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...where to I find out about more conservative investing?

DH's risk tolerances are lower than mine, and he seems happy enough with the FA prescribed 60/40 equities/bonds, probably mostly because a "professional" told him that was how it should be. He's happy enough accepting what the FA tells us to do, but I am more of an outside the box thinker. The FA has been OK, returning better than the benchmark net of fees, but how do I even know we are using the right benchmark? Why not 70/30? Trust but verify, right?

Problem is that I really don't know how to invest any other way than full speed ahead, damn the torpedoes. Not a great style for our time in life. But I am kinda tired of having to double check what the FA says and confirm the accuracy. What he tells me and what he tell our son, who I try to make do his own discussion with the FA, often are two very different things, even when discussing the same accounts. And honestly, I'm tired of paying our fess while educating him.

Time to start preparing to take things back over, or at least analyzing the possibility.

IP
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...where to I find out about more conservative investing?

Sounds like you have a problem with DH. It sounds like he wants to be involved in the decisions without actually being involved.

But I am kinda tired of having to double check what the FA says and confirm the accuracy. And honestly, I'm tired of paying our fess while educating him.

You have more tolerance with I do. What's the point of having a FA if you have to educate him and have to double check everything he says. Sounds like the definition of a business consultant -- "Somebody who you pay a large sum of money to tell you the time, and then he asks to borrow your watch."

What he tells me and what he tell our son, who I try to make do his own discussion with the FA, often are two very different things, even when discussing the same accounts.

The first time I caught him saying 2 different things, that would be the last time he ever saw or heard me. Me and my money would be gone the next day.


If you need to have somebody suggest what to do, this article is a good place to start. http://www.merriman.com/uncategorized/ultimatebuyandholdstra...

But if your first problem is that your spouse insists on having a major say, but doesn't (for whatever reason) have the knowledge or interest to make informed opinions -- then that's the problem you need to resolve first.


There's another potential issue coming up that is going to hurt innocent naifs who believe that 40% in bonds is safe. When interest rates go back up, bonds are going to get crushed. People like Buffet have been saying that bonds are going to have an overall NEGATIVE return over the next couple of decades.

Good luck
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Thanks for the link.

IP
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Where I hear 'Financial Advisor', my immediate thought is a commissioned salesman. Does your AA involve proprietary or load funds or insurance products? Are you paying a % of assets under management? Both? What are the credentials of your FA?

There is nothing wrong with a Financial Planner who is paid as a % of AUM or better, as an hourly rate, who holds the CPA/PFS or CFP or CFA designation (they have fundamental training), and who offers your investment plan as part of your comprehensive financial planning need (did your FA do a review of your current insurance policies?). The only correct way to offer investment advice is within the context of the whole person/couple.

Your concern is the reason why I switched to a pure income approach. I'm not saying this would work for you and your needs...but it has for us.

BruceM
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With interest rates so low, buying bonds now is not a very good idea. But if you acquired them some years ago, bonds can still be paying nice interest and without much down side risk. Your greatest concern could be that the bonds are being called.

If DH has low risk tolerance, your adviser's suggestions could be appropriate.

Similarly if your son is less risk averse, he may be recommending a different set of parameters to him. More equities and less bonds.

Your adviser could be confused about who makes decisions in your situation. The three of you seem to have different risk profiles. But even so, the core recommendation for 50 to 60% of assets is similar. Its the fringes where you disagree. Then you have to decide who gets to pick this time. You could take turns. Or have separate accounts and see who does better.
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The FA has been OK, returning better than the benchmark net of fees, but how do I even know we are using the right benchmark? Why not 70/30? Trust but verify, right?

If you are invested 60/40 then the appropriate benchmark to measure performance would be indexes that are 60/40. You could use something broad like 60% S&P or it could be more specific like 30% S&P, 15% Russell 2000 and 15% MSCI.

If you have international stock in your port, it should include the international benchmark.

Asd to your larger question of whether or not 60/40 is more appropriate than 70/30, there are numerous asset allocation tools online where you can answer a few risk tolerance questions to give you an idea. Regardless, I don't think a difference of 10% one way or the other is likely a make or break situation.

If you are not happy with the services for which you are paying, then it is likely time to talk about such with the FA - and leave if that is not satisfactory.
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IP what works for some is not liked by others. So my approach may not be all that useful for you.

We went with a FA for reasons specific to us in May 2008. Choose a 60/40 split and later a 70/30 allocation. After 5 years, I was not overly excited, but we had weathered the Great Recession. What bothered me most was we had not hit the agreed on bench mark of 60% S&P500 plus 40% Lehmann (now some other name) all bond index.

That caused me to do, what I suggest you do. Spend some time at Morningstar.com -- There is a lot of information on the free version, but the Premium is well worth $195 for a year when you are looking and evaluating the rest of you lives financially.

If you have been with your FA for either 10, 5 or 3 years, compare your actual returns with Vanguard's Wellington Fund VWENX. It happens to be 65% equity and 35% cash, bonds, etc. today. It can be 60% equity in times like the last 90s -- i.e. when the market looks frothy.

What I found was this single fund, which had bee my benchmark before 2008, had beaten our FA by somewhat over 1% compounded.

So I asked myself if I was getting enough stuff to justify a 1% penalty over a very simple investment approach. Answer no. We now have a much less complex set of assets. A total of 10 funds (two of which are left from FA, have good results and large capital gains in a taxable account) vs over 20. Some people like indexes and ETFs and that can lead to even fewer holdings - but I have decided to go into actively managed Vanguard funds with long (over 10 year) track records.

I may keep the Premium Morningstar a second year - it is small compared to our fees. And it has a great deal of stuff if you poke into the corners - things like being able to pick the exact time period you want performance data on for comparisons and detail on holdings.
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So I asked myself if I was getting enough stuff to justify a 1% penalty over a very simple investment approach. Answer no. We now have a much less complex set of assets. A total of 10 funds (two of which are left from FA, have good results and large capital gains in a taxable account) vs over 20. Some people like indexes and ETFs and that can lead to even fewer holdings - but I have decided to go into actively managed Vanguard funds with long (over 10 year) track records.

Thanks, GW. I actually called Vanguard today and filled out the forms for their FA to look at and discuss with me next week. We have accounts there, and their recommendation for our age group is a 70/30 asset allocation, but beyond that it seemed as though they would pull the same formulaic approach to investing for us. They did however confirm that our FA got us about 3% better last year net of fees than their return for a similar 60/40 portfolio at Vanguard, at least one based on the ETFs they prefer. It is interesting to note that at a glance their ETF approach did better than Wellington, at least for last year. It may be that I just have to deal with the fact that the fee we pay gets us access to better funds, cause it sure isn't getting us advice. It is crazy the things I've had to inform our FA about, followed up with emailed links to the facts when he told me I had my facts wrong. And yet he is the one with the alphabet soup of designations after his name, while I'm a simple at home mom....who knows how to read. So far his best asset has been that when he finally understands what I want to do and why we should do it, he helps me convince DH a lot faster than I can do on my own. I guess that alphabet soup is good for something.

Maybe the best approach is to see if there is another FA at that company, one who does more than throw a formula at our total family of accounts, and who can take over management of our funds. What I really would love is a financial adviser who is the total package, understanding the need to balance returns with taxes, how to manipulate the accounts to provide the best of all worlds, how to position what we have now in it's current form for optimal retirement investing and spending.

IP
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The FA has been OK, returning better than the benchmark net of fees, but how do I even know we are using the right benchmark? Why not 70/30? Trust but verify, right?

Sorry, my fingers typed the wrong word. Obviously that should be allocation. You use the benchmark based on funds invested, and yes, we are using a calculated benchmark based on the varying percentages of types of investments.

IP
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So far his best asset has been that when he finally understands what I want to do and why we should do it, he helps me convince DH a lot faster than I can do on my own. I guess that alphabet soup is good for something.

I wouldn't discount the value of this, although it still may not be worth what you are actually paying for his services.

Maybe the best approach is to see if there is another FA at that company, one who does more than throw a formula at our total family of accounts, and who can take over management of our funds. What I really would love is a financial adviser who is the total package, understanding the need to balance returns with taxes, how to manipulate the accounts to provide the best of all worlds, how to position what we have now in it's current form for optimal retirement investing and spending.

This sounds like a good place to start. If all your FA is doing is using some general formula for your investments, which could actually be exactly what his firm typically recommends, then you'd probably at least still get that piece and potentially the additional pieces that you are not getting now just by switching to someone else at the same firm. It is at least worth exploring.

Our FA works at a large firm, but he got there through one or two acquisitions. Interestingly, the previous FA that we had used was at this current firm, and I see a world of difference. The old FA just followed the firm's general advice, and crammed us into one of their models. I didn't see where he added any value since he didn't seem to be using his own thinking and models. The new guy, who we have used for a few years now, has his own spreadsheets and models, and sort of has his own clients as a separate business from the rest of the firm. I find that the biggest difference, and I think that is the sort of thing you are seeking.

So keep looking because these guys do exist and they are out there, but you have to turn over a lot of rocks to find them.
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Your adviser could be confused about who makes decisions in your situation.

Nah. He knows it's pretty much me. He even keeps on coming to me about MIL's account, which I refuse to deal with and send him back to DH.

Just got off the phone with him. It was a goof, plain and simple. This is what happens when the MO is to throw investing formulas at 4 different people's accounts within one family relationship with the firm, and one of those things that require me to constantly be verifying he does what he is supposed to do.

IP
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IP a few points

#1 I feel comparing anything on a one year basis is at best misleading and maybe worse. Everything goes up one time and down another. I have a strong preference for avoiding capital gains by selling X after holding it a year because Y will (assume the FA really knows) than X in the next 12 months by some small amount.

If you want to see how stuff goes up and down take a look at this investment periodic return chart.
http://www.callan.com/research/periodic/

Today comparing with 5 year data is not easy, because with the exception of Morningstar, the 5 year data is not exactly March 13, 2009 to March 13, 2014 -- and since March of 2009 was the bottom it really will affect annual ROI by a lot.

VWENX returns with all dividends re-invested for the exact 10, 5 and 3 year periods ending with the March 13, 2014 market close:

10 Yr 8.09%
5 Yr 16.47%
3 Yr 11.19%

The VWENX performance as of June 30, 2013 had beaten both 60/40 and 70/30 returns of S&P500 & All bonds with re-invested dividends easily. The data takes some finding, but it out there.

Realistically unless you have enough money to keep an FA working just for you, you will get a formulaic system. Not only that, if your formula says more large cap Value or Growth, there will likely be only a couple of places for large cap whatever in your formula' system.

I have nothing against Vanguard or any other FA, but until I see one who can show me the data saying they have exceeded Wellington net of fees for at least 5 year, I am not interested. (As I said above just this year 5 years is a risky comparison because of how data can be gathered.)

It is not hard for people to beat any index or fund for a single year. Many people feel Warren Buffet is pretty good. The return of BRK.A for the 10 years ending March 13, 2014 was 7.27% -- almost 75 basis points less than VWENX and BRK.A took a bigger hit in 2008/2009.

Finally in this area, Vanguard has some target funds and other items with various allocations. These have not been all that great performers. I suggest you drill down and see what the holdings are. For example, why would you want to have X% of say Vanguard Explorer and Y% of the Vanguard ABC bond fund held on another name with another, all be it small, fee. Simpler to just buy Explorer and the ABC fund. This is just the reason I like middle of the road actively managed mutual funds. Any index type deal will have some dogs. Just avoiding the dogs without trying for top bragging rights can make a big net of fees advantage.
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If all your FA is doing is using some general formula for your investments, which could actually be exactly what his firm typically recommends,...

...

Our FA works at a large firm, but he got there through one or two acquisitions. Interestingly, the previous FA that we had used was at this current firm, and I see a world of difference. The old FA just followed the firm's general advice, and crammed us into one of their models. I didn't see where he added any value since he didn't seem to be using his own thinking and models. The new guy, who we have used for a few years now, has his own spreadsheets and models, and sort of has his own clients as a separate business from the rest of the firm. I find that the biggest difference, and I think that is the sort of thing you are seeking.



Yes, I do think he follows the prescription the company sets out for him, even though in theory this is also a separate business from the firm. I just wish we could find someone who puts in at least as much thought into our plan as I do, particularly because you just don't know what you don't know. I suspect there is a ton I just don't know!

But he has gotten decent returns net of fee, is pretty easy to get along with, has come to realize I usually (but not always,) am worth listening to, being very helpful in getting DH to accept and understand my plans or point out the error of my thought process before I bring it to DH for consideration. DH was raised to follow authority, and that alphabet soup after his name gives our FA that authority. Me, I was raised to challenge it. Talk about a cultural differences, even though we are both third generation American!

IP
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It may be that I just have to deal with the fact that the fee we pay gets us access to better funds,
No it doesn't. The only funds that I would consider to be this way are the DFA funds --- and only arguably those. He doesn't have access to funds that other FAs don't.

Maybe the best approach is to see if there is another FA at that company, one who does more than throw a formula at our total family of accounts,
There isn't. It is not possible that the company will let their FAs just go off and do their own thing. The company won't let any of their FAs deviate from the company guidelines. And for sure one of those required guidelines is "the formula".


What I really would love is a financial adviser who is the total package, understanding the need to balance returns with taxes, how to manipulate the accounts to provide the best of all worlds, how to position what we have now in it's current form for optimal retirement investing and spending.
I'm sure that FAs like this do exist. Bad news is, they are unavailable to accounts less than $50M-$10M or more.

Really, think about it. You are paying maybe 1.5%-2.0% annual fee. On a $1,000,000 account, that's $15,000 to $20,000. How much detailed personalized advice do you think you can get for what amounts to a starvation wage?

That's why the only advice you'll get is cookie-cutter advice.

he is the one with the alphabet soup of designations after his name, while I'm a simple at home mom....who knows how to read.

Which of you cares more about your financial situation, you or him?

Have you considered paying some FA $1000 for an hour or two of his time, and then tell him exactly what to say when you and DH go into a meeting with him?
That would be cheaper than paying him $15,000 per year to get the same cookie-cutter investment advice that you could get for free from Money Magazine, or the WSJ or the NYTimes or Vanguard.
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but until I see one who can show me the data saying they have exceeded Wellington net of fees for at least 5 year,

A bit of caution on such a claim.

It would be rather easy (for those with premium Morningstar access) to find an allocation or a fund that beat such net of fees. That does not necessarily mean that it is a good investment.

Even within Wellington's asset class, Morningstar has 25 other funds that beat it over the last five years.

Wellington is ranked #4 for the last 10 years though so no way to argue that it has not been a stellar performer.

Even though Wellington has done an outstanding job over the last 10 years, I do caution you on it in a rising interest rate environment. It does hold 1/3 of its assets in high quality, high duration bonds.

For every 1% increase in interest rates, the bond holdings in Wellington will lose 6% in value (Duration of 5.96 years). Additionally, the average price of their holdings is trading at over $104 - so even if they hold to maturity, those bonds are going to lose that $4 average premium in time.

Keep a close(r) eye on it in a moderately increasing interest rate environment.
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Really, think about it. You are paying maybe 1.5%-2.0% annual fee. On a $1,000,000 account, that's $15,000 to $20,000. How much detailed personalized advice do you think you can get for what amounts to a starvation wage?

That's why the only advice you'll get is cookie-cutter advice.


Well, maybe the kinda "advice" I am talking about should be cookie cutter. I recently stumbled over the fact that I can pay the FA's fee from taxable funds, which means that we could have painlessly increased our IRA holdings by 4% over the past 4 years, and potentially deducted the fees on our taxes as well. I think that should be a "generic" piece of info handed out to investors, particularly those in accumulation phase or those with lots of taxable funds. Very painless way to increase the Roth.

Or when I again asked for the taxable account to be managed in a tax controlled manner, don't automatically think annuities are the way to go. Instead, lets put our less tax friendly boldings in the IRAs, and keep the taxable account buy and hold, keeping the asset allocation the same when taking all the various accounts into consideration. And lets be age appropriate when investing my teen's Roth, not using the same asset allocation at the start of his savings that we are using at the end of ours.

Who knows what else I could be doing. I'm not asking for stock suggestion or anything that is specific to me. Someone who spends many hours a day dealing with people's accounts, someone who has that alphabet soup after his name, should know these industry tid bits that they can share.

IP
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No it doesn't. The only funds that I would consider to be this way are the DFA funds

Agreed for except institutional (or admiral) class shares.

There isn't. It is not possible that the company will let their FAs just go off and do their own thing. The company won't let any of their FAs deviate from the company guidelines. And for sure one of those required guidelines is "the formula".

Not quite.

They should have access to "the formula" options, as well as completely tailored options that they can create on their own - as long as they maintain suitability guidelines. For example, if someone wanted nothing but index funds in an actively managed account, or if they want to exlude all businesses that deal in firearms, or if they wanted to exlude a specific company, like Phillip Morris, that is something that can be accomplished. An investor cannot do that be telling the managers of Wellington to not buy Phillip Morris.

Really, think about it. You are paying maybe 1.5%-2.0% annual fee. On a $1,000,000 account, that's $15,000 to $20,000. How much detailed personalized advice do you think you can get for what amounts to a starvation wage?

Why is that a starvation wage? It is fair to assume that if that FA has 100 clients with $1 mil each, $150k to $200k in income (I think it would be less than that but still) is not starvation. It is very reasonable to expect the OP can find the total package for much less than that. That being stated, I don't believe someone would be making 2% on a $1 mil account - that is crazy expensive. 1% (or much less) would be more realistic.

Have you considered paying some FA $1000 for an hour or two of his time, and then tell him exactly what to say when you and DH go into a meeting with him?
That would be cheaper than paying him $15,000 per year to get the same cookie-cutter investment advice that you could get for free from Money Magazine, or the WSJ or the NYTimes or Vanguard.


Did I miss somewhere that the OP stated they were paying $15,000 a year in fees?

If that is indeed the case, find a much cheaper FA. Don't wait for another meeting.
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I think that should be a "generic" piece of info handed out to investors,

Absolutely correct.

Or when I again asked for the taxable account to be managed in a tax controlled manner, don't automatically think annuities are the way to go.

Also correct, I am sensing a theme here. :)

I think it is time you seek other advice - even if in the end you decide to do it on your own, it could not hurt to get a second opinion (perhaps at a small fee or even free).
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someone who has that alphabet soup after his name, should know these industry tid bits that they can share.

You know, this just reminds me of that old joke. Question - What do you call someone who graduates last in their class from medical school? Answer - Doctor.

Just because he has all those letters after his name does not mean that he's in the top echelon of similarly credentialed folks.
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Well, maybe the kinda "advice" I am talking about should be cookie cutter. I recently stumbled over the fact that I can pay the FA's fee from taxable funds, which means that we could have painlessly increased our IRA holdings by 4% over the past 4 years, and potentially deducted the fees on our taxes as well. I think that should be a "generic" piece of info handed out to investors, particularly those in accumulation phase or those with lots of taxable funds.

What does it tell you about him, that he *didn't* inform you of this?

Or when I again asked for the taxable account to be managed in a tax controlled manner, don't automatically think annuities are the way to go.
Are you saying that he suggested annuities? That's cookie-cutter advice that is usually *wrong*.

Instead, lets put our less tax friendly boldings in the IRAs, and keep the taxable account buy and hold, keeping the asset allocation the same when taking all the various accounts into consideration.
That's what just about every half-assed financial web posting says to do, as their #1 basic recommendation. This is even more basic that FA-101 -- it's more like the FA-050 level. It's telling that your FA didn't do this as a matter of course.


lets be age appropriate when investing my teen's Roth, not using the same asset allocation at the start of his savings that we are using at the end of ours

Everything you are describing says that your FA is marginally competent at best. I, however, would be unlikely to rate him that high, if a FA did all that to me.

Someone who spends many hours a day dealing with people's accounts, someone who has that alphabet soup after his name, should know these industry tid bits that they can share.
Yes, they should.

So why are you sticking with somebody who didn't?

Heck, I got all the advice your FA didn't tell you (including the bit about paying the fee with non-IRA money) from my guy at Fisher Investments, and Fisher only charges 1.25%.

Even 1.25% is more than you need to pay. All that advice and recommendations are widely available on the web for free. You just need to know where to start looking.

How much did you pay your FA the last couple of years? $8000? $15,000? How much of your own time would you consider to be worth $15,000?
If you value your time at $50/hr, then that's 300 hours you can devote to online reading & studying & education.
And I guarantee that you can learn 90% of what you need to know in less than 100 hours of reading on sites like http://www.early-retirement.org/forums/ and http://www.early-retirement.org/forums/f28/ and http://www.bogleheads.org/ and http://www.bogleheads.org/wiki/Main_Page and http://www.fundadvice.com/ and many many others.
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Why is that a starvation wage? It is fair to assume that if that FA has 100 clients with $1 mil each, $150k to $200k in income (I think it would be less than that but still) is not starvation. It is very reasonable to expect the OP can find the total package for much less than that. That being stated, I don't believe someone would be making 2% on a $1 mil account - that is crazy expensive. 1% (or much less) would be more realistic.

Your math is off. Either you meant 10 clients or you meant $1.5 to $2 million.

PSU
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If you value your time at $50/hr, then that's 300 hours you can devote to online reading & studying & education.

Well, if you work full-time, that would mean you have to devote almost one weekend day each week of the year.

PSU
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What does it tell you about him, that he *didn't* inform you of this?

That he is too busy picking up all his new and shiny credentials and taking advisory positions within the firm that are supposed to make us weak at the knees that he is our FA. Thus the question in my first post about where do I go to educate myself on taking over.

So why are you sticking with somebody who didn't?

Yes, it would be much easier to move on if his after fee rates of return were worse than the benchmark, instead of the more than 3% extra he got for us each of the past 2 years. And of course easier still if I had a clue about how to tone down my investment strategy, which again was the original question of this thread. Really don't know how it got so far out of line, other than that's what threads do. I would not have started this thread if I were not considering going elsewhere or taking over, but frankly, for the 2+ years we've been with him, his return has been good...better than we would get self-managing via Vanguard ETFs. It will be interesting to hear what the Vanguard FA has to say next week.

I pay 1%, which gives me access to institutional levels of funds at lower fees and zero loads. We also had a significant talk today, multiple talks in fact, and I suspect that things should improve going forward. He certainly is now aware that I expect more from him. I really don't want to have to break in another FA, nor thrilled at the idea of dealing with DH's micromanagement of something he knows so little about if I take the investing reigns back over. Some things are simply best avoided.

IP
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There is interest rate risk for sure - but if the bonds are held to maturity (and that is what I understand is their practice), there will be no principle loss -- only the loss of 1% return for the average 5.96 years - or less than $10 per bond.
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GWPotter: "There is interest rate risk for sure - but if the bonds are held to maturity (and that is what I understand is their practice), there will be no principle loss -- only the loss of 1% return for the average 5.96 years - or less than $10 per bond."

Unless the funds starts sufering a lot of redemptions, in which event it may need cash it obtains from selling bonds or after redeeming non-bond assets its bond allocation/balance is too high and the fund must rebalance by selling bonds.

Mutual funds with bonds can effectively be forced to sell bonds when they might otherwise prefer not to sell.

Regards, JAFO
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but if the bonds are held to maturity (and that is what I understand is their practice), there will be no principle loss -- only the loss of 1% return for the average 5.96 years - or less than $10 per bond.

There will be no principle loss if you assume they purchased the bonds at par, and not at a premium.

This fund has an annual turnover rate of 35%. I doubt that turnover occurs only with the stock but it is possible. Also, having viewed the prospectus, I don't see any language that suggests the managers have either a goal of holding to maturity or a restriction requiring such.

Perhaps I am misreading what you state about duration. To create a common reference point...

From the Wellington Prospectus:

Duration. A measure of the sensitivity of bond—and bond fund—prices to interest rate movements. For example, if a bond has a duration of two years, its price would fall by approximately 2% when interest rates rose by 1%. On the other hand, the bond’s price would rise by approximately 2% when interest rates fell by 1%.

So Wellington will lose 6% of bond value for every 1% increase in rates. Now if rates went up ONLY 1% over that six years, I would agree with you, no big deal. But if they go up 1% every year for the next six years...

I don't see the Fed letting that happen but I am still staying away from any bond exposure where the average duration is more than the yield. Not a fan of interest rate risk that is more than the total annual income. Just my personal position. The ave coupon is 3.97%.
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You know, this just reminds me of that old joke. Question - What do you call someone who graduates last in their class from medical school? Answer - Doctor.

Just because he has all those letters after his name does not mean that he's in the top echelon of similarly credentialed folks.


Worse than that. When it comes to financial advisors, the letters after their name don't mean $hit. Most of these folks would have been used car salesmen if they hadn't gone to college, but I would listen more to a used car salesman than to a financial advisor, which is to say that I wouldn't listen to either one.
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