[robreke]

(05-17-2015 01:20 PM)Yeti Wrote:  

(05-17-2015 08:56 AM)robreke Wrote:  

(05-16-2015 07:39 PM)Yeti Wrote:  

(05-16-2015 06:42 PM)robreke Wrote:  

It's like any business I think. There are good ones and bad ones. Many investment advisors do just sell "high commission" products and make a quick buck off of you. A pump and dump if you will. However, there are good ones out there that can help you develop good investment strategies to maintain and grow your wealth long term. Do your homework.

The bad ones far outnumber the good ones and corruption is built into the system. You can avoid such things with legal regulation as in the practice of law, where lawyers are held to a fiduciary duty, but such does not exist with financial advisers.

That's incorrect. Financial advisors that are licensed with Series 7 and regulated by FINRA ( which is all licensed reps) are bound by fiduciary duty to their clients. We undergo continuing education several times a year this hammers these points home in terms of fiduciary duty and always putting the needs of the clients above all other considerations. we are not allowed to discuss client matters with anyone as we are bound by client/advisor privilege just as a lawyer is. The financial advisory business is heavily regulated by FINRA and the SEC.

Don't believe everything is still like "the wolf of wall street" or "Boiler Room" It's not. Hollywood has done a lot to glamorize and of course distort what most financial advisors do on a day to day basis.

The industry rules and regulations further tightened after the 2008 sub prime crisis. The amount of regulations and paperwork I must adhere to now at least tripled since then.

I wasn't really relying on Hollywood. I was relying on what John Bogle, founder of Vanguard, stated in this interview (and which the documentary expounded upon):
The Retirement Gamble (PBS)

I can't look up at which minute they discuss it but the general idea is that advisers are not bound to a fiduciary duty.

Bogle is a very knowledgable and respected guy in the industry. In addition, Vanguard funds, which he founded, have some quality options and have done well for people.

Having said that, my thoughts are that he's like anyone with an agenda. I don't think he's a high paragon of complete unbiased objectivity. I don't think he's dishonest per se. It's just he has an agenda like any company man.

It behooves him and vanguard funds to discourage investors from using advisors. This is because Vanguard funds are not an advisor recommended fund for the most part.

Again , they're a decent fund family, but I've got numerous 'advisor related funds' that I regularly put my clients in that , though the fees may be higher than the no load vanguard funds, have performed just as well or better than some of the vanguard funds in the same class, fees included.

Advisors will also prevent many investors, especially novices , from making certain mistakes. For example, investors with advisors stay invested in mutual funds longer than investors without advisors. This, for the most part is a good thing, as the novice investor who's invested and doesn't know what a correction is like, may sell out of a market correction after some kind of pullback. Then, the market will base out , and start moving up again resuming its uptrend. The advisorless investor will sometimes be skeptical of this new uptrend and not reinvest the funds, while he "waits and sees".

What will happen? It's a bull market that continues for a few more years. The market and share prices keep rising, higher than many people thought it could go. This guy has been watching from the sidelines wondering how the market can go up with so much "wrong in the world right now"?

Maybe the investor finally pulls the money out of cash because he can't stand seeing all his buddies making money and realizing how much he would have made if he'd just stayed invested and after all the financial magazines start touting how no one can lose money in this market.

So, he reinvests it in his mutual fund. However, since he's waited so long, he just so happens to reinvest at the top of the bull market. Within a few weeks, the market begins to falter. Then it really starts to correct and goes into a bear market for a few years. This poor sap will either sell out on the way down or, as I've witnessed many times, at the absolute bottom no longer being able to take the pain.

Forever jaded, the investor says "never again" and ploughs everything in bank CDs, where he's been earning sub 2 % for years and years (albeit it has been higher in the past) ( at which time stocks are about ready to begin a fresh new bull market) I've seen this scenario played out by many inexperienced investors.

A seasoned financial advisor will not let his client make this mistake. He will persuade the client to stay invested and ride out the inevitable pull backs that happen during a bull market.

A good financial advisor is just as much a manager of emotions as he is a manger of money for his clients.

[robreke]

(05-17-2015 02:53 PM)polar Wrote:  

Thanks for the write-up robreke. +1 to you!

I was drafting the below, but others beat me to it.

One more question: could you please explain how to do a Roth conversion ladder similar to the below? Assuming wage slave.
http://www.madfientist.com/retire-even-earlier/

Am I correct in assuming that to do this:
1. First max out IRA (regular), then 401K
2. When you leave/change jobs you can roll 401k into IRA.
3. Regular IRA can be rolled into Roth IRA once a year, you pay tax on your lower income tax at the time. SEP can be rolled over into regular IRA also yearly.
4. As the money in your Roth IRA accrues interest, you can withdraw interest tax free immediately. In five years, you can withdraw the rolled-over principal with no extra taxes.

You could leave your wage slave job and start your own business (or spend a year just living off savings). Move your 401k into IRA. File taxes as an S Corp even if you're LLC, pay yourself a salary on the lower side of average for your industry (backed up by research in case of audit), and pay yourself dividends to save on the difference between salary and dividend tax rates. Pay into SEP IRA. Within the year, you qualify for a much lower tax bracket, and you roll over regular IRA into Roth.

You can't touch the money you rolled over for 5 years, but you can withdraw newly accrued money immediately from a Roth tax free. Rinse, repeat for following roll-overs.

Even if your salary quickly goes up over the Roth limit or you go back to a full time job, your existing Roth money is yours for the taking spending in 5 years with no penalty taxes.

Am I missing anything?

All these points sound correct.

As far as maxing IRA or 401k first, I think it depends. For example, does your company match your first 3 - 6 % on contributions?

If so, this is essentially free money that your company will add to your 401k provided you are adding. In the case, I'd probably fund my 401k at least to the extent that I was getting the match.

Also, I have to say I'm a financial advisor and not an accountant or CPA. Therefore, being an investment type/investment strategy expert but not a tax expert, I'd recommend you get a good accountant or CPA for some of those more in depth tax questions.

[Steve9]

(05-13-2015 09:07 PM)Zelcorpion Wrote:  

Fee structure is way too high for products that have lower returns than completely passive products. There are some funds that are worth even higher fees, but you need to be sufficiently knowledgeable to differentiate between the two.

(05-18-2015 08:33 PM)robreke Wrote:  

Again , they're a decent fund family, but I've got numerous 'advisor related funds' that I regularly put my clients in that , though the fees may be higher than the no load vanguard funds, have performed just as well or better than some of the vanguard funds in the same class, fees included.

Out of the hundreds of actively managed funds available, only 4 of them have actually beaten the S&P 500 in 8 consecutive years.

"In fact, just four actively managed funds — Fidelity Select Health Care, Fidelity Advisor Health Care, T. Rowe Price Health Sciences and VALIC Company I Health Sciences —have current streaks of eight consecutive calendar years of beating the S&P 500, according to Morningstar.
All are in the health-care sector — which accounts for seven of the 16 funds with active streaks of beating the index for at least four straight calendar years — suggesting that assets are a bigger factor than management in making the funds shine." : http://www.marketwatch.com/story/index-f...-11?page=2

[Simeon_Strangelight]

(05-19-2015 02:27 AM)Steve9 Wrote:  

Only 4 active mutual funds have beaten the S&P 500 in 8 consecutive years.

"In fact, just four actively managed funds — Fidelity Select Health Care, Fidelity Advisor Health Care, T. Rowe Price Health Sciences and VALIC Company I Health Sciences —have current streaks of eight consecutive calendar years of beating the S&P 500, according to Morningstar.
All are in the health-care sector — which accounts for seven of the 16 funds with active streaks of beating the index for at least four straight calendar years — suggesting that assets are a bigger factor than management in making the funds shine." : http://www.marketwatch.com/story/index-f...-11?page=2

There are many more if you account for the Hedge Funds. Besides - S&P500 has a different risk matrix than a specialized industry fund that they listed as comparison.

The article is crappy by comparing those apples with oranges. There are also fund of funds which have beaten the S&P500. On aggregate of course cannot beat them due to the fee structure itself.

[cheerfulwish]

Personally I use a (single) financial advisor for the bulk of my investments. They just spend so much more time and energy concentrating on the market than I do. For example they do a broad spectrum analysis of the market from time to time and realign the specifics of the portfolio (though keeping the same asset distribution) from time to time. I just don't have the time or resources to compete with the knowledge they have to do these "tactical tilts"

Originally I started with three separate ones and gave them each the same amount of money - after a set amount of time one had clearly out performed the rest in both results and customer care and that is where I parked the majority of my non independent investments.

They have a subsidiary that also does my taxes - I never realized how much of a difference it made having your financial advisors and accountant be always on the same page to the bottom line. This actually led me to get involved in REITs which is something I had never considered but has been a smart move so far.

Another benefit is you get access to certain investments you wouldn't otherwise - funds they have set up or even access to IPOs (I was offered some of the Facebook block they got for example and the return on that has me happy).

All this being said I think until you are investing a certain threshold it doesn't make sense to utilize such services because your returns just won't balance the costs.

Also watch them like a hawk.

[Brodiaga]

How important is having optimal, precise asset allocation which is consistent with your investment goals? I mean, it's obvious that you don't want to be 100% in cash or bonds if you are looking for higher returns in the long term and can survive a downturn, but my question is this: for example, if you aim for a 70% stocks/30% bonds portfolio, how precise does this allocation have to be over time? Is it generally good enough to rebalance once a year? Twice a year? More often?

I have run Monte Carlo simulations on http://www.cfiresim.com/ , including ones with different asset allocation percentages. The optimal allocation for long term growth seems to be around 60-90% stocks (the rest in bonds + cash) with not that much of a difference in terms of the portfolio survival success rate* depending on the precise allocation percentage. Does it mean that it's not necessary to be very precise?

Also, how do you guys rebalance? Let's say your stocks gained value and are now 85% of your portfolio, but your target is 80%. Do you sell the extra 5% and invest in bonds or do you just dollar cost average incoming money into bonds gradually until the allocation is back at the target level? I try not to sell investments to avoid paying additional taxes on gains, so I'd rather rebalance by buying new assets.

*In this case, probability of the portfolio value not falling to 0 given the simulation assumptions and planning horizon, basically probability of not running out of money after retirement.

[Yeti]

(05-19-2015 05:43 PM)Brodiaga Wrote:  

for example, if you aim for a 70% stocks/30% bonds portfolio, how precise does this allocation have to be over time? Is it generally good enough to rebalance once a year? Twice a year? More often?

Once or twice a year, probably once is fine, say at the beginning of January.

(05-19-2015 05:43 PM)Brodiaga Wrote:  

I have run Monte Carlo simulations on http://www.cfiresim.com/ , including ones with different asset allocation percentages. The optimal allocation for long term growth seems to be around 60-90% stocks (the rest in bonds + cash) with not that much of a difference in terms of the portfolio survival success rate* depending on the precise allocation percentage. Does it mean that it's not necessary to be very precise?

There's research showing that you'll make a lot more money in the long run with more stocks, even 100% stocks very late in your life (60s and beyond). The reason is that when you've got a large portfolio worth a lot of money, the returns are that much greater (you'll make way more at 7% returns with a $3,000,000 portfolio than you would with 7% returns and a $100,000 portfolio). See this article:
The Path to 100% Equities

I'm young and not given to excessively emotion-based financial planning, so I'm going with 100% stocks and no bonds.

[Gringuito]

I'm a bit late to this thread so it may have been answered already. I have quite a few financial advisers in something like a family office. I have accounts across most of the larger firms (except Goldman). Some advisers work for the office and others are in the firms that hold the investments.

If you're still looking for specific advice let me know. Some advice I would give is not to trust your financial advisers in the firms. I don't mean to say that they are dishonest or trying to screw you. Most of the advisers I work with are great people. But often they can only give you the information that they have been given. And their interests are not aligned with yours in most cases.

For example, I was sold seven figures of ARP/ARS by UBS as part of a larger fixed income investment. They were sold at the time as slightly higher interest versions of money markets. Of course in 2008 the market for these "super safe" investments fell apart. What I thought was safe fixed income cash was really very illiquid and mostly worthless. The money was tied up for over a year until UBS, under pressure from the SEC, bought back my ARPs at par.

[cheerfulwish]

(05-19-2015 09:44 PM)Gringuito Wrote:  

If you're still looking for specific advice let me know. Some advice I would give is not to trust your financial advisers in the firms. I don't mean to say that they are dishonest or trying to screw you. Most of the advisers I work with are great people. But often they can only give you the information that they have been given. And their interests are not aligned with yours in most cases.

What is the process for how they give you information and recommendations?

Full disclosure I bank with GS and their model is pretty much:
- provide numbers numbers numbers
-explain why those numbers means x amount should be invested
-give me access to all the research materials (which seems to be everything ever written about the relevant company, market, etc) and field my questions

I find it pretty nice they have a senior gladhander and one of the members of the quantitative team on hand to explain/answer my questions. Curious if others have started doing this.

I can't stress it enough though WATCH YOUR ADVISORS LIKE HAWKS

[Easy_C]

I'd be hesitant to bank with Goldman. They have a reputation for actively trading against their clients and using clients to offload junk holdings.

[StudebacherHoch]

No - having been in finance since 1980, I've been able to manage my own portfolio.

[DVY]

No, but I actively read up and watch all my investments.

Goldman Sachs isnt bad. Its just an investment platform that allows you research and access. My buddy's dad has an account there and got in on some IPOs, private REITs paying 7% capital distribution, mezzanine funds paying 14-16%. It depends on you to do the due diligence. I wouldn't trust ANY SALES PERSON. Caveat emptor.

When you start punching above 250-500k in investments, its becomes almost as important as your day-job.

1 thing people haven't mentioned is that high-income individuals should always try to have artificial taxable loss every year using a small amount of portfolio margin. I try to estimate my total taxable short-term investment income and match it 1-1 w/portfolio margin interest into stock I want to hold for at least 5 years.

This offset will allow me to postpone short-term gains into long-term gains (capital gains).

For those w/less income, it also makes sense to have portfolio margin interest up to 3k. That amount is deductible from other income.

Tax code strategy is highly important.

[Simeon_Strangelight]

(05-19-2015 09:44 PM)Gringuito Wrote:  

For example, I was sold seven figures of ARP/ARS by UBS as part of a larger fixed income investment. They were sold at the time as slightly higher interest versions of money markets. Of course in 2008 the market for these "super safe" investments fell apart. What I thought was safe fixed income cash was really very illiquid and mostly worthless. The money was tied up for over a year until UBS, under pressure from the SEC, bought back my ARPs at par.

You were lucky.

I can remember back around the year 2000 when most of the prop traders I hung out with were making fun of the triple A ratings of many of those investment vehicles. One evening there were some guys who were laughing tears, because it was that crazy.

Brodiga - selection of your investment funds is fundamental - I would never recommend anything broad like 70-30 stocks-bonds. That in itself says nothing about your risk profile.
Stock funds can be comprised of low-risk Hedge Funds which use excellent models to get yearly 3-8% returns without any downsides. Then you have certain regions which rise no matter how good the fund is - anticipating those high growth regions is a good way to boost return. In our current times I think that buy and hold strategies are only marginally useful unless you have a region that is constantly on the rise. As an additional plus you can invest in Hedge Funds which can make massive profits in down-times as well.

[Oneeyedjack]

A good financial advisor should be able to help in areas other than just investments and portfolio allocation. They should look at the complete picture, including your business, family, tax planning, retirement planning, asset protection, etc.

If you have your own business, at what point do you keep reinvesting income into the business versus taking cash out for your own personal endowment?
How much endowment would you need to retire, given your expected spend rate? How do you get there given your current source of income?
Given the size of your endowment, how can you minimize taxes if you sell your business? if you die? They should work with your lawyers for estate planning, creating trusts, SLATS, GRATS, etc.
How should you structure your assets to protect from litigation or the IRS? How much insurance would you need for tax purposes and asset protection?
Really good financial advisors can squeeze out an extra half a point to a point in returns via tactical allocations (as far as I know only GS does this)

Good financial advisors can also connect you to people who may be able to help you in different areas, including business and personal. The comptroller we hired was recommended by my FA.
They can also connect you to startups, private equity opportunities, and other high risk/high return opportunities. Good FA can improve that deal flows that come your way.