There’s a lot of good info in here but I don’t understand any of it.
If I wanted to call somebody and pay them to help me figure out the best way to invest for retirement and best ways to avoid taxes, who is it? A fiduciary? Somebody else?
Its very difficult to find a good advisor because most people that advertise as advisors are compensated based on the products they sell you. So its kind of like asking a car dealership salesman if they think you should buy a new car and trusting the answer.
The best approach is to learn the simplest cheapest possible investments plan and implement it yourself. If you absolutely have to have an advisor look for advisors that you pay an hourly rate for advice, not someone who collects commissions or fees out of your account.
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Think I’ve already done that. Convinced my firm to move our safe harbor 401k to a company that has vanguard funds instead of the financial advisor we were using with outrageous fees. I’m slowly moving towards maxing out my contribution, I think it’s 18k/year. Once that is done I’ll start looking for outside alternatives.
I would add that very few people need a complex investment plan. Simply dumping all your money in the Vanguard Life Strategy Growth fund will yield better results than 99% of advisors.
Perfect shouldn’t be the enemy of good. The basic rules are to max out tax advantaged accounts, diversify broadly, minimize fees and stay the course (don’t try to time the market).
If you make 7% a year, you double your money every 10 years. So that $20,000 401k contribution at age 35 is worth $160,000 at age 65. If you can somehow find a way to invest that much at 25, it’s $320,000. Nobody told me this until it was too late.
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A lot of brokerages offer free financial advisors so long as you have enough $$ there. For instance for Schwab it’s $250k. It’s not going to be great advice, but it could be helpful to have someone to bounce ideas off and make sure you’re not missing any things in your current allocation.
A lot would depend on your age and future plans imo. But your plan sounds fine in general.
As others have said, you really don’t need one. There are a bunch of crooks out there doing this for a living. It takes some knowledge to be able to tell a good financial planner from a bad one, and if you can do that competently, then you have all the knowledge you need to do it yourself.
If you really must have one, your best bet is to find one that is a fee-only financial planner that you pay an hourly rate and doesn’t sell any financial products.
Let’s say you’re 30. You want to completely retire (i.e., no paid work) and you want to live on 250K per year for the rest of your life. What do you do?
If you pay for investment advice alone you’re getting ripped off. I’d argue there’s value in potentially sitting down with a fee only advisor to help implement a plan or set you on track.
The average person doesn’t understand that stuff well so even if you pay a one time fee or for an hour a year it can be worth it. Paying someone to just dump your money into MFs you could do yourself is an absolute racket though.
I would be worried that those in house advisors are paid to persuade you to buy more expensive products.
That is a fair concern and I would say not to use them for advice on specific investments, but instead on general issues like asset allocation and financial goals.
50:50 stocks and bonds.
30 percent US equity in broad index funds
20 percent International equity in broad index funds
40 percent US treasuries and TIPS (short and medium term purchased directly from the treasury at auction and intended to be held for the entire term)
10 percent cash
Adjust bond holdings accordingly if rates change. At some point increase percent of TIPS as I get older.
A lot of people would do real estate too, but I have no interest in that myself.
If you have 8 million dollars? You could put all 8 million bucks in VTI and live off the dividends, assuming you could live on the paltry sum of $160,000 per year. It’d probably be up to 250k after eight or ten years. Then grow to increasingly comical numbers as you get older and older.
Otherwise you could put it all in a 60/40 Vanguard fund and just take out 3% per year. That would last you forever, and would also grow. I’d do the first one though.
Excellent point. In my experience even asset allocation can be tainted because the advisors are very likely to pull up some model portfolios designed by their in house investments team. Its probably a good asset mix, but you can be darn sure that the commercial leader of the business is checking the profitability of those portfolios for the asset manager before any clients see them.
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I think this is what I would have done in most times, but I wouldn’t be surprised if we had a 30-40% correction in the next few years. Suddenly you’ve got 5ish million.
While not exactly paltry, if you’re living on that with a family of four, you’re not exactly rolling in dough.
I would also assume that if you’re retired at a fairly young age, you’ll need more money than you did when you were working as you have a lot more free time to fill with hobbies and traveling - of course, depending on what your hobbies and interests are.
I know we’d likely need more money because we’d be traveling a lot more, and I’d be spending a lot more on golf, fishing, and other pursuits.
Which is why fee only is the way to go if at all. There’s no major conflict of interest or sale if you’re paying only for advice that’s tailored to your actual needs.
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This is bugging me a bit. I sort of feel like if this scenario happens and you really don’t have enough money, that means you didn’t really hit your number. If you know what I mean.
A plan for retirement has to be more than just hitting that number. As mentioned, most people have some kind of “glide path” where they gradually move to safer assets as they get closer to retirement. One reason Target Date funds are great for most investors is this shift to (relative) safety happens automatically.
This is not to diminish the importance of having concrete goals that might include a specific number that you’re shooting for. When I was still working, I tracked my net worth religiously in a spreadsheet that included the exact date that I would hit my target. It was very motivating and I recommend it.
Yeah you’re exactly right IMO. The point if having A Number is to set clarity about your goal and track progress to it. In the final runway to retirement you’ve got to get really into the weeds on the details of each individual source of income, how they’re all taxed, and how much your retirement is at risk.
I think my number can withstand all of the bear markets I’ve experienced in my lifetime. However, I don’t think I can remember a time when I was anticipating a huge market correction with interest rates where they are now. So if I hit my number tomorrow, I’d be nervous. And in that case, I need to increase my number.