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Author: dincincy Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75335  
Subject: DFA Funds Date: 10/13/2009 3:36 PM
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I have recently retired and am working with a fee based planner on what to do with $1.3MM which I will begin drawing money from late next year (72t payments). I will also have a smaller chunk of money which will remain in former employer stock.

Advisor is suggesting: 55% US large cap; 25% Intl; 15% small cap; 5% real estate; 35% bonds and 5% cash. The majority of the stock funds are DFA funds and majority of bond is with PIMCO.

Any advice on DFA funds? Is there a risk by having majority of stock funds with one company?

Also, former employer is a US large cap company. Does 55% US large cap seem high given that I already have a good deal of stock in this company?
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Author: sky1948 Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66360 of 75335
Subject: Re: DFA Funds Date: 10/13/2009 3:56 PM
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I too have been interested in DFA funds. Here is a link to a thread about them that started in 2006, but the last message is from May of 2009.

http://boards.fool.com/Message.asp?mid=24184361&sort=who...

Check out some of the links suggested in the discussion.

Sue

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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66361 of 75335
Subject: Re: DFA Funds Date: 10/13/2009 4:05 PM
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55% US large cap; 25% Intl; 15% small cap; 5% real estate; 35% bonds and 5% cash.

I must not be understanding your numbers correctly - it appears you are trying to allocate 140%.

Also, former employer is a US large cap company. Does 55% US large cap seem high given that I already have a good deal of stock in this company?

Your company stock should be being considered along with the rest of your portfolio by your advisor.

AJ

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Author: dincincy Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66362 of 75335
Subject: Re: DFA Funds Date: 10/13/2009 4:14 PM
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Ooops, allocation is 60% stocks (of which 55% US large cap; 25% Intl; 15% small cap and 5% real estate); 35% bonds and 5% cash.

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Author: Watty56 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66363 of 75335
Subject: Re: DFA Funds Date: 10/13/2009 6:15 PM
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...Asset allocation...

There isn’t enough information about the rest of your situation to be able to comment on it. For a retired person having 60% in stocks seems on aggressive side which could be OK if that is what you wanted and the rest of your situation is strong financially.

I am lousy at market timing but with interest rates so low right now it seems like a good time to underweight bonds or at least use shorter duration bonds. Do not automatically equate bonds with safety. When inflation and interest rates increase bonds can be very dangerous.

... I will also have a smaller chunk of money which will remain in former employer stock....

Sometimes there are compelling tax reasons to keep the stock but if not then this should definitely not be more than 10% of your portfolio and less than 5% would be even better. If you decide to sell the company stock then you should know exactly what the tax consequences are before you sell it. Company stock is frequently the “exception to the rule” so don’t assume anything about it.

... am working with a fee based planner...

If the planner used the phrase “fee based” could be a red flag that you need to be careful. This is because “fee based” is not the same as “fee only”. You should get a written explanation of how the planner is compensated.

A “fee based” advisor may be accepting other compensation that you may or may not know about for putting your money in a less than ideal investment. When you ask the advisor about how they get paid, ask about “compensation”, not “commission”, there are lots of ways to give compensation other than commission. In the worst possible case they would charge you a fee and also get compensation from the mutual funds they use.

If you retire around the normal age then you can only spend around 4% of portfolio to not be taking an excessive risk of outliving your money. Since you are younger the percentage will be less. (Opinions on the details differ, Google “safe withdrawal rate” for more information.) This means if you are paying your advisor 1% each year then you are paying the advisor 25% of your income each year. That is pretty expensive especially if the mutual funds don't have the lowest expense ratios(and hidden expenses). You could easily end up paying more than 50% of your 4% income to them each year.

It would be good to use a “fee only” financial advisor that charges by the hour.

Greg

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Author: hockeypop Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66369 of 75335
Subject: Re: DFA Funds Date: 10/14/2009 7:15 AM
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Great Post!

This means if you are paying your advisor 1% each year then you are paying the advisor 25% of your income each year. That is pretty expensive especially if the mutual funds don't have the lowest expense ratios(and hidden expenses). You could easily end up paying more than 50% of your 4% income to them each year.

It would be good to use a “fee only” financial advisor that charges by the hour.


DFA funds are good IMO, but they usually can only be handled by an advisor that charges larger expenses on a fee basis generally described by Greg.

Hockeypop

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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66370 of 75335
Subject: Re: DFA Funds Date: 10/14/2009 9:35 AM
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DFA funds are good IMO, but they usually can only be handled by an advisor that charges larger expenses on a fee basis generally described by Greg.

Just about all the DFA funds have an equivalent non-DFA fund, usually Vanguard or Fidelity. I did quite a bit of research last year, with the thought that it might be ok to pay an advisor fee in order to get access to DFA. Finally decided that it wouldn't be worth it.

I couldn't see paying a significant fee to do what I could do myself with a little bit of work.
Here's a paper worth reading: http://www.fundadvice.com/articles/buy-hold/the-ultimate-buy...

Here's the DFA comparisons: http://www.fundadvice.com/articles/buy-hold/the-best-mutual-... Informative, even though they are biased toward DFA.

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Author: dincincy Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66371 of 75335
Subject: Re: DFA Funds Date: 10/14/2009 12:09 PM
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... am working with a fee based planner...


The company I am using has different fee structures. I have paid a flat fee to get a plan. This includes how to best rollover from company plan to IRA and how to most tax efficiently get out of company stock over the next several years. They of course would like me to stay on with their company to have them manage my account at the 1% fee. I don't want to do that, but I'm not sure I'm quite capable of managing it on my own. Between now and January, I need to figure out if I can do it myself. You'll be seeing lots of posts from me on the discussion boards.

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Author: hockeypop Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66372 of 75335
Subject: Re: DFA Funds Date: 10/14/2009 3:49 PM
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I don't use him personally, but I have GREAT respect for Rick Ferri. I think his firm offers very reasonable fees and access to DFA funds.

Rick posts extensively over at the Bogleheads site, and his books are very good on low-cost and index investing. Even when I disagree with him, I tremendously respect his position.

http://www.portfoliosolutions.com/company-people.html

Do your own due diligence, but if I paid that fee I'd check with Rick.

Hockeypop

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Author: Watty56 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66373 of 75335
Subject: Re: DFA Funds Date: 10/15/2009 1:37 PM
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....but I'm not sure I'm quite capable of managing it on my own.....

Using a financial advisor is a great idea and I plan on using one that charges by the hour when I am near to retirement and have a lot of decisions to make. Don’t let any comments here talk you out of using one, just watch the cost of using one very closely since it can really add up over the years.

There are lots of things a good financial planner can do for you but don’t expect them to be able to earn you a lot more money than you can get using diversified index funds and simple bonds. If someone could reliably select even slightly above average investments then they could easily be wealthy working on Wall Street investing in stock options or investing their own money. There is no way that someone with this rare skill would be willing to work for you for the few thousand dollars you would pay them each year.

Greg

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