Another NAPFA planner has just joined us--Curt Weill of Lasecke Weil Wealth Advisory Group...Curt, any advice for ChrisG?
Chris, that is a very hard number to try and put your finger on. No one knows what will happen over the next 7-10 years, or even tomorrow. I advise clients to pick a comfortable allocation and stick with it. However for our newly retired clients we have been using a 5% rate of return in their retirement plans, if that helps. I think that would be a good number for someone with a balanced allocation.
Hi Chris. I can't predict the market but I would advise clients to invest based on when they need the money. If you need the money within the next several years, it should be in the money market, if you don't need the money until retirement (e.g., greater than 10 years) it should be in stocks, and bonds to balance out the rough edges. Historically, the range of stock market returns over a 10-year period has been anywhere between a low of 0% and a high of 20% per year.
For ChrisG: while I'm basically optimistic, current very low yields on bonds and fairly high valuations on U.S. stocks, etc make me conservatively estimate a 6-8% total return on a moderate risk portfolio over the next 5-7 years. Be sure that you are VERY well diversified - U.S & foreign stocks (with a healthy 10% emerging markets) some REITs, very short-term bonds (check out bank loan funds,) natural resources and perhaps some local-currency foreign bonds.
ChrisG has a followup question...
If you do not want to pay adviser/mutual fund management fees then I would suggest looking at Vanguard. They have a great selection of very low cost mutual funds.
Cost is one thing you can control, right, Rich?
Good point Chris; if you want the knowledge and wisdom of a seasoned advisor and the personalized service and the fee-only objectivity, you'll have to pay for it. That said, there are advisors who will perform a one-off portfolio analysis/recommendation and charge a lesser fee with you doing all the implementing. Depending on the size of your portfolio, fees could be lower; using ETFs can also keep total costs down.
Chris, for advisor-managed services, your fee estimate may be in the ballpark. For an investment portfolio I recommend to clients, low-cost indexed funds. Unmanaged index funds have fees more in the range of 0.1% to 0.5%. Over the long-term the savings in fees will increase your portfolio.
Thats true, however it may not be worth trying to slash ALL fees if you are an inexperienced investor or pick low cost mutual funds that may not be the best simply to lower fees.
BTW, Chris, our total cost load to our average client - fund fees, transaction costs, management fees - runs under 1.25%
On the topic of fees, here's a good question...
You can look at the webpage of a mutual fund and look for expense ratio (type in the symbol on google finance). This will tell you the fee for management during the year. Also look to see if they charge a front or deferred load. These are basically sales charges up front and I would advise steering away from these.
Several sources do a good job of listing fees - Consumer Reports, AAII (American Assn of Individual Investors) Morningstar, Kiplinger's Magazine (of course!) In the prospectus you get from the brokerage firm, look in the index for "fees" and then look again for "other expenses."
thanks for the shout out, Curt!
Stephen in ATL has a question related to advisor fees...
For Investment Fees: The volume of information contained in a Prospectus is frustrating at best. Have your advisor go over the fees with you. Fees may include purchase fees, redemption fees, management fee, account fees, transaction fees and 12b-1 advertising and promotion fees.
No, Stephen - fee-based is Wall Street's attempt to look more like fee-only. A long time ago I offered clients a fee-based approach where I charged a fee for financial planning and then deducted from that fee any commissions that resulted from enacting the plan. The CFP Board has a very strict definition of "fee-only:" the only income earned by the planner is paid directly by the client. That is, no commissions of any kind.
Here's a followup question from one of our Twitter followers @AUSanchezz: What's the [recommended] ratio [of stocks] for someone in their 20's? Like 80% [Phil had said at least 1/2 of your portfolio should be in stocks if you're in your 40s]
Hi Stephen. Take a look at the website for the National Association of Personal Financial Advisors located at www.napfa.org who has a good description of fee-only.
This is a difficult question to answer, not knowing anything else about the person. Philosophically, younger people have lots of time to weather the ups and downs of the stock markets, so they should be very heavily invested in stocks - in my 20's/30's I was 100% in stocks.
While I think I can safely say that none of us has a crystal ball, Randy has a question about the direction of the markets...
@AUSanchezz. Old rule of thumb was the % amount of cash and bonds in your portfolio should be your age with the rest in stocks. A newer more robust rule of thumb is cash/bonds your age minus 10. But it really depends on your risk tolerance and when you need the money.
AUSanchezz, that is a good question. It really depends on how risky the investor is. some people want to put all their money into stocks, while others are a little more anxious and want to add bonds for protection. Another thing to consider is whether you have needs for the money soon. If you have money for a down payment on a house or something coming up, keep it in cash. If you are going to be using the money and cannot keep it in the market for at least 2 years, do not invest it. That being said, someone who is younger can be more aggressive in their retirement accounts as they cannot access them for many years.
Randy - sorry, and my crystal ball broke several years ago. That said, what are you investing for? short- or long-term goals? That, and your supply of Tums and the advice of a planner who has your best interest in mind should provide a good answer for you.
Charlotte - with 13 or 14 years to go, both are attractive; however the tax advantage at withdrawal makes the 529 plan draw ahead - money that comes out of the plan paid directly to the school is completely tax free.
Eagle, The problem with investing in so many funds is that many of the funds you have, comprise of the same companies so you may not be as diversified as you think you are. Talk to Fidelity and have them show you how to use the on-line "Analysis Tool". Once you know where you are invested, then begin to consolidate your funds. Don't invest in aggressive investments until you know what you have and only then, there's no reason to be over-agressive.
any thoughts on this followup question from eagle?
Curt, a followup question
Rich, can you take this question from Tom
about tapping a 401(k)?
You don't have to do the pre-pay option; you can simply make deposits each year, the same way you would do with your IRA. The tax benefit of the 529 is the same whether contrasting IRA or 401k
Curt, could you take this question about estate planning?
And Phil, we've got a question about contributing to a Roth...can you weigh in on that one?