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bzribee

Tiaa/vanguard Allocation--A Re-Post Of "question On Some Funds&#34

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Thank you, thank you, Steve and Joel. Okay, you asked for it (previous post), get ready for details.

 

Firstly, those 3 funds (Pimco, Hussman, DFA) were part of a portfolio worked out for me by a bwise recommended fee only financial planner. I don't want to give a name but I will say that after working with him, and speaking briefly with two other fee only persons, I realized that most of these folks want to take on and manage my portfolio for me, for a fee, of course. The fee is probably reasonable, but it becomes a managed portfolio AND I'm not in as much control (or lack of it, as I look at my last 15 years). Also, in his defense, this was done before I retired, about March of 2010. This person works through TIAA and Fidelity, so he essentially suggested moving all my Vanguard money to TIAA, and left my Nationwide money alone (which I had really wanted to move to Vanguard and/or TIAA). He wanted to do one Vanguard fund THROUGH TIAA. He said he no longer believes in buy and hold...

 

This week I have turned in my own paperwork to rollover Janus Overseas to Vanguard (hope I didn't mess up on dividends), and am trying to decide whether to move my Nationwide to BOTH Vanguard and TIAA, or just one of them. That's why I asked about the 3 funds--I've figured out they are brokerage accounts, and "free" through my TIAA 403b. So I was trying to look objectively at some of the FP's suggestions. He mentioned that he no longer likes one of these, but didn't tell me which one. AND, if he was managing my portfolio, that would've meant moving it. Buy and sell..."Brokerage" also affects whether I roll everything over to IRA's, where that would cost something.

 

One last comment before the personal/financial details: last night I REALLY looked over everything I have, especially Nationwide. I never really took the time to do this while teaching. I've averaged 4.3?% over the last 10 years. To me, that's crap. I'd said many times I felt it was just an enhanced savings account, and while 4.6 may be okay this year, I really should've moved those funds many years ago. I complained, but didn't take charge. I never even really "got" the statements. Last night, I noticed (!) that each quarter, hidden among the 3 pages of fund listings, was a little note that said, "You have made 3.2% YTD" or something similar. Hidden, yes, but I should've found it and been energized to move the money, even within Nationwide. So I ask myself, "Why would I keep it there now?" I have better options and more time to think and act. The FP said (several times) to leave that money there (at the time about 50% of my savings).

 

I am 58, 4 months retired, single, renting (low rent) and have a side hobby/business that brings in enough that I don't "deprive" myself. I live very inexpensively and save very well and do not expect to be taking money out of my accounts until I have to (70). Then it'll be a minimum. If my elderly mom comes to live with me, well then I may buy a place...oh, there was a buy-out in my district, so I have 5 years of extra income. I'm sending it directly to my Tiaa 403b. I took my DBS as a one time rollover to my 403b (the idea being I could do better on interest than what it gains over 3-5 years?). I taught K-12 and took health insurance through age 70, where I pay 19%.

 

Here's what I have now:

48.0% cash (banks, interest varies from .2 to 1.1%)

4.0% Roth IRA Traditional Annunity, Tiaa-Cref, CalSTRS P2, 1% guaranteed (now getting 2.6%)

5.0% 403b Traditional Annunity, Tiaa-Cref, CalSTRS P2, 3% guaranteed

6.0% 403b NSDMX Nationwide, through FBC

10.0% 457 NSDMX Nationwide, through FBC

 

All of the above funds were "holding places" 'til I decided where to put the money. Never got around to it...(a strong example of why many teachers do use or need advisors. We put school before selves). Also have:

 

4.0% 403b Janus Overseas (closing that one--moving to Vanguard IRA Total Bond while I make decisions--would TIPS be better here, btw?)

10.0% 403b Vanguard Total Stock Market

2.0% 403b Vanguard Small Cap Index

2.0% 403b Vanguard Total Bonds

1.5% Roth IRA Vanguard Prime Money Market/Brokerage (a few stocks)

10.0% Roth IRA Vanguard Small Cap Value

00.0% IRA Vanguard Total Bond Market--holding tank for rollovers

 

Okay--it's not 100%, but it's as close as I can get.

 

It seems between all the bonds, cash and low performing funds that I could be doing better--that's why I said I want to be more moderate. I am not in any way keeping up with inflation, IMO. For all that I read and know, I really DON'T know how I'm doing. Not horrible but poorly, I think.

 

I should've posted all this awhile ago, but after going to the FP I thought it "wouldn't be right". I'm over that now, and would appreciate any and all suggestions, help, etc. I am holding my Nationwide paperwork to see if you think that 16% should go to Vanguard, Tiaa or both. I'd like to turn it in FAST, as I have trouble dealing with the FBC person who keeps convincing me that I'm doing fine with Nationwide (she's on vacation). I also know I've stayed in the Traditional (Tiaa) way too long. It was supposed to be a temporary hold. I"m DONE taking forever.

 

Thanks!

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Hi Bz,

Obviously, you are about to change course in a big way.

I don't understand when you say you cashed in your DBS, no CalSTRS pension?

And you say that you don't need your 403b for 12 years?

How are you going to live? I guess I missed something.

 

Financial planners charge either by the hour and/or by managing your money for a percentage, usually around 1%. Sounds like the planner wanted to managed it for you. If you don't want this, say so and tell him or her what you want. Examples, set up a plan and help you stick with it when the market gets whacky and to learn to do this yourself, you are the boss. Show the planner what you posted here for us.

 

If it were my money I would build on what you have in Vanguard. I don't know what your risk tolerance, so I would put 70% of your money in different types of bonds and 30% in equities that you already have below. Historically, 30%/70% stock bond split performed at 7.2%, which is fine with me. click here for different allocations and their risk and returns: https://personal.vanguard.com/us/insights/saving-investing/model-portfolio-allocations

 

A great place to track your portfolio is morningstar.com. At this site: http://www.morningstar.com/ click on "Portfolio", create a name and enter the ticker symbols, the number of shares and you can track your portfolio 24/7. Its a great site that I have been using since the early 1990s so that I could do what I was paid for, teach students. And then you know how your mix is performing. In the last two years, my portfolio has done 9%. Great for people in their middle and late 60s and retired.

 

As a general rule of thumb, after tax money should be in equities and the IRAs should be in bonds. Looks like you only have iras. You should roll over all of your 403b into a rollover IRA when setting this up.

 

Since you have already talked to 3 advisers and found all of them unsatisfactory, you are going to do this on your own. That's what you are communicating, anyway.

You might set up a simple "lazy" portfolio something like this that you have already started in VG:

10.0% Vanguard Total Stock Market Index

10.0% Vanguard Extended Market Index

10.0% Vanguard total international stock market index

70.0% Vanguard Total Bonds Index

Click here for other examples of Lazy Portfolios: http://www.marketwatch.com/lazyportfolio?siteId= (click on each porfolio to see the allocation)

Comments:

With this portfolio, you have equity exposure from all over the planet and US domestic and 70% in domestic bonds. The extended market index has some overlap with the total stock market index, but this is a great fund. It combines small cap and mid cap together. When small cap companies grow to mid cap, it stays in this fund and captures that growth.

The total bond market index has 3 different types of bonds: third corp. third treasuries, third GNMAs. I have had this fund for years.

Additional funds for future: TIPS

 

Once again, I am not sure about your risk tolerance. For example, this allocation "lost" about 7% in my portfolio during the downturn in August and September. Multiple 7% of your total portfolio and you will get an example of how much volatility can be generated. It's one thing just to see it in numbers here, but quite another to literally see your portfolio drop by tens of thousands of dollars in a few weeks. Now I am down only about 1.5% from last spring's high. Also, bonds also have some volatility. I learned about bonds by reading a couple of books, Bonds for Dummies and Winning bond Strategy by Larry Swedroe. Go to amazon and type in the names and purchase them used. Highly recommended. Bonds are a major source of stability and income for retired folks.

 

Hope this helps,

Steve

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Hello Bzribee,

 

In my opinion, Steve's portfolio suggestion is entirely reasonable. Since you still are working out your asset allocation, I'd consider leaving the Pension2 accounts where they are for the time being--there are a few nice offerings there, like that 3% guaranteed interest account and the DFA global equity fund (an excellent one-stop stock fund), that you can't get at Vanguard and might like to keep in the mix. Otherwise, I agree that rolling everything into Vanguard accounts is a great plan (check to be sure you don't have anything that has a surrender fee or other penalty if you close it out -- I don't think that's going to be much of an issue in your case, but you should definitely check). I'm not clear on how much of that cash is part of the retirement money that you don't expect to touch for a dozen years, but cash isn't really an investment--its value is virtually guaranteed to decline over time due to inflation--and I'd suggest you move whatever cash you don't expect to use in the next three or four years into Vanguard as well. You can invest it in low-volatility funds, like short-term bonds, if you want to be very conservative with the cash, but you will very likely see the value of that money keep up with inflation over a decade by assuming a modest amount of risk, whereas savings accounts seem likely to erode value over the long haul.

 

You'd do well to do a bit of reading to help understand the logic behind Steve's recommendations. Some of this info can even be gleaned via ###### on youtube. John Bogle, Paul Merriman, Rick Ferri or the "Bogleheads" guides are all excellent resources. They'll also help you to decide whether to determine your asset allocation yourself and stick to your plan (the preferred choice of Bogle and most of the folks here) or to use an advisor--Merriman and Ferri make cases for their own services, as well as offering a great deal of info for diy-ers.

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You haven't said how much money you have. If you have a $50,000 portfolio, you'll need to save more and take more risk. If you have $1,000,000 you can take less risk. How much are you getting from a pension? Also how much income will you need to take (spend) at age 70? Are there things you want to do in your 60's that might require you to dip into your savings? Some things you may want to do you won't be able to when you're older. There's not nearly enough information to make an accurate asset allocation, IMO.

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If you have an idea of how much you need in at age 70-75- Why not buy a stripped treasury ladder? For example if you need say 30k a year (to compliment a pension), you purchase stripped treasuries (govt guaranteed) for 30k each maturing 12-17 years from now. Current cost is about 77k for 150,000 of govt backed cash flow spread out over 5 years. It works well in a qualified plan because the growth is tax free. This gives you guaranteed income and you can let the balance of your portfolio grow for 17 years. In that span, a $250,000 portfolio earning 7.2% (70/30 mix on the balance per Steve's suggestion)would grow to over $800,000. At that point you could build another ladder.

 

Of course you have to have an idea of how much you need in 12 years. I use bond ladders for my clients-usually using 15 year ladders-this gives the income guarantee and the ability for a portfolio to grow without having to tinker with it much (passive.) I/we reallocate annually.

 

Also, you should buy a home. Where else can you buy an asset for 1/5th the cost (leverage)and write off the interest against your taxes?

 

So after saying we need more info to give advice that's my advice. As a CFP and holistic financial planner, these are topics I discuss with my clients, most financial "advisors" never discuss. They only get paid to sell products so why would they?

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Responses to Steve, Whyme and Mark,

 

First, thanks to each of you for your responses. To clear up a few things:

I DO have a CalStrs pension, and will also get Social Security (not much) at 65. The DBS is something else CalStrs only collected and paid from 2001 ‘til next year, I think. I took a one time payment. I also got 5 years of extra money through a Golden Handshake type deal. And I have a small side business.

I really don’t expect I’ll need to touch anything ‘til 70, at which point I’d likely take out 4%/year. I don’t feel comfortable stating how much I have but I’ll just say I’m probably okay, and can be conservative.

I live VERY inexpensively and can live on my CalStrs pension plus my small business without touching any savings. However, if I had to take $$ out, it would be 2-3%, for now (per year).

If I find a home to buy, I’ll use some savings. Mixed feelings on that. I hate to owe...

 

About the 3 planners. I only worked with one. AFTER realizing he wanted to manage my money, I spoke briefly with the other two who said that’s how they work, also. I finally realized FP and I were at cross purposes. He expressed (in a letter) that he had left me with a good set of rec's (Hussman, Pimco, DFA plus sending Vanguard into a P2 Vanguard account). I am going to quote here, edited for length, some points my fee only FP made. I can’t seem to use the italics, etc here, so his comments (from an email to me) are within the quotes:

 

<begin quote>"I helped work up the financial plan and asset allocation and provided you an actual detailed Investment Recommendation that you could implement on your own - without me. This is not something I typically do anymore as things change so quickly and tending to a portfolio once a year in this market can be treacherous.

 

I've learned over the years that working on a basis of "portfolio check ups" doesn't work well as the time for advice is when it is needed, not on a calendar basis. Having said that, I provided you exactly what you were looking for - an investment allocation that was detailed and that you could implement and was in line with your goals.

 

I believe I was also pretty clear that I manage assets and if you liked my recommendations and wanted a closer relationship - that the retainer service is available. As things are right now, there are several changes I would likely make to the recommendations - but nothing hugely drastic.

 

I have no issues working on an hourly basis, but can't provide investment management on an hourly basis - only via a retainer. “ <end quote>

 

I believe he is saying he will help me re-balance, but would not advise. So, I have decided to do this (with bwise assistance) on my own.

 

I appreciate the Portfolio suggestions. I’ve not heard of the stripped treasury. I will learn about that, and read the books. Meanwhile, I’ll set up a Lazy type portfolio, which is what I’ve always wanted to do (and had told the FP that several times). BTW, I am NOT blaming him. He has been very professional. I just think we were at cross purposes and I didn’t recognize it until a few weeks ago. It never occurred to me that fee only FP’s (many, it seems) insist on managing the portfolios.

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Responses to Steve, Whyme and Mark,

 

First, thanks to each of you for your responses. To clear up a few things:

I DO have a CalStrs pension, and will also get Social Security (not much) at 65. The DBS is something else CalStrs only collected and paid from 2001 ‘til next year, I think. I took a one time payment. I also got 5 years of extra money through a Golden Handshake type deal. And I have a small side business.

I really don’t expect I’ll need to touch anything ‘til 70, at which point I’d likely take out 4%/year. I don’t feel comfortable stating how much I have but I’ll just say I’m probably okay, and can be conservative.

I live VERY inexpensively and can live on my CalStrs pension plus my small business without touching any savings. However, if I had to take $$ out, it would be 2-3%, for now (per year).

If I find a home to buy, I’ll use some savings. Mixed feelings on that. I hate to owe...

 

About the 3 planners. I only worked with one. AFTER realizing he wanted to manage my money, I spoke briefly with the other two who said that’s how they work, also. I finally realized FP and I were at cross purposes. He expressed (in a letter) that he had left me with a good set of rec's (Hussman, Pimco, DFA plus sending Vanguard into a P2 Vanguard account). I am going to quote here, edited for length, some points my fee only FP made. I can’t seem to use the italics, etc here, so his comments (from an email to me) are within the quotes:

 

<begin quote>"I helped work up the financial plan and asset allocation and provided you an actual detailed Investment Recommendation that you could implement on your own - without me. This is not something I typically do anymore as things change so quickly and tending to a portfolio once a year in this market can be treacherous.

 

I've learned over the years that working on a basis of "portfolio check ups" doesn't work well as the time for advice is when it is needed, not on a calendar basis. Having said that, I provided you exactly what you were looking for - an investment allocation that was detailed and that you could implement and was in line with your goals.

 

I believe I was also pretty clear that I manage assets and if you liked my recommendations and wanted a closer relationship - that the retainer service is available. As things are right now, there are several changes I would likely make to the recommendations - but nothing hugely drastic.

 

I have no issues working on an hourly basis, but can't provide investment management on an hourly basis - only via a retainer. “ <end quote>

 

I believe he is saying he will help me re-balance, but would not advise. So, I have decided to do this (with bwise assistance) on my own.

 

I appreciate the Portfolio suggestions. I’ve not heard of the stripped treasury. I will learn about that, and read the books. Meanwhile, I’ll set up a Lazy type portfolio, which is what I’ve always wanted to do (and had told the FP that several times). BTW, I am NOT blaming him. He has been very professional. I just think we were at cross purposes and I didn’t recognize it until a few weeks ago. It never occurred to me that fee only FP’s (many, it seems) insist on managing the portfolios.

 

 

Hi Bz,

 

Financial Planner: sounds like you are moving on. He or she did say that they would work by the hour. Keep that in mind cause I am concerned that you will be relying only on us at bewise. The "bwise assistance" is powerful, but limited. While we offer the most powerful advise on the planet is that we are models of DIY, we can only do so much for you or anybody asking for help. If you want to be a DIY, as already said, you have to do the recommended reading for you to understand how the investing process works for you. But even that isn't enough. People have to experience their portfolio go down and not panic and then watch it come back up. If you can live through that, you will be a seasoned DIYer. Its easy to talk the talk, but you have to walk the walk. We are coming from a few years of digesting the readings, some of us watching our savings tank in market crashes with great pain, but coming out the other end in one piece. Some people get bitter. Not a pretty sight in the short term. But over the long term, learning to be your own financial adviser was never a mistake, it was one of the wisest decisions that I made and will never regret. And I didn't learn this stuff until I was in my 50s too. Go for it.

 

Lazy Portfolio: Its a great way to go, make sure to allocate a portion of bonds roughly equivalent to your age. One of the great thinkers at Bogleheads has a formula about that. Adrian (used to post here years ago) said to add on 10% more allocation to bonds. For me, when I turned 60, I had 70% allocated to bonds and it was a good thing as I turned 60 in 2007. You know what happened a year later. We had a 70% bond allocation all of this time and will continue for years.

 

House Purchase: The market is great for a buyer, but having any mortgage and living on fixed income is not wise, unless in your situation you plan on working in your business for many years or you have enough money saved. But the big risk is health. What if you cannot work and the mortgage eats into your income. You are right to be concerned about adding debt in retirement. Having said that, look around. There are inexpensive homes that are spacious, such as manufactored homes. We have friends here in the desert that live in very nice spacious homes and in a gated community. Might work for you and your mom. And if you mom has income, she can help with the payments and expenses.

 

 

Have a great day,

Steve

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I'd like to turn it in FAST, as I have trouble dealing with the FBC person who keeps convincing me that I'm doing fine with Nationwide (she's on vacation).

 

BZ - I pasted a tiny portion of your original post above because I hope to goodness that you have at least decided to get out of Nationwide through FBC. They are killing you with expenses! At least 1% and probably more. How do I know this? It was this very board that helped me move my 403b out of Nationwide administrated by FBC in San Diego. I moved it all to TIAA and reduced my expense ratios by more than 2/3. Of course the FBC "person" is trying to convince you to stay; that's how she makes her money. Get out...now! (I'll let the others comment on where it should go.)

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Kat, what's really weird is that the FP (who is not a fan) wanted me to stay with them!

 

I don't know where those charges are, they're always showing me comparisons that they are as low as, or below TIAA...Anyway, the paperwork is done and I just need to clarify a few things; I'll turn the paperwork in by Friday noon. Did you turn your paperwork in at Kearney Mesa, the County Office, or via mail?

 

I had to re-do all the paperwork as I started it while employed, but then retired. The forms are different.

 

I remember your earlier posts. An inspiration to me. Thanks!

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