funds. One fund was energy sector with frontload of 5%. The second fund was a municipal bond fund also with a front load. The last one was a blended equity and bond fund, again with a front load. This “financial advisor“ stood to make $1500 after that meeting for providing absolutely terrible advice. No financial plan was actually offered.
    I am telling her that she needs to either learn her self and do something very simple, or get a financial advisor that actually creates a plan with her before investing. if I can convince her to learn enough and/or help her to DIY it, would it be reasonable to steer her towards a Vanguard life strategy fund? I know the expense ratio is higher and it is not perfect, but for a one stop shop/set it and forget it approach for the situation, I thought it might be a good fit. I have read multiple blog posts about this, but wanted to hear from others about their thoughts. I understand that she still will need an overarching financial plan, but as far as investing strategy goes, I thought this would be a good fit.

  • #2
    By far the easiest thing to do is simply buy VTI or a target date retirement fund. Keep buying until much closer to retirement. That's all you have to do for DIY investing. Sure you can get into bonds and such for rebalancing, but this is the easier version as long as a person can just keep doing that.

    Otherwise I'm sure there's places where she can get someone to do that for her for 1% AUM annually.

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    • #3
      Nothing wrong with a target date fund in taxable too. Tax-inefficient investing>keeping money in cash.

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      • #4
        Originally posted by jhwkr542 View Post
        Nothing wrong with a target date fund in taxable too. Tax-inefficient investing>keeping money in cash.
        There certainly were problems with Vanguard target date funds in taxable in 2021. See https://www.cnbc.com/2022/03/15/vang...it-claims.html

        While I don’t think this rises to the level of a breach of duty by Vanguard, it still hurt some investors who had target date funds in taxable accounts. I’d be cautious about life cycle funds in taxable for the same reason.

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        • #5
          The next best thing to DIY is probably Vanguard PAS or something like that.

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          • #6
            There is do it yourself investing and there is hiring a financial advisor. But there is also a good middle ground.

            My daughter is a millennial with a tech job raking in a high salary that leaves her lots of extra investable cash every month. She doesn’t want to take the time to learn about investing, so I told her to go on Wealthfront, set up a taxable account, and set up auto investing every month. Wealthfront vets the best of the best ETFs in each asset class, they put you in an appropriate diversified portfolio of index funds, and they tax loss harvest for you.

            Your sister could set up a Wealthfront taxable account. Between their management fee and the fund fees, she will end up paying around 33 bps for a very well managed and well diversified taxable account. That is much more cost effective than hiring a financial planner where you might end up paying over 100 bps for similar or worse performance. She would need to follow some basic rules, such as stay the course through thick and thin. There are also other good robo advisors out there, such as Betterment and Schwab.

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            • #7
              She might not need more than her 401k. If she is making 100k more or less and she maxes the 401 and gets a little match she has about 20% Right there. Put it in a TD fund and come back in 30 years.

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              • #8
                How much gross income does she make and where does she work? If she's making $120K at the VA and on track for a federal pension, then maximizing TSP with a mix of C fund and S fund plus $6K per year into VTSAX in an IRA might be sufficient.

                If she's working at CVS with no pension and her match or part of her compensation comes in the form of CVS / Aetna stock, then she might need to do something different.

                As Lordosis mentioned, a single person who makes $100K per year, maximizes a 401k and perhaps contributes to an IRA is on track to be good for retirement by 60 or 65. Social Security replaces a good portion of this person's earnings. If you gross $100K and put $26.5K into qualified funds each year, then by definition you're living on $73.5K per year minus taxes. (Unless you're living beyond your means and racking up massive debt, which of course is not sustainable.)

                Also, the paid off house and car by 35 are real wins. Many physicians have no house, a leased car, and $400K-$500K in student loan debt at age 35!

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                • #9
                  Aside from just setting up an investment portfolio, she would also benefit from developing a longer term Financial Plan. Instead of "Robo's" like Wealthfront, she could seek out an hourly, or flat fee "true fiduciary" CFP/Advisor for an inclusive review. She might also consider Mark Zoril/Planvision, or Vanguard PAS (at least to get started). Rick Ferri or Jon Luskin are also options, albeit more expensive.

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                  • #10
                    DFA?

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                    • #11
                      Setting up a portfolio is the easy part. One w-2 and one 401k is not really complex. 35 yr and single has many life goals that can have an impact.
                      Probably doesn't need advice on the 401k. Cash in her checking and then what? She actually needs to determine her goals. Marriage, house, travel etc. and have the capability of changing. Realistically, it will depend on how she feels about her privacy. Some SIL will be open and some will feel like its an intrusion.
                      How can something so easy be so hard? The hard part is her goals. The txes and 20% retirement savings is the easy part.

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                      • #12
                        Give her a copy of "A simple path to wealth" by JL Collins. Its what I now do to anyone who asks me for help. After they read it, they either get super pumped to invest in VTSAX, or they ask me follow up questions but now have a small basis of knowledge, or they stop asking me for help. But most end up with the first or second reactions, and these are people who had no interest in investing or finance at all- doctors, nurses, OR techs, family etc

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                        • #13
                          The 35K is a taxable investment account? I would suggest that she just put it in vtsax. If she wants to keep things simple, just use the target date fund in her 401K. She sounds fairly frugal. Assuming social security remains as it is now and she makes an average pharmacists salary, social security is probably projected to make up a fair percentage of her annual spending expenses and just maxing out the 401K for many years maybe sufficient for covering her annual expenses. Of course if she wants more, she will need to do the taxable/back door roth/etc.

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                          • #14
                            I have a family member like that too. I'd just do total stock market in the 401k and taxable, automated contributions as much as possible, set it and forget it. I don't know if I'd even bother with roth and certainly not a backdoor roth.

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                            • #15
                              Just doing some back of the napkin math, lets say a pharmacist makes $140K, or around the "maximum" salary social security is taxed at for 35 years. Assuming the program remains as is when they retire, they are entitled to an inflation adjusted amount of $4,194 per month at age 70. If they were comfortable maxing out their 401K throughout their career, they were essentially living on 120K pre tax or probably around 80K take home pay per year. With social security, that means that they only need to make up 30K per year to maintain their same lifestyle, not even taking into account the savings they will have by no longer supporting children, saving for college, or paying a mortgage. That means that they need about $750,000 in retirement savings going by the 4% rule to withdrawal 30K per year. That's not that hard to get to if you are maxing out your 401K for 30 years. Social security (in its current form) can cover a significant portion of people's pre-retirement income if they were middle to low income earners if they delay taking the benefit to age 70. That's why most people don't need to mess with taxable retirement savings accounts. If you are using a taxable savings account because you have maxed out your retirement account but you make less then the maximum social security salary, you are either planning on spending more then you currently are during retirement or want additional money later on for whatever reason.

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