Equity Trade Funds / a good idea?

[Gordon Gray]

Exchange Traded Funds / a good idea?

Otherwise known as ETF's, this seems to be an investment program, in either an "active" or "passive" form, that are offered by many large brokerage houses.

As I approach retirement (three years out), I scheduled a one hour personal conference with a Charles Schwab representative about my current positions and how I should adjust the risk / exposure factors to continue some exposure to equities (gains) versus minimizing overall risk. I'm also concerned about the Federal Reserve ending the QE2 program, early next year, and its impact on the stock market.

The nexus of this approach is to determine one's risk comfort level and then develop investments that mirror that level.

I'm seriously considering going the "passive", read index funds, that require less active management and keep the brokerage fees to a nominal level.

I've been quoted an overall fee of 0.9% for this service.

I researched other firms offering this service and it appears to be in line.

Any thoughts about this investment vehicle, good or bad?

GG

 

[Larry]

Gordon, you might want to check out the TIAA-CREF family of investments: https://www.tiaa-cref.org/public/index.html

Their fees are low and they have a long and strong track record. I have been retired for 15 years and my investments with them weathered the recession very nicely.

Larry

 

[sleepysurf]

Before doing anything, I strongly suggest looking at the Bogleheads dot org website/wiki for advice about low-cost Index Fund/ETF based portfolios. I would also read Paul Merriman's book Financial Fitness Forever, and read his blog. Frankly, depending upon the size of your portfolio, a 0.9% "wrap feel" may be on the high side, if it doesn't also include full financial and retirement planning services (including a "Monte Carlo" statistical analysis) with a Certified Financial Planner (CFP). Another reasonable approach is to use a DFA (Dimensional Fund Advisors) certified planner. They offer "tweaked" index-oriented funds based on sound (Nobel Prize winning) economics.


The Vanguard dot com website also offers great resources. I've created a portfolio of low-cost Vanguard (Admiral Shares) Index Funds, but also pay a CFP to routinely oversee everything.

 

[bonzo]

DFA is based on Eugene Fama's Efficient Market's Theory, from my bschool. Their CEO offered his name to our school for 300million grant.

 

[Rich]

Gordon, .9% sounds a little high for an index fund. I am paying slightly less than that for an actively managed account. I would expect less than .5% for an index fund. I would suggest shopping around a little. Some good advice in the above posts.

 

[timm]

My personal opinion only.... The only time I would consider paying a company management fees is if they are creating a stock portfolio for you and minimizing commisions on sales. I have issues with paying management fees to a brokerage to manage a portfolio of funds which also contain management fees. Again my opinion.

 

[Rehan Azim Hashmi]

I think you should research Larry's suggested investment firm. You have researched a number of investment firms and researching one more might pay dividends.

Larry's investment firm charges low fees and has a good track record, especially during the acid test of economic contraction. Seems like a well managed investment firm.

In a very well managed investment firm, like the one suggested by Larry, financial returns on investment should be much higher with less risk of investment failure because hopefully in the future the economy of USA will improve.

With growth expected in the future, since each slowdown in the past has been followed by growth, i therefore believe that this is the right time to invest in equity instruments. Right now market index should be at a low number and will hopefully with economic expansion appreciate in value in the future.

Part of the attractiveness of the equity market lies in the fact that this is the place where some investors become wealthy. People will always tell you about their financial success but not tell you about the financial failures suffered in the equity market.

 

[greg2putt]

Gordon,
Sometimes there's more to consider when debating about using an investment firm. Some things to consider that aren't always top of mind but that may be of 'value' to you which is 'paid' through the management fee that all of us might prefer to avoid include:
- Do you have a spouse/significant other for whom the investment advisor could play a (scripted) role of financial planning when discussing difficult topics?
- Do you have children / dependents with special needs that might require special long term financial management and coaching services?
- Do you have elderly parents or inlaws for whom you might voluntarily or involuntarily have to provide financial assistance to (and then is your view the same as your significant other?)
- How have you / significant other provided for other future financial opportunities and challenges (e.g. estate planning; trust planning and management; generation skipping wealth transfer; long term care funding; life and other insurance needs planning; etc.)
- Would you need future temporary financing which could easily be funded via a 'loan' against your portfolio value with minimal / ad hoc ease of transacting against? (something that might be used when relocating and building retirement home in advance of selling primary resident)

There are other 'special circumstances' that might justify working with a financial planner at a major organization (Schwab; Merrill L; US Trust; etc.) while accepting and justifying the incremental fees associated with this type of account. One approach that I've found successful is not putting all my financial eggs in my ML basket, thereby causing extra administrative complexity for me, but it also provides a form of carrot and stick to my ML representative to keep him a close collaborator, partner and adjunct [family] member to aid my wife and I and our adult sons. I'm happy to elaborate more on particulars --- just send PM to me.
Good luck....
Greg

 

[Gordon Gray]

Greg, Alan, Rich, Larry, RAH, tim, and others,

My sincere appreciation for all your comments and insights.

They have caused me to investigate a couple of other items that I would not have pursued.

Sincerely,

Gordon