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Posts posted by bigred

  1. Steve I totally agree with the Kudos to Vanguard. But they do have an ria sales team in Scottsdale and they do also have an institutional sales team. But they must all be doing fine because they are opening up the window to signal shares in most classes now.


    Hi bigred,

    True, but my point is that Vanguard does not charge the fee. RIA's do and thats to their credit that they are choosing Vanguard to looks out for the best interests of the investor. They are like fee only adviser only its not an upfront per hour fee. Personally, I would never pay 1% of the assets. That would be $14000 per year! Yikes! Those high net worth people might not realise how much they are paying. A 10 million dollar account is $100,000 in fees!

    As long as they know, its nobody's business.


    Investopedia sezs:

    Paid much like mutual fund mangers, RIAs usually earn their revenue through a management fee comprised of a percentage of assets held for a client. Fees fluctuate, but the average is around 1%. Generally, the more assets a client has, the lower the fee he or she can negotiate - sometimes as little as 0.35%. This serves to align the best interests of the client with those of the RIA, as the advisor cannot make any more money on the account unless the client increases his or her asset base.


    The most common definition of a high-net-worth investor is someone with a net worth of $1 million or more. The reason for this is that most RIA firms will establish an account minimum for anyone wishing to become a client. Amounts below this tend to be more difficult to manage while still making a profit. Consider that the average management fee is 1% of assets annually - this would come to only $1,000 on a $100,000 account, which is probably less than the costs the firm would incur internally to service the account.


    Have a great turkey day,




    Steve, I always appreciate your thoughts. Most RIA's I'm familiar with have a sliding fee scale so an account over 1 million is less than 1%.

    It is always shocking to see how much people waste on poor financial decisions. When I worked in banking I could list you a bunch of names that cost themselves over 10k a year in overdraft fees. Needless to say these are not people who are successfully building any wealth. Cheers,

  2. Kendra


    The Long term bondis O.K but It has the potential to lose MORE. How about going Intermediate Bond Instead? Just a Thought. Even better why not a Total bond market Index?





    I will agree whole-heartedly with Tony. There is a risk/reward trade-off with bonds and history has shown that taking the extra yield in long-term does not compensate for the risk. FBIDX would be a good fund if it is available.

  3. I hope someone out there in 403bwise land knows something about this group. It was just added and Includes all the greats we mention here. Don't know anything about fees yet

    so help me out if you can. I think I'm excited.








    http://www.403bplan.info/find-your-plan.php This will help you find your district. From there you may have to work with the district and aspire to get the funds available you are looking for. Aspire has 18,000 funds available but in a lot of districts they have only "allowed" for 40 funds through Ed Jones advisors.


    I have a ton of experience with these guys and am plenty happy to help you get pointed around to get some good low cost options available to you.


    Their cost is going to be $40/head annually and .15% bps.

  4. No problem on the Big Ben, I don't go to night clubs with underage women(Ben Rothleisberger, Pittsburgh Steelers quarterback)


    Here is a great link to the Nebraska School Teachers Plan. I think it can explain the rule of 85 better than I. In my wife's scenario if she retires immediately @ 55 she would get a benefit of about 65% of pre-retirement income. If you had any more questions just let me know.



  5. Tony, I don't mean to sound like an attack here but just trying to understand the difference in benefits across states. My wife teaches Spanish in Nebraska and from day they have had to contribute 7.28% of her paycheck to the pension plan. The district also sent roughly 7.8%. Last year they increased to to 8.28% and around 8.8% for these two years. With that plan they are on the rule of 85 schedule for full retirement benefits.


    How does that compare to VA?

  6. I come on here because I found Mr. Schullo posting on Boglehead's(of which I read alot) forum. I work for a financial services company and get paid for it so that makes me the devil around here. I would love to help educate people about investing, benefits of a roth vs taxable or just a traditional, but I haven't figured out how to do that and still put bread at the table.



    What have you decided? Just going back to your original challenge: "Convince me to convert a traditional

    (Just noticed this thread continued after I last posted, sorry).


    I plan to convert some of my traditional 403b to a Roth 403b. (I'm not sure of the mechanisms but will

    figure it out soon.)


    The main reason I will do so is that I consider it highly likely that federal income tax rates will rise403b to a roth one?"



    in the future. As a general rule, the thing that determines whether a Roth- or traditional retirement

    vehicle is better is the difference in tax brackets you are in at the times of deposit and withdrawal.

    I am in the 15% bracket now. I will probably retire with a similar income level (adjusted for inflation)

    but I expect people at that income level will pay more than 15% of that income to the US IRS in future

    years -- the US debt is very large and growing fast.


    However, I am near the top of the 15% bracket; indeed, I would be in the 25% bracket if I did not

    divert lots of my income to my 403b and 457 accounts. I don't expect to have a retirement income

    in the 25% bracket, so I don't want to pay taxes at a 25% rate. That is important: when one converts,

    one must pay the income taxes on the amounts which are moved into post-tax (i.e. Roth) status.

    So the amount I will convert will be (top income level of 15% bracket)-(my taxable income for 2010).


    In my case I will be moving from IL to TX this summer. TX has no state income tax, while IL has a

    3% flat income tax rate. (That's as of now; IL is deep in debt and may raise income taxes to fix it.)

    So I am in no hurry to do the conversion: for now, I am dumping money into my traditional 403b

    and 457 accounts, thus avoiding US and IL income taxes. When I am in Texas I will convert some

    of these new monies to the Roth account but will only pay the US income taxes, and nothing to TX.

    By postponing the conversion I avoid a 3% loss.



    N.B. - The conversion process prompts a number of reflections on the tax system.


    When I say I am in the 15% tax bracket, that of course means I pay 15% of each _additional_

    dollar as income tax; the actual amount of Federal income tax that I pay is at most 10% of my income.

    That much tax I'm used to. Income taxes don't feel confiscatory at that rate. But losing 25% of

    my retirement to federal taxes now really hurts. Even knowing that I will ultimately have to pay a

    comparable (but smaller) amount as taxes later hardly softens the blow -- this is one of those cases

    when I understand the math just fine but am still affected on a human level by the tax bill!


    It seems rather odd that there is a quantum difference at certain income levels. THat is, up to a certain

    number of 403b dollars, I want to convert; and beyond that I definitely won't because I would be in

    a different tax bracket. It would be fairer if the tax brackets themselves changed gradually with income,

    e.g. if your (marginal) income tax rate were proportional to the logarithm of your income. But I suspect

    that such a change would never appeal to a Congress which is math-phobic enough that it apparently

    cannot distinguish positive numbers (surplus) from negative numbers (deficit) or to recognize that

    negative numbers here have consequences...





    If your money is still in a 403b plan and cannot be converted over to an IRA you will not be able to convert in a plan.

  8. Question:


    I am 42 yrs old and have a 403(b) account with an $18,000

    >> balance. >> I recently found out that I cannot add to my existing 403 B

    > any longer as our school stopped working with Merrill lynch. We now have a

    > choice of 7 other companies that we can work with to start a new 403 B. I

    > have been told we cannot roll our old ones over to the new company, so it will

    > just sit there. How much is it going to grow untouched in 20 years? I am thinking of withdrawing all of it. I know that 20% of the amount is taken out

    >> prior to receiving it for income tax (and 10% penalty next year tax time);

    If it isnt going to grow all that much in 20 years then maybe I could use it to payoff an existing home equity loan which is at 7.6% or remodel our kitchen which I would enjoy for the next 20 years.



    Just letting the money sit in that account for 20 years and if you have it in a diversified portfolio that averages 6%, that is a very realistic number, you can end up with over $55,000. Does that sound like it would be worth being patient for? Or would you rather get to use 9,000 to work on your kitchen. I know what I would choose.

  9. This link is the brochure for the NTSAA conference right in my neighborhood. I might stop by and picket!

    National Tax Shelter Accounting Association. They are no friends to educators.

    Very nice setting paid for by our educator colleagues and school districts. $225 per night.




    Steve, I spend a lot of time lurking here and really do appreciate what you are doing. Keep it up!

  10. What remedy does a person have if they are missing $500 from the Gatekeeper fiasco earlier this year and Gatekeeper(or whatever it is now) will not pick up the phone or make an attempt to look for it? Letters from lawyers have been sent but they have not done much.




    Quick question: I am 63 and fully vested in my 403B. I thought I might pay off all my credit obligations, but found out my employer does not allow withdrawals or loans prior to termination. Why the limitation? Thanks for your help. Hjalmar



    There is no IRS requirement that a 403b plan offer either loans or inservice withdrawals.


    Taking a loan from a 403b is not the bad thing that some posters believe because the interest rate will usually be lower (e.g. 2% over prime -5.25% v 10 to 20% on a cc), period of repayment is limited to 5 years instead of an infinite period in a revolving credit line, and the loan is equilvalent to an investment in a fixed rate security such as bond where the interest goes back to the participant's account. The risk on a plan loan is that loan balance becomes taxable when employment ends.


    The problem is that after taking out the plan loan employees must stop using their other debt obligations by cutting up their cc and closing down bank lines of credit such as overdraft accounts to avoid increasing their debt.




    Mr Intruder,


    Isn't it also a poor tax strategy because you have to put after-tax dollars back into the account to pay off the loan. Then when you take the money out in distributions you have to pay income taxes again on it. Assuming it is a traditional account.


  12. Red,

    Thanks for the link. Swedroe is one author we definitely respect around here.

    Are you a RIA with access to DFA?



    Yes I am an RIA and our firm is an approved DFA advisor. We used Swedroe's firm he is affiliated with years ago(BAM) and have gone a different route since. We use mostly DFA for equity funds and DFA for bond funds but I have been on a crusade for using more Vanguard for quite a while.


    So yes I am an unabashed DFA fan because they are one of the few companies that can back up their claims. My wife is an educator and in her 403b we use Vanguard and DFA. I put my money where my mouth is.

  13. Back to the original topic. Its not just the mutual fund companies but the greedy CEOs who must live in their "entitlement culture" by excessive compensation. Take, take and take more, thats their motto.

    Read an excellant article by our hero Kathy Kristoff: http://www.facebook.com/ext/share.php?sid=...B3GU&ref=nf



    How can we get the fund companies to get shares voted against re-electing these boards of directors.

    This is one of my favorite articles showing just how terrible a product a fund company can put out.



    Ticked Off by Paulette Miniter (Author Archive)

    Best and Worst S&P 500 Index Funds by Cost


    Best & Worst S&P 500 Index Funds (based on expense ratios)

    Fund Ticker Expense Ratio %


    E*TRADE S&P 500 Index Fund ETSPX 0.09

    Columbia Large Cap Index Fund;Z NINDX 0.14

    Vanguard 500 Index Fund;Investor VFINX 0.15

    DWS Equity 500 Index Fund;S BTIEX 0.19

    USAA S&P 500 Index Fund;Member USSPX 0.19



    Rydex S&P 500 Fund;C RYSYX 2.25

    Rydex S&P 500 Fund;A RYSOX 1.55

    State Farm S&P 500 Index Fund;B SNPBX 1.48

    UBS S&P 500 Index Fund;C PWSPX 1.45

    DWS S&P 500 Index Fund;B SXPBX 1.40


    One other thing. I think I've seen people on here reference Swedroe. This is one on him talking about DFA.


    I know how much you despise paying an advisor but it might provide a little more insight on the history/structure of DFA.

  14. I agree that a younger person with a long time horizon should have 80% to 90% equities. But they need to understand, really understand the risk involved. Because sticking with a plan is so vital. Even younger investors who cannot stomach the downturns will turn and run from their plan. Frankly, the sure way to learn about ones risk tolerance is to experience losing 50-70% of your money. Filling out a questionnaire is nice, but it is nowhere near as complete as EXPERIENCING a real loss to learn about risk. This happened to me and for that I am forever grateful for that experience. The lesson on risk is more important than all of the other investments concepts put together. It is more important than diversification, knowledge of stock market history, knowing the differences between value and growth, knowing the impact of costs, knowing the difference between a sales pitch and objective information. If one understands risk both from each person and one's portfolio, all of the other concepts follow.


    Agreed. Most of us will never forget the past 9 months. And now know who can and cannot stick with a plan(it could still get real ugly again).



    As far as "dumping DFA" with the other enhanced indexes, I meant that once the indexes are "managed" ever so slightly, they become something other than an index. Perhaps DFA is not an enhanced index. William Bernstein speaks highly of DFA with a caveat. He says that if you have to use an adviser, use an adviser that has access to DFA. DFA has many index funds and are low priced. And he also says that if you have to get an adviser only to invest in DFA, forget it. The added expense may not be worth it.

    Until you mentioned it, I did not know that DFAs indexes were managed as you stated, they took out losing stocks. Bernstein never mentioned that in his book.


    I do not have any knowledge whether or not they did do anything but they have the flexibility allowed to do it. The biggest differences are the way they define an asset class, say US small cap value, VISVX owns 980 stocks while, DFFVX owns 1,554. And the other portion that makes sense is the not having to buy on EXACT day of inclusion to an index. You have to trust a company to stick to these principles and DFA has. They do not even have a 1-800 number I am told. I like that. As far as the advisor, to each their own. If you have retirment plan access take advantage of it. But it seems like they can possibly provide a slight increase in returns and they are definitely going to push you for a larger equity stake. They are also going to make sure that you are really globally diversified.


  15. Yes! I don't know if I don't like it because I don't understand your equity allocation formulas. For example: 10 years of working left minus 50 years old minus 15 for your bond allocation?? Add the minuses to 75%? What is drawdown?


    I like this formula: Risk tolerance ###### 2 = bond allocation. I got this from Adrian over at Bogleheads forum. In other words if you think your risk tolerance is 30% bonds, double it and 60% is ones real risk tolerance. Its so easy to say I am very aggressive when the market is going up, but that asset allocation is unsustainable when the market crashes and most will quickly change their asset allocation when its too late. That is a losers game. Increasing ones risk tolerance by 2 makes it more likely the investor will stick with their plan. Thats a winners game.


    My twist. Age 30 less factor of 15=15. Stock Allocation 85% Bond Allocation 15% Age 40 less 15= 25 Stock Allocation 75% Bond 25%.


    By drawdown I mean during retirement when are beginning to use those funds for living. Say retire @ 55, don't need this cash until 60 so @ 60 you are 40% Equity 60% Bonds. I like Bogle's rule but when you very young and in the accumulative stage it seems to be slightly too conservative. It is ideal for the 55-60 on up age range.




    Oh, I read the article and agree that in some cases during 1,3, and five years, many, many funds whipped most or all of VG funds and you can cherry pick funds that do beat the indices. I will like to say that ten years is also short term thinking.


    Warren Buffett "My favorite holding period is forever." I hope I can achieve something close to that. I agree that you can cherry pick anything and hindsight is 20/20. I just found it ironic that an apples to apples comparison of our discussion was right there in the article.



    It is always quite amusing that you describe an index fund as "rigid", somehow rigidity is suppose to be a disadvantage. I think its an advantage and the start of the active passive debate. Sure your point out that the main disadvantage is that it could not get rid of GM but the DFA could and therefore the main reason the DFA outperformed the index. Thats not a good enough reason to use DFAs from now on. You left other significant factors (I know you know this already), with an index fund one never underperform the market, lower taxes in a taxable account and the costs are very low. Using many index accross the asset classes with bond allocation and the everyday investor has a solid portfolio. It is a lot of risk for an investor to be in a DFA account because someone has to make a decision, so if selling GM is a good decision, why not start actively managing more often and now you see my problem with enhanced funds. DFA is an enhanced fund.




    I am very sorry if you feel you must lump in DFA with all of the other enhanced funds, because they are not the same type of company at all. Now watch what is happening with Cisco Systems as it is being added to DJIA. Studies have shown that there has been shown a price increase after announcement, leading up through the effective date, and then a drop off after that date. I agree that there are studies for most sides of arguements but this is a pretty basic principle. DFA operates the funds very similarly to an index and the above is a main difference and the other main difference is the way they define the market and include many more stocks than Vanguard and others do.


    Steve I hope you enjoy the spirited debate as much as I do. I think it is fun to have my principles challenged.

  16. Hi Big,

    Your posts are conflicting. One sentence you like index funds but then you seem to not like VG.


    Anyway, thats quite a claim to reject a traditional index fund just because it had to hold a failing company. Last I heard, GM is but ONE company in the 500. Nobody mentioned this argument when Enron failed, perhaps they did but who cares really about ONE company. Had I known that the one company would have failed and brought down the entire index, I would have bet the farm on the DFA. But all we have is the future. Who knows perhaps growth will outperform value, or big caps will outperform small caps. Past performance is no guarantee of future growth. Just because small cap outperformed large cap for the last 100 years, does not guarantee future returns.


    DFA claims to outperform the standard index strategy as do most "enhanced index" managers.

    We can go back and forth debating these strategies ad nausea. Two disadvantages: DFA is not available to 403b plans and one has to use a commissioned broker to purchase shares. Thanks, but no thanks.


    Well, then there is a third problem: the claim of out performance. Here is an article that debunks enhanced indexing:



    I am quite possitive that these days the active managers are having a field day because the 500 is down for the last ten years, but they always fail to mention that the s&p 500 index is but one asset class in a portfolio mix. We also have international, bonds, small, REITS and mid cap in our portfolios. By the way, back in 1999 when the tech bubble was producing 100+ gains in some sector funds, we would have been laughted out of the room if we publically predicted that bonds would outperform stocks for the next ten years!

    "Nothing is as futile as expecting past returns to be slavishly translated into future returns on a linear basis." --Jack Bogle


    "Using past performance numbers as a method for choosing mutual funds is such a lousy idea that mutual fund companies are required by law to tell you it is a lousy idea." --Bill Shultheis, advisor and author of "The Coffeehouse Investor."


    2 cents,




    Steve, I respect and appreciate your opinions and in fact agree with most of them.


    Maybe my post does not put across my opinions because I am a poor writer and better speaker(I should have my wife post).


    In my opinion DFA would be an A++ and Vanguard would be an A+. TIAA & T Rowe Price would earn some degree of A. I am sure I am leaving someone out but that's how I see it.




    Anyway, thats quite a claim to reject a traditional index fund just because it had to hold a failing company. Last I heard, GM is but ONE company in the 500. Nobody mentioned this argument when Enron failed, perhaps they did but who cares really about ONE company.


    This is part of the problem with rigidly following an index, although I still love them. They do not have to purchase and sell on telegraphed days. There is the big runup before that date and sell off after that date. They also would have been able to dump shares a couple weeks ago when all GM Execs dumped all of theirs.




    DFA claims to outperform the standard index strategy as do most "enhanced index" managers.

    We can go back and forth debating these strategies ad nausea. Two disadvantages: DFA is not available to 403b plans and one has to use a commissioned broker to purchase shares. Thanks, but no thanks.



    DFA is available inside of 403b Plans and DFA funds are not purchased through a commissioned broker. They are available when there is a tie-in to an approved RIA.





    Well, then there is a third problem: the claim of out performance. Here is an article that debunks enhanced indexing:




    I do not disagree with you that the enhanced indexes are mostly junk. To much "financial innovation" is their way of innovating their way into my pockets. EFT's are the same boat with some being very good and then a whole slew of crap. But I wonder how closely you read the article. There is a paragraph on how VQNPX returned 2.7% for 2007. The very next paragraph showed that DFELX had a 5.1% return for 2007. Your article helped prove my point but I'm not interested in how a fund did for a 1, 3 or 5 year period. I am in it for a much longer period.


    Also I try to use Mr. Bogle's equity allocation % with a slight twist I know you will not like, but it works for me. Working years- Age minus 15 for your bond allocation. In drawdown-Age= bond allocation.


    Other thoughts?





    According to DFA its investment style outperforms the passive indexes used by VG, e.g., S & P 500.


    If DFA Value out performs growth index funds why bother investing in large cap growth funds such as the VG S & P 500 which has a -2.5% annual return for the last 10 years? Why not invest in DFA value funds?


    If this is true why should anyone invest in VG passive index funds instead of DFA?




    You have hit the nail on the head. Now granted you still should have exposure to varied asset classes to create a truly diversified portfolio but your weightings should be heavily into the value realm.


    The DFA approach is truly a passive approach, very similar to Vanguard except without the rigid need to follow an index in lockstep.




    It is pretty hard to make a good arguement for active when the S&P 500 was forced to own GM during the death spiral in the past couple years. The S&P 500 still beat 72% of active funds.

  18. So, what else is new?


    Even if it is extremely rare, this level of pilfering is a disgrace.


    Now why is this not a surprise:


    A few exemplary firms, like T. Rowe Price Group and Vanguard Group, rebate all securities-lending income (net of expenses) back to the funds that generated it. The total cost of Vanguard's securities-lending program is well under 1%, says Tom Higgins, chief financial officer of the funds. That suggests that most of the 30%-to-50% toll charged by other fund managers is pure profit -- in effect, money for nothing.





    Go to the 3rd page for the information on securities lending. Another reason why passive whips active.


    Also read on articleon Yahoo Finance about gm being booted from the S&P 500 that said something like "Even thought the index has been forced to hold GM during this inevitable downfall they have still beaten 72% of mutual funds for the period." Active really helping there also.


    "But capitalism, he said, doesn't equal deregulation."

    Financial firms, which were at the forefront of the economic cataclysm, need to be re-regulated into boring, slow-growing businesses, Munger said.

    "I don't see any reason why a major bank that was 'too big to fail' should be anything but a very boring business," he said. "I don't see any reason why you should have a system where every bright young man fresh out of college should have $8 billion to play with."


    I like this man's thinking. He said "boring" twice. "Boring" is in full financial vogue these days because the high flying get rich schemes are over. The lesson for everybody is to have a "boring" portfolio of your own.

    Have a good day,



    Full article




    If the high flying get rich schemes are are over why are the banks out performing the rest of the market? Wells Fargo reported $5B in profits due to mortgage financing. Speaking of boring banks why has Berkshire Hathaway which is run by Munger and his pal Warren buffet and is the largest shareholder of Wells Fargo increased its stake to 6.5%? Wells owns Wachovia bank which owns the third largest brokerage Co in the US as well has holds a $110B portfolio of sub prime mortgages which is hardly boring banking. Buffet/BRK also loaned $5B to Goldman Sachs with the right to buy shares at $122 each (GS is trading at $140 which gives BRK a 15% gain plus the 10% interest ($500B) on the loan. Goldman is not exactly your local retail bank that makes a living by selling home mortgages because it has no branches. Buffet also loaned $3B to GE which gets 50% of its profits form GE capital which is a stealth hedge fund. If they believe that banking is supposed to be boring why are Munger and Buffet investing in banks to big to fail other than boring banks dont give them a high enough return on their invesetment.



    Big difference my friend between Uncle Warren buying pieces of GS and GE or the preferred stock "loan" that he gave them @ 10% plus the warrants. If I had that kind of bargaining power I would sure be happy to ###### it. He got a much better deal than the government and he isn't trying to control them with nit-picky comp rules.


    The Wells Fargo pick does boggle me a little. It seems to have had a stricter underwriting program in place to prevent some of these worst offender's from getting on their books but I totally get the Wachovia point. I don't pretend to be as smart as Warren but to me it looks like he thinks the intrinsic value of the Franchises plus the present value of the future cash flows is going to be plenty higher than the dollar amount he paid for the shares. In that assumption he must be making that the banking incomes are going to be high enough to cover most of the future subprime losses from this point on the books.


    Your thoughts?

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