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403b Choices

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I am 42 years old and approx . 18 years from retirement. Since 1992 I have invested in a taxed deferred universal annuity through Travelers. In December of 2002 I pulled out of the market due to tremendous loss in my portfolio...I am currently in a fixed account. In review of my portfolio annual fees plus account expenses,would it be wise to roll over my 403b money into an index fund(s) with Vanguard? Should index funds be only PART of my portfolio? ..I do realize I WOULD HAVE TO PAY SURRENDER CHARGES TO GET out of the annuity...Any feedback RE: VG FUND choices would be appreciated..I know I should be back in the market....I also have a ROTH IRA through Travelers that is also a universal annuity (rec. BY MY AGENT ) valued at $6500 that I would also like to roll over to Vanguard. I WANT TO ESTABLISH a low maintenance, low fee 403b that I can invest in with confidence till retirement...is it possible to do this without an agent? Thanks in advance for any feedback........

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Guest Daniel Clark

You may be constrained by your employer, but you should always, always seek methods of keeping you investment costs (what I call frictional expenses) as low as possible. With the IRA you have complete control over this.

 

The main problem with most investors is that they confuse the issue of investment advice and investment product placement.

 

Every financial intermediary (insurance agent, broker, advisor, banker, you name it) will "advise" you for "free". The reality is that this is not advice and it is not free. It is carefully packaged product placement.

 

The solution is to separate the advising process from the product placement process. Sounds like you have already determined that low-cost indexing is where you want to go. That basically means you have to eliminate brokers & agents. Fine. So now what you need is advice on 2 matters - asset allocation & fund selection. You might want to pay someone for this, just depends on you need for hand-holding. Be careful not to get a broker "in disguise". In my opinion, trust your own instincts and be very careful of everyone wanting to help you.

 

If we assume you are going to use Vanguard (good idea in my opinion) then your question boils down to asset allocation, which in turn is a function of your time horizon & risk tolerance.

 

You have a fairly long horizon (based on your age) but it sounds like your risk tolerance is limited, based on your move out of the market. So you probably need some sort of Moderate approach that includes 4 to 5 non-corellated investment exposures. Vanguard has indexes for all of the exposures you will need. I'd combine Large Company Stocks, Small Company Stocks, Foreign Stocks, REITs & Bonds. The %'s are the details you'll need to work out. And then you have to have the discipline to leave it alone. Asset allocation decisions should not ever be based on the level of markets, as market timing decisions almost always assure you will "buy high & sell low".

 

Good Luck,

 

DC

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Guest Joel

Every financial intermediary (insurance agent , broker, advisor, banker, you name it) will "advise" you for "free". The reality is that this is not advice and it is not free. It is carefully packaged product placement.

=================================================

Dan,

 

I could not agree with your above statement more. From my viewpoint all of the above practitioners except the "advisor" are masquerading as "advisors" when they are really commissioned salespeople.

 

A fee-only advisor does not give advice for free. His fee comes directly from the client's checkbook and because of that fact it is unethical to "advise" the client to use loaded products. So I for one would delete "advisor" from your statement unless you are defining "advisor" to mean something other than what I have described.

 

Peace and Hope.

Joel

 

 

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Guest Daniel Clark

Unfortunately, Joel, too often I have had the experience that individuals and their organizations calling themselves advisors are not fee only or advisors in the way you have described. So I have simply determined that everybody has to get thrown into the same category and the only way to get me to categorize an advisor as fee-only is to see a written contract describing services & fees.

 

Maybe I have become too cynical, but that is where I am coming from. As you define the advisor - we are in agreement.

 

Always enjoy your posts, Joel!

 

Best Regards,

 

Dan

 

 

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Agreed, a lot of people claim to be advisors when they are not. However, there are real financial advisors that offer fee based financial planning strategies for free to those enrolled in a 403(b) TSA retirement plan...they do exist, just ask for their credentials, and research the company. If the advisor has a Series 66 license, he or she is an Investment Advisor Rep., and is credentialled to charge a fee for their advice. Some companies only sell these annuity plans, but other are full-service financial planning institutions and the services their clients (teachers, etc.) receive for free are a huge plus.

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TX,

You said: "Some companies only sell these annuity plans, but other are full-service financial planning institutions and the services their clients (teachers, etc.) receive for free are a huge plus."

 

Unless you state otherwise, I am speaking to a sales person. That’s why this site exists so that your claims of free advice is addressed promptly. You claim that educators are getting free advice is totally wrong.

Two reasons:

 

1. In the 403b world, or in the world in general, nothing is free, even love. 85% of all 403bs are invested in annuity plans. So your claim of "full service financial planning" is very, very tiny. Also, too many educators really think that this nice sales person is doing something for nothing because educators work long hours for nothing for students and so they think and feel that this sales person wants to help them for nothing also. NOTHING is further from the truth. Financial advice in the 403b world is biased in favor of the sales person selling it and the insurance company.

 

2. The second problem fits in nicely with the first problem. Since the unions and districts do not provide unbiased information so that employees can see the fees and commissions and compare to the lower cost choices, such as TIAA CREF, Vanguard or TR Price, educators think that the “retail” product is the only product available. This is wrong because the “free” advise you claim is not very free.

 

In this environment, the TSA sales person can say anything they want with no accountability from the district or the union. The educators are sitting ducks with no place to go.

 

But alas, 403b reform is coming. Don’t know when, but it is coming.

 

Steve

 

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Guest Joel

Agreed, a lot of people claim to be advisors when they are not. However, there are real financial advisors that offer fee based financial planning strategies for free to those enrolled in a 403(b) TSA retirement plan...they do exist, just ask for their credentials, and research the company.

++++++++++++++++++++++++++++++++++++++++++++++++

TX:

 

You assert that a 403b enrollee gets "financial planning" for free from the same financial planner that sold him/her a 403b investment. Your assertion is not supported by the facts...its like saying a restaurant doesn't charge a customer for water because water is not listed on the check.

 

By what rule of logic can the advice be considered free when you pay 200 basis points to buy and maintain the 403b investment? Such an arrangement is proof positive that the 403b enrollee is getting poor financial planning advice while being overcharged for the 403b investment.

 

Peace and Hope,

Joel

 

 

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