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JMacDonald

Unhappy Ing Client At M*

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Hi,

We keep getting told here that VA are a good deal, but I never read about happy clients. Here is a <A HREF="http://socialize.morningstar.com/NewSocialize/asp/FullConv.asp?forumId=F100000069&convId=148518">LINK.</A> Best Wishes.

 

Joe

 

It's possible that this is because unhappy people are far more likely to complain than happy people are to boast about how happy they are. True on chatboards everywhere, not just 403bwise. :)

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Hi Joe,

Three other comments:

1. Never heard of anybody who made a mistake by investing in a low fee company.

2. I have never heard of an investor who regretted learning some basics of investing and firing their financial adviser. NEVER!

3. Related to number 1... I have also never heard of anybody educator or otherwise that could not wait to get out of a low fee company into a high priced company.

Steve

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Hi,

FT: Over at the Vanguard Diehard Forum on M*, there are lots of people who are very happy investing their funds with Vanguard, and they express it. You are the only person that I know who has stated on this website who is happy paying an extra 1% to an agent. Quite frankly, I think that is too much to pay for advice. If I had to pay an advisor 1% over the .31% average that I am paying Vanguard now, it would cost me an extra $4,000 a year. No advice is worth that much. Best Wishes.

 

Joe

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Joe........I have to be honest. I also average fees of 0.31, but I'm one of the ones not happy investing in my funds. I want to pay more. I feel that I need to spend more to sales reps and load organizations to keep our economy strong. I am hopeful that I can get advise from Mr. French on how I can do this( and be happy )......Ira

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Hi,

FT: Over at the Vanguard Diehard Forum on M*, there are lots of people who are very happy investing their funds with Vanguard, and they express it. You are the only person that I know who has stated on this website who is happy paying an extra 1% to an agent. Quite frankly, I think that is too much to pay for advice. If I had to pay an advisor 1% over the .31% average that I am paying Vanguard now, it would cost me an extra $4,000 a year. No advice is worth that much. Best Wishes.

 

Joe

 

Hi Joe,

 

My "happiness" in paying an agent probably has everything to do with a.) what I have gotten back from that agent, b.) what my balance would be without that agent (most likely, zero), and c.) the apparently large difference in our respective balances.

 

If an extra 1% would cost you four grand a year, then you apparently have $400,000 socked away. Good for you! The 1% that I pay for advice costs me far less than that. So we're really talking about apples and oranges. I think paying an agent as you are first starting out probably makes a lot more sense than paying an agent in the twilight of your career. Given that financial planners routinely charge hundreds of dollars per year for their services, 1% of a beginning balance is not a bad price to pay at all. Naturally, the proof of the pudding is in the eating, and whatever you are paying to ANYBODY for financial advice, you have to have your expectations met. Mine have been. For the apparently thousands of people that are throwing 1% of their balance away for slipshod service and no advice, I think it's obvious that they need to raise their expectations of who they are working with and respond accordingly: get a new agent, switch to a different company, or educate yourselves.

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Joe........I have to be honest. I also average fees of 0.31, but I'm one of the ones not happy investing in my funds. I want to pay more. I feel that I need to spend more to sales reps and load organizations to keep our economy strong. I am hopeful that I can get advise from Mr. French on how I can do this( and be happy )......Ira

 

Hey Ira,

 

If the sarcasm and the snarky tone make you feel better, have fun. Doubtless you'll get lots of chuckles from the other self-educated folks on this site, and you can all revel together in your sense of superiority. I have never once tried to come on this site and claim that my way is better, nor have I belittled anyone who has chosen a different path. If that's your MO, like I said, have fun.

 

You believe I'm wasting my money. Bully for you. You've all made that point dozens and dozens of times. I can't imagine for the life of me why it's so important to the lot of you that I invest my money a different way, but do me a favor and leave me out of your efforts to proselytize. If you really want to know why I invest the way I do and why I could possibly be content spending 1% of my balance to do so, you can do a search on this site and read any of my hundreds of posts. Or not. I really don't care. That's my "advise" [sic] to you, Ira. Have a nice day.

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3. Related to number 1... I have also never heard of anybody educator or otherwise that could not wait to get out of a low fee company into a high priced company.

 

 

You've honestly never heard of someone who started investing on their own, believing it was easy, then got a bit overwhelmed and turned to professional guidance (and their corresponding "high prices")? I think you have to talk to more people, not just confine yourself to the M* crowd. It's more fun hanging around only those who believe the way you do, but talk to people with opposing viewpoints from time to time. You may not wind up agreeing with them 100%, but you just may learn that (gasp!) there's more than one right way of doing something.

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I think it is important for all to remember that each investor has his or her own unique needs. I think we can all agree that all investors should self-educate whether they choose to use an advisor or not. If a person has a good grasp of financial matters and then chooses to use an advisor that is an educated decision that is right for that person and should be respected.

 

Dan Otter

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Guest TR1982

Thank you, Dan.

 

It's sad that almost all the people who come here disdain advisors and disdain advice. I respect their right to manage their own money. Why can't they respect the vast majority of people who want to pay for advice? It's also interesting to me that most people here are paying for a form of advice: mutual funds. If so many people here are such experts, why don't they just go out and buy individual stocks and bonds? I've always thought that was amusing.

 

 

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As I understand the Rule of 72 is 72 divided by the rate of return will be the time that it takes for your money to double.

 

In a deferred account like a 403b the taxes are deferred until you take the money out so that there will be more money realized at the end of the investment period.

 

Now, assuming an 8 percent return in a deferred account over time, money will double every 9 years, so that:

 

in a persons case who might have 400K in a deferred account the amount will double in 9 years.

 

When one percent extra($4,000) is spent on expenses, this amounts to $8,000 in nine years. Also going nine years back $2,000 became the current $4,000. Anyway the chart looks like this :

2012 8,000

2005 4,000

1998 2,000

1991 1,000

1986 500

1979 250

1972 125 ($125 is 1 percent of total portfolio at that time $12,500)

 

Anyway the 125 COMPOUNDED over time would be worth $8,000 in 2012 if my calculations are correct.. compounding will occur for contributions for contributions made in other years as well, so the amount becomes massive.

 

Mr. French, YOu had mentioned, "If an extra 1% would cost you four grand a year, then you apparently have $400,000 socked away. Good for you! The 1% that I pay for advice costs me far less than that. So we're really talking about apples and oranges. I think paying an agent as you are first starting out probably makes a lot more sense than paying an agent in the twilight of your career"

 

Actually this statement is incorrect, the money that you invest early in your investing life compounds a great deal as was shown above.

 

Additionally it is advisable to use non deferred money(which does not compound as deferred money because of tax consequences) for any advise that you may want to buy. At vanguard, and other institutions this advise is free. Additionally, even if you wanted to hire a fee paid only advisor, do you really think that you have to spend large amounts of money every year to develop an asset allocation? Of course not!!!!

 

Mr. French, I agree that you are able to think any way you want about investing, it's your buck, however I feel that when you mention your views about investing which I consider biased as well as uneducated, you might mislead a novice investor that comes to this site, so I will continue to challenge yours (as well as others) when I read biased, misleading statements.

 

Ira

 

 

 

 

 

 

 

 

 

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Guest TR1982

"Mr. French, I agree that you are able to think any way you want about investing, it's your buck, however I feel that when you mention your views about investing which I consider biased as well as uneducated, you might mislead a novice investor that comes to this site, so I will continue to challenge yours (as well as others) when I read biased, misleading statements."

 

Just be prepared for the same treatment, Ira. What's good for the goose is good for the gander!

 

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Ira, since you seem to enjoy numbers, here's another series of them for you to ponder.

 

Let's say it's the year 2000, and someone...we'll call him "French Teacher"...opens a 403(b) account at the behest of an agent. He invests an annual total of $2,000. The market returns 9% per year, but our silly French Teacher pays a 1% M&E fee, because he isn't smart like you, so he only clears 8% per year. His account balance looks like this.

 

In 2005: $11,733

In 2010: $28,973

In 2015: $54,304

In 2020: $91,524

In 2025: $146,212

 

French Teacher has a colleague...we'll call him "Ira." Ira doesn't trust salesmen, doesn't listen to them, and is waaaay too smart to open one of those high-expense 403(b) accounts. But he's not financially savvy enough to open the account in 2000 when his friend the French Teacher does. One day in 2005, he stumbles across 403bwise, and the site really educates him not only as to the need to save for retirement, but the bestest, smartest way to do it. So Ira opens his account, contributing the same annual amount of $2,000, five years later but oh so much smarter. He's making 9% instead of FT's paltry 8%, because he's not paying that wasteful M&E fee. Here's Ira's account:

 

In 2005: $0

In 2010: $11,969

In 2015: $30,386

In 2020: $58,722

In 2025: $102,320

 

But Ira must catch up to French Teacher at some point, right? Well, let's fast forward to 2040, at the joint retirement dinner for both of them.

 

FT: $518,113

Ira: $431,421

 

On the other hand, if Ira contributes an extra $500 per year (that's 25% more per year, year after year, than dopey ol' French Teacher), he WILL catch and surpass French Teacher's account balance. In 2037. Juuuuust before retirement.

 

What's the moral of the story? An early start to retirement savings is far more important than maximizing every dollar of return. And the entire reason I got my early start to retirement savings is because I had a full-service agent tell me how important it was, and I started my account with him. And that's a simple FIVE YEAR difference. I know teachers in their 30's and even their 40's who have no 403(b) account going.

 

Is it preferable for teachers to begin their careers fully informed as to the importance of retirement savings, and ready to begin their low-cost investing without needing any hand holding? Sure it is. How many teachers actually do that, though? I don't know about where you teach, but around here, the number is TINY. The reason most teachers get involved with 403(b) plans--if they get involved at all--is because there are agents who "talk them into it" and "sell" them a plan.

 

Where is TIAA-CREF, the great educational wonder, in all this? Nowhere to be found. In some districts, they can be troubled to offer their products. If it involves a hold harmless agreement, of course, they head for the hills. Can't be bothered with THAT, now, can we? And can't be bothered with hiring a few wholesalers whose uncommissioned, salaried job it is to make the same simple presentation I just made, now, can they? With all the billions they have under management, they could raise the cost on their product by a handful of basis points, and with that sum of money, fully fund a small army of people whose sole job it would be to educate people about the importance of retirement savings. But they are nowhere to be found. Nor is Vanguard. Nor are any of the other no-load companies that are so gleefully touted around here. You want to talk about biased opinions? How do you defend THAT, especially while attacking the companies that DO take a responsible role in the financial education of teachers from the OTHER side of your mouth?

 

Biased? You bet I am. The agent that opened my eyes to the importance of retirement savings did me a favor that will pay for itself many times over. And yet despite my personal experience, which I know to be FAR more common than the teacher who's savvy enough to handle his or her own investments, I have never once cast aspersions on anyone else with an opposing point of view.

 

If you think I'm misleading people, by all means, tell me how. I'll extend you the same courtesy.

 

(And remember that my agent is also a CFP, and has assisted me with numerous other financially-related issues apart from my 403(b) account...this post deals ONLY with the virtues of having been educated as to the importance of retirement saving. Even were his skills limited to that single thing, though, I think I've illustrated quite clearly here that that one thing would pay for itself many times over.)

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Guest TR1982

FT,

Thank you for your skillful and accurate rebuttal of Ira's earlier comments. It's fascinating to me that on another thread a new poster is bemoaning the fact that he has been investing in a terrible VA for the last 15 years. He doesn't bother to ask the question, where would I be today if I hadn't done this at all? Hindsight sure is 20/20. I love the Monday morning quarterbacking that so often goes on here.

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