OT - Index Funds and ETF's

[morrisericd]

I looked back over three years and didn't see any topics related to this so here goes. I'd really appreciate your wisdom.

Long story short: we were investing with a buddy of mine at a major financial institution. When things were going great I was happy with his hands on approach and okay with his fees (typically 2% of portfolio value). We had a difference of opinion and we moved on. Now we're with another major institution and it's less hands on and I believe most of our money is in an ETF (it's a bundle of stocks that Merrill recommends). I'm paying 1% for the management and ¾ - 1% for the ETF. This is not hands on - just "management".

The money is our retirement and our kid's college tuition and down payment on a mortgage money. The returns are small, the risk is average (I guess) and the fees are large. We've been lucky and it's a fair amount of money.

I've been thinking about removing some or all of the money and investing myself in index funds and/or EFT's. I'm not going to pick stocks - I'll choose something safe with a relative rate of return and a LOW fee. I'm not that concerned with individual trading fees as I see myself buying a fund and sticking with it. My wife and I won't need the money for 25 plus years - my kids between 5 and 8 years (for college).

I've done a fair amount of reading on this and need some advice. Not about individual funds (although I would like a push in the right direction), but about the logistics. Do I just sign up with Vanguard or some other low cost institution and pick a fund/EFT? Wire the money over, pick the fund and go back to work? I'd probably keep a percentage in cash - what's the current feeling on how much? Bogleheads suggest three index's - domestic, international and bonds.

I know this is a lot but I bet there are other in this situation that have retirement or college funds and who are sick of paying 2% fees on minimal returns. Thanks

[Clancy]

Also interested to see the replies. I've also thought about pulling my funds and looking at an index fund.

[tumbler]

I've done a fair amount of reading on this and need some advice. Not about individual funds (although I would like a push in the right direction), but about the logistics. Do I just sign up with Vanguard or some other low cost institution and pick a fund/EFT? Wire the money over, pick the fund and go back to work?

Basically yes. If you are currently paying 1.75-2% to your current financial institution to hold a passively managed portfolio of index funds/ETFs, then I would certainly take your money out and do it yourself. If they gave you advice that you liked on asset allocation mix (domestic vs. international, small cap vs. large cap, cash vs stock vs bond, etc.) then you should be able to recreate that on your own fairly easily and at a lower cost. Keep in mind that most of this "advice" is pretty standard knowledge and easy to find on your own. Even a 1% savings in costs every year is significant. If I remember correctly, the expense ratio for Vanguard's popular S&P index fund is something like 0.05%. Fidelity is similar and, of course, both have a wide variety of other funds to match whatever sectors or exposure you are interested in, generally for much less than you would pay a financial advisor to invest in basically the same things. Feel free to PM me if you want to talk in more specifics.

[mod6]

A great resource for advice on how to manage your portfolio. The Paceline of financial advice:beer:

https://www.bogleheads.org/

[tlittlefield]

I have a personal ROTH with Vanguard and could not be any happier.

They do have licensed advisors that you can speak to at anytime to get advice etc with no added fees.

[Louis]

+1 on Vanguard

[biker72]

+2 Vanguard
Very low expenses with good returns.
My Vanguard 500 Index Fund Admiral has a .05% expense ratio.

[Mr. Pink]

Vanguard.

They have an excellent managed fund that, like everything Vanguard, is cheap. It's the Wellseley Income fund, and it's returned on average over 9% for forty years. Doing OK this year.

[Louis]

It's the Wellseley Income fund, and it's returned on average over 9% for forty years. Doing OK this year.

What's that line? Something like "past performance is no guarantee of future results."

Or my favorite, "investing based on historical data is like driving while looking at the rear-view mirror." (but of course I do consider past results)

[MattTuck]

We've had some threads on this topic before, but I'll try to give you some quick hits of my opinions.

It is silly to pay management fees. Not sure about the previous funds you were in, but if they were actively managed, the evidence suggests that they're not going to beat the market after taxes and fees. In fact right now, hedge funds are having a terrible time making money, and some pension funds have publicly declared that '2 and 20 is dead'.

You could get an online broker like etrade, ameritrade, option house, etc. and then just buy ETFs. You could also go direct to vanguard and I think you get a discount on the fees or expenses.

In terms of asset allocation, you can put together a globally diversified portfolio for cheap. Something like 15 basis points. US large, US small, REIT, developed markets equity, emerging markets. stocks and bonds. Historically, small cap and value stocks have out performed. So, you may want to slant your allocation a little bit toward that.

That being said,

http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2016/05/11/20160512_buy_0.jpg

[Louis]

That being said

Matt, that's crazy - using data from 1871?

1872, OK, I can understand that. But 1871? That's way too old to be relevant today. ;)

[DFORD]

the reason people underperform is not asset allocation choices picking wrong ETF vs Index funds, it is because they try to "lock in" profits when things look good and try to sell when things look bad. Basically trying to time the market. If you can avoid doing that your chances of outperforming your advisor and his fees are very high.

Vanguard is as good as Fidelity.

[MattTuck]

Matt, that's crazy - using data from 1871?

1872, OK, I can understand that. But 1871? That's way too old to be relevant today. ;)

haha. Since the P/E ratio is, in fact, a ratio... it is not so simple to just say buy when it is low, and sell when it is high. You also need to think about whether the denominator (earnings) is due for compression or expansion.

[morrisericd]

I want to thank everyone for their input - a special shout out to Tumbler. I'm always impressed by the knowledge base we have here - it's a pretty special place.

I'm currently exploring Vanguard and some of their target retirement funds. I also bought "The Bogleheads Guide to Investing" - should be interesting. I'll try and update my findings as I go along.

[Louis]

haha. Since the P/E ratio is, in fact, a ratio... it is not so simple to just say buy when it is low, and sell when it is high. You also need to think about whether the denominator (earnings) is due for compression or expansion.

Agreed, but since the P is (in theory, at least - I'm about as much a noob when it comes to investing as the next guy) based on investors' expectations of future earnings, I would think that it would account for that. Of course, (I think) E is calculated using current, not future, earnings.

[cinema]

check out wealthfront.com.

you don't really have to give any personal information and it will spit out several recommended vanguard funds based on whatever risk level you input

[2metalhips]

I've been with Vanguard for over 30 years and was able to retire fairly comfortably at a reasonable age thanks to investing there. Fees are the lowest in the industry. I use a basic mix of stocks and bonds. SP500, small and midcap index funds and GNMA bonds. A popular option now is target retirement date funds, pick a date and you get a mix of index funds and bonds with a ratio that adjusts as you age, set it and forget it if you are not comfortable picking your own funds. Non managed index funds beat managed funds 80% of the time with much lower fees.

[Mr. Pink]

What's that line? Something like "past performance is no guarantee of future results."

Or my favorite, "investing based on historical data is like driving while looking at the rear-view mirror." (but of course I do consider past results)

Sure, I hear ya. But, first, that's forty years. Let's see. Starts with post Watergate and losing Vietnam, the oil shocks, the worst inflation in modern times, the near death of our auto industry, interest rates over 20%, and ends with two useless and incredibly expensive wars, the worst recession since the depression, and, ahem, Trump. Many disasters and end of the world scenarios in between. But, it's held up well. Handled '08 really well, which is the benchmark I use to evaluate funds. I mean, that was the bad one, right?

I believe that nobody, and I mean nobody, can predict the future. Yeah, sure, you see them all the time talking their book on CNBC and Bloomberg when asked what's inside their crystal ball, but everyone should know that they're spouting nonsense out of their backsides. You're a fool to believe them, otherwise. So, all I have is the past to work with, and a hunch.

[cua90]

Vanguard.

They have an excellent managed fund that, like everything Vanguard, is cheap. It's the Wellseley Income fund, and it's returned on average over 9% for forty years. Doing OK this year.

Second vote for VWINX, a good choice if preservation of capital is important. I am using this heavily now as a holding place for some near term expenses (tuition). Fairly conservative mix of bonds and blue chips, wish I could get it in my 401k.

[ontarget]

I'm a long time Vanguard investor and recommend them wholeheartedly. I also agree with the prior Bogleheads recommendation.

I strongly recommend you read Financial Fitness Forever by Paul Merriman. He also has a website (www.PaulMerriman.com). That book will help point you in the right general direction. I'd start there first.

Sent from my XT1585 using Tapatalk

[arthurlo]

Robo-advisors such as Wealthfront, Betterment or Futureadvisor (to name a few) have gotten more popular recently. They use your risk tolerance and modern portfolio theory to determine money allocation (typically in the lowest expense ratio ETFs), keep your money rebalanced, and use strategies to best manage taxes (certain funds in tax-sheltered accounts, tax harvesting of gains).

Management fees are typically 0.5% of your portfolio. So not as cheap as doing it yourself, but more peace of mind in diversification and portfolio monitoring.

The idea is that a computer can manage your investments if you are looking to match market returns and protect your investments. Not having to pay an investment manager to move your money around means lower fees and greater returns in the long run.

[dgauthier]

I'm currently exploring Vanguard and some of their target retirement funds.

+1 on Vanguard.

Most of our investments are in Vanguard S&P 500 index funds, but we have some Vanguard's target retirement funds as well. I am less pleased with those, because they add bond funds into the mix.

I am losing my taste for bond funds in favor of individual bonds. With individual bonds if you buy at 3% you can choose to hold the bond to maturity and you get your 3% (provided the borrower doesn't default). With a bond fund if you buy at 3% and rates go up to 6% you lose money because the bond fund is constantly buying and selling its holdings. With individual bonds you are in control. If rates go up you can hold what you have and earn what you intended to earn, and if rates go down you can sell at a gain.