I don't understand the account setup on my IRA (rather long, I'm afraid)

[Dewey_Finn]

What is the name of the index you’re attempting to reproduce?

[Roderick_Femm]

@Dewey_Finn

What is the name of the index you’re attempting to reproduce

I’m not attempting to reproduce anything, it is my financial adviser. I don’t know the name of it. I’m not sure what difference that would make. His point to me is that it is cheaper, for me, to have things handled this way rather than paying the management fees of one or more funds, in addition to the other fees. I guess you are trying to make some point about how things should be handled differently, but there is a limit to how much detail I am willing to reveal here.

[Dewey_Finn]

Earlier you said your financial advisor said, “This account [I believe he means my account] follows an index and will hew to its benchmark more closely because of how we optimize it than a portfolio of mutual funds.”

My question is why this approach (of owning 200+ individual stocks) rather than just buying an ETF or mutual fund that matches the same index?

[Roderick_Femm]

As I understand it, it saves the management fees of the ETFs or mutual funds, most likely plural, that approximate the same index; also it avoids overlap when different funds own some of the same stocks. If there were one fund that did the necessary, that might be different, but that doesn’t seem to be the case.

Possibly you are leading up to suggesting that I should ditch my financial adviser and just buy this fund on my own. As long as I feel confident that they are not cheating me, which I am mostly and expect to confirm over the next few months, I would rather stick with them.

[robby]

@Roderick_Femm

…At the time I retired, 10 years ago, I rolled my 401(k) into an IRA, as one does.

I have a question regarding this point. Why exactly did you find it necessary or desirable to roll your 401(k) into an IRA in the first place?

I still have a 401(k) from a firm I left over 17 years ago. It’s with Fidelity, and it’s still earning money for me. I’ve never heard any compelling reason to roll it over into anything else, but am all ears if there is one.

[kenobi_65]

@robby

I still have a 401(k) from a firm I left over 17 years ago. It’s with Fidelity, and it’s still earning money for me. I’ve never heard any compelling reason to roll it over into anything else, but am all ears if there is one.

Up until last summer, I had five different 401(k)s, from various jobs; I finally rolled them all into my IRA (which was originally set up, 25 years ago, using the money from the 401(K) from my first job).

If it’d been just one other 401(k), I might not have, but having six different retirement accounts, under five different investment companies (two were with Fidelity), seemed like it was going to be a pain once it becomes time to start withdrawing money.

[robby]

@kenobi_65

@robby

I still have a 401(k) from a firm I left over 17 years ago. It’s with Fidelity, and it’s still earning money for me. I’ve never heard any compelling reason to roll it over into anything else, but am all ears if there is one.

Up until last summer, I had five different 401(k)s, from various jobs; I finally rolled them all into my IRA (which was originally set up, 25 years ago, using the money from the 401(K) from my first job).

If it’d been just one other 401(k), I might not have, but having six different retirement accounts, under five different investment companies (two were with Fidelity), seemed like it was going to be a pain once it becomes time to start withdrawing money.

Thank you, that makes sense.

I have only the 401(k) along with a 457(b) plan. I believe both can be rolled over into an IRA, according to this chart, but are there are other advantages other than simplifying things once you start to withdraw money?

[kenobi_65]

@robby

I have only the 401(k) along with a 457(b) plan. I believe both can be rolled over into an IRA, according to this chart, but are there are other advantages other than simplifying things once you start to withdraw money?

To be fair, finance isn’t my strong suit, and consolidating everything under one account, managed by my financial planner, particularly as I’ll be retiring within the next couple of years, was the only real advantage I cared about.

[LSLGuy]

@Robby:

There’s about 5 or 10 posts on this point right here:

Countdown to retirement

I have what may be a dumb question, but I see all the discussion of rolling over to Roth IRAs & moving off platforms…what necessitates that? I’m only asking because my company kept everything on Fidelity, so the 401K and everything else is just there where I can already get at it.

That thread has become a bit of an omnibus on both the personal and financial aspects of nearing, entering, and settling into retirement. If you’re in that process yourself (or thinking about it) you might find this thread useful reading.

[Roderick_Femm]

@robby

I have a question regarding this point. Why exactly did you find it necessary or desirable to roll your 401(k) into an IRA in the first place?

The 401(k) offerings were limited, and an IRA allows me to invest in a much wider variety of ways.

[Munch]

@robby

Why exactly did you find it necessary or desirable to roll your 401(k) into an IRA in the first place?

Pros for rolling into an IRA:

• 401k plans typically have fees that are higher than an IRA. They can sometimes be hidden as higher expense ratios, so don’t appear on a statement.

• 401k plans have a limited assortment of investment options, usually leaning towards funds in a particular fund family that is favorable for the custodian.

• when it is time for Required Minimum Distributions, you have to withdraw from each account you own. When you have multiple accounts, that can be annoying.

• You can open your IRA with whatever custodian you want, with whatever advisor you want, or self-direct it.

Cons for rolling into an IRA:

• Employer-sponsored plans are not subject to liability rulings (I.e. if you get sued, they can take your IRA)

(I think that about covers it - if I missed anything, please correct me.)

[robby]

Thanks, everyone! I’ll also check out the other thread.

[Voyager]

@Roderick_Femm

Freudian slip? If they are doing something to me, it strikes me they would be unlikely to explain it.

Given that you have 215 items, maybe my mistake was actually correct. That seems like way too many unless you have investments in the 7 or 8 figures. While you do avoid management charges, unless you are using a strict buy and hold strategy there is no way anyone is going to be able to react to changes in the outlook for 215 different stocks. These get evened out in an index fund, but I’d wonder how balanced these are? Are they in different industry segments? Different market caps?

@Railer13

Do you pay your adviser a fee based on a percentage of your assets, or are you charged by the time you spend with your adviser?

Percentage. Probably too much, but, as I’ve said, I hate the details of investments, I’m not very good at it, (I learned that in 2000) and I’m in excellent investments I would not have thought of.

@kenobi_65

If it’d been just one other 401(k), I might not have, but having six different retirement accounts, under five different investment companies (two were with Fidelity), seemed like it was going to be a pain once it becomes time to start withdrawing money.

And especially a pain when you are forced to withdraw money for RMDs.

[Munch]

@Voyager

unless you are using a strict buy and hold strategy there is no way anyone is going to be able to react to changes in the outlook for 215 different stocks.

Some advisors can set up investment models that are able to buy/sell for any and all clients they have under any particular framework. It seems overly involved to me, and I can’t imagine how it ends up less than a passive ETF though.

[We_re_wolves_not_werewolves]

You don’t understand it because you’re not intended to understand it. Like the various flavors of permanent life insurance, indexed annuities, and other investments, the complexity is completely manufactured, and intended to keep you beholden to your financial advisor because all of this personal finance stuff is “just way too complicated”. Don’t believe it. Transfer your IRA to Fidelity/Schwab/Vanguard, buy 1-3 index funds, and reap the benefits of increased returns, and reduced costs and complexities.