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elliot

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Everything posted by elliot

  1. First, someone made a comment about taking other reps' clients, and that this is a bad thing. Basically anyone in some sort of external sales is out to steal clients and market share. This isn't sleazy. Toyota has been doing it to GM for almost 30 years. I don't think the company is sleazy though. They found a way to have a valid reason for others to switch over. So perhaps steal is too strong a word. I'm not sure how I would enter the field if the 403(b) didn't exist. I looked at other firms. Some I didn't mesh well with, others didn't want me. The ones I didn't like were going to have short-term asset management goals. This would mean simply trying to get money under management, in any way necessary. Do right by clients is difficult enough. Besides, the assets I would need would require me to only go after larger net worth clients, and I just didn't want that. Steve- This directly for you. I have learned a lot. I've been a self-guided investor for a number of years, and am not fresh out of business school. I have not once disputed that costs play a role into returns. I have narrowed that to ongoing future costs, rather than potential one-time upfront transaction costs. I also did state that there is largely a place for index funds in a portfolio. But I also believe, and you are free to disagree, that there is a place for actively managed funds. This doesn't mean throw the expenses out the window and not to care. It means be prudent, look for a manager with an investment philosophy you like, and where there are relatively low costs. A portion of your portfolio can be in active managed funds. They may, in some years, under perform the market. But a solid manager shouldn't miss by much. However, that's not why you invest in it. You invest in those funds because of the thinking and real world events reaction they can bring. There are good managers who will earn their fee. You can feel free to disagree, but don't say I'm ignoring your point, and certainly don't say I'm rejecting your ideas. I'm freely acknowledging them, and adding that your point, in my opinion, cannot exist in a vacuum. Indexes are not the be all, end all, of investing. Oh, and I also believe portfolio turnover should be an element of any fund screener. I have not bitten any hook from Wall Street. If I had, why would I want to help people who don't yet have much money to invest? The $165,000 income won't be for years. I'm going to come close to starving for the next 5 years, which is why I'm questioning entering the field. On a different note, those bonuses aren't for mutual fund managers. They are for investment bankers, M&A guys, and other types of advisors. Not those, for the most part, working on the retail side. Oh, and of course Trump doesn't invest in equities. He's completely in real estate. But I bet the Trump Organization offers a 401(k) and employees buy into the markets through it. Unless, of course, he lets them share in his fortunes.
  2. Sierra- Part of what NYC realized is the volume of teachers, and that a small fee could bring in enough money to keep it in house. Once again, they are fairly unique and different from the average school district. I could almost guarantee part of the fees for the funds in which you invest, or some part of the NYC budget, is directed towards people who regularly evaluate investment choices. So instead of having many people in their schools, they have a group away from the schools. But rest assured, there are people monitoring fund performance, and evaluating, and they do get paid. Most (probably 99.9%) other districts don't have this luxury, and instead arrange for independent advisors. Sadly, many only care about the commission. Worse, the people are put in investments with high ongoing fees. But they CANNOT replicate NYC's setup. At least not yet. It is in this world that I think myself, and other potential and existing advisors can serve a purpose. We can add value to the environment, and provide guidance and a benefit commensurate with the compensation we receive.
  3. sschullo- Just curious, do you think all advisors are useless? I don't mean just in the 403(b) market, but in general. When it comes to all financial matters, do you believe everyone should get all their answers from Vanguard, invest everything on their own in index funds, and essentially eliminate the role of an advisor? The reason I ask this is because I think advisors can serve a valuable service, and purpose. Otherwise, with the invent of nolo.com and equivalent websites you can eliminate other professions you mentioned if you answer yes to the above questions. As for lawyers, sure they work for an hourly fee, as do accountants. But, for both, each time they file something on your behalf, there's a fee. Anytime they incur an expense, there's a fee. Trust me when I say a $50 fee at the courthouse is not what you pay if an attorney does it for you. Plus you are charged for time. That's the equivalent of a load on a mutual fund. So there's room for a financial pro to do both. I am only making this point because you so set on the expenses thing. I believe primarily the expense discussion is ongoing expenses. Upfront ones, such as loads, are one-offs. It doesn't place a drag on returns, however. It simply lowers the amount of your initial investment. Instead there is a cost to acquire that investment. And index funds are good tools. But, it isn't too bad if you have some active managed funds too. Think about it. If an active manager didn't like certain stocks in the S&P 500 that have blown up recently (Tyco, Worldcom, Enron), your portfolio doesn't suffer. This doesn't mean outperformance. It does bring some subjective thinking into your portfolio instead of simply going by a market cap weighting. For some of your portfolio, with the right fund manager, this isn't a bad thing. Unless you said yes to those initial questions above, I don't think you can disagree with this too much. Though I'll respect that you may not choose to follow these notions in practice.
  4. A whole lot to reply to. I think the easiest is that I subject myself to this, if that's what you'll call, so I can sort out how I want to approach this profession. It's also so I can get the hostile perspective, if you will, and be able to handle it and explain my role to people who ask questions. Someone asked if I've heard of TIAA-CREF. Yes, I have. I know the general idea of how the company started, and why, and what the mandate is. I also know they do have sales reps, who are salaried. But I believe do get bonuses based on client retention, and increased sales. So their interest is not to have you in a high fee fund, but in one of their funds. This is fine, but there could be better funds elsewhere. Does this mean they are bad? Even with regard to index funds, perhaps Fidelity has better service. So they keep you with TIAA-CREF, get compensated for it, but maybe offer inferior service. This is all hypothetical, but it's to illustrate that you can control costs, and should not pay outrageous fees. However, you can get value for expenses you incur. For full disclosure, I might be wrong about TIAA, in which case, please nicely correct me. Also, I did look at their website for positions, but they want someone licensed and with experience. As for Miller's fund. I couldn't have recommended anything in 1990 given my age, forget about investment products. Personally, I considered investing with him a number of years ago. I don't know why I didn't, and still may. And perhaps I mistated that I would recommend a good fund regardless of the fees. I should retract and restate. Expense ratio and ongoing expenses should be a consideration. But I will say that I will not automatically eliminate a load fund, as it may be a quality investment. Past performance is no guarantee. But, research a manager's track record, investment philosophy, and it's possible they fit into a diversified portfolio. Sure, have the low-cost index funds. But maybe, just maybe, have some others that are actively managed to give a little extra. You never know which funds will outperform any index, or if they ever will. But, it is also possible that in a year in which the S&P 500 goes up 10%, a person's holdings, or at least their contributions for that year, did not follow. That's because if you DCA, and the index is more than 10% up most of the year, those contributions will have a loss. The same holds for actively managed funds, if you follow the manager, and avoid fad investment (ie - the Munder NetNet fund in 2000). I know from experience, that I told someone not to invest in that fund. An advisor told them otherwise, though I don't know if there were loads or what was the advisor's compensation. Needless to say, that was the height of the bubble, and the investment was crap. I have other stories like that, but this message is certainly getting long enough. No one can know if they think they know more than they do. That would be silly. I was stating an opinion that it seems as if several posters base their universe of knowledge on their negative experiences. But still think they know a lot, which just isn't true. The comment wasn't targeted at anyone in particular. And finally, on becoming a fee-only advisor. I will have the flexibility to consult a client in that arrangement. It is true, with regards to signing up teachers, I will be on a commission basis. But the money I will make is very minimal from each teacher for the 403(b), that it's in my interest to service them well, and make that expense worth it. If I deliver value there, they will continue to use me for advice, services, etc, outside of the 403(b) environment. Also, I cannot just suddenly become fee-only. Would that I could. I first need work experience, I need to register with NASD and SEC (which must be done through a B/D), and I need some sort of client base. Without these things I have no credibility and have fewer legs to stand on than a peg-legged pirate (read: NONE). Much like a teacher may have to start in the Bronx, because that's where the job is, but intends to move to cushy Westchester public schools at some point, I must start here. I can only hope that I get enough clients soon enough that I can feed myself and don't hit the point of leaving the profession. Along the way I truly believe I will provide a service, and advice, to clients. My understanding of this website isn't to completely get rid of reps, or at least not ones who operate the way I intend to do so. But to educate people so they don't get ripped off, and know what expenses they are incurring both upfront and on a continual basis. This way they can judge for themselves what the next path should be for their investments. In some ways, I'm enjoying this back and forth. So please keep it coming. And share with me more experiences. Especially if anyone has encountered a good rep in their school (they must be out there somewhere), let me know what you liked.
  5. I'm getting attacked on a couple of fronts here. First, when I say not all load funds are bad, I am not talking about the commission and load itself. I am talking about the actual fund. In some cases, and since I'm not a pro yet I don't exceptions, you cannot get around a sales load to invest with a particular manager's mutual fund. Bill Miller's Legg Mason Value Trust is a load fund. If anyone here can tell me that they would have rather invested in a no-load fund instead of his load fund for the last 16 years, fine. But it is a great fund run by an excellent manager. Legg Mason doesn't advertise much, so the load is essentially their advertising, which is compensating a sales rep instead of an ad agency. As for annuities, I don't like them. Please get this straight. Certainly without question in a 403(b) annuities are bad. They are stupid, and an inappropriate investment. I could not do what I want to do on behalf of an insurance company because I would be putting people into an annuity in a 403(b), which is bull#$&@. I did state, that it is possible an annuity could be appropriate for a portion of a nest egg upon retirement. I can't specify circumstances, or type of annuity, as I am really not familiar with them. I should become so after I am licensed, so I will be able to help my clients. As for the commission a B/D charges on load funds, I can't speak to it. I don't have experience yet. But I do know if you buy the same fund through the fund company, you still pay the load. So I'm almost certain not all of that money goes to the B/D, or the sales rep. Some likely goes back to the fund company. I have learned a lot from reading various posts. But people here do seem intent to think they know more than they do based on the bad experiences from the 403(b). No one should have those experiences. But you should also use this forum to learn that in some cases a rep is a useful tool. When you purchase investments, someone will be compensated and there is a cost involved which you pay. Until then, there likely can't be any open dialogue between pros and, for lack of a better word, jaded employees. It's difficult to improve anything when you can't be open-minded about other perspectives. Here I am, looking for yours, and yet you won't look from mine. Instead my points are greeted with some hostility due to past experiences with which I have no involvement.
  6. First, I want everyone to be clear with regards to how I am entering this field - I will not be working for an insurance company. I do plan on trying to balance the sales and what's best for the client. Unfortunately, the way the system works, I must work for a B/D, at least initially. I need to be licensed, and gain experience before I can be an RIA and go completely on my own. Unless everyone here will feed me clients, I need to start somewhere. As to Sierra's comments about an annuity. Yes, it's possible if it's the right investment, I would recommend an annuity to a relative or a stranger. I would never suggest someone buy an annuity with their entire nest egg. But take someone who maybe doesn't have a pension (doesn't really apply to most teachers). They would like some predictability of their income. Annuitizing some of their nest egg could be the right decision. I am not too informed about annuity products, yet. I can't say which is good/bad, etc and what I would receive as payment. Payment is not my concern, for the most part. And please don't take something I write out of context. Look at my entire point. I essentially stated that if you do right by the client early on, when the time comes, if appropriate, you get the annuity sale. The reason a rep would get that is because they have done a good job and continually recommend the right moves to a person. The lesson is if you do the right thing by the client, eventually the money will be there. Please don't torch me given that I could never put someone in a high cost annuity product, which is tax-deferred, in a tax deferred account. That's dispicable, unnecessary, and the reason I am looking to join the firm I am joining. As for load funds vs. no load. Yes, the load is a commission. But please realze, not all load funds are bad. Just like not all no-load funds are good. The correct thing to do is recommend good funds, regardless of what the fees are for the client.
  7. Sierra- I can't say why LA and others don't duplicate NYC. Perhaps it's because of how their systems evolved. Nor am I saying that, when I am a licensed professional, I could do better for NYC employees. I only stated NYC is difficult to duplicate, and that I am familiar with it. I am thrilled with their system since it's the reason I don't have to worry about my mother, who taught there for 35 years. To everyone- I wish both pros and teachers would act a bit more civilized. I think any reasonable person should admit that putting someone in an annuity through a 403(b) is bad. A tax deferred investment in an already tax deferred account is silly. If any pro says otherwise, you may have helped people over the years, but you could have helped them more. The tradeoff would have been few dollars in your pocket. A wiser way to go would be earn the trust of a client by putting them in no-load funds. Then, over the years providing good advice. When it comes time to figure out what to do with their nest-egg, you get the annuity sale to help them manage their withdrawals and tax payments. If I'm a bit off on this one, please someone tell me. I'll be honest, I'm questioning if I'm making the right career move because I could not put someone in a bad investment simply because I'd get more money out of it.
  8. Sierra- First, I am familiar with NYC. I can imagine several reasons why they don't allow B/D to approach employees, at least in school buildings and through city resources. One of course, is the union doesn't want it. The second is it hurts the city's ability to administer their own plan. They can do what they do because they have 50,000+ participating members. Yes they offer low-cost options and such. However, their ability to do that comes from lack of competition. Thankfully, the monopoly (for lack of a better word) does serve the members well. Another reason could also be there are just too many schools, and it would be too many vendors, reps etc. That would a huge headache that is simpler to avoid. The ultimate point is NYC is unique, and very difficult to duplicate. AP- I agree with you many don't sit down. I actually intend to, and to add value. This in turn should provide me with more clients, doing more for my clients which will lead to more money. In theory. Much of how things should be is sadly theory, because very few practice it. That is a problem. But it is a problem with the mechanism of the reps/vendors, not necessarily with the system itself. Although the system is far from perfect given how reps are able to operate. And my two cents on exploring all options is simple. Yes, investing for retirement is serious business. However, for someone to argue that the hypothetical $250 dollars in upfront fees (all ongoing expenses being equal) is not as serious as overpaying for a car or repeatedly purchasing inappropriate electronics is a bit short-sighted. If you get value for the $250, the investment choices, and advice may pay for itself. If you buy a car and go 10% higher than you should, and repeat many times over your life, that's worse. For a $25,000 car, you pay $27,500 (I'm assuming you are talked into options, or buy a different brand which costs more, etc, not just completing bad negotiating), that is 10 years of load expenses. Even 5% more would be five years. So unless you keep your cars for 10 years, it is just as big. It all adds up, whenever you pay more than you should as that is money you won't have to invest, or pay off loans, or otherwise could put to better use. But it comes to if what you receive for your money is worth it. A new Lexus for $27,500 vs a Kia for $25,000 is likely worth it (not to put down Kias, or build up Lexus, but there is a difference). Anyway, you get the idea. Anytime your money leaves your name, you should know what you get.
  9. Sierra- I'm familiar with NYC teachers' retirement options. The difference is the 50,000 teachers involved, so it's easier to have everything managed in-house. Plus, I would think there would be some overlap for all the other public employees of the city, which causes that number to balloon. Elliot
  10. I think you should read the article. The investigation has very little to do with 403(b) plans. It's actually dealing with a problem almost as bad, though.
  11. I feel a bit obligated to jump in here, since I started the topic. First I think the personal attacks are out of bounds. Obviously people have had bad experiences with 403(b) reps, and it sucks. But generalizing is also wrong. Second, I wish posters would distinguish between mutual funds (load or no-load) and annuities. There are good load funds out there, and there are lousy no-load funds. However, annuities, those are complex beasts for which the quality depends on the contract you sign. There are insurance companies that are vendors for 403(b)s. They put people in annuities. Those have high expenses. Also, they are tax-deferred investment vehicles that are already in a tax-deferred account. This is why annuities in a 403(b) are wrong. It is not because annuities are wrong. It's not even because they are often pushed onto teachers (who may or may not know better). To take it a step further, the fact that teachers often don't see their reps again is not even the worst thing. Quite simply, even if there are lower fees, and only surrender charges, annuities are an improper investment for the 403(b). On the other hand, there are firms that are 403(b) vendors that are not insurance companies. Some only operate over the phone (Fidelity and Vanguard, apparently according to posters). Others, including the one I am interested in (Lincoln Investment) have reps on site. These firms place clients in mutual funds. If there is a rep on site, there is an expense associated with it. You should receive value for the expense. The person should sit with you to discuss risk aversion, goals, desired retirement age, etc. The rep should develop a solid relationship such that it expands to other financial goals (kids college, vacation home, paying off debt, etc). Additional compensation for these dealings should be discussed up front, but for this hands-on and direct contact, the rep should receive compensation. The over-the-phone companies, however, will not charge you transaction fees. The trade-off lies in not having that one person to whom you can speak, and get advice. There should be value. Also, it should save you time from agonizing over trying to understand the literature, and instead having someone help explain everything. Ultimately, the client is responsible for all investments. Even with Fidelity, they will not tell you if you have a good fund or if you will outperform. They will also send you to a website to determine if you are properly diversified. But you make the choices. Whether it's through Fidelity, an insurance rep, or non-insurance vendor, the client chooses. Any time you make a purchase, you want to know what you get for your money, and how much it costs you. If you buy a home, you don't just look at the purchase price. There's closing costs, financing, property taxes, maintanence, upgrading (depending on the home's age), and other ongoing costs. Any smart, intelligent person looks at these things to help determine the affordability. The same is true for investments. It's not so much what the rep gets paid, because it's not the full amount it costs a client. It's what does it cost the client, is the investment appropriate for the client, and is the client getting value for the cost. Please, keep this constructive. Don't assault how someone conducts their business because you have had a bad experience with someone else in their field. Let's face it, there are plenty of people on here who have spelling errors, mix up words, and horrible grammar, and are teachers. I'm not going to ask where you teach and say you are ruining kids' lives because you yourself can't type properly. That's making it personal. It's unnecessary. It sucks if you have an awful story to tell about 403(b) vendors. This site exists to help affect change. It is not to run people out of the schools, but to change how they conduct business. In order to do that, everyone has to post objectively, try to view different perspectives outside of their experiences, and then draw on personal experiences to help correct consensus problems. At least that's why I'm posting. I'm entering this field to not cause problems, but to actually help people. I want to know the bad experiences, but not if someone is ranting at me and saying everyone in the field I'm entering is useless. It's not appreciated, and certainly not helpful. Thanks, Elliot
  12. AP- Inspired by your post I actually read through the information. First there are several pages of their supervisor and executive listings. There's more like 9 pages of gobbleygook. True, it's not the easiest to understand. However, anyone who has every opened any brokerage account, or entered into any financial transaction/contract, has probably seen something like this. Some of it, if you take the time, isn't too difficult to understand. Other parts of it I can see as confusing, but may not apply to all investors. However, if you have a FR (financial rep, as they refer to it) who is worth anything, you ask questions. Also, I look through the different account types available, and types of compensation. Thankfully, as I believed, there are two roles I can play. There is a commission sales role. The other is a fee-based advisory, which will receive a % of assets invested. This provides flexibility to invest in lower-cost funds, if available. There are other more complex arrangements, but those may not be proper for many investors. I appreciate all of the posts. It's made me look into Lincoln further, and think about how I want to approach the position. I absolutely intend to provide value to any of my clients, and disclose all fees as I understand them. Also, where applicable, I will disclose the type of compensation I will receive out of the fees the client pays. Most important, I hope to place the client in quality investments, index funds or otherwise (likely a mix). Hopefully there are some pros who post to this board who can also give some advice or ideas. And if anyone does have any experience with Lincoln Investment, please feel free to let me know. Also, especially if it's negative, please let me know if it's the firm or the rep who was responsible for the experience. Thanks to everyone. Elliot
  13. I figure if I do right by clients on the commission side in the 403(b) contact, I can develop the relationship into a fee-only advice outside of the 403(b) environment. That's my goal - to provide advice such that I get involved in all of their financial planning. Many teachers have spouses and children, which factor into their plans and goals. Then, ideally, I will find some way of advising them on a fee basis, and having a separate structure should they also purchase securities through me for a commission structure. I will try to develop two different businesses, hopefully with plenty of overlapping clients. Elliot
  14. There is still a small transaction fee, even for load funds. But typically a load fund is 5%, so the no-load might be 2%. I don't know everything, as I haven't started yet. I am only stating intentions. To be honest, I plan on using the best mutual funds available, not what nets me the higher pay. And for those who will read this an say it's outrageous to pay a fee for a no-load fund, even the discount brokers do this. Yes, you can possibly choose to invest directly with the fund company. However, if that's not available, or even if it is, having a rep you can contact might be worth a small price. Also, presumably, and this is how I hope to fulfill my role, a rep will have access to various information and models to help guide investment choices. So any fee should return a benefit. I intend to provide that benefit so none of my clients vent frustrations on this website. Elliot
  15. The firm I'm joining is Lincoln Investment. They are not associated with Lincoln Financial Group. With regards to the posting for the commissions, I do find it interesting there is criticism, given they disclose this on their website. My understanding is that I have great flexibility in what I offer for the 403(b), and it will not be VA. It is mutual funds, however, I can choose which ones I favor, which means I can favor no-load funds and ones with lower expense ratios. As for the advisory fee, I believe those apply to different types of accounts, and not necessarily the 403(b). The company offers many account types, and it doesn't specify these fee rates for the 403(b). Also, and this is why I asked for experiences, I don't think there is an issue with the sales bonuses. The branch manager discussed this with me, and informed me it is not tagged to specific products. Rather it is overall productivity and sales, though it appears it will be involved with certain account types. However, find me any sales position for which there aren't bonuses associated with higher sales. Certainly I intend to disclose much of this to any potential clients. I figure if I'm open about it, it will enable me to have more clients. I know the pitfalls about some unscrupulous firms and salespersons actions from postings on this site. I am looking to avoid them. I am also looking for experiences with Lincoln Investment. Criticizing full disclosure of potential fees from their website is not what I am looking for here. Once again, especially because it does not state these fees apply to the 403(b), but only that they are possible fees which have quite a wide range. Thanks for future postings. Elliot
  16. The biggest problem with 'B' shares is the conversion. Not just the time frame. If you regularly purchase 'B' class shares, and they convert after 6 years, how does the conversion work? Is it each individual purchase? Because certainly shares you purchased in 2006 don't have the six years compared with those purchased in 1999 or 2000, which should have converted by now. And of course, when you switch funds, does it restart the time clock? Because then every time you rebalance, you're locking yourself into staying with the higher expense ration for longer. I'm not sure how this would benefit an advisor/salesperson, but it's a curious thing. I'm stating to know the answer to these questions, and am actually curious to the answers. But I do think the problem lies with the confusion that these questions can even be asked. Even mutual funds can go by the Buffett philosophy of buying what you know and is simple to understand. For funds, if you don't, or can't, understand what your costs are and what you get for your investment, you probably should avoid it. Elliot
  17. AP- Thanks for the info. It seems like your experience is a common thing among teachers, unfortunately. I would certainly like to get info from someone involving a Lincoln rep. Funny enough, the people I've spoken with at Lincoln have informed me of your same issues. In fact, they've said that's the advantage with Lincoln, and the approach they encourage reps to take when speaking with clients. Those are certainly actions I intend to avoid, which will hopefully make me a better advisor, and build a better long-term relationship with more clients. Thanks, Elliot
  18. Cicco- I too am in the acquiring phase. We certainly have slightly different philosophies. But as this topic seems to be winding down, I want to make a few final notes. First, personally I like T.Rowe's retirement funds a bit better. The allocation to equities is greater in the funds with 20 or more years to go, but the shorter time horizons matchup well. It's a personal opinion, but certainly share the possibility with your colleagues so they don't only look at Vanguard. As for the 403(b) vs not - Acquire some assets, gradually through funds in the 403(b). Certainly if you have low-cost funds (active managed or index), you should be alright. This doesn't mean put all possible investment dollars into the 403(b). It just means put, say, 2/3 of whatever you could contribute into the 403(b) in those funds. The difference, presuming you have the discipline to follow through, put into your taxable accounts. If you want to trade this account, do it. If you're successful, great. Five years from now that 1/3 amount will be equal to the 403(b) account because of your outperformance. If, however, pride from initial accomplishment gets the better of you, and 1/3 is worth almost nothing, or less than your total investments, you'll have a foundation in the 403(b). You can then re-evaluate, allocate, etc. This is how I've approached it, and others I know do the same thing. I'm sorry I can't give you exact returns, I don't focus on that too much since I'm not registered with the SEC. I can tell you I've had some bad investments, and learn from it. But before that, I had some good ones. And honestly, you learn very little from success, but screwing up is like having a 2x4 wack you upside the head and knock some sense into you. Best of luck, in your research and investment choices. Elliot
  19. Cicco- I can tell you that in the last two years my tax-deferred account returned 24.8% total (I think that comes to about 11% annual basis). But part of that was my investment choices. I also benefitted from dollar-cost averaging. I'm sorry I can't go back further in performance, I'd have to dig up the papers and online only goes back 24 months. You're asking for hard evidence in a simple answer and there isn't one. You want returns, take a look at Bridgeway Aggressive Investors 1. I bought it 5 years ago, and my initial investment has nearly doubled, if you add back the share price reduction due to capital gains distributions. Of course, in the past year, it underperformed, but that's why it's not my only investment. I have it in a Roth IRA, so they can distribute all the gains they want, and I won't care. However, in a taxable account, I either re-invest less, or must come up with the money to pay the taxes from somewhere else. In a tax-deferred account, the distribution is re-invested, and continues to grow, and compounds. Without more specifics about your situation, there won't be an answer that satifies you. There are priorities. Make sure you have a liquid emergency fund. Then when saving for retirement, stash as much as you can and consider taxes when you do it. If you have more than $4000 to put to retirement, and you're skeptical about the 403(b), open a Roth IRA. The difference put in the tax deferred, provided you have quality investment choices. Then when you retire, you can draw from whichever one helps you minimize taxes. Another big incentive to the 403(b) is the lack of access to it, and auto investment. You try to do this in a taxable account, there's too much temptation. I certainly don't think trading, which isn't investing, with all of your money will let you beat the market by 2% a year over the long term. If you want to, without specifics and many Ross Perot like charts, I don't think anyone will change your mind.
  20. Cicco- Seems like whatever investment choices are available to you and your colleagues are awful. Or, if there's choice, you just got roped in by a bad advisor. Even after load fees, a good portfolio should increase in value over the long term, since the load is only on the contribution, not the increase in value. Which is why expenses are also important, as they can drag down performance. It doesn't matter the amount you contribute, but how it's invested. Don't give up on the tax deferred accounts. But if you're determined to be more informed, it's a step in the right direction. It will suck if you have to go through an advisor and pay a commission even if you go against his advice. Make sure you're not in an annuity, and investing directly in mutual funds. Also, if you still think after-tax dollars are the way to go, then do it in a Roth IRA. You won't pay any tax on any gains, dividends, etc at any point in time. You can also withdraw the amount of total contributions after you've had the account for 5 years. There are other benefits too, which you should look into further. Elliot
  21. You certainly look as though you have a diversified portfolio. Switching to index funds isn't a bad thing either. It's personal preference. You could also remove some balances from existing holdings, move them into index funds, and add contributions to the index funds. Leaving some balances in the active managed will give you some potential for larger gains in up markets. Something else to consider would be your diversity across your Roth IRA and wife's account. Maybe you should be more aggressive in the Roth IRA with sector funds or active management, and be offset that with the index funds in your 403(b). Also, depending on what options your wife has, and how aggressive that portfolio is currently, you should stay with your current solid choices and just re-balance out of the better performing funds to sell high, buy low.
  22. Cicco- The difference is $300 after 9 years. Yes, that's more, but you're assumptions are curious. First of all, a balanced portfolio returns more like 8% over the long haul. Also, beating the market by two points is not an easy task year in, year out. You are also forgetting about transaction costs. And finally, you're putting it as selling everything each year, but getting LT cap gains rates. This means you completely turn over your portfolio on the same day each year, otherwise it's treating at higher ordinary income rates. Either that, or you only trade stocks you've held for longer than a year. And of course, your assumption is that the deferred account is taken as a lump sum, which is usually not how people take their withdrawals. It's even a good account type to use for estate planning purposes, if you should be fortunate enough to have to consider such a scenario. Also timing the market isn't a completely a bad thing. My suggestion would be to have a larger piece of your portfolio in regular investments, with regular contributions, and dollar cost average. In down markets, if you've picked good mutual funds, you might get hit, but as long as you don't need the money, it should bounce back if you've picked a good manager. If you fancy yourself a good stock picker, and market analyst, and wish to take on risk shorting stocks, using options and other derivatives, good for you. Use a small percentage of your portfolio (maybe 5-10%) to use the churn strategy. If you continue to be good at it, it will grow giving you more money to put toward that strategy. Ultimately, it all depends on risk tolerance and goals. Just make sure, even if you have a stomach for high risk, you have something that is a bit more conservative, on the chance you slip up and have a bad year. Especially if that bad year happens right before you thought you're about to retire, you'll be greatful for forward thinking. Elliot
  23. You wanted some examples, here's something from an Excel spreadsheet. Not, the taxable account must out-perform the other two accounts by 1.41% over 30 years in order to have equal funds. Also, when you consider the assumptions I used, some of them are not very realistic (tax brackets remaining the same for 30 years). However, this is just a simple model of how the different accounts work. Certainly some combination of them is best. And the return will definitely not be 8% every year, due to market volatility. There are probably quite a few issues with the simple example below. However, it is just that, simple, and perhaps oversimplified. A proper setup would be to run a simulation based on contributions each year over the 30, account for market volatility. Especially if you try to market time in the taxable account, fees would probably be a bigger bite, requiring a higher return, and would also likely have some short term gains taxed at a higher rate. Tax-Deferred $ Taxable Roth IRA Initial Amt $3,000 $3,000 $3,000 Taxes - 840 840 Total Amt to Invest 3,000 2,160 2,160 Average Return 8% 9.41% 8% Avg. After-Tax Return 8% 8.0% 8% Years Investing 30 30 30 Ending Balance $30,187.97 $21,735.34 $21,735.34 Tax Hit for Lump Sum $21,735.34 - - Assumptions: 1. Participant remains in 28% tax bracket for 30 years 2. Taxes paid in Taxable account with recognized gains 3. Average annual return of 8% 4. Each accout has virtually identical investments 5. Account fees, commissions etc are similar - 403(b) plan is low-cost 6. All recognized gains are preferred treatment taxable dividends, or LT cap gains 7. Average Return is after all fees and commissions 8. Eligibility exists for a Roth IRA As for fund ideas, some advice is to look for low fees, good return, and manager tenure. You want to be sure you're investing with the person who generating above average performance. Also depending on your tolerance, you may want to have some funds whose managers take on different philosophies of how to pick stocks. Some use cash flow valuation, some use technical analysis, etc. Good fund companies I like are T. Rowe Price and Bridgeway. T. Rowe has index and active managed funds and a wide range for domestic equity, international, and sector (energy, real estate, etc) funds. Bridgeway is a company I like for the manager, John Montgomery, who uses computer models. It adds to volatility, but is very different from other funds, and will help with diversification. The past year has been rough, but the long term results are solid. Also, there are a number of company philosophies I like. Read for yourself, but they worth looking into. I don't have a large portfolio, but for disclosure, I have investments in one fund at each company, and don't work for either. Hope some of this helps.
  24. I am trying to find if anyone out there has had any good experiences with a 403(b) vendor? Specifically, I am looking to join Lincoln Investment Planning which specializes in this field. They are not an insurance company, and do have some mutual fund options available which have no load up front by the fund company. Of course there is smaller % charged which will compensate me for the guidance, and the company for administrative fees. My understanding is these upfront fees are the only ones charged by Lincoln, and the ongoing fees all go to the mutual fund's expenses. Either way I plan to disclose all fees, especially those which will find their way to my pocket. Anyway, since I know this profession is under fire because of some unscrupulous characters and companies, I am wondering what the community thinks about reps if they are honest, and genuinely offer good investment choices and advice. Also, if anyone has experience as a client of a Lincoln rep, I'd be interested to hear about that as well. Along these lines, and I'm sure plenty of you will have input about this, what has been your negative experiences? Anything you can share so I can avoid them is appreciated. I am entering this field because I want to help people. I'd like to take the philosophy of "if I'm good, the money will follow", and the best way to do that is ensure a positive experience for anyone with whom I speak. Elliot
  25. This is certainly a lively discussion. I am not a teacher, and in the interest of full disclosure, I am looking to enter the financial planning field. The entrance will likely be as a rep for a 403(b) vendor. Further disclosure is that it is not an insurance company, and I plan to recommend low-cost funds to any participants. I'll receive a commission, true, but my goal to help a large number of people for a much smaller fee than they pay now. In response to Cicco, however, I have to agree with most of the other postings on the board. Cicco's views are quite valid, but I am sure specifically unique to him in this matter. There are a number of issues to consider. 1. The direct investing is after-tax dollars, so you have less to invest. This is where the tax-deferred advantages kick-in. In addition, the 15% tax rate he refers to is for long-term capital gains and favored dividends. If a person invests purely in individual stocks, then controlling tax consequences is a bit easier. However, if a stock sees a huge run-up, I hope a person would not hold on to it because of taxes, and instead decide if it's still a worthy investment. Also, when it comes time to pay those taxes, where does an investor get the money from? The payouts, or from additional after-tax dollars? If it's the payouts you lose the most valuable tool of reinvestment. And not everyone has the after-tax dollars. All of these points are especially important if you invest in mutual funds in a taxable account since a person doesn't control the taxable distributions. 2. Completing legitimate stock research takes a significant amount of time to properly invest in individual stocks. At least for a diversified portfolio. Many people don't have the time to dedicate to this task. Also, international markets are more important these days, and I can't believe many people are confident in their ability to figure out proper investments in Brazil, ######, India, China (BRIC) or other emerging markets and meet their risk tolerance. 3. When a young person first starts investing, there isn't a lot, if any, extra money to put away. The tax deferral is what allows someone to put away even $50 a paycheck, which really costs them about $38 (difference is what a person keeps from going to Uncle Sam). The discipline of auto investing is also key. With all this being pointed out, I agree there are many people out there who look out for their commission rates instead of your retirement savings. My mother and sister were/are (respectively) teachers. My sister just started, and got talked into signing up for AXA, which is a variable annuity. The mutual funds she picked as the underlying investment may work, but it's the wrong investment vehicle for her, which I intend to change once I am licensed, if not sooner. However, this doesn't mean the 403(b) is a bad investment. I could go on much more about this. If a person is fortunate enough to have a decent amount of money to save each year, I believe you should combine a tax-deferred account and a Roth IRA, plus additional taxable accounts. Be completely diversified in several aspects. You'll have tax-deferral and easier rebalancing, you have an account which will be tax free at withdrawal and does not require mandatory distributions, and you have a readily accessible account for sigficant milestone purchases (home, funding kids' college, etc). Of course all of this should be on top of an emergency cash fund, but that's a completely unrelated topic to 403(b)s. Elliot
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