Quote from: tacocat on April 10, 2015, 12:37:22 PM
Big thanks to everyone for the advice. I've got some reading to do.The Bogleheads line of thinking definitely seems justified and Vanguard sure does seem pretty great. One of the concerns that this presents, however, is if I need funds with multiple firms. Isn't going with Vanguard exclusively the equivalent of putting all eggs in one basket, even if you've got a mix of fund types with them? Still a bit unsure in that regard.
In other news, I wrote my financial advisor asking about our choice of funds with 2.0% expense ratios vs Vanguard funds. Will update when I hear back.
Again, assuming I get the courage to move my money, here's a few other questions -
1.) Can Vanguard rebalance my portfolio automatically when the gains I make change my risk allocation?
2.) Do Vanguard funds have automatic Tax-harvesting like Betterment?See AlsoWhat Is A Boglehead And What Investing Lessons Can You Learn?The Best Fidelity Funds for 401(k) Retirement SaversBackdoor Roth IRA: A step-by-step guide at Vanguard - The Physician Philosopher9 Tips for Saving Money@palladiumVI - How are your experiences with Vanguard so far? Also, how have your taxes been since switching to them? I owed about $700 this year and am curious how much potential I might have to save if I'm in index funds instead of the mutual funds @ American Funds.
@bfeingerts631 - thanks again for chiming in with the great info. So nice to hear from your side of the coin. Now it just seems the question is why would my advisor have put me in funds with 2.0 expense rate? Seems pretty not-cool, right?
@Dodge - thanks for all that great info. Working my way through the videos, currently, and am really enjoying what I'm learning.
@little_owl - thanks for chiming in. Really appreciate the words of encouragement.
@Melf - The thing that has always freaked me out is that my advisor NEVER speaks of fees and to this day I have no idea how he's compensated. When I look at my quarterly statements from MorganStanley, I see no sign of fees. I also can't find any trace of fees on the website. Any idea where Morgan Stanley will have this information available? Thanks for the advice!!
@MDM - thank you so much! I have some reading to do.
Thanks again to everyone for chiming in with the helpful words. Much appreciated.
The "What if Vanguard gets nuked" article should help with the "multiple firms" question.
When the financial advisor gets back to you, remember, he is a salesman. Keep that in mind while reading the response, I suspect you will see who he is really "taking care of" (himself). This isn't a debate, it's an observable fact. Active funds as a whole cannot outperform the index. It is mathematically impossible. And the higher your fee, the worse the underperformance. Here are some fun quotes for you:
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"A low-cost index fund is the most sensible equity investment for the great majority of investors. My mentor, Ben Graham, took this position many years ago, and everything I have seen since convinces me of its truth." Warren Buffet
"Of the 355 equity funds in 1970, fully 233 of those funds have gone out of business. Only 24 oupaced the market by more than 1% a year. These are terrible odds." Jack Bogle (2007)
"Most investors would be better off in an index fund." Peter Lynch
"Only about one out of every four equity funds outperforms the stock market. That's why I'm a firm believer in the power of indexing." Charles Schwab
"The fund industry's dirty little secret: most actively managed funds never do as well as their benchmark." Arthur Levitt, Chairman, SEC
"Indexing virtually guarantees you superior performance." Bill Bernstein, author, financial adviser
"With the market beating 91% of surviving managers since the beginning of 1982, it looks pretty efficient to me." Bill Miller, portfolio manager
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Unless he disproves mathematical law in his response to you, I expect him to play on your emotions to keep you. Hopefully you can see through this.
1. Yes, if you choose one of the LifeStrategy, or Target Date funds, literally everything will be taken care of for you. Including rebalancing, and automatically getting less risky as you get closer to retirement (the Target Date funds).
2. I've written a lot about Tax Loss Harvesting. Specifically, paying an extra fee to get it:
http://forum.mrmoneymustache.com/investor-alley/betterment-$50k-'safety-net'/msg487232/#msg487232
http://forum.mrmoneymustache.com/investor-alley/betterment-for-taxable-holdings/msg550033/#msg550033
I'll spare you the details. Long story short, it is inevitable that you will end up paying more in extra fees to Betterment, than you will receive in Tax Loss Harvesting, for the simple reason that the fees are both percentage based (so they get higher as your account grows), and forever (each and every year, for the rest of your life), while the tax loss harvesting benefit on each individual deposit is temporary.
Regarding your taxes question, let's look again at your ITSLX fund, the one he says you need to be "patient" with:
When you compare the Pretax return to the Tax-Adjusted return, it's consistently about a 1-2% difference. You're losing 1-2% of your return to taxes with this fund. This isn't surprising, as the fund as a ridiculous 53% turnover! A fund's turnover rate represents the percentage of a fund's holdings that have changed over the past year, and it gives an idea of how long a manager holds on to a stock. So this fund is swapping out half of your holdings each year...not very tax efficient. I'm honestly shocked this fund was recommended for a taxable account...or at least I would be shocked, if it weren't for the huge fees...
Let's compare this to VTSAX:
It's usually a 0.2% loss to taxes, besides the jump to 1% at the one year mark, then it drops back down. What's the turnover ratio for VTSAX? 3%. Hopefully you're also comparing the total returns to that of ITSLX, just to see how hard it is for a fund to perform well with a huge 2% fee.
