Got a phone call from the investment advisor at Schwab assigned to my account. I usually ignore the calls from Schwab, but was bored so I took it. He wanted to “review my accounts” with me, and then suggested a strategy “to save on taxes”.
My long standing strategy is to do nothing, which results in no capital gains taxes. All my holdings (in taxable accounts) with Schwab are S&P500 index funds. I do have some individual stocks in the IRA accounts.
His recommendation was that I sell the index funds and replace them with a basket of individual stocks that would mimic the index fund. This, he explained, would allow me to sell losers each year to generate a capital loss which I could use to offset gains. He rattled off lots of numbers to show me how much I would have saved in years past if I had sold hypothetical amounts under this strategy.
He didn’t mention the capital gains taxes I would incur today by selling the index funds in the first place. He also had no comment when I asked how this new collection of equities would perform as well as the index fund, when the index fund had a management fee of 0.02% vs. the new fee of 0.40% that would apply to the new basket.
He also didn’t seem to understand that I would already be in a 0% long term capital gains tax bracket until I exceeded $127,000 in gains.
The kicker came when he suggested I also apply this strategy to my 92 year old mother’s account. That account already has enough cash/money market in it to fund the rest of her days. I couldn’t understand why I would want to voluntarily trigger capital gains taxes on her equities.
Yeah, he was looking out for me, no doubt. /sarcasm
I have just been through this with a certified financial planner. He wants abt $150K per year to manage my assets. Says CFPs who work by the hour are usually inexperienced beginners. The good ones can make much better money managing assets.
He says CFPs are better than CPAs. Many CPAs lack training. Focus mostly on taxes and are rarely forward thinking.
Attorneys are mostly into the doing the legal documents. Your team needs to include all three.
Sounds like you’ve bought into his sales pitch. How many clients does he have? At $150k/year, I would expect that I would be one of, very few clients, and would get at least 5 hours a week from him. Even then, you’re paying him nearly $600/hour.
For $150k a year, if the portfolio is worth $15M if he’s charging a “reasonable” 1%, or if it’s worth $7.5M if he’s ripping you off by charging 2%. For the vast majority of cases, neither one is “worth it”. Let’s say he’s only (“only”) charging 1%, and let’s say you are retiring on that $15M and intend to withdraw about 3% each year for the next 40-50 years (for your remaining lifespan, followed by your heirs withdrawing it over the next 10-year period). From a $15M portfolio, you will withdraw 3% annually (inflation adjusted), that’s comes to about $450,000 a year. Out of that $450,000, you will be paying some taxes, probably somewhere between 15% and 25% net, maybe low 30s if you live in a high tax state. And then you will be paying ALMOST ONE THIRD of your entire income to this money manager! Between the money manager and the government, they will consume close to two thirds of your income leaving only one third for you to spend. Do you think any money manager should get a third of your income?
The odds are so much better that if you just put it all into good widely diversified index funds, you will do as good, or very likely better, than the money manager, AND you will have all the income it produces (all the dividends, plus selling a few shares of the index funds periodically as necessary over the years) for your own spending. And it probably might even end up being somewhat more tax efficient. Or you can spend a few hours leaning how to make it a little more tax efficient, or you can simply ignore tax efficiency and STILL have more money to spend, and very likely better growth as well.
There’s a general rule in the world. Any service provider that spends even a fraction of a second badmouthing the competition, any kind of competition, and any kind of badmouthing, is not the one to use. You want to find a service provider that extols their own service, and is willing to back it up by allowing you to see satisfied customers and their results. So, if you have your heart set on using a money manager, find another one.
Since @pauleckler started looking for ways to avoid estate taxes (current limit ~$14MM for a single) after the big run-up in Nvidia, my guess is that his portfolio is a lot closer to the $15MM mark. In which case, it’s 1% a year.
To you … and to me … and to @aj485 perhaps. But in the industry, charging 1% is not considered to be ridiculous at all, in fact 1% is typical. Even 2% fees exist, and in the industry, 2% is still south of “ridiculous”.
If the portfolio were $1B and someone offered to manage it for a mere $150k a year, then that person would run away even faster than if it were a $15M portfolio!
To put some relevant context on this, Bezos has a “family office” (Bezos Expeditions - Wikipedia) with over 150 employees. No idea what percentage that works out to but it is certainly a large nominal amount.
Hawkwin
The richer one is, the higher the value one is likely to assign to what little time we all have left on this earth.
Yes, we are talking significant estate tax liability. The reason for talking to many looking to find the right team. I think I know what I need to do. He is putting together a proposal.
This is mostly abt Nvida. I bought in in 2016 and it is up like a sky rocket. Over 1000 fold. And now I have an estate tax problem to deal with. I’ve posted abt it several times and appreciate advice received on TMF.
Would 150,000 be enough to fund a “family office”?
Would an (good) analyst work for a paltry 150k/yr, contractor with “no benefits”?
I met a guy 15 years ago, claimed he was centimillionaire n had a “team” managing his wealth.
I got the impression he meant 5 or so people: 2 or 3 analysts n some back office people.
At 4% swr, 15M generates 600,000/YT. Pretax.
100M generates 4M.
How much loot ya gotta have to make a family office worth it?
ralph
A wealthy friend hires a weekly cleaning person.
She says that is the best gift she’s ever given herself.
No idea, I have not yet achieved that level (and have no plans or desire to). In the words of Bogle, I have “Enough.” I am only still working this very minute because my wife has threatened to divorce me if I retire before her and we still have a kid going off to college next year.
Exactly.
Hawkwin
Has a biweekly cleaning service - at the behest of his wife.
Why? Is she afraid of running out of money? Or she’s at home, and doesn’t want you under-foot (assuming she works from home, since she apparently has an external job)?
I know retirement isn’t for everyone. If you truly love what you do, and want to keep doing it…great! Have at it. It’s what makes you happy.
I don’t regret retiring early for one second. Yeah, the medical stuff is a pain for another 2.5 years (until I qualify for Medicare), but I wouldn’t trade the experiences of the last three years for anything. And I couldn’t have done most of that if I still had to go to an office.
