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I'm relatively new to the investment world, but I know enough to realize that my retired parents are getting raked over the coals with the 2 IRA mutual fund portfolios they hold with a brokerage center (Raymond James… not that it matters). Here's the problem I have with their portfolio, and the reason for my post: their money has been spread out over FIFTEEN different mutual funds… most of which are funds consisting of class “B” and class “C” shares. I'm talking about 5% front end loads, 1.75% expense ratios, deferred loads…. the works. I want to get them into 2 or 3 different index funds with Vanguard that have low operating expenses and no loads, and at the same time getting them to realize they don't need a broker to purchase mutual funds. They feel ashamed for being so naïve, but I have taken it upon myself to get them out of this quagmire. I know the kinds of funds I want to get them involved with, but here are my questions: should I advise them to transfer their money out of these ridiculous funds at all costs? Does the fact that they hold traditional IRAs present any problem when transferring? I realize I'm probably asking for simple answers to a complex problem, but I would be EXTREMELY grateful to any advice you could impart in helping my folks get out of this pickle.

Sincerely,

Travis M
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You can have as many IRA's as you want. My gut feel is
to setup one or more roll/over Ira's with a discount
online and/or discount broker. Move as many under -performing assets that qualify, to the roll/over IRA's and take over the investing in the accounts youself. Use the 'Fools' strategies to get you on the right track. Good Luck! - - Matthew
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Well TMac71 this isn't going to be simple but lets see if we can at least get something here. No transferring your folks money is as easy as contacting Vangard and asking them for an IRA rollover. They will lead you through the process. Its pretty simple. Now as to your taking out from the funds now owned there are many questions to answer, (hopefully someone else will jump in here to help) (PIXY?) If some of the funds have deferred loads you will have to look at them to see how long each one has to go before they can get out with out paying the load, if some should be only a resonable time and are doing ok then you might want to leave them until you can get out with out paying the load. Also do they need income from these investments? How are the funds performing?Any that is performing well you might want to consider leaving there. B andC shares don't usually have front end loads, A shares do have front end loads. B and C shares usually have large expences. You have your work cut out for you and if you have a family member or trusted friend you could sit down with that would be a big help. Take your time and look at each fund. If any have 12B fees (a fee paid to them to use for their marketing)are the most orneous are in my opinion and i would start with them. You do not have to rollover all funds at the same time so maybe you could take a few at a time so not to get over whelmed. I couldn't cover every thing , but i am sure the other nice folks on this board will come to your aid. If I have other thoughts i will post them. I wish you the best and post again with any questions. Regards Mepiper
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You might also look at http://www.personalfund.com Tobias mutual fund calculator. This site asks for your predictions of the growth rate of a fund you have and a fund you're considering using instead. Then it will compute the results both if you switch and if you don't. This shows you whether you'll earn back the costs of switching and, if so, how long it will take.

I wish you the very best in helping your parents get away from the brokers.

Regards,

Chips, who'd be much better off today but for listening to brokers
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Thanks a million for your response... I do have a question regarding one of your suggestions:
<<If some of the funds have deferred loads you will have to look at them to see how long each one has to go before they can get out with out paying the load, if some should be only a resonable time and are doing ok then you might want to leave them until you can get out with out paying the load.>>
I know for a fact that almost half of them have deferred loads, but how would I find out the timeframe as to when they can get out without paying the load? Contacting the broker is probably the obvious answer. I was just wondering if there was a general timeframe. They've held the funds for approximately 3 and a half years.
From what research I've done, I think the proper portolio mix for people their age (59 and 52) should be approximately 60% stocks/40% bonds. Which scenario would be more advantageous: putting their money into a fund (the Vanguard Balanced Index, for example), which reflects that 60/40 mix, or putting 60% of their money into a pure stock fund, and 40% of their money into a pure bond fund (assuming, of course, that expense fees are all relative). Thanks again for everything...

Travis
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From what research I've done, I think the proper portolio mix for people their age (59 and 52) should be
approximately 60% stocks/40% bonds. Which scenario would be more advantageous: putting their money into a fund
(the Vanguard Balanced Index, for example), which reflects that 60/40 mix, or putting 60% of their money into a pure
stock fund, and 40% of their money into a pure bond fund (assuming, of course, that expense fees are all relative).
Thanks again for everything...


Assusming they are not retired they need no bonds.

When retired have three to five years of living expenses in cash and fixed income securities.

Your idea of a couple of index funds is good. Maybe move a little now and a little latter to make it easier on your parents.
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TRAVIS, To check time frame on the funds you can ---look in the prospectus or call the broker. Do not let the broker intimidate you, they are big talkers. I believe most deferred loads exspire after 5 yrs. however not positive. As far as the diversification goes that is such an individual decision, depending on when do they intend to retire, how they feel about risk, and will they need this money for income right after retirement, and do they have 3 to 6 months emergency fund. You should ( depending on how much they have) think about S &P 5oo index, extended markets index, Janus has a good balanced fund,maybe about 5% in a small growth fund.and about !0% in a international fund. ALL NO LOAD and avoid 12 b fees if at all possible. You can get all of fund info. on Moringstar.com, Quicken.com has good info. on funds and i am sure there there are many more. I hope this helps, if you have mor questions feel free to ask and i'll be happy to try to help. Good Luck P.S. VANGuARD is good for index funds MEPIPER
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Travis,

Your parents are lucky to have you help them. We had a broker who put us in investments remarkably similar to what your parents have. It took several years to learn, then we finally got the courage to control our own investments without such "help". (We started learning after age 62 when we were retired)

A suggestion - try to teach your parents, if they are at all interested, as you help them. Let them know that it is not as hard as it seems and professionals make you believe. It is a wonderful feeling to be in control.

About looking out for 12B-1 fees. An example: we had money in Putnam Diversified Equities with a back end load that decreased gradually until there was none after six or eight years (I think). When we saw that the 12B-1 fees were so large that if we transferred the fund to another low fee higher performance Vanguard Index fund immediately, it would be a wash - the penalty or back end load amounted to about what we'd pay in 12B-1 fees if left in for the required years. Not only that - the 12B-1 fees go on forever. They are insidious. So we bit the bullet, paid the load and are now in a higher performing Index 500 fund with low fees and NO 12B-1 fee.

Good luck. Hopefully your parents will want to learn how to manage their own investments. If not, they are very lucky to have you.

Charlotte
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my questions: should I advise them to transfer their money out of these ridiculous funds at all costs? Does the fact that they hold traditional IRAs present any problem when transferring? I realize I'm probably asking for simple answers to a complex problem, but I would be EXTREMELY grateful to any advice you could impart in helping my folks get out of this pickle.

Travis,
Tranfer them out ASAP at all costs. No problem with traditional or rollover IRAs, just don't mix them. Unfortunately you'll have to go through the process 15 times, but you are on the right track.

Ron W.
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<Tranfer them out ASAP at all costs. No problem with traditional or rollover IRAs, just don't mix them. Unfortunately you'll have to go through the process 15 times, but you are on the right track>

I agree with you and most of the other posters. The parents have really gotten hammered here. If they bought the "A" funds, they got hit with a hefty front end load, high annual management fees and probably a 12b-1 fee. If they bought the "B" funds they avoided the front loads, but got clobbered even harder with MUCH higher annual management fees and higher 12b-1 fees as well as a reducing back end fee.

The pattern ends up with the investor in last place. The order of finish in this race is:

1. The Fund. They collect all the fees.
2. The brokerage firm. The "loads" go back to them for "finding" the investor.
3. The broker. They collect incentives by "providing" the investor.
4. The investor. Provides 100% of the money and risk. They are the last one in the chain to get paid.

Note that even in a year where the fund loses money for the investor, #1, 2 & 3 still collect ALL of their fees.

Take the time to go through the prospectus of the Vanguard funds you were talking of switching to. Then compare the numbers in the prospectus from the current funds your parents have. I think it will open your eyes! Good luck!!!

BRG
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