Hello Everyone,
My father has just set up a trust for his 4 children to inherit from his estate. We are slowly moving assets into the trust. The account will eventually hold around $600,000 to $800,000. We need to begin to think about how to invest the money. My father likes Vanguard and we plan to open up a Vanguard Brokerage Account there. I would appreciate any ideas you have for choosing funds to invest in. My father is in assisted living and still going strong, so we are looking to invest over the next 5 to 10 years.
I am choosing the brokerage account because it allows us to invest in funds outside Vanguard. I really like FPA Crescent, FPACX, and want to hold it in the account. My father is very Vanguard-centric, but I hope to include a few funds from outside the company.
We do not want to invest the funds all at once, so I am really interested in your help with where to hold the money while we begin to dollar cost average into our selected funds. We do not need to invest for income and are hoping to grow the money over time. I am not sure about investing in bonds funds, especially in the current climate. I am a little worried about putting everything into stock funds having lived through the last financial disaster and the tech blow up.
Thanks so much for your help. I have already bought several funds for my own account from information learned by following David's excellent site.
This is what I have bought for my own account from reading information here: FPACX, PRWCX, FAIRX, FAAFX, ARTGX, MSMLX, and ARIVX. I also own Vanguard's Wellington, Primecap Odyssey, Special Health Care and Capital Opportunity in my own Roth IRA.
Kindest regards,
Comments
I understand completely about being careful about family dynamics with fund selection. I was asked to look at funds for the trust by by brother, who has POA over the account, because $400,000 of this money has been in 4 of my father's bank accounts for the last 3 years earning exactly nothing. We are selling our family home and cars and that money will soon enter the trust. We did try to have the bank invest the trust, however, they only take accounts of one million or more. So, this means we are pretty much on our own with the decisions. One reason I like FPACX is that is is very conservative and at the same time it does invest for future gains. I also like Wellington and Wellesley at Vanguard for this reason as well. Anything that is done will be done with the approval of my father and my brothers. We are not looking to shoot the lights out, but we do want to earn more than almost zero in a bank account. I will get agreement for anything that is invested.
Good luck, for sure!
Add: I also agree with davidmoran, below, re Vanguard (I also own no Vanguard, due to circumstances.) For one thing, I would keep it within a single company and very simple at first, allowing all of the other interested parties to become used to your dealings so as to build their comfort level. If it were me, I would make the actual Vanguard statement available to them monthly, perhaps with a short summary of things as you see them, and maybe a comment on what you plan to do next, if anything, depending upon the evolving circumstances. A critical key to sanity here is achieving buy-in and trust on their part, otherwise you will be driven totally nuts.
For the sake of comity among nations (putting on a therapy hat for a moment), I would not push the FPACX case but would simply stick with Vanguard. (This from someone who owns no Vanguard, being with other brokerages.) With Vang you can duplicate what you need for diversity without having to explain overmuch or be 'trusted' for your (manifestly capable) judgment. Go slowly into 65% div-paying US equity ETFs, large-cap and small, Vang or equivalent Vang funds; and 35% into div-paying international. No bonds for now, some further cash maybe. This way, when Fairholme and Matthew (say) go south, you will not have to defend.
Regarding Romick in particular, see the latest M* interview. With his kind of woeful thinking, you wonder why he bothers. And as for whether his contrariness and individualistic insights pay off (given his overcharging), downside protected against, tension balanced and all that, with everyone else supposedly deluded or much less prudent in these regards, well, just look at the last six and five years of his performance compared with MAPOX, JABAX, ICMBX, and GLRBX. (Those are the best of other options for your trust, but I would attempt to duplicate them too with something of Vanguard balanced, or a balanced Vang mix.)
And yes, send interval reports, which as noted can just be Vang statements with a note from you about your thinking or adherence to plan. Seeming autopilot is key, I suggest.
Vanguard's equity and balanced funds span a wide range of investment options. The index funds are the lowest cost out there, and the active funds are all generally well reviewed (particularly the ones managed by Wellington or Primecap). I think those funds should cover almost any investor's equity needs. (I also own funds like ARIVX and WAEMX, but I definitely wouldn't consider them necessary.)
On the bonds side, Vanguard is lacking a dedicated actively managed diversified bond fund comparable to the offerings from Pimco, Doubleline, Loomis Sayles, etc. This could be a weakness, depending on your view of the bond market situation.
Vanguard also does not have any "alternative" strategies other than the curiously bad Vanguard Market Neutral Fund VMNFX, but since successful alternative funds are relatively rare, this is not necessarily a problem.
To echo the other thoughts here, keep things simple when dealing with family members. Even putting everything in Wellington VWEXX or Wellesley VWIAX may not be a bad idea. If you want an non-Vanguard fund, make it something you really can't get at Vanguard like a diversified bond fund (from one of the big names). The problem with something like ARIVX is that you will look stupid when your "boutique" and "unique" fund is trailing Vanguard's index by 20% in a year like this.
Thank you for your suggestions. I plan on investing in Wellington and Wellesley and the Total Stock Market Index fund. I haven't decided, yet about the international portion of the trust. My family members already own several of these Vanguard funds in their personal accounts, so it should not cause too much concern to use them in the trust. I am glad you reinforced the idea of the time horizon. I need to keep that in mind when making choices.
Thank you for the suggestion to talk to the Vanguard Flagship Service. I am going to call them today and find out what they recommend.
Also, I plan to review the bond fund companies you suggested. I already own Doubleline DBLTX. I am considering bond funds at Eaton Vance, Loomis Sayles and Pimco. My guess is most of the equity portion of the trust will be invested in Vanguard funds and the bond portion will be invested outside of Vanguard. My big concern for the near future is the bond portion of the fund.
Thank you for your thoughtful help!
Since there are already various members of the family with Vanguard investments, you might mention that in your conversation to see if you might perhaps qualify for additional "breaks" or "services" for the new account if they consider the total of your family investments. Never hurts to ask.
I'd add a few suggestions.
1. Draft a simple investment policy statement for you and your siblings to build consensus around. You need to agree on what the goals are, and how much risk you are collectively willing to take to achieve them. Discuss whether you want to take a passive indexing approach, active management, or both. This discussion should also bring to the surface any serious divergences about what the risks are over the next 5-10 years.
2. rono always used to advise always us to be more conservative with other people's money. Since you will all in a sense be investing each other's money, you should all be using a more conservative approach than you use in your individual accounts.
3. With a group of four major stakeholders (possibly considering your father as a fifth one), I would underline claimui's suggestion of possibly starting with one fund like VWIAX or VWELX: be simpler with a group portfolio than with a portfolio for yourself
4. Draft a target allocation that directly embodies the goals in the investment policy statement.
5. Create a few sample portfolios using Vanguard funds that implement your target allocation, in ascending order of complexity from a single fund portfolio (e.g. Vanguard STAR) to a combined portfolio with an active sleeve and a passive sleeve.
6. Meet to discuss proposals as often as needed until you have consensus.
gfb
Correct. However and as you touch on in your first paragraph, a Flagship member gets 25 free trades per calendar year through Vanguard Brokerage. And, some fund families work very well in Vanguard's FundAccess program.
For example, if you are a Flagship member, you can use one of your 25 free trades to purchase PIMCO Income Instl symbol PIMIX. The minimum initial purchase amount is $25,000 ($1,000 for additional investments) which is considerably less for these institutional shares than on some other platforms. The ER is 0.61% and while PIMIX does carry a $35.00 transaction fee, again, as a Flagship member, that will be waived for 25 calendar year trades.
DoubleLine Total Return Fund CL I symbol DBLTX is a similar example. If purchased in an IRA, you can get Institutional shares with an initial minimum purchase of $5,000 ($1,000 for additional investments). The ER is 0.51% and again, the $35.00 transaction fee will be waived until you exceed 25 yearly trades.
https://personal.vanguard.com/us/funds/other
Mona