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 Post subject: Re: Is a financial advisor really what I want?
PostPosted: Wed Sep 26, 2012 12:05 pm 

Joined: Thu Apr 05, 2007 3:05 pm
Posts: 1356
timwalsh300 wrote:
I also just realized that you are Canadian. Weird. A quick peek at the Vanguard Canada website (like an alternate universe...) indicates that things are more complicated for you guys (no funds? just ETFs? all the currency hedging you talked about...)


Yes, it's more complicated up here! And my situation is EVEN more complicated because I'm a dual US-Canadian citizen, so I have some investments in Vanguard in the US from previous employment here. The cheapest funds in Canada have MERs of 0.33, so ETFs are generally the way to go. Our homegrown stock market is not very diverse and is too small, so most Canadians are advised to have no more than 20% in domestic stocks, about 15% in US, 15% international, and the rest bonds and maybe some REITS for those who want to participate in that market. The rule of thumb here is that funds are okay until your portfolio grows to $50K or more, and then you're better off with ETFs.


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 Post subject: Re: Is a financial advisor really what I want?
PostPosted: Wed Sep 26, 2012 12:40 pm 
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brad wrote:
Sometimes I think that's what I should do too, as it's so much simpler, especially since you can get target date fund from Vanguard with an MER of 0.18%. But if you don't have access to Vanguard you have to be careful because most other firms' target date funds are a lot more expensive. If you have $500,000 in a target date fund with an MER of 0.75%, you're paying $3,770 every year in management fees, compared with just $900/year with Vanguard. Over 20 years that difference adds up to more than $57,000 and that's assuming zero growth in your portfolio.


I am not a fan of target date funds for several reasons.

I admit that the most significant reason might be that they just were not around when I started investing so they are not something I learned about and got comfortable with early.

Another issue I have is that you lose a lot of control. A 2030 fund for example...what does that mean? Does that mean that it is allocated to have optimal value on January 1, 2030? Does it mean it is targeted to be allocated for beginning 3% annual withdrawals on that date to last 30 years? While those questions can be answered through personal research, I question whether most people bother.

There is also the issue of taxes. If these are held in a taxable account then tax management of trading and allocation activity is important. But the expense related to that effort is an extra and unnecessary cost in an IRA. This is probably a minor point.

DO they invest in foreign securities? If so then it would be better to hold outside of IRAs to preserve the foreign tax credits. If they don't hold foreign securities then they are missing a crucial part of diversification and allocation.

If you have $5000 to put in a fund then most of this hardly matters. But then almost nothing matters. Even a 5% load is only $250 and if you hold for 25 years that's less than Vanguard might charge you in annual fees. But if you accumulate brad's $500,000 after a couple of decades, all those little issues about start to matter a lot. And in the meantime you have left your money alone, ignored it, and let someone else learn about all those issues so you are not in a good position to make decisions when they start to matter.

Instead I like to be a little more active. I don't trade very often and most of my money is in index ETFs. But I do consciously research issues like those mentioned and make decisions every years. I've made mistakes along the way of course but after 20+ years I think I am pretty knowledgeable about investing, tax issues, and so forth.


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 Post subject: Re: Is a financial advisor really what I want?
PostPosted: Wed Sep 26, 2012 1:39 pm 
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Joined: Mon Jun 23, 2008 6:54 am
Posts: 636
When I bought the target date funds I didn't plan to use them as intended. I saw them as a cheap way to get a mix of domestic stock, foreign stock, and bonds all in one place with automatic rebalancing. I chose 2020 and planned to swap it out for 2025, 2030, etc. later on to keep a generally constant asset allocation.

Tim


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 Post subject: Re: Is a financial advisor really what I want?
PostPosted: Wed Sep 26, 2012 3:04 pm 

Joined: Mon Feb 04, 2008 7:35 am
Posts: 1148
Location: Maryland
To the OP,
If your girlfriend thinks you should check it out, go check it out! It doesn't hurt to have someone review your portfolio, and suggest what they think is best. You can always listen to what they say, come back here and have us do some further investigation. No biggie. You are not obligated to purchase what they are offering you, whether it's advice or insurance.

Over the years, I have gone to several different financial advisors and taken a list of my investments and they have made suggestions on what they would do if I became a client. I have always listened to what they said, learned more about what I could possibly do differently, and carry on.

It won't hurt, but my guess is that they really won't tell you anything you don't already know or could easily find out on your own. Let us know how it goes.


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