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Back To Basics...a Clarifier & Challenge

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Jim,

 

Given that today most seperate accounts are third party funds that are available outside of the annuity, it does not make sense to pay the additional expenses within the VA. For example, using your example, let's say your 7.55% return was derived from investing in seperate account A and B. If you invested in A and B outside of the annuity, your return would have been around 15%. Since ex living benefits(which we will assume are not associated with this VA), there are no substantial benefits derived from investing in the VA versus the underlying mutual funds, the investor should buy mutual funds versus the VA.

 

Mark

I have no idea how you come up with a figure of 15%. The M&E is 1.25% and the Management fee is .85 for a total of 2.1% You are assuming that I have the time, inclination, & know how to figure out what funds are being used in the asset managed portfolio, buy those funds, watch those funds on a continuing basis, invest in buy/sell software, get the same price as an institutional investor, and know when and how and with which funds to rebalance the portfolio. No thanks. I'd rather spend my time doing about 300 other things that are actually fun.

 

Here's an idea: the next time one of your kids gets sick why not whip out the PDR and treat him/her yourself? It's a lot cheaper than paying that pesky know it all Doctor who specializes in medicine.

 

Some of things I read on this board are absolutely mind boggling. An endless source of amusement and astonishment.

 

Jim

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Jp:

 

Your analysis is faulty inasmuch as you are comparing your actively managed account to a buy-and-hold equity index fund. Surely the investor using TIAA-CREF/Vanguard was free to actively manage his/her account over the last five years.

 

 

Joel,

 

Okay let's take a look at any of TIAA stock funds over the last 5 years. The only one that made any money was the social concious fund that made a whopping 2.85%. Take a look at http://www.tiaa-cref.com. Not one of the TIAA funds is doing better than 2% YTD. My managed high fee VA is doing 7% ytd.

 

How can you possibly claim that even an actively managed account with TIAA would have done better than my VA? You can't because it wouldn't. And you are ignoring the point that 99% of all TIAA investors do not "actively" manage their accounts. I know that I woudln't, that is why I use a managed portfolio within my VA.

 

Let me put it to you in real numbers: In 1999 Joel put $100,000 into the best performing TIAA fund at 2.85% and today it is worth $115,085. At the same time I put $100,000 into a managed portfolio in my VA, (I neither know or care what funds it is going into, that is why I use professional money managers), and today it is worth $143,897. However Joel paid lower fees than me. All things being equal I would rather have the extra $28,812. I'm sure Joel would rather have less money but feel content that he paid lower fees.

 

Here's something interesting: If you go to Vanguard, which I believe charges higher fees than TIAA, you'll find that their yields are better than TIAA. Huh? What's up with that?

 

 

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Okay let's take a look at any of TIAA stock funds over the last 5 years. The only one that made any money was the social concious fund that made a whopping 2.85%.

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Once again you are comparing different investment strategies. Your return over the last 5 years was based on an actively managed account (different investments during different time periods over the last 5 years) and generated a superior return than the CREF Social Conscious Fund which generated 2.85 percent. THIS 2.85 PERCENT RETURN, HOWEVER, IS BASED ON ONE SINGLE FUND BEING HELD FOR THE FULL FIVE YEARS....THIS IS A BUY AND HOLD INVESTMENT STRATEGY.

 

There are many RIA that specialize in actively managing TIAA-CREF participants accounts. One did not need to use the annuity wrapper to match your returns over the last five years or for that matter any other period of time.

 

Please stop calling me names.

 

Joel

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Jim,

 

Given that today most seperate accounts are third party funds that are available outside of the annuity, it does not make sense to pay the additional expenses within the VA. For example, using your example, let's say your 7.55% return was derived from investing in seperate account A and B. If you invested in A and B outside of the annuity, your return would have been around 15%. Since ex living benefits(which we will assume are not associated with this VA), there are no substantial benefits derived from investing in the VA versus the underlying mutual funds, the investor should buy mutual funds versus the VA.

 

Mark

 

Mark, is my math wrong, or are you suggesting that the VA Jim is using actually carries an expense ratio of 7.45%? He says he's getting 7.55%...you're saying that outside of the annuity, that number would leap to 15%. Could you clarify?

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

Once again you are comparing different investment strategies. Your return over the last 5 years was based on an actively managed account (different investments during different time periods over the last 5 years) and generated a superior return than the CREF Social Conscious Fund which generated 2.85 percent. THIS 2.85 PERCENT RETURN, HOWEVER, IS BASED ON ONE SINGLE FUND BEING HELD FOR THE FULL FIVE YEARS....THIS IS A BUY AND HOLD INVESTMENT STRATEGY.

 

There are many RIA that specialize in actively managing TIAA-CREF participants accounts. One did not need to use the annuity wrapper to match your returns over the last five years or for that matter any other period of time.

 

Please stop calling me names.

 

Joel

Joel,

 

Here you go again. You never directly address the issue. I am not comparing theoretical returns. I am comparing REAL WORLD returns, the only ones that count. You said that the participant could actively manage their TIAA account. My point is that even an actively mnanaged TIAA account would have LOST money over the last 5 years. That is a fact.

 

"There are many RIA that specialize in actively managing TIAA-CREF participants accounts." How many is many to you? 5, 6, a dozen. I doubt there are many RIA's actively managing TIAA accounts, I doubt there are many teachers who even know what an RIA is or how to find one. Let the RIA on this board step forward and tell us what sorts of returns his clients earned over the last 5 years in the accounts he managed less expanses. I've asked this before but Scottyd is curiously reluctant to reveal this information.

 

And how about you Joel. What sort of return did you earn in the last 5 years on your TIAA account? I assume you actively managed them for yourself. I told you what sort of retuens I've earned. I've shown you mine now show me yours. I have purposely not mentioned the company name but I will send it to you privately if you like and you can go to their website.

 

WAIT A MINUTE!!! Aren't you the guy who has written on this board that you shouldn't try to market time your funds? Doesn't this contradict the concept of a teacher actively managing their own account?

 

BTW, what names have I called you?

 

Jim

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Jim said: "How can you possibly claim that even an actively managed account with TIAA would have done better than my VA?"

-------------------------------------------------------------------------

 

Jim, I never made this claim. In the future would you please refer to my claims in an accurate fashion.

 

I simply said that you should unwrap the annuity and manage your account using TIAA-CREF funds to the same degree as your manager used the funds available in the annuity wrapper. I am simply challenging you to compare apples to apples and then post your results. Do you understand that to do otherwise is a distortion? The process is the important thing not the result. Or are you attempting to shape the result with your insistence on comparing and actively managed account with the buy and hold of a single fund over a 5 year period?

 

Moreover, you make a viable argument for the retention of a personal money manager for the accumulation of wealth.

In your own best interests you should go back and see if, and it is a big if, you were able to use no-loads with the same investment manager actively managing your account how much more you would be worth today absent the commission and ME fee. As you assert quite correctly the name of the game is making money. Paying unnecessary sales commissions and ME fee is a drain on the growth of your money. Use no-load funds and then hire a personal RIA to actively manage your account.

 

Please do not make this a personal thing. We are here to talk in general terms about all things financial. I am not competing with you or you with me. Why state that I am smarter than you but you have more money than me? You somehow feel that referring to me as a "clerK" employed by Vanguard or "silly" or "naive" lends credence to your position that it is a good idea to pay commissions and a ME fee so long as you have a professionally manage account inside of the annuity wrapper and the wrapper generates a greater return than a single TIAA-CREF fund over the last five years. On the contrary it detracts from your argument and lends credence to the rule that when you cannot prove you are right you deflect by insulting the guy/gal than disagrees with you.

 

Jim, we don't even know one another. If you choose to divulge your personal figures that is your choice. But please don't expect another to do the same. You could have used your figures but stated that is was hypothetical. In order to make your point you did not have to divulge your personal financial information did you?

 

 

Joel

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My point is that even an actively mnanaged TIAA account would have LOST money over the last 5 years. That is a fact.

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

Wrong again!! How could you possibly know this and then have the nerve to say it is factual. You must know you are going to be s down. Why do you make yourself a full body target.

 

There must be hundreds of different combinations of using Tiaa-Cref funds in a professionally managed account over the last five years. Jim, have you no shame? PLEASE STOP WINGING IT AND DO SOME INDEPENDENT RESEARCH.

 

Joel

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Jim,

 

A few issues, first I probably made an incorrect assumption that you 7% return was the aggregate return over 5 years. If it is an annualized return(IRR), then the return outside the VA would have been about 9%.

 

Second, what actively managed VA has return 7% over the past 5 years? I have looked at Pac Life, Skandia, ING and none of them have performed that well. In fact, the managed account concept is barely five years old. Most of them have rolled out in the past two or three years.

 

You were either very smart or very lucky to pick the program that returned 7%.

 

Third, I have never said expense ratios are the only consideration when deciding on a mutual fund or VA investment. However, it is true that VA's carry higher costs than their mutual fund counterparts. The higher cost may be justified in a non-qualified account, but without some living benefit feature, they do not make sense in a qualified plan.

 

Fourth, I do not take out a PDR to diagnose my kids illnesses. I am also not recommending that you become versed in investments, if you do not have the inclination or desire. I have no problems with good reps, and the fact that they get paid for doing their jobs. The problem is defining a good rep. In order to make the decision, I believe an investor needs to understand from a conceptual viewpoint the markets, market risk and market returns. You need to look at more than return to determine the value added by a money manager or a rep.

 

BTW, the PDR is a classic pitch used by reps. It is really a poor analogy.

 

Mark

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Fourth, I do not take out a PDR to diagnose my kids illnesses. I am also not recommending that you become versed in investments, if you do not have the inclination or desire. I have no problems with good reps, and the fact that they get paid for doing their jobs. The problem is defining a good rep. In order to make the decision, I believe an investor needs to understand from a conceptual viewpoint the markets, market risk and market returns. You need to look at more than return to determine the value added by a money manager or a rep.

 

BTW, the PDR is a classic pitch used by reps. It is really a poor analogy.

 

 

 

Mark, I agree that the comparison with MD's is faulty on several levels (at least until they make the Series 6 & 7 exams as difficult as, say, Harvard Medical School). A better analogy (and one I've also heard from numerous reps) is the guy who decides to pay $30 to have his oil changed in his car rather than change it himself for less than $10. Is it wasteful? Yes, if your only criterion is cost; no, if your primary concern is "I don't want to change my own oil." (Either way, most reps I've heard from would much rather compare themselves to physicians than to mechanics.)

 

Having said that, I'm looking at the S&P 500 being down around 15% over the last five years or so. If Jim can show us a 7% annualized return over that same time period, I think we can all safely call that a good rep, no? I'd certainly be content with those returns.

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If you choose to divulge your personal figures that is your choice. But please don't expect another to do the same. You could have used your figures but stated that is was hypothetical. In order to make your point you did not have to divulge your personal financial information did you?

 

 

Joel

Joel,

 

You've never revealed any figures, hypothetical or otherwise. You just go along on this blind belief that if it cheaper it must be better. Ok, I challenge you to show me how specifically an investment in TIAA stock funds over the last 5 years would have returned better than 7.55%. You won't because you can't.

 

Jim

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In your own best interests you should go back and see if, and it is a big if, you were able to use no-loads with the same investment manager actively managing your account how much more you would be worth today absent the commission and ME fee. As you assert quite correctly the name of the game is making money. Paying unnecessary sales commissions and ME fee is a drain on the growth of your money. Use no-load funds and then hire a personal RIA to actively manage your account.

 

 

Joel,

 

Let me make sure I understand. I should go to the company that issued the VA and ask them to manage my funds at no cost? Gee, do you really think they would be agreeable to that?

 

"Paying unnecessary sales commissions and ME fee is a drain on the growth of your money. Use no-load funds and then hire a personal RIA to actively manage your account"

 

And how well has that strategy worked for you Joel? You are very quick to tell others what they should do but strangely reticent about what you yourself are doing. I'm still waiting for any RIA or ANYONE poster on this board to step forward and share their investment return experience with us. I suspect you can't or won't because your returns have been negative.

 

Jim

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Jim has said that he is paying 1.25% in M&E charges, and an additional 0.85% as a "management fee." Others are suggesting hiring an RIA to manage a portfolio of no-load funds for him. Clearly the RIA doesn't work for free, but the implication here is that (s)he would be substantially cheaper than 2.1% per year.

 

Can anyone throw out a ballpark figure as to what an RIA actually charges? Is it a percentage of assets under management, or a flat dollar fee? Either way, what are some common charges?

 

I checked the website of a CFP whose name has been mentioned on this site several times. An excerpt: "Generally, the retainer program is best for people who want ongoing financial planning and investment management and have investable assets in excess of $250,000." Presumably, his fee schedule would be onerous for a smaller investor. Is this more or less normal for RIAs? If so, where do teachers with smaller account balances (that's about 99.3% of us, by the way) turn for ongoing financial planning and investment management?

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My point is that even an actively mnanaged TIAA account would have LOST money over the last 5 years. That is a fact.

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

Wrong again!! How could you possibly know this and then have the nerve to say it is factual. You must know you are going to be s down. Why do you make yourself a full body target.

 

 

Joel,

 

I know this because I can go to the TIAA website, look up their stock fund returns and do the simple math. You say I am wrong, but post nothing to back up your assertion. Joel, I'm not making up these returns, they are publicly posted on the TIAA website for all to see.

 

Jim

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Jim,

 

Second, what actively managed VA has return 7% over the past 5 years?

I have sent you a private email with the name of the company and account name. I hope you get it. I am reluctant to post the name publicly on this board and will only do so if I receive public permission from the board's owner. I have no interest in being further flayed by the leader of the mutual fund "know nothing party."

 

Jim

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You were either very smart or very lucky to pick the program that returned 7%.

 

 

Mark,

 

I do not consider myself to be either. When I set up this account I was given a number of choices by the rep:

 

a. FTJones. They offered about 300 mutual funds for a total fee of 1.35% and were totally "do it yourself". The rep was upfront in telling me that he was not comfortable or legally allowed to manage my account.

 

b. SBG A more traditional type of mutual fund platform with a surrender charge for the first 5-6 years. Fees varied depending on the fun ds and they did offer some asset allocation models.

 

c. Company . They offered an account that was actively managed by a team of Harvard & Warton school graduates. This account was rebalanced monthly and had performed better than average in the past. My cost was 1.25% M&E & looking back at the prospectus a 0.59% expanse ratio.

 

d. A traditional fixed rate annuity paying about 5% with a 3% guarantee.

 

I chose to go with experts, pay the fees, and rely on their abilities.

 

Jim

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