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I am new on Motley Fool and am not sure if this is the right post for my question.

My husband retired in 2005 and moved his 403B into an IRA with Merrill Edge. I retired in 2008 but left my 401K with my employer. In Jan. 2015 I was persuaded by Merrill Edge to move my 401K into an IRA with them, which I did.

In 2015 both our accounts were placed into a “moderately” conservative plan – 48% stock, 40% bond and 12% cash. Now, one year later the accounts show that my husband’s IRA (about $140K) lost $8,000 and mine (about $380K) lost $17,000 or more. Now is the time to review the accounts. I am not sure what to do. My husband with Alzheimer disease since 2009 is unable to even count numbers and is no help.

I was told that 2015 had not been a good year, but to continue with the same plan. Or, we could change the investments to 24% stock, 50% bond and am not sure about the rest. Another plan would be to place a large amount into a money market IRA until the market recovers – but how much? I frankly do not know what is best. My husband is 78 and I am 76. We live on our social security and my pension and don’t need our IRAs, but wish to be conservative because of his illness.

I understand that the decision to keep or change our account strategy is mine but would appreciate an opinion from anyone more informed than me. Thank you.
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Or, we could change the investments to 24% stock, 50% bond ...

Which is exactly what people do when they invest according to their fears. Being another example of the protypical naive investor who flails, panics, and fails.

As long as you are relatively uneducated about investing, the best thing to do is a balanced stock/bonds portfolio. Since you don't need the money, 80% VTI and 20% AGG. Rebalance once a year.

If you are too fearful of that, 60% VTI and 40% AGG. If *that* is too scary for you, do the original Scott Burns "couch potato portfolio". 50% in VTI (or SPY), 50% AGG. In all cases, rebalance once a year.


Oh. Abruptly changing from 48% stocks to 25% stocks is a guaranteed way to "lock in the loss". Don't do that. Any change you make which is driven by your fear is going to be the absolute wrong thing to do.

BTW, Merrill is okay, I have an IRA with them. Just don't listen to what they recommend you to do. 80/20 (or 60/40) is all you need to do.
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"In 2015 both our accounts were placed into a “moderately” conservative plan – 48% stock, 40% bond and 12% cash. Now, one year later the accounts show that my husband’s IRA (about $140K) lost $8,000 and mine (about $380K) lost $17,000 or more. Now is the time to review the accounts. I am not sure what to do. My husband with Alzheimer disease since 2009 is unable to even count numbers and is no help."

Careful now

Both of you are over 70 1/2 which means you must be taking money from your IRAs. Uncle Sam demands it. Once you turn 70 1/2 year year you must remove money from your IRA. You can do anything you want to at that point, but it is taxable income to you.

By the time you turn 77, Uncle Sam requires that you withdraw (The Required Minimum Withdrawal)......and pay income taxes (if any) on it....at 'regular income tax rates.....your balance in your IRA potentially is going down year after year if the stock market and bond interest is not sufficient to offset it!

At age 77 for your hubby and age 76 for you , the IRS has numbers

For age 76, they figure you'll live another 22 years. So you have to take 1/22 percent - or about 5% of your IRA balance at the end of the year, in the next year.

For age 77, they figure you'll last another 21 years....so you have to take 1/21.....or about 5% out of the IRA that year.

So...let us say you had half a million in an IRA. After age 70, you have to take money out. Starts at over 3% By 77, it is 5% or $25,000 a year.

If the stock market only went up a few percent last year, and your bonds only paid 2 or 3% interest....then......your balance will go down because you took money out

Now, you might have put that 'distribution' into a money market fund...and it is sitting there....or you might have spent it.

For a 140K fund, at 5%, that is....aha...about $8000 a year you have to take out.

For a 380K fund......you have to take about about a little under 20,000 bucks.

You have totally forgotten about the RMD - Required Minimum Distribution which will be taking out 5%..and increasing as you get older, each year.

When the stock market was going up 10% a year, you probably didn't notice it.....10% gain, 5% withdrawal......overall gain 5%.

But with low bond interest and a stagnant market...you are seeing it ...

Hope this helps


t.
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I'm sure you will get good information and advice from others here. I want to let you know that there is a board that people are using to share their experiences and information about dementia and ALZ.

http://boards.fool.com/Messages.asp?mid=32136096&bid=121...

Best wishes on your investing and dealing with your husband's ALZ.

PF
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Oh. Abruptly changing from 48% stocks to 25% stocks is a guaranteed way to "lock in the loss". Don't do that. Any change you make which is driven by your fear is going to be the absolute wrong thing to do.

I disagree here. The loss is already real, it just isn't 'realized.' If the poster is going to just move this money into an ETF, then the calculation has to be "is the ETF going to do as well or better than these individual stocks (which have gone down.)

Since I don't know what the stocks are (and probably wouldn't know if they are going to rebound smartly or not) it's impossible to say, but sitting in stocks which have gone down just because - and assuming they are going to go back up - isn't good advice. Sometimes stocks go down and stay down, even as other stocks are rising.

A more discriminating evaluation of the specifics is in order.
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Abruptly changing from 48% stocks to 25% stocks is a guaranteed way to "lock in the loss". Don't do that. Any change you make which is driven by your fear is going to be the absolute wrong thing to do.

I disagree here. The loss is already real, it just isn't 'realized.' If the poster is going to just move this money into an ETF, then the calculation has to be "is the ETF going to do as well or better than these individual stocks (which have gone down.)


But she asked about the idea of changing her asset allocation by cutting the stock allocation in half. What you said about selling or holding stocks that have gone down is correct, but has nothing to do with her question.

She didn't directly say what was held in the IRA with Merrill Edge, but I bet that it was ETFs and mutual funds and *not* individual stocks. Whenever I've had discussions with people at Merrill, Etrade, etc. thay always try to steer me to funds & ETFs.

UPDATE:
Being curious, I jus logged into my Merrill account and did some searching around. The OP said "our accounts were placed into a “moderately” conservative plan – 48% stock, 40% bond and 12% cash."

I found:
Merrill Edge® Select™ Portfolios
Consisting of 12–16 funds, each portfolio is constructed to meet its objective and risk profile, ranging from conservative to aggressive.
... diverse group of mutual funds and ETFs ... Variety of funds,
carefully selected...low-cost institutional funds not generally available to retail investors


One of these is labeled Moderately Conservative" currently at 40% equity, 50% fixed income, and 10% cash. This is undoubtedly what they put her into.

Interestingly, the one piece of information I couldn't find, even in the FAQ's, was what fees they charge. Although I did manage to find "The fee for a managed portfolio is normally a percentage of the value of your assets."

Ahhhhhh. Google is a wonderful thing. Merrill Edge® Select™ Portfolios have a 1% annual fee.

So.
I reiterate my original suggestions. Dump the managed portfolios, invest in VTI and AGG, with 80/20 or 60/40 or 50/50 allocation.
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Thank you for your analysis. You are correct, I did not think about the RMD for my husband. But, as for my 380K fund, the RMD was taken out in January 2015 before I moved it into Merrill Edge in Feb. 2015 – my company’s financial group said they had to do it before they could move the money to Merrill Edge. So my $17K loss did not have to include the RMD. I placed the RMD money in a Money Market as you said, and some portion in a savings account for fixing our roof. But I’ll keep the RMD funds in mind in the future, thanks.
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I have not looked at other boards, so did not know about the one above. Thank you for the link.
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To Rayvt
I read your answer carefully and will have to do more research because, as I said, I am totally uninformed. I do not know what VTI or SPY are as well as AGG (plus English is my 3rd language!) I guess stocks and bonds? Is this what I should tell Merrill Edge? I am a naïve investor but I am not panicked. Since my husband’s Alzheimer I want to make good decisions, and this is why I came to this board for opinions.
I read somewhere that one good investment is in the Inflation Protected Treasuries – whatever those are. What do you think of these?
I also guess that you think taking a large amount out and placing it in a money market IRA for a while until the market looks better is a bad idea?
I do appreciate yours and all the answers on this board. Thank you.
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No. of Recommendations: 31
VTI is Vanguard Total US Stock Market ETF
An alternative is VT -- Vanguard Total World Stock ETF

AGG is iShares Core US Aggregate Bond (total U.S. investment-grade bond market)
An alternative is BND -- Vanguard Total Bond Market ETF

VTI and VT is stocks. AGG and BND is bonds.

Now, there are a lot of equally valid alternatives to those, but everything is going to perform almost exactly the same, so there's not really any need to use anything other than VTI and AGG.

Inflation Protected Treasuries – whatever those are. What do you think of these?
Whenever you say "whatever that is" -- you should not put any money into it.

That's also known as "TIPS". Personally, I think they are boob-bait. Something that sounds good to naive investors.
Rule of thumb: something that sounds good to the naive is probably a BAD thing.

I've also heard TIPS categorized as "double-taxed Treasury bonds".


I also guess that you think taking a large amount out and placing it in a money market IRA for a while until the market looks better is a bad idea?
Yes. Bad idea. Bad idea unless you are a seasoned experienced investor who is doing a well-defined market timing gate. Which is not you.

BTW, since all your income needs are met with SS & pension, etc. you don't need to have any cash holdings in your IRA. Cash earns no interest. You don't need that anchor.


--------------------------
As far as your account at Merrill---I have a ML Edge self-directed account. No fees.
The Select Portfolio accounds have a 1% annual fee.
The AGG bond ETF has 2.27% annual yield -- typical of bond funds right now. The ML fee is 1%, so ML is taking HALF of your earnings. Are you okay with that?

You've got roughly $500,000 in the IRAs. Are you okay with paying $5000 a year? Each and every year?

I've given you advice which will will cost you $0 a year, and that portfolio will perform no differently than what ML's portfolo will. If you like, you can pay me a one-time fee of $2500. ;-)

At your ages you don't have much time for your portfolio to recover from a bad market, so I'd go with the "couch potato" allocation.
Half VTI and half AGG, rebalance once a year.

This is what Scott Burns advised many years ago. You can google him or google "couch potato portfolio". He got a partner later on and they went into business and came out with a slew of other strategies, but you can ignore all that. All you need is simple 50/50 VTI/AGG.

If Merrill gives you grief and tries to talk you into keeping their service, just call up Vanguard and tell them you want to transfer your IRAs from ML and invest them 50/50 VTI/BND. You'll be the 100'th caller that week wanting to do the exact same thing, so they'll know how to handle it.

Just don't give anybody a hint that you might be looking for advice. You'll get all sorts of advice that will cost you money. Be firm -- "VTI & BND, 50/50, that's it."
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To: Rayvt
I had no idea we were paying $5000 in fees. When I asked them about their fees last year I never got a straight answer.

I appreciate also your taking the time to explain to me all these abbreviations. I did Google the couch potato portfolio and saw that it performed very well. When you say ”Half VTI and half AGG, rebalance once a year.” What do you mean by rebalance? Will I have to refigure all this again next year? I am sorry to sound so dumb.

I did call Merrill Edge a couple of weeks ago saying I wanted to change my account to be more conservative, and the agent tried to sell me annuities, very forcibly. I had read a bit about them and did not like them at all, but he persisted, so I said to call me back as I had to think about it. So now I’ll know what to tell him and I greatly thank you for explaining all this to me.

I have one more question: I have been placing the MRD funds into two accounts. One with Merrill Edge which they call CMA Account that has about $6K for my husband and I, and the other is in our Credit Union savings account, for about $40K. I know that the savings account has barely any interest but I was keeping the cash to fix the house toward selling it – leak in the roof, interior and exterior painting, moving expenses, etc. Do you think I should keep that much in those 2 accounts and if not, where should I place the money? Thanks again for all your help.
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I have started looking at the Vanguard LifeStrategy Funds for a simple one-stop investment for a relative. Like the original poster, they don't want something complicated and don't want to spend much time learning.

A Vanguard LifeStrategy Fund is a fund-of-funds, so you only buy one fund. It comes in four risk flavors: income (20/80 stock/bond), conservative (40/60), moderate (60/40), and growth (80/20). It invests in four funds: Vanguard Total Stock, Vanguard Total International Stock, Vanguard Total Bond, and Vanguard Total International Bond. You could pick a risk level, buy this one fund, get global diversification, and go about your life.

https://investor.vanguard.com/mutual-funds/lifestrategy/

While buying 2,3 or 4 funds and rebalancing is not that complicated, one fund is even simpler. Given that it's a Vanguard product, I would expect the fees to be pretty low. Perhaps not as low as buying each fund separately but I haven't done the math.

What do you think about this product for someone like my relative?
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But she asked about the idea of changing her asset allocation by cutting the stock allocation in half. What you said about selling or holding stocks that have gone down is correct, but has nothing to do with her question.

Yes, your overall point is well taken (and your other advice about changing to Vanguard spot on), I was responding only to the narrow point about being afraid to change because some of the stocks (funds, whatever) have gone down. When they've gone down, they've gone down. The might come back, or they might not. The evaluation is what to do going forward, not what has already washed down the sink. That's all.

YOu are correct in the light of the poster's original idea (asset allocation).
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I had no idea we were paying $5000 in fees. When I asked them about their fees last year I never got a straight answer.
...
the agent tried to sell me annuities, very forcibly.


Gives you a clue, doesn't it?
Like seeing a guy with a tire-iron standing across the street from an ATM.

placing the MRD funds into two accounts. One with Merrill Edge which they call CMA Account that has about $6K for my husband and I, and the other is in our Credit Union savings account, for about $40K.

Nothing wrong with that, it's all fine. You can find online banks that pay 1% on savings, if you want to go through the hassle. Discover Bank, ALLY, Alliant CU, etc.

My CU pays 0.07% --- so I keep only $150 there and the rest in one of the above. Alliant is good, keep most of it in the savings account, when you want to write a check, logon and transfer (instantly) money from savings to checking, then write the check.
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My CU pays 0.07% --- so I keep only $150 there and the rest in one of the above. Alliant is good, keep most of it in the savings account, when you want to write a check, logon and transfer (instantly) money from savings to checking, then write the check.

My CU pays 1% on money market accounts.
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I had no idea we were paying $5000 in fees. When I asked them about their fees last year I never got a straight answer.

The fees are a huge concern.

My guess: it sounds like you have some sort of managed account that is charging you a fee as a percentage of assets. e.g. They charge you 1% of your account in fees a year. The fees are going to be a big problem for you since you are a conservative investor. A conservative portfolio like you are looking for is only going to earn you a median return of 4%-5% a year. However, a typical managed account is going to charge fee of 1% of assets,or more. So your 4-5% returns are going to be cut to 3-4% (or less). In other words you will be paying (in an average year) 22% of your earnings to your brokerage.

Now, technically, I agree with a lot of the other posters: a collection of ETFs is the best solution to set up a low fee way to invest your money. (I'd argue that you need more than just AGG and VTI, though. If you want to go that route, I'd advise mixing in VEA, VIG, and VNQ as well. Perhaps 20% VTI, 15% VEA, 15% VIG, 10% VNQ, 40% AGG.) If you are willing to learn just a little investing, this is a great approach to take. I am not detracting from this approach: it isn't very hard or time consuming.

But you explicitly state that you are an "uninformed investor", and that your husband is unable to help in managing your money for medical reasons. (Which leads to the question, "how can I set this up so that it requires literally zero maintenance in case something happens to me".

So let me give you a simpler option. Close the Merrill account, open up a Vanguard account, and put everything into the VTENX which is the "Target Retirement 2010" mutual fund (i.e. "I'm already retired"). This will give you a balanced portfolio "out of the box": 35% in bonds, 20% in stocks, 15% in international bonds, 15% in inflation-protected bonds, and 15% in international stocks. And the fund will automatically handle all of the re-balancing and other maintenance.

This approach has no upfront or annual fees and has a very low expense ratio. It has some very minor disadvantages compared with "do it yourself" but is completely drop dead simple and you'll never have to think about it again except to cash the dividend checks.

--CH

P.S.

To answer your question about re-balancing. Say you have $500,000. You follow the other post's advice and put 60% in VTI and 40% in AGG. So $300,000 in VTI and $200,000 in AGG. Now imagine that a year has gone by and it is March 2, 2017. Imagine that your VTI is up 10% and your AGG is flat. So now you have $330,000 in VTI, and $200,000 in AGG. (Now it now would be 62% VTI and 38% AGG.)

Re-balancing annually means that on March 2 every year, you would re-adjust your account back to your goal. So, in this case, you'd sell $12,000 VTI and put it into AGG to balance it out to 60/40 again. (318,000 and 212,000).
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spinning:
I have started looking at the Vanguard LifeStrategy Funds for a simple one-stop investment for a relative. ...While buying 2,3 or 4 funds and rebalancing is not that complicated, one fund is even simpler.

Me:
So let me give you a simpler option. Close the Merrill account, open up a Vanguard account, and put everything into the VTENX which is the "Target Retirement 2010" mutual fund (i.e. "I'm already retired").

Oops. Apologies to spinning who posted (more or less) the exact same suggestion before I did and somehow I didn't see it.

--CH
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to conehead

I am going to study your suggestion about a Vanguard account. I also read your second message and did not understand about “spinning”. I read his message but did not think it was sent to me, since at the end he asked “What do you think about this product for someone like my relative?” and I am not his relative, so I thought he had entered the wrong thread and disregarded what he had said. So now I am a bit confused.
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to conehead

my second message - I went back and read Spinning earlier message then clicked on his link. I understand now the Vanguard LifeStrategy fund, which is very simple – just one fund according to the risk. I also looked at the Target Retirement 2010 – which is more diversified – am not sure which is the best approach.
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so I thought he had entered the wrong thread and disregarded what he had said. So now I am a bit confused.

My interpretation was "I had a similar situation with a relative and this was what I was going to recommend, what do other posters think?".

Obviously I was a lot more long-winded in my post, and more definitive about the idea as a recommendation, but I wanted to give credit to spinning for being the first to bring up Vanguard's "All-in-one" products as an idea.

--CH
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Ahhhhhh. Google is a wonderful thing. Merrill Edge® Select™ Portfolios have a 1% annual fee.

Not sure if everyone understands that the account fee is on top of the fees from all the funds. I had a coworker that argued vehemently against that--his view was that he was paying the ~1% account fee, and that they would waive the fund fees because of the "volume discount" of having everyone where we work use that financial firm for our 401ks. I ended up putting half my money in a brokerage account within the 401k, so I can invest in anything (funds, stocks, bonds) except our company stock. The other half is in funds from the financial firm, but all that's self-directed so I don't have an account fee. I don't know if that coworker ever found out that he's paying 1% *plus* the funds' annual fees.
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am not sure which is the best approach.

Vanguard LifeStrategy fund.

That Target Retirement fund has risks and downsides that you do not recognize.
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To Rayvt

So now the choice is between Vanguard LifeStrategy fund and your earlier suggestion of Half VTI and half AGG, rebalance once a year, at Merrill Edge. Are they about the same, or is there a preference? I appreciate your input.
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my second message - I went back and read Spinning earlier message then clicked on his link. I understand now the Vanguard LifeStrategy fund, which is very simple – just one fund according to the risk. I also looked at the Target Retirement 2010 – which is more diversified – am not sure which is the best approach.

Let me start with the intent behind the different funds.

"Lifestyle" funds

Are designed for people who know how aggressive they want to be.

* Income is essentially the "I need predictable income. It doesn't matter if the income is much smaller as a result, I can't afford to lose money.".

* Growth is the "While I would like to avoid some of the wildest swings of the market, my primary goal is making the most money over the long term."

* Conservative Growth is in the middle (but closer to income).

* Moderate Growth is in the middle (but closer to growth).

You get the benefits of having Vanguard automatically determine the proper mix of international/domestic, stocks/bonds, etc. And you also get the benefit that Vanguard does all of the re-balancing.

"Target Retirement" funds

Target retirement funds are for people who want their funds to automatically get more conservative (i.e. more focused on income) as they get older.

So a target funds for 25+ years is super aggressive (even more aggressive than "Growth".

20 years is essentially the same as Growth.

10 years is close to "Moderate Growth"

0 years is close to "Conservative Growth"

Somewhere around -7 years (i.e. 7 years after the date on the fund) the fund will be very similar to Income and in fact Vanguard says it will likely merge the fund into Income.

There is (of course) no law that you have to buy a fund for the year you actually plan to retire. I'm considering buying into the 2040 fund, not because I plan on retiring in 2040, but because I'm likely to starting needing that particular batch of money in 2040.

The important point being, however, that Target Retirement funds are designed so that they start off as mostly stocks, but as you get closer and closer to the "target" date it gets more and more conservative.

So what do I recommend?

We've now transitioned from facts to opinions. And, frankly, we don't have a lot to go on as far as understanding your needs so my ability to actually make a recommendation is limited.

I picked 2015 for you in my original post because it wasn't too far from your original allocation: it is currently 50% stocks and 50% bonds. It's currently about half way between Moderate Growth and Conservative Growth. But it will get more conservative over time.

In retrospect, the moderate growth fund may actually be a better idea if you plan on using this money for income for a long time. Lifespans are getting longer and bond yields are getting lower: there's a lot of "risk" that you will outlive an income fund because the returns can be so low. My opinion is that even retirees should be majority stocks until you know that you need the money in the foreseeable future.

So my rules of thumb might be:

* If you expect to need all of this money (i.e. you will spend all of it: principal and income) in the next five years, buy Income.

* If you expect to deplete this fund in the next ten years, buy the 2015 fund. It will give you decent returns in the short term, but will get progressively more conservative as time goes by so you are protected from a big downturn.

* If you expect this fund to be "evergreen", providing income to you continuously, but something you never expect to spend the principal from, I'd lean towards the Moderate Growth.

Those are just rules of thumb, and there's lots of shades of grey in between them.

Back to facts for the summary

* Lifestyle funds stay at a constant rate of risk/reward.
* Target-date funds become progressively more conservative over time.
* Fees are bad. They are necessary, even Vanguard has fund expenses. But the lower the fees the better.
* Cash is bad. At least in the context of a long-term retirement fund. 12% cash is just stupid: money markets are paying essentially 0%.
* I didn't say this in my previous posts, but don't worry about the losses in 2015. Not only is it water over the bridge, but the markets just didn't pan out well over the last 12 months. Even conservative funds lost money. The problem isn't that your account was down, the problem is the high fees and the excessive cash.

--CH
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To answer your question about re-balancing...
Spot on.

But.

There's a good reason why Burns' couch potato portfolio is 50/50. Everybody knows how to look at the total portfolio value and divide by two. You can do it in your head. But figuring 60% and 40% is a lot harder conceptually if you don't already do it all the time.

I might be wrong, but I bet she had a "eyes glaze over" moment when she read your desciption.

You know how I divide by 5 in my head? First divide by 10 (= shift one decimal place) and then double. I've been doing math in my head for 40 years and it's *still* easier to halve or double a number than to do anything else -- like multiply by 60%.



If you want to go that route, I'd advise mixing in VEA, VIG, and VNQ as well. Perhaps 20% VTI, 15% VEA, 15% VIG, 10% VNQ, 40% AGG.)

Yeah, that's what I meant about a tweak here and a tweak there and pretty soon you are far away from "simple". Not that I disagree with you about it being a better approach, just that it's too complex for a newbie at her stage in life.

And good luck being a newboe and trying to rebalance a 20/15/15/10/40 portfolio. Hell, even I wouldn't attempt do do that except with an Excel spreadsheet.


"Target Retirement 2010" mutual fund (i.e. "I'm already retired"). This will give you a balanced portfolio "out of the box": 35% in bonds, 20% in stocks, 15% in international bonds, 15% in inflation-protected bonds, and 15% in international stocks

Terrible idea. This is one of those things where an innocent uninformed newbie looks at the 65% in bonds and thinks, "Wow, that will be really safe!"
And then when interest rates go up, they're all like, "Did anybody get the license plate of that bus that just ran me over?"
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3emeage, you have received some excellent answers to the question you posed. I agree with many of the points. My biggest concern is with the bigger picture. Many people, I would say the majority do not adequately consider the larger issues. IN many cases, these larger issues alter the optimal investment strategy. Here are a few questions that commonly need to be asked. They may or may not be pertinent to your particular situation, so you will have to decide that.

1) Do you and your husband have extended care insurance policies that will pay for nursing homes/extended care/Alzheimer’s units?


2) EXTREMELY IMPORTANT: What provisions do you have for someone to make financial decisions for your memory impaired husband, if you are not capable? Let’s say you pre-decease him and he is 100% in charge of making financial decisions? That is not a position you want a memory impaired person to be in, in particular with the large amount of assets. The best solution for this is a Living Trust, but it can also be done with durable power of attorneys.

3) Do you have any heirs that you want to plan to leave assets to? If not who gets the remaining assets when both of you are deceased? This could be a topic of a separate long post. For example, you might have one financially responsible child and one irresponsible child. Do you split the assets 50/50? Or what if you have a financially irresponsible son or daughter in law? They often times can influence a responsible son/daughter to make poor judgments. Grand children? Churches/synagogues? Other charities?

4) What other assets do you’ll own? How are they going to be dealt with? For example, one common problem is when a family owns a vacation house. Often times the heirs cannot agree on what to do, so this needs to be planned for in advance. Something like “If Suzy and Johnny cannot agree what to do with the Cape Cod vacation home, it shall be sold and the proceeds donated to charity.”


These points just touch the surface and are NOT a comprehensive list of issues you should address. I listed them just to illustrate the types of issues that need to be dealt with BEFORE determining an asset allocation.

My recommendation is that you use a “fee only” financial planner to ask and answer all of the larger issues. It should take a few hours of his/her time and they charge an hourly rate. In general it is money very well spent. You can find them in most major US cities. The end result will be a written plan and other supporting documents.

Hope this helps. If you have already done all of these steps, maybe it will benefit other Fools that have not gown down this path.


Good luck,

Yodaorange
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To Yodaorange

You make some very good points. We do not have extended care insurance policies. For now my plan is to take care of my husband myself and later on, if need be, pay someone to come and help. I read on nursing homes, and they start around $5K a month which would be too high for us. My husband is a veteran so next, I plan to go to the VA and see if they offer anything – although I don’t have much hope.

We are planning to move closer to one of our two daughters, in another state, later on this year. I am planning then to find and consult an attorney in that state. I’ll need durable power of attorneys and such as you mention, as the laws in our current state and future state are different. This is why I was trying to take care of these IRAs now, at least for a year or two, then see if any investment changes need to be made. Frankly I am a bit overwhelmed. My husband is in second stage Alzheimer and he cannot make any decisions.

The only other assets I own, apart from personal effects and valuables, is about 40,000 Euros in a French retirement account (being a dual citizen.)

I think a fee only financial planner will be a good idea, once we are moved, but I have so little time, taking care of my husband 24/7, by myself, clearing out 40 years of accumulation for the move, and not being able to leave him alone, I need to take care of the IRAs first. It would take a while to find a fee only financial planner in our area.
I really appreciate your input and am copying all the notes I received in a document so I can keep all the good information you all provided to me. For now, I need to go back and study how to change our IRA. Thanks again.
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There's a good reason why Burns' couch potato portfolio is 50/50. Everybody knows how to look at the total portfolio value and divide by two. You can do it in your head. But figuring 60% and 40% is a lot harder conceptually if you don't already do it all the time.

[In response to my idea of a basket of 5 ETFs.]

Yeah, that's what I meant about a tweak here and a tweak there and pretty soon you are far away from "simple". Not that I disagree with you about it being a better approach, just that it's too complex for a newbie at her stage in life.


So, first, let me start by saying that we are fundamentally in agreement. I wasn't really recommending the 5 ETF approach: my suggestion was the Vanguard funds. And I made that suggestion specifically for the reason you mention. While maintaining your own portfolio of periodically rebalanced ETFs isn't that hard, if you want something self-directed that is better than what you will get from a Vanguard all-in-one fund it will require enough "tweaks" that it does stop being simple. (That was arguably my point about the 5 ETFs.)

But my reaction to Couch Potato is somewhat along the same lines as what you pointed out about the Target 2010 fund: just because you are 50% bonds doesn't mean you are safe. Couch potato lost money in 2015 ( http://www.chron.com/business/burns/article/Couch-potato-inv... ). Burns even points out that the Vanguard Balanced fund did better than Couch Potato.

I would surmise the reasons Vanguard funds outperformed was the same reasons I suggested more than two funds: because they diversified outside the US, which gives you some currency protection as well.

So, if I were to make a chart it would look something like this:

Vanguard All-in-One Funds, Expected Results: Good*, Simplicity: Great
Self-directed ETF investing, Expected Results: Great, Simplicity: Moderate
Couch Potato: Expected Results: Moderate, Simplicity: Good

And from the chart, if you value simplicity the most then Vanguard is easier than Couch Potato and will likely have better returns over the long term than Couch Potato because it is better balanced. If you are looking to optimize returns as your biggest priority, then both All-in-One is better and self-directed is better and it just depends one whether you are willing to spend the time on a self-managed portfolio.

Again, I think we are in 95% agreement, I just don't think a self-directed approach is the way to go unless you are willing to invest the time to do it right. Otherwise, as you say, people can end up surprised at how volatile a 50% bond portfolio can be. There are better ways of reducing risk.

--CH

P.S.
*Why do I say Vanguard is moderate rather than great? You have less ability to create a mix that is tailored to you and there are several long-term tax disadvantages. It's also worth disclaiming that I'm obviously assuming an apples to apples comparison: a 50% bond Balanced fund from Vanguard. Moderate Growth would obviously have better long-term growth potential.

P.P.S.
I do think Couch Potato is intellectually interesting. It is better than what many people have, and yet very simple. It's perhaps most useful as a learning tool about how to manage and balance a portfolio. But when you look at the "next best alternative" it doesn't seem to really hold up.
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My husband is a veteran so next, I plan to go to the VA and see if they offer anything...

Is he already in the VA system? If not get that paperwork dance started as soon as today. That can be a long leadtime.
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I am not his relative, so I thought he had entered the wrong thread and disregarded what he had said. So now I am a bit confused.

From what I have read so far, the LifeStrategy funds would be a good choice for you as well. But I don't know the full details of your situation, so I hesitate to make a recommendation.
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I have read carefully all the answers I received. I am still wondering whether to stay with Merrill Edge and change our accounts from managed portfolios to VTI and AGG or to move to Vanguard Life Strategy Funds, but leaning on going with Vanguard.

Before starting the process I thought I would check on the web on Vanguard and was surprised to see so many complaints. It sounds like their customer service is pretty bad. The complaints are recent, for 2016. See “Consumer Affairs – reviews” https://www.consumeraffairs.com/automated-investment-service...

What do you think? Should these complaints be disregarded? From reading about brokerage firms on the web, it sounded like one of the best is called Scottrade.

Now I thought about another idea – what if I left half of our total amount in Merrill Edge and moved the other half of our funds to another brokerage firm like Vanguard or Scottrade or even USAA? Can this be done? Maybe too much trouble?
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Given your situation, I see no advantage to splitting the money up and many disadvantages. Better to pick a company you want to work with that has the products you want and just go for it. While I like USAA as a company in many respects, they don't really have a lot of their own products and I moved from there to Schwab a couple of years ago when I inherited the money which was in USAA. Schwab has a thing now called Intelligent Portfolios which are similar to the things which have been proposed to you so far in that they hold a small number of ETFs to suit a particular profile and automatically rebalance on some regular interval. That is about all I know about them since that doesn't fit my profile.

Given that you have lots going on at the moment, I would suggest picking some one of these without worrying too much about the specifics and thus take care of the immediate problem. Then deal with the VA, moving, etc., etc. When things have settled down, then you might look for a paid adviser and make any changes which come up. You might find one through an attorney since you are obviously going to need a good attorney to handle a number of issues.
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Before starting the process I thought I would check on the web on Vanguard and was surprised to see so many complaints. It sounds like their customer service is pretty bad. The complaints are recent, for 2016. See “Consumer Affairs – reviews” https://www.consumeraffairs.com/automated-investment-service......

No idea where you came up with that website, but according to them, it looks like you're out of luck no matter who you go with - If you go to their home page and put brokerage into their search engine, on the first page of results, there isn't a single one (Schwab, eTrade, Fidelity, Vanguard, Merrill Lynch, Edward Jones, Citi, etc.) that gets even 2 stars. Even Scottrade only gets about a 1.1 star rating on that site. Of course, none of them are paying the fee to become "Consumer Affairs accredited" either. And then when you look at the information about how the website handles their reviews, they 'moderate' the reviews - meaning that they only post the ones that they want to (i.e. the bad reviews).

If you really want to look at customer satisfaction, I would suggest using the JD Power survey results. JD Power is a pretty well respected analytics company that publishes customer satisfaction results every year. The survey results provide both good and bad ratings, based on survey results, not based just on reviews that they decide to count in their ratings. Here are the most recent results for "Finance - Self-Directed Investor Satisfaction" http://www.jdpower.com/ratings/study/Self-Directed-Investor-... Charles Schwab tops the Overall Satisfaction list, with a score of 5. Several, including Vanguard, Fidelity and Scottrade, get 4 in overall satisfaction, and Merrill Edge gets 2.

What do you think? Should these complaints be disregarded? From reading about brokerage firms on the web, it sounded like one of the best is called Scottrade.

Well, I would certainly disregard the site you found.

Now I thought about another idea – what if I left half of our total amount in Merrill Edge and moved the other half of our funds to another brokerage firm like Vanguard or Scottrade or even USAA? Can this be done? Maybe too much trouble?

Sure, it can be done. I have accounts at 7 or 8 different financial institutions. I know people who have accounts at more than that. It depends on how much time and effort you want to spend managing everything. Given what you've said, I think that keeping things simple is probably going to be the easiest for you, and that point toward having accounts at one brokerage.

AJ
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This is in an IRA, right? Lots of brokerages have bonuses right now where they'll give you up to $600 for moving an IRA to them. Yes, you can move part of your account to different brokers if you desire.

Vanguard and was surprised to see so many complaints
Disregard that.
Too many new-ish people don't quite know what they're doing and then complain. Back in the day BrownCo handled that by requiring 5 years investing experience to open an account.

From reading about brokerage firms on the web, it sounded like one of the best is called Scottrade.
B.S.
For some reason people -- particularly new-ish investors -- seem to fall in love with their broker. Seasoned investors generally don't care for hand-holding, and treat their broker for what they are --- somebody to execute their trades.

I've currently got accounts at 5 different brokers, for various reasons, and all of them are okay.

Look, don't overthink this. If you do what I recommended it's dead simple. Move your account(s) to Vanguard and put it all in the 60/40 Vanguard Life Strategy Fund. Done and done.
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to Rayvt

You are absolutely correct – I am over-thinking this. I’ll go ahead and move our two IRA accounts to Vanguard.

I have one more question, if I can trouble you one last time. We deposited my husband MRD (about $5K) in Merrill Edge in what they call “CMA” account (?) Can I move this also to Vanguard, may be into a money market account? Or should I just ask ME to send us the cash, then open a money market somewhere else with some additional funds from my savings account from my credit union? Or simply add the CMA funds to our savings account toward moving expenses?

Thanks again for taking the time to help me.
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We deposited my husband MRD (about $5K) in Merrill Edge in what they call “CMA” account (?) Can I move this also to Vanguard, may be into a money market account? Or should I just ask ME to send us the cash, then open a money market somewhere else with some additional funds from my savings account from my credit union? Or simply add the CMA funds to our savings account toward moving expenses?

Call Vanguard, ask them -- as part of moving your account(s).

I doubt $5K is a meaningful amount of money for you, so do whatever is most convenient.

My mom had her RMDs just rolled into another (taxable) account at her broker. Same funds, just in regular account instead of IRA. Lots of people do that when they don't actually need the RMD money. Vanguard will know how to do that because, well, because lots of people do that.

Simplify, Simplify, Simplify.

In your shoes, I'd probably just move everything to Vanguard and close out the ML accounts.
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