(Preface: I posted a version this somewhere else, but not getting much response. Also, I'll do almost anything to interrupt the thread here that has swallowed its own tail....)I'm set to retire this coming June. In anticipation of this, the folks at TIAA-CREF (where my 403b money resides) invited me in for a financial checkup.They offer this service gratis, but they also let you know that you can engage them to manage your money for you ... for, in my case, 0.55% per annum.Their computer took in all my personal info, objectives, etc., etc., and spit out the results for me. The computer's advice is that I pay somebody 0.55% of my money to put 89% of it into five muni funds, 6% in a short-term bond fund, and 5% in a stock fund.I'm supposed to pay someone $5K/year to do that? Really?Has the computer looked at what is happening, or is likely to happen, to munis? Or to bonds in general? Do the "advisors" ever conclude that their computerized advice may be silly, or worse?
A better solution might be to move to 100% cash, and light 0.55% of your balance on fire each year. You will likely come out ahead of that particular asset allocation. However, I would recommend laughing maniacally while burning your cash, making a video, and putting it on youtube. That would make it more fun.Back to the issue at hand--I think the computer model (or asset allocation model) works on a "regression to the mean" model with declining volatility through time. It is not built to handle things like the end of ZIRP and a long-term decline in bond prices. A good advisor who uses a computer as a decision support tool would know this. A bad advisor lets the computer do the thinking. Honestly, I expect better from tiaa-cref.
Honestly, I expect better from tiaa-cref. Me, too. Maybe I should call and ask for a different adviser, someone a bit more experienced.
Generally speaking, the time to buy bonds, at least if you are talking about something longer term than 90 day Treasuries, is when interest rates are high, and likely to have peaked. Then you get the high interest rate, and when interest rates are lowered you get some capital appreciation. Of course, the downside of that is that when interest rates are lowered the stock market generally rallies, and you can make more money in stocks.Many years ago, I had an account at a bank where there was a financial adviser sitting in the lobby advertising his expertise. The market had tanked a few months earlier, and interest rates were being raised. The financial adviser told me that when the stock market began to go down he told his clients to go to bonds. Of course, that was a mistake because interest rates kept going up and they lost the money as the bonds went down to compensate for the higher interest rates. It was really pathetic, since it had been clear that interest rates were going to continue to go up."Pathetic", said Eeyore. "No better from this side either."
I advise against putting that much into bonds; especially munis.Suggest talking to the folks at TRowe or Fido, Vanguard and PIMCO.Compare their advise, fees and past performance.
They offer this service gratis....There's your first warning sign. Nothing is free.You don't mention specific funds, but I'd assume the TIAA-CREF muni fund they're recommending is TIXRX? If so, you'd be paying .55% plus the fund's .63% ER = 1.18%.If you're holding these muni bond funds for their interest you require as retirement income, then the picture looks even worse. Per the most recent annual shareholder's report, the income expense ratio is 19.3%, meaning the total of the interest income the fund receives, 24.8% will go out in expenses.Pretty expensive.BruceM
Maybe I should call and ask for a different adviser, someone a bit more experienced. Why? You are going to get the same answer.It's called the agency problemIt's been written about quite a bit, that for an advisor his risk is making recommendations that stray too far from the herd. If he sticks with the recommendation that everyone else is making, then if he fails he says "Everybody got it wrong, so it's not my fault."OTOH, if he recommends something completely different and it fails, then he gets fired.In either case, if his recommendation is a winner, he is told, "Of course, that's what we are paying you for. No bonus for you, because all you did is what we paid you for."Nobody cares about your money and your portfolio's performance but you. To everybody else, you are just a (small) chunk of assets they'd like to put under management and collect a fee from.
Ray, you're probably right. But I'm going to do it anyway. I'll let you all know what they tell me.
>>> Of course, that was a mistake because interest rates kept going up and they lost the money as the bonds went down to compensate for the higher interest rates.<<<<I'm not saying it a good idea or not to buy bonds. Bonds bought at par and held to maturity return the original purchase to the buyer.Before you say the bonds didn't keep up with inflation remember from January 2000 to December 2012, the S&P 500 has a negative .7% inflation adjusted return.
Honestly, if you have between $900k and $1 million in your 403(b), you've got more options then they're going to make it appear that you do, provided that your living expenses aren't out of this world. With that kind of a nest egg, I really do like the idea of subscribing to the "bucket" approach that I have read about on Morningstar and other places. Basically, you act as your own personal endowment, with say 4-5% of your portfolio remaining in short-term securities and cash each year (1st bucket), which you can take as income for that period. The rest of the portfolio is invested in buckets of decreasing liquidity/longer duration/maturity (2nd bucket should be short-term bonds, 3rd bucket intermediate-term issues, 4th bucket long-term bonds, 5th bucket index funds/stocks, and 6th bucket private equity/real estate, etc.)Obviously, the exact asset allocation all depends on your own unique financial situation, but if you've got a big enough nest-egg, as you appear to have, the aforementioned approach is more advantageous than simply getting an immediate annuity in the current low-rate environment. If you were to adopt the strategy, I strongly suggest purchasing individual bonds rather than funds, as you will need to essentially ladder bond maturities to provide predictable revolving income (bond funds' duration vary constantly and make that a messy proposition).
Thank you. Very helpful.Ten days ago, I asked my TIAA-CREF advisor to mail me the paper I need to sign to begin annual withdrawals from the TIAA account to move into the CREF part, where the money would not be obligated to go into an annuity.He said he would mail the paper to me the next day.It has not yet arrived. I intend to call the office tomorrow and inform the head person that I am dissatisfied. Either they place me with a competent advisor or I will start moving my money out of TIAA-CREF entirely and into Vanguard.
Before getting into bonds, this is a worthwhile read:http://www.sl-advisors.com/why-bonds-are-not-for-retail/"Many large asset managers and brokerage firms have an enormous stake in seeing retail investors continue to plow their savings into this return-less asset class." "the challenge is on for new and more creative ways to convince clients that they should maintain a significant allocation of their portfolios in fixed income, in the face of a Fed that intends to drive all the yield-based return out of bonds "
If it comes to moving the assets out, Vanguard is BY FAR the best choice IMO. You'd have access to their lowest-cost share class (Admiral Shares), plus, you'd have access to either "Voyager" or "Flagship Services," which are complementary service tiers based on your asset amount. The value-add in that department can't be beat IMO, considering it entails no extra cost to you. Actually, if you go with Flagship, you even have access to their closed funds, which are typically very good (and hence too popular to remain open to the general public).Also, if you decide to do a 1035 exchange into an annuity, Vanguard is also top-notch in that regard. I have personally done just that for one of my family members, and the representatives I worked with were uncommonly knowledgeable, helpful, and patient. It's just a different corporate culture there than at most other brokerages, and it really shows with their customer-service. Also, the website is intuitive, clean, well-designed, and allows for streamlined access to and maintenance of accounts. My dad also has TIAA-Cref, which has been great during his employment, but I have planned to move his assets to Vanguard at retirement all along (with his approval, of course). Anyway, good luck with whatever you choose to do.
Actually, I can (and do) invest in Vanguard funds through TIAA-CREF at Vanguard's institutional rate, which is unbeatably low. And that's what I want to shift more of the TIAA allocation into.Update: The transfer-funds paperwork was a no-show in the mail again today. So I spoke with the head guy in the state and he is setting me up with another advisor. He is also checking to find out why it has taken 12 days (and counting) for a piece of paper to make its way 1.5 miles from the TIAA office to my house.Geez, scan it and email me a .pdf maybe? What year is this?I will give them one more chance to do this right. More and more, I am thinking that if I got this far under my own steam, I may be best served by just sticking to that.
MrFungi...You seem like a pretty smart guy - you'd be better served looking after your own finances IMO. That said, do whatever you're most comfortable with. TIAA-Cref is not a bad company, but better on the buy-side... their customer service/advisory department is a little lacking (they do serve a LOT of people, so that's somewhat understandable). I do like many of their funds, and their website is fairly straight-forward, even with multiple contracts (I should know). One thing, though, if you're significantly invested in the "Guaranteed Fund" annuity, you need to look at the exchange/liquidation features. Depending on the date of your most recent contributions, you could see some extra fees you may not want to pay.
Depending on the date of your most recent contributions, you could see some extra fees you may not want to pay.Nobody mentioned any fees! I will def check into that. Thanks!
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