I don't have answers to your questions, but I'm going to piggyback a couple of my own off of yours since they're in the same vein of investment:

• Managed 401k services -- is it worth the fee of ~1% a year vs. trying to manage investments on my own? Or would I be better off finding the closest thing to an index fund in my 401k options and throwing a bunch into that w/o the managed fee & mixing up the remainder? Alternatively, my company does have an option to have someone review my full portfolio of 401k, IRA, and other investments & make suggestions when I call in. Do that once every month instead?
• Obviously max out the company 401k match (mine is 6% from employee nets 7% from the company; I've been going beyond that since my early/mid 20s). For a while I only did company match & put more into a Roth IRA, then we got a Roth 401k option, so I switched the Roth contribution to Roth 401k. Does it make more sense to have more investment options by switching back to a Roth IRA for all contributions above 6% & do self-managed investments through Schwab, getting input from my company's free review service?
• We should be mortgage-free by the time I'm 47, with a healthy savings, healthy investment balances, but at a low interest rate on the mortgage would it make more sense to not worry about the accelerated payoff and instead throw the extra cash into non-retirement investments to pad early retirement?
• The kids have fairly healthy college savings already (ages 5 & 8), but we haven't done 529s. What are your thoughts on 529 vs. a non-tax advantaged index fund? I worry about the tax penalty if they decide not to go to university & go to trade school or something instead, if they get scholarships, etc.

52 retirement is 6 - 8yrs away. For several years my mix was 33% S&P (large cap index) 33% mid cap index, 33% small cap index. Now its 30%cash the rest split evenly among those three.

IF I were talking to my younger self (and I figured this out to late and was in a spot I could not undo it)

Do your 401k to get the match, the put the rest of your retirement in an IRA and pay the taxes when your young, low income high deductions (assuming mortgage, kids etc). Then sometime mid life switch and put most if not all in the 401k to defer the taxes. Now when you retire half? or a large portion should be coming tax free, which will put you in a lower income level to pay less tax on the money you are pulling from your 401k.

Tax delayed savings when your young is dumb.

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Just Triing
Triathlete since 9:56:39 AM EST Aug 20, 2006.
Be kind English is my 2nd language. My primary language is Dave it's a unique evolution of English.

Registered Investment Advisor - AUM - no fees for cash, bonds 25 basis points, first $1.0 mill of equities at 1%, 0.5% on equities above a $1.0 million.

Domestic equities - 39% - tilt towards, quality, dividends, and small value bias - very low cost ETFs and tax efficient
International - 21% with tilt towards Asia and emerging markets (Chinese small caps) - mix of active managers and etfs
Vanguard Muni fund - 25% with a duration of about 4 years
Cash 15% - yield 2.5% before taxes

Stay away from deferred compensation plans. 1) you are a general creditor and 2) in all likelihood you will be in a higher tax bracket in the future. Positive - forced savings.

summitt,

Wow that is a really low cost investment advisor fee...the discount on cash (0) /bonds (0.25), and a reduction in aum over assets over 1 million is really nice to go to 0.5%! I see the tilt towards US market from foreign, and i see the municipal bond tilt for tax savings...wondering what the hedge is in this portfolio for a high inflation coupled with recession would be. No gold, no commodities? Also wondering about no allocation for TIPS? Finally I'm assuming your cash position is in laddered CD's what duration are you going for in your ladder? Also how is the mix in terms of tax deferred versus taxable?

I understand your hesitation in regards to Non qualified deferred comp...the general creditor exposure has given me pause...however I am in a unique position where I could defer all my salary and see no impact to lifestyle...would that change your calculation?

BTW this is the discussion, I'm jazzed about in this thread.

In full disclosure I am an registered advisor and the fees I quoted are on my ADV with the SEC. I've stated on this forum, 90% of individuals probably don't need me and would be better off doing it themselves. I only have 40 clients but the vast majority are considered high net worth clients and corporate executives. We strive to keep our fees reasonable and the majority of domestic products we use are very low cost.The allocation I provided is for a "typical" client who is in their later stages of a career or early retirement. I have clients with only 30% equities and some near 90%.

No inflation hedge - equities do just find in periods of inflation and inflation is usually a short-term event. We do own a few apartment buildings in CA but these are relatively small investments compared to the portfolio. Currently no direct commodity exposure other than what's in the index funds.

No ladder on the bonds. I buy the Vanguard municipal fund and a few other very low cost muni funds and mostly individual bonds and manage bond portfolios by duration (sensitivity to interest rates). Currently below the benchmark, which is the Barclays Muni 1-15 year. Vanguard provides easy liquidity and the ability for me to restructure a bond portfolio.

No ladder on cash, we use Schwab institutional and money market rates for $1.0 million+ is about 2.5%. We also evaluate tax-exempt money market spreads but currently taxable debt is advantageous.

Generally try to put tax inefficient products in IRAs but for most clients their taxable portfolios greatly exceed their IRAs.

Still not big on deferred compensation. I haven't had any clients in the past several years participate. Years ago a few did but the company was providing an attractive match. They tended to be in the top bracket and I anticipated for their bracket to fall in retirement.

Midwest roadie,

I will humbly try to address some of your questions and by no means would I take my word for it.

1) I think the first step is to figure out your goals... Without knowing your goals you are kind of operating in the dark. What I would model is three scenarios
i. what is the minimal annual income you would need to "survive" i.e. calculate your monthly mortgage payment, your health insurance, food entertainment, car costs, food and multiply by 12.
ii. what is the moderate annual income you would need to "do all right"
iii. what is the "maximal" annual income where you are living large.

So now you know your target annual salary...then use 4% as your draw down number i.e. theory is that if you generate 25X your annual salary as calculated above that is your target investment for what you need in your nest egg when you retire. I prefer a 3% draw down but try 4%.

Now you know your target and now it becomes a thing of how to get there. If you are way behind, then you need to understand your expenses and figure out how to get more into investment. In addition, there are catch up provisions when you hit 50 for greater contribution into your 401k.

The following advice really depends on your annual household income...I would say if you are still eligible for the traditional ira contribution then this may not pertain to you. However, perchance you are not, then read on. People most often understand the IRA to Roth IRA conversion (i.e. backdoor roth move) you can do to get around the IRS income limit for the typical IRA but there is an even bigger back door. See below.

So your post showed one thing that I'm not sure you are aware of...it is often called the mega back door roth. This is the ability to defer up to 55K in a roth 401K. This is done by totalling up your 401k contribution (where roth 401K or 401K0 + employer contribution and then you are allowed an after tax roth contribution to a total of 55K. You need to every quarter call up your 401k provider and do what is called an "in plan" conversion. This allows you to then accumulate in the roth 401k and all capital gains is tax free after the conversion. (you have to pay for the capital gains that happened during the quarter of your after tax contribution prior to the "in plan" conversion). The caveat is that your employer has to allow this however if your employer all ready allows the roth 401K option they may in all likelihood allow this.


There is also a big issue with tax basis if you do the mega backdoor roth. You need to consolidate and roll over outstanding retirement accounts into the roth 401K prior to doing the in plan conversion or else taxes get very complicated. I don't know your situation and what accounts you have so google is your friend. Do your homework. Fidelity is pretty good about walking you through this too if you have your retirement with them.

Looking back at your post...I see that you are doing a roth 401K contribution. I like the Roth 401K contribution due to the fact that I think with the lack of fiscal responsibility, the addicted monetary policy we have we are headed to the inevitable process of needing to tax higher. A roth 401k allows you to get capital gains without any taxation. Pretty significant. If one wants to hedge one could split the contribution 50% traditional 401k and 50% roth 401K. I would absolutely contribute some into the roth 401k to keep open the door for the megabackdoor roth move I described above.

Hope this helps. I think that 1% is a bit steep for advice for your 401K especially if you are unsure whether they meet the fiduciary standard and are not also licensed as a broker/dealer. The company that I trust completely with 401K money is vanguard. There structure and legacy from Jack Bogle has put them on the side of the retiree...the others...not so much!

Hope this helps!

Turning 50 in 3 months. Was 100/0 equities until 2 years ago, and am now on a gentle glide path of more bonds/cash. Overall I am 88% equity the rest in bonds and cash. No loans, paid off house. Equities are about 20% international (mostly Europe). Domestic is broad small, mid, and large cap, though I do have a small position in a Vanguard REIT and health sector fund, about 3 to 4 percent of my total. Have my work, Vanguard (Roth and brokerage), and TD Ameritrade (HSA). All low fee (e.g., work 401k is .04%-ish, and my "most expensive" is around 0.4% on Vanguard). No debt and having a pension bias my decision for a more bullish posture given my age.

summitt,

do you actually handle all the financial transactions for your clients? do you also factor in estate planning factors into your financial planning? I'm actually interested in talking with you more deeply about the services you provide. I'm test driving a financial advisor this year...relatively well known firm...1% aum all in...I've been transparent with them that I'm benchmarking their performance with my own shadow account based on the bogleheads three fund portfolio...

was wondering the reason for such an "aggressive" asset allocation towards equities. The pension does allow a safety net. I am a big believer in the low fee side since I do believe that the market return is the best you are going to get. My struggle is the proper asset allocation that decreases beta. I really do see the appeal of Ray Dalio's all seasons philosophy. I think that it is utterly impossible to predict the next upcoming economic season. However, what asset mix is the correct to leverage his philosophy?

1) Still pretty young (45), so I'm at 85% domestic stock market, 10% REIT, 5% international.

50 and 88% equity with 12% cash, doesn't seem that aggressive at all to me.

Im 52 and 70% equity and 30% cash, but at 50 I was 100% equity and even a year ago I was only 10% cash. Now that I have run the numbers and retirement could be 6yrs out not the 8 I was thinking, I moved to a bit more cash basis.

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Just Triing
Triathlete since 9:56:39 AM EST Aug 20, 2006.
Be kind English is my 2nd language. My primary language is Dave it's a unique evolution of English.

DavHamm,

I understand the differing view in regards to what asset allocation would be thought of as "aggressive". The traditional view is that one places your age as a asset allocation percentage in negatively correlated asset classes to equities (what mix is up to debate) i.e. bonds, gold, commodities, real estate, cash. i.e. at 50 you would be 50% equities 50%other. Now we've been in one of the greatest bull runs ever in the last 10ish years so the call was right in being more equity allocation. However that is only with the benefit of looking back. I posit, that no one can predict the future and that asset allocation is the insurance against beta.

If one believe's in the all season's investment philosophy....even the traditional method of asset allocation is overly aggressive with too much exposure to equities given the relative beta of this asset class as compared to fixed income products.

Aggressiveness or conservativeness really can't be judged in terms of a retrospective viewpoint (no matter how tempting it is) ...aggressiveness or conservativeness should be looked at in terms of a prospective view point. i.e. what is the most thoughtful way of allocating assets without knowing what will occur in the market in the future. An example would be that if you were about to retire in 2008 and you were even 60% in equities you would have been aggressive since you saw a huge drop in your nest egg. If you were 60% in equities in 2018 when you about to retire...that would have been a relatively conservative allocation. What is the right mix, well that is what is up for debate.

I'm interested in discussing the relative mix of assets that would give a good amount of protection. I firmly adhere to the belief that within one's investment lifetime, every asset class will experience a drop of 40-50%. The problem is that no one knows when it will occur. The other problem is that you cannot control when you retire (i.e. you have no control what year you were born) so you are at the whims of fortune when you begin drawing down from your nest egg. So if you happen to be the unlucky person that happens to retire when there is a big correction at that time you have a big problem (e.g. 2008). You are not in the accrual phase and thus may not have enough to cover all your retirement scenarios.

This is the other side of the coin that I am interested in. What financial products to have in the portfolio to protect against this doomsday scenario...fixed annuities, private placement life insurance? structured notes? This is the primary reason I have sought financial advisor's is whether they have access to more refined financial products that can hedge this risk.

Love the discussion. Would like input from some of the financial guys I've seen on the forum in the past.

I would say nothing protects you from doomsday. If you think something like gold does that, you are penalized during those longer durations of non-doomsday. My philosophy is have enough in cash/stable bonds to address a multi year period between what you need and other income streams. For me, that is a 5 to 7 year potential shortfall. My non equity allocation at retirement will reflect that. Obviously my position is easier with a pension. But even in the case of my mother in law, this applies. Her SS check is an income streams, and we have her with about 5 years of stable bonds so she doesn't have to access equities in a downturn. Have not fully stress tested this, as Fall 2018 was a relatively short test. But I did pull out her 2019 RMD in January from bonds to let VTI recover.

There is ZERO mathmatical data to support an age based % mix, its an old rule of thumb when people retired at 60 and died at 80. It doesn't work well for folks retiring at 55 or 60 and living to 90 or 100.



cant help you on this as I have never heard of this investment philosophy. I stick to models simulations based on historical data as we have no other data to use, after that its all just guessing.



Protection from what? a loss or not having enough money 10yrs down the road. To many people look at investments with solid long term returns but high volatilty as risky, to me the low return low volatility investment is far more risky.



Yup always said it would be great to retire with enough cash, 1yr after a market collapse. If I were retiring now with just enough money, I Would be worried cause we are due for a correction. Ultimately the only way to protect yourself, is to have enough money to buy a lifetime annuity that pays you what you want per month to live on.



IMHO there are none, the doomsday scenario wipes it all out. so don't worry about it.

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Just Triing
Triathlete since 9:56:39 AM EST Aug 20, 2006.
Be kind English is my 2nd language. My primary language is Dave it's a unique evolution of English.

Agreed

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Just Triing
Triathlete since 9:56:39 AM EST Aug 20, 2006.
Be kind English is my 2nd language. My primary language is Dave it's a unique evolution of English.

DavHamm,


Ray Dalio posited the all seasons philosophy of investment...it is often also referred in the risk parity movement.


For your perusal:
https://www.bridgewater.com/research-library/the-all-weather-strategy/


Here is a deep dive in the bogleheads forum:
https://www.bogleheads.org/forum/viewtopic.php?f=10&t=206028


Take a gander let me know what you think.

Yes, I handle all the financial transactions for my clients. I have full discretion but I put together a very comprehensive report each quarter, explaining their performance of various asset classes relative to the benchmarks, what activity during the quarter, investment strategy, and investment outlook. For some clients, I provide an ongoing tax forecast. I've also track their long-term financial security and have developed our own simulation tools internally based on Shiller valuations and distribution of returns.

Estate planning is factored and I work with several estate attorneys who write the plans. Most of this is boilerplate but I do have a few clients where their children have special needs or the client has goals on asset protection. The majority of my clients have grown children, so the estate plan is fairly simple. One or two family limited partnerships but the majority of assets pass directly to the beneficiaries at death. Nothing special. The big brokerage firms tend to offer a free estate plan but nothing is "free".

Fees are coming down within the industry and 1% is high. Charging on cash or concentrated equity positions from an employee plan is egregious. Cash and muni bonds yield about 2.5% so a 1% fee is taking 40% of your return - move on. Shop for a Registered Investment Advisor and read their ADV on the SEC site. Good insight on how they charge , conflict of interest, etc. My bias is to use a RIA who has a CFA.

Remember, most advisors are not in your best interest no matter what they preach. If you do not have a complex financial situation or really don't won't to do it yourself, then higher someone, but make sure you get referrals.