| Paying for a professional manager - newbie question. |
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ifish4tuna
New Poster
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| Paying for a professional manager - newbie question. |
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Wow - just discovered the forum. What a bonus... I appreciate any advice that you can offer me on the issue/question below... I've provided a bit of history.
I'm in hightech industry and have about $57,000 in a 401K from a former employer. The funds are are being managed by Vanguard. Given my age, early 40's, and the relatively low overall 401K valuation, I have opted to leave it all in one fund. It's currently in the PRIMECAP fund.
Several months ago I met with a representative from New York Life to discuss financial planning. This was something I "won" at a silent auction for our school. At the time, I thought it would be good to hear someone's point of view. The planner suggested I roll my 401K from Vanguard over into New York Life to be managed by him. He is very persistant
So my question is is this really a smart move or should I simply leave it with Vanguard, and perhaps distribute the funds a bit more.
I'm somewhat apprehensive of paying management fees. Everything I've heard on the radio suggests avoiding it. I'm definitely concerned about simply being pressure sold by someone who knows more than me. I'm certainly no expert at this and I spend probably less time than I should exploring all my options.
I'm going to append the response I got from the planner here so you can form your own opinion. This was after telling him that I thought my Vanguard was peforming pretty well over the last few years.
Here is his advice :
I could give you 10 reasons why it makes sense to rollover assets from a
former employer. Here are a couple - Employer sponsored plans have limited distribution options (partial withdrawals) and typically do not allow
'stretch' distributions for Cindy over her life expectancy if you die (or
the kids and they would have to take distributions according to plan rules).
Also, the plan may limit the power of tax deferral for the beneficiaries.
Employer sponsored plan limit the selection of investments (in this case all
are index funds following segment benchmarks). The last one is - these plans do not offer the services of a financial professional (and this should not be underestimated). The benefits include assisting with asset allocation,
distribution planning & retirement income strategies.
From a performance aspect, Vanguard's overall numbers are ok not great. The Primecap (S&P 500 Index) returned 12.3%, MainStay (S&P 500 Index) returned 15.5% for comparison. Granted, across the board Vanguard's selling point is it's low cost basis which is a derivative of non-active account management, however strong performance will also overshadow the expense argument.
Most likely, you have 2 options - keep it as is or it rollover. Due to
participation issues, former non-active plans are not allowed to be moved
into your new JPMorgan/Ericsson plan.
My thought to discuss with you is to take an active role in structuring a
professional money manager approach which is usually reserved for
investments of $100,000 plus. Along this line, we can also talk about
applying some downside protection and taking advantage of periodic asset
rebalancing to stay on track. The last point is, there is no cost to
rollover the Enterasys plan.
I think this is the biggest take-away point : "Granted, across the board Vanguard's selling point is it's low cost basis which is a derivative of non-active account management, however strong performance will also overshadow the expense argument."
Do you think it is a good move to pay to have the $ managed?????
Thanks in advance, Ed
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Sun Jan 21, 2007 5:56 pm |
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oldguy
Senior Member
Cash: $ 751.85
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Location: arizona
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You dodged a bullet - that was a life insurance salesman, not a professional manager (thus the persistence). But the lesson is that no one cares for your investments like you do. You would have to learn a lot about investing to be able to know who is a trustworthy & good financial planner - and by that time, you won't need a financial planner.
Here's a couple general rules - avoid variable annuities. And avoid mixing life insurance and investing, they are very differenct products with very diffewrent goals.
Stick with Vanguard, they are one of the best. If you have a 401k from a previous job, it is usually best to roll it into a Traditional IRA where you have full control of the money. You will use that T IRA thru-out your career whenever you change jobs. Ultimately, when you retire, you will roll your last 401k into it.
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Sun Jan 21, 2007 11:43 pm |
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ifish4tuna
New Poster
Cash: $ 0.45
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Joined: 21 Jan 2007
Location: Maine
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quote:
Originally posted by oldguy
If you have a 401k from a previous job, it is usually best to roll it into a Traditional IRA where you have full control of the money. You will use that T IRA thru-out your career whenever you change jobs. Ultimately, when you retire, you will roll your last 401k into it.
Thanks - for the insight. Are you saying that if I roll it into a Traditional IRA I can choose what ever fund from whatever company I want? So for example, I could buy funds from Vanguard, as well as JPMorgan? Sorry if this is a stupid question. I have alway just dealt with the standard 401K offered by each company I have been at.
Lastly, how do you go about deciding what company to open the traditional IRA with? Would I just do that again with Vanguard? Sorry I'm a bit confused on this.
Thanks
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Mon Jan 22, 2007 3:37 pm |
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LottomagicZ4941
Senior Member
Cash: $ 1.66
Posts: 2633
Joined: 02 Dec 2004
Location: Earth
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quote:
Originally posted by ifish4tuna
quote:
Originally posted by oldguy
If you have a 401k from a previous job, it is usually best to roll it into a Traditional IRA where you have full control of the money. You will use that T IRA thru-out your career whenever you change jobs. Ultimately, when you retire, you will roll your last 401k into it.
Thanks - for the insight. Are you saying that if I roll it into a Traditional IRA I can choose what ever fund from whatever company I want? So for example, I could buy funds from Vanguard, as well as JPMorgan? Sorry if this is a stupid question. I have alway just dealt with the standard 401K offered by each company I have been at.
Lastly, how do you go about deciding what company to open the traditional IRA with? Would I just do that again with Vanguard? Sorry I'm a bit confused on this.
Thanks
Vangard is a good low fee mutual fund. You can pay more in loads if you want to pay more. I paid a tad more to go with T-Rowe Price.
Is it worth it for you to pay %5 of your money to unconfuse you? And there are companies who will take you for more then 5%.
The main reason I went with TRowe Price rater then vangard was that the asset class I wanted to go into with Vangard was closed.
So unless you want to go into something specific I would say stick with Vangard and stay where the fes are low.
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Tue Jan 23, 2007 6:07 pm |
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Nishima
Member
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Joined: 28 Nov 2006
Location: North Carolina
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My 401k is with Vanguard currently and they now offer a "managed account program" themselves. I signed up for it since I really had no clue what funds I should be in or not and did not want to be tempted to just sign up for the funds with the highest previous year's return or something. (aka rate chasing)
I have always liked them for their low fees. I did not want a personal financial advisor, as I've heard too many horror stories of them constantly making changes or pushing you to buy things to get themselves commissions. It's like a good mechanic...I would consider using one through personal reference but knowbody I know uses one.
They have a minimum balance of $10,000 to be eligible, which you obviously have. The charges are $15 per quarter for every $15000 you have in there. My current balace is around $45,000 so it costs me $45 per quarter for the benefit.
I figured somebody knowing more about it than me picking the funds would easily earn more than the 0.4% fee. So far, I have been pleased.
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Wed Jan 31, 2007 4:50 pm |
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