Help! Starting all over from scratch & need advice

[Ha]

Just finished taking the wci course & it's humbling to realize all I've been doing wrong for 20 yrs  probably the biggest mistake was getting bad advice for 'free' from financial advisors who put me in high expense ratio with loads & commissions for them (whole life insurance, 1.1% fees). Grr!

So I have decided to bite the bullet & start all over--sell the old stuff & buy new (both in our taxable acct & retirement accts) but feeling a bit overwhelmed with all the options.  Originally, I had planned on keeping it simple--selling all the old & buying Fidelity's version of vanguard target date retirement. However, I just looked at Fidelity's fees for that & they are much higher (.66%) vs vanguard (.15%).

What asset allocation and/or specific stocks/funds do people recommend?  Looking for something that I can buy and hold and not have to do with too much over the years.  I'm only realizing they're bad funds now since I've stuck with what was recommended to me 10 years ago and never took the time to rebalance, etc.  i have held them all this long due to ignorance, fear & laziness.

We're going to also be investing NEW money that's been sitting around in savings (50-75k) with vanguard as well as rebalancing existing money with fidelity for my Roth (90k), my rollover Ira (25k), and my husband 's Roth (50k).  We also have 375k in my husband's 403b primarily in vanguard target date retirement funds & 3 rental properties.

We have 50k in taxable account and I think the easiest way to get rid of the bad funds in that is to donate to DAF to offset taxes since I don't know what the gains are?

We're 43, have 4 young children (maxing out on 529 with 15k/kid/yr to help pay for private school & college), and are not big risk takers in general.  However, we're not planning to withdraw any of the investments for about 19 yrs since we plan to work part time until age 62 for health insurance so we would like to invest moderate/aggressively.

Any advice on baby steps of what to do since this is my first time selling and buying without an advisor?  I first started as 23 yo  with Morgan Stanley--got bad advice & high fees and then transferred to northwestern mutual in our 30s since we thought we we being smarter since this person was recommended to us by my very financially savvy brother--got bad advice & was charged high commissions without even being aware of it.  Now I'm very cautious and want to make sure I do it right this time and figure it out for myself instead of just trusting an advisor's advice.

So I'm hoping the more knowledgeable wci community can help with advice.  Do I need to find a fee only advisor or can I just keep it simple by investing all in vanguard target date retirement fund or something similar? What percentage asset allocations should I be doing?  If you can give specifics on which funds to invest in each allocation that would be very helpful too.  What kinds of things should go in our taxable account vs tax sheltered accts?  Does it really make a difference if I put etf vs mutual fund in taxable vs tax sheltered?

Any and all advice greatly appreciated!  The best thing we've done is live frugally and saved a lot but I'm realizing we've been too conservative.  Putting a bunch of money in an account making 1.5% isn't good thinking

[Hatton]

You have plenty of time to straighten this out.  A fee only fiduciary advisor may be right for you and Johanna of Fox wealth management posts here frequently.

I am unclear where you want your money?  Vanguard or Fidelity?  Both are OK.  I use Vanguard.  If the 50k in a taxable account is in bad funds and you do not know the basis then a DAF is one option if you are charitably inclined.  I have done this with highly appreciated shares with incomplete basis info.  Another thing you could do is stop reinvesting any dividends and let them slowly wither.  I am doing this also.

To figure out your asset allocation you can do a risk assessment quiz on Vanguards site to help you.  In general you want to increase bonds or cash equivalents as you age.  You plan to work 19 more years so 80/20 or 70/30 would be about right.  I am 62% stocks at 60 and plan to retire in 2 months.

The target date retirement funds will have more fees.  You can replicate them by looking how they are allocating and copying it with VTSAX/BND.  ETFs or mutual funds are fine.

Taxable account.  Municipal Bonds or stock MF.  Tax deferred BND and VTSAX.  International stocks next lesson.

[ENT Doc]

That's a lot to unwrap. I'd start out by telling us what % of your money is invested where (Taxable, Roth, etc) and in what funds with what ER. Then let us know your current desired asset allocation.

[Ha]

Currently,

roth Ira is 90k

american growth agthx 12k (13%)

american Washington awshx 10k (11%)

calvert mid cap ccafx  6k (7%)

calvert equity csiex 52k (58%)

american capital cwgix 8k (9%)

calvert intl equity cwvgx 1k (1%)

 

Husband 's Roth is 50k--all the same funds as above with the same percentages

 

Taxable 50k--all the same funds as above with the same percentages

 

That's partly the problem. I'm on a learning curve and don't know what my asset allocation should be.

[jfoxcpacfp]

There is much written on the blog and on the forum about portfolio construction and I'm sure you will get some good advice in this thread. But that really has little to do with what a fee-only financial planner does. The purpose of a real fee-only financial advisor is to connect the dots of all areas of your finances (budget, savings, estate plan, college, debt, tax planning, and goals, for example) to ensure you're on track to meet said goals or if you need to shift direction (save more, spend less, change goals). For example, at 43 with 4 young children, you will be paying for college when you plan to retire. Will you have enough saved? Too much? Or are you on track to retire even earlier?

You have been working with a commission-based investment advisor who has not behaved as a fiduciary, not a financial planner. This has turned you off on the thought of working with an advisor and rightfully so. Financial planning is only minimally about portfolio composition, which you should be able to handle on your own if that's what you prefer. It is almost totally about providing you with the information needed to make a series of small, good decisions today and into the future, while you still have a 19-year horizon instead of being forced into an ever shrinking pool of big decisions in 10 or 15 years.

As for investing, your behavior will determine 90%+ of your long-term success or failure as an investor and portfolio construction will make up the other 10% or so. If you can control your behavior when your portfolio drops 40 or 50%, you will do fine on your own. If not, you might want to find a new advisor, one who won't take advantage of you.

 

[VagabondMD]

I would second (or third) the comment that your financial situation is more complicated than trying to decide which or whose target date funds to use. You would probably benefit from using a reputable financial advisor (like Johanna) or doing a lot of reading and research, like really quick, to DIY.

[Hank]

You’ve been paying loads, commissions, and fees that are too high. However, you have three rental properties, you’re socking money away, and you aren’t living paycheck to paycheck. You’re ahead of a lot of folks and about to do even better.

For asset allocation, I’d look at a target date fund for when you plan to retire or perhaps for 10-15 years after you plan to retire to increase the stock allocation. You can pay the slightly higher expense ratio with a Vanguard target date fund so you don’t have to think about rebalancing or you can reproduce the Vanguard or Fidelity target date portfolio yourself at a lower cost and just rebalance by changing your new contributions about once a year.

White Coat Investor didn’t have a great experience with renting out his old house, so he isn’t as big of a fan of full direct real estate ownership as some folks on this forum. I’d encourage you to look very closely at the financial performance of the rental properties as investments, including tax treatment, depreciation, vacancies, repairs, management expenses, leverage, etc. You might be doing well, you might be doing poorly, but you want to take an objective look at things.

For the whole life policies, I’d request an in-force illustration and look at the guaranteed return, not the rosier other projections. What kind of return will you get from your annual premiums going forward? Do you still need life insurance? Do you have sufficient term life insurance? Can you get sufficient high quality, low cost term insurance (underwriting, healthiness)?

My wife inherited a couple whole life policies. She had sufficient term life insurance, so she didn’t need the policies as insurance. The money her dad put into the policies would have grown far more if he had purchased term life insurance and put the difference in premiums into a low cost index fund. However, the in-force illustration showed a guaranteed return of almost 7% going forward for future premium payments. The insurance company is in solid financial shape. I wouldn’t be in a headlong rush to buy a new whole life policy, but it made sense to keep paying the premiums for these policies. The opportunity cost of the previous payments was water under the bridge.

For crappy investments in your taxable account with very low basis, a donor advised fund is one option. Just turning off dividend reinvestment is another. You could sell out of a bad holding if we get a significant downturn in the market. You could sell right now to be done with it, sell when you have a sabbatical or low income year, or hold onto it and let the kids inherit with a stepped up basis (assuming that’s still a thing in 50 or 60 years).

You’ve got options, and you don’t need to do all of these things at once. You guys are savers, now you’re more educated investors and you’ll be putting more money in your own pockets and giving less of your money to salesmen posing as financial advisors. It sounds like the course will pay for itself in short order.

[Donnie]

I think you are being too hard on yourself. I didn’t look up all the funds, but i suspect it is not that bad. Sure you are paying higher fees than you should, but if the underlying funds are ok it’s not a disaster.

A couple comments.

1) A sales load is one time. You already paid it and it’s gone. The fund itself should be evaluated on its own merits regardless of whether you paid a load or not.

2) I wouldn’t necessarily get rid of the funds in your taxable account just because the fees are a bit higher. If you think you will be in the 0% cap gains tax bracket anytime in the foreseeable future, it would probably be worth waiting until then to trade out.

[Hatton]

I actually own some Growth Fund of America.  I just shut off the investments and have donated some.  I agree the load is a sunk cost.  I would keep it in a taxable account.

[cgossage]

You have run the gamut of bad advisor experiences unfortunately.  Physicians are preyed upon.  My wife get's a new "advisor" reaching out to her almost monthly.  There are a couple of options for you.  If you are really interested in doing this yourself, you may want to consider taking WCI's Fire Your Financial Advisor Course:  https://www.whitecoatinvestor.com/fire-your-financial-advisor-the-wci-online-course/  Even if you do decide to hire a Fee-Only Planner, you will at least be more educated before you do so.

If you do go ahead and decide to hire an advisor I would consult https://www.whitecoatinvestor.com/financial-advisors/ list and look at what pricing and services might be a fit for you.  Most of us work with clients remotely all over the country and I'm sure you will be able to find a good fit.

[Ha]

Hatton1,

thanks for your reply!

We initially had an account with fidelity because that's where my husband's work 403b was but then the hospital switched to prudential.  We recently opened the account with vanguard to do the backdoor Roth for him since so many of you were recommending it and it was pretty easy.

So so we can invest the extra 50-75k in either fidelity or vanguard. Was leaning towards vanguard since it seems they have lower expense ratios in funds.

is there a benefit to consolidating to 1 account?  I was just planning on keeping both accounts so we're not charged for closing one to transfer to the other.

[Hatton]

I like Vanguard.  The reason to consolidate would be simplicity.  I like looking at one website.  I don't think you will be charged to close an account.  In the big picture you will be ok if you keep both accounts or consolidate.

[Ha]

Cgossage, jfox, and vagabond,

I just finished the wci course and we did a tentative financial plan after completing the the course.

 

I feel we're in decent shape regarding budgeting, saving, debt (no loans), insurance, and college saving--we have a will but haven't established an irrevocable trust yet.  At this point, I'm not sure if it's the best investment to pay 1-5k for a planner to help us develop a financial plan when I'm just looking to tweak investments and look for good tax strategies.

 

Can you you tell me why you think our financial situation is complex enough that it warrants hiring an advisor?  Jfox, can you elaborate more on what you mean by small, everyday decisions I should be making now and in the future?

 

I've always had more of an interest in financial things than my husband and I would love to learn more from all of you who are way ahead of us.

[MnSaver]

I use both Fidelity and Vanguard sites, and much prefer Vanguard's. Two thoughts on an advisor: it might be a non-threatening way to increase the financial literacy or you partner and it will give you a foundational plan. Armed with education, you could then build upon that plan and make it your own it the future. At the end of the day, you don't need a glossy 80 page "plan" you need direction and a few tabs in Excel.

[The White Coat Investor]

Donating it might be the easiest way to get rid of it, but do you plan to donate $50K to charity this year anyway?