I remember the late moderator Jonathan Chance was a financial advisor (I think for Ameriprise Financial) and when I questioned the utility of such people, believing many to be sharks, he said that a lot of the time what he does is advise people whether they can or should spend their money on something.
I’m a Fidelity customer. I manage my own portfolio, and I’m doing okay. But I wondered if I could do better, so I asked my account rep to prepare me a quote for them to manage my money. The price was just over 1%. When I asked how they could justify that fee, he replied that they would work some magic to save me almost that much in taxes each year. I said thanks but no thanks. He (the account rep) was very understanding about my refusal, and it hasn’t dampened our relationship at all.
That’s a big part of the job that doesn’t really move the investment needle that much. Talking through risk assessments and advising against market panic is where the real money is earned.
But if you’re going to hire an advisor, do it fee-based, not percentage-based.
My guess is they were talking about tax loss harvesting on the not tax protected account. Which first off is predicted on owning individual equities more than the bulk being a simple few funds model. I’ve always been skeptical about that, but honestly I’ve never had that much in equities that was in either the 401K or the 529s.
So, you didn’t ask this, and you mention not being sure of how much to stick your nose in, but:
If she has $1.5m, and put all of it in FTBFX (only using that because it’s my go-to for mid term safe saving; there may well be better) she’d be getting 4.25% yield, paid monthly.
Even just using a simple, annual compounding, she could pull $75,000/year out for 42 years. OR, pull $75,000 out and at 25 years still have $1 million in the nest egg. If she’s 75, and needs the money, that’s the way to go.
NOW, rates could plummet in 5 years, but they could double, too, and my approach there would be to seek alternatives if/when that happens.
She could put 1/2 in nice, safe fixed income and pull $75k/year out (assuming static rates and slowly drawing down principle) for 25 years, and leave the other 1/2 in equities. If the latter do well, at some point she can reward herself with a two week bender. If not, she’s still OK. I’m assuming that the other income sources like SS will top off the 75k, but of course you could alter the ratios.
And asset value could plummet relatively rapidly too. For example in 2022 total return was negative 13% even though it still averaged yields of 3 4%.
It returns to the previous question about the current utility of bonds and what alternatives for diversification exist.
I know not everyone shares my perspective but, other than tax considerations, I don’t especially care if the return is income or appreciation. I care about the long term performance and, as I get to the point of needing it caring more about volatility of the total package, and/or having the bucket of cash equivalents plus income to weather the next big event prolonged downturn, maybe even being able to buy into it.
It does sound that the relative is panicking over what might happen and is making stupid, rash decisions as a result. Simply leaving the investments alone might have been better in the long run.
Agreed, but in this hypothetical we have someone who needs to draw on that money here and now, and we don’t have the ability to necessarily wait out cycles.
Given that we’re at war, have oil prices through the roof, inflation building AND we’re at record highs, I certainly wouldn’t advise this individual to go all-in on equities. The whole question was about someone who wants to de-risk and spend.
What options has she?
Googling, a woman in her seventies might be expected to survive for 14-17 years so even if she spends $100,000 annually, a portfolio of $1.5 million should last, even if it doesn’t grow at all. And is she even spending that much in retirement? So perhaps just putting the money in bonds or a money fund might be best?
She has a portfolio of $1.5 million. She is early seventies. Give her a possibility of living a full 25 years more, and concern regarding sequence of return risk. She can very comfortably withdraw 4 to 5% annually from a diversified portfolio with annual inflation adjustments : start at $60 to 75K and inflation adjust. Virtually no risk of running out even if she lives to a hundred. And if sequence risk doesn’t hit she can take out more. Does she need to plan for living that long? Probably not? I don’t know if I’d be comfortable planning on dying before 90 though?
There are also some details I don’t have, such as:
- She said 1.5mil. I don’t know how precise that is, or what vehicles it’s in currently (I expect most of it is in stocks of some sort).
- She has a husband about 8 years her senior. I’m not sure what his retirement investments are, but my understanding is that they are significantly less.
- She has a mortgage that originated in 2019. And the home is expensive to run (large, historic home, oil heat, etc)
They’ve decided that they can afford to stay where they are for another 3 or so years, but will then have to move/downsize.
I appreciate folks’ participation in this discussion. It’s nice to spitball about some of this with real human beings.
… who don’t try to charge you 1%.
We pay a half percent, which to me is worth it, since right now I need a little hand holding. Plus it’s not much more than Vanguard or Fidelity if you want human contact. On demand wires, tax docs, I’m ok with it.
Huh. Not questioning your choice but I don’t pay anything extra to call and talk to a live person, can get withdrawals mailed or direct deposit, get tax docs.
The handholding I understand.
And at some point as significant changes occur having a one time fee based consult to review current structure and strategies moving forward … if just to check my understanding … seems like a reasonable choice to consider. Maybe even a check in every few years. The annual percentage based though just seems like a lot.
But of course you can do that youself if you keep track of things properly.
You certainly don’t need an ‘advisor’ for that… it’s not rocket science.
That’s exactly what they were talking about, as my IRA isn’t taxed until withdrawal time (which I have to start this year.)
Sure. Takes some discipline, however. And time.
It’s not that hard. Approaching the end of the year, just review all your holdings and identify any which are underwater from the purchase price. Sell these, which will create a capital loss which can be used to offset any capital gains made during the year.
If you want, you can later re-purchase at the lower price after the 30 day wash period if you think they are still worth owning for the long term.
Certainly not something you need to pay an advisor for!
I have a lot invested in fixed-income, which might be underwater now (like corporate bonds) but will net me a profit when they mature, so I won’t sell those. Investments in index funds have been profitable for several years. The individual equities that I own are all showing in the black right now, but any that are in the red at EOY will certainly be sold. Good advice.
Thanks. Of course one could be more proactive about this and do it more than once a year: but I suspect that micromanagement at that level is a diminishing returns sort of thing: not worth the time spent.
And of course if you are ending up with a lot of purchases that go underwater: you might want to review your buying strategy… 
I completely get both as concerns
Full disclosure that I don’t have much right now that isn’t in the 401K; the big investment that is, is share of my business, and I have no control over when that sells. When that happens and have a chunk to otherwise invest … I am still not going to do much that isn’t a couple of basic funds (pushing the balance to equity on the taxed side and leaving the tax protected side where the bonds live). So not much tax loss harvesting for me now or in any likely future.
And paying people to do things I do not want to do myself? I am on board with that. So imagine I have a million or so in individual stocks on the tax side. Tens or tens of thousands to save me an hour or so of work a year is beyond my laziness premium! I would set an anniversary reminder say in October and just get it done.