Investment option...opinions?

[Drdogface]

I am 63 years old and retired...living mostly off my investments. Sometimes that's easy, sometimes not. Yes, I could use more income. In my equity portion of my portfolio I've alway been in index funds, either S&P or Total Market. I have heard many times that most actively managed equity funds do not beat the index funds.

I recently attended a small meeting with some Schwab reps where were presenting a relatively new management choice from their company. I'm in Schwab now. Basically, they offer to take a minimum of $350,000 and invest it in a portfolio of about 200 stocks divided into a few different groups: Large cap, small cap, international, etc. Each group has it's own manager and there is an over see manager to keep all of them in balance. So far (9 months) they have beaten the index funds in both down turns and up markets.

Their fee is 1.1% of the total amt. invested. This includes all trades as well. You can choose any of five different approaches depending on your risk tolerance...from conservative to aggressive...and in between. All the managers have been with Schwab for a long time and are well experienced..or so they say.

Question for you more experienced and/or financially educated guys is: This sound like a good thing?

[widgeon13]

Sounds nice but if you give them $350,000 and the market goes down in the next 12 months you will still pay them 1.1% so they continue to get their money and you get screwed, as usual. I'd like to see some investment firm only take a commission on the profits they make on the investment, if the investment shrinks smaller than the original investment, they get nothing. That is an incentive for them to make sure they know what they are doing. They then have some skin in the game, this BS where they get paid regardless of their performance is just that, BS.

I think you would be better off asking a reliable financial planner to create a plan for you and pay them a set amount (one time fee) and then you execute the plan.

[masraum]

I thought that pretty much every time investors compete against the S&P 500, they lose the war other than the odd battle won.

[Rot 911]

Well put widgeon. Not many fields where you make money for guessing wrong.

[MRM]

Thay still won't beat an S&P 500 index fund over five years and they will charge you a higher fee. The fee comes off the entire principle, so you would need to exceed the S&P 500 by a good bit to get the same return as being in a low fee index fund.

[kstar]

Chicago School of stock investing is the way to go, IMO.

I agree, you will not typically beat the market and almost all fund advisors have a lousy record.

Check out DFA: http://www.dfaus.com/

Exemplary pages - Or just start at 1 and click to the next page! :

1) http://www.dfaus.com/philosophy/markets/ ;
2) http://www.dfaus.com/philosophy/dimensions/ ;
3) http://www.dfaus.com/philosophy/diversification/ ;
4) http://www.dfaus.com/philosophy/structure/ ;
5) http://www.dfaus.com/philosophy/history/ ;
6) http://www.dfaus.com/application/management/ ;
7) http://www.dfaus.com/application/engineering/ . . .

You can invest in DFA funds via an advisor and most of these (maybe all) are "fee only" CFAs.

FWIW.

Best,

Kurt

[RWebb]

No. I would avoid that.

Go thru each fund you own and carefully evaluate the expense ratio. Then see if there is a not a Vanguard fund with a track record as good or better with a lower expense ratio.

You may want to increase your exposure to muni bonds - they are tax exempt.

[pwd72s]

Fees matter...big time. 1.1% is a pretty steep fee for what they are offering.

I'm 64...we're 60-40, the 40 being equities.

Another Vanguard fan here...

[widgeon13]

I would agree w/ RWebb, the investment firms such as T. Rowe Price, Vanguard and Fidelity have some pretty good low cost (expense ratio) funds as well as tools for analysis. I use Fidelity and they are very easy to work with and you have access to most any funds, bonds and equities. All at a very reasonable price, IMO.

[einreb]

Originally Posted by RWebb

You may want to increase your exposure to muni bonds - they are tax exempt.

my unsophisticated dream portfolio is to be retired and be living off of muni bond interest.

I had a good chunk of change split between Schwab and T. Rowe Price. My Schwab 'advisor' kept trying to push a similar service to what you heard about. This was shortly after I had done a re-balancing based on her predecessor's advice (he did a great job and I was very happy with the service). I told her if she ever mentioned it to me again, I would pull all my money out and move it all to TRP. She mentioned it again and I f'ing lost it in the office. F bombs flying, etc.

I now have no personal accounts at Schwab and deal with the 'Personal Services' advisors at T. Rowe Price. I call them... they dont call me. I rebalance once a year based on a free (I realize nothing is free) analysis they will do annually (I think Schwab will do that too).

Schwab advisers are there to upsell you to a % fee based service.

To me... the 1.1% is ridiculous. They can fire back all sorts of return #'s. Its about your REAL return... after fees AND taxes over the time period of your choice.

You may get lucky and beat the market with them. Maybe $3900+ a year is worth it to you to have hands off your equity portion. Me? pay a flat fee once a year and re-balance.

[pwd72s]

Treasury issues are exempt from state income taxes...which is something to factor in if you live in a high income tax state, such as California or Oregon...the yields aren't too attreactive right now, but something to consider in the future.

You can open your own account with the federal reserve, avoiding bank or brokerage fees.

[Drdogface]

Thanks to all you guys for the info. You confirmed my gut feelings. Presently I'm heavily in Vanguard GNMA and Total Stock Market fund (VTI), with some in AAPL and international. I think I'll avoid this 'up sell' as you put it.

[MBAtarga]

I've got about half of my 401k in DFA funds, through an advisor.

[VincentVega]

So far (9 months) they have beaten the index funds in both down turns and up markets.

9 months is too short a period to base such a decision, at least to me.