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Reply to @scott: Scott, I had considered mentioning Fairfax (like it but don't own it yet) in my post but didn't because of the dividend component. Same with Brookfield and Jardine. Leucadia as you say is a value play and I don't know that it fits with Dian's goals and objectives. I was basically shooting for something she might not have to worry a whole lot about.
The thing about Berkshire is that you get diversity all wrapped up in a single investment. Most at least half-interested investors know about Mr.'s Buffett and Munger and and at least some knowledge of what Berkshire Hathaway are all about. Warren has also been quoted as saying "Nobody ever got rich on their sixth best idea." Since Dian seems to have all the other bases comfortably covered.....
Reply to @Mark: I agree with you entirely. Berkshire is really a good idea in that realm for someone who does not want to monitor too much. I think some of the subsidiaries have become somewhat dated and Berkshire remains very US-centric in a very global economy, but I think I'm actually excited as to the transition as I'm curious as to the talent that will be assembled to run the company.
The options that I noted definitely do have some higher risk (Leucadia in particular, as well as Brookfield if there was another 2008), but were more trying to throw a few fairly similar offerings out.
Jardine does have risk foreign and otherwise, but has held up quite well over time and has been a reasonably stable way (obviously, past performance is no guarantee of future results) to invest in EM over recent months and longer term.
Loews (L) is another one (not the retail chain, but the conglomerate run by the Tisch family) that has not done well in recent years, but has an excellent track record over the very long term.
When you (or a fund) own a bond with a high coupon (e.g. one that pays 5% of face value when the going rate is 2%), the bond is priced above face value. As it gets closer to maturity, its price declines toward its face value.
M* would report 5% for the yield, while the SEC yield would approximate the yield to maturity, including the loss of principal. So over time, you can expect to get around 0.7% (2% on the interest, but the NAV will decline by 1.3% to net 0.7%).
Still, for people in a 25% or higher tax bracket, this beats what one would get in nearly all bank/credit union accounts. It has an added side benefit of reducing modified adjusted gross income (MAGI), which can affect things like whether you pay the 3.8% Medicare surtax (for $250K+ couples), whether exemptions are phased out, whether you qualify for Roths, etc. (Note, tax exempt income is included in MAGI for social security taxation purposes.)
I find that this fund will generally do a bit better than one can do with a cash account, so long as one is above the 15% tax bracket. So it can serve as a holding place while deciding what to do with cash.
Reply to @msf: Given current bond yields, if you are willing to forgo the safety of bank/money market accounts, I have a hard time recommending any short-term funds other than RPHYX, which is yielding 3.64% or so, with stable NAV. Even on an after-tax basis, that will still get you a lot higher yield than VMLUX and most other short-term bond funds. It looks like VMLUX holds investment grade munis so perhaps VMLUX is less risky than RPHYX, but I think that's debatable. Even if it were, I think the higher yield of RPHYX provides more than sufficient compensation for the added risk.
(I know you already know this info about RPHYX, so this is not directed at you specifically.)
Bull - thank you for sharing these funds with me. I am proud to say I do have many of them in our IRA Rollover account. I will look into those that I don't have. Hank - I will take it slow. And, yes, I definitely will stay within my comfort level - very good, sound advice. I am very pleased to have received the above information and will carefully study it. andrei - thank you for sharing these funds with me. They are funds I would not have learned about on my own. More studying ahead of me.
A ping from old joe got my attention on this. Dian, my first suggestion is that you scrupulously avoid the insurance salesman's efforts to meet with you. There is no question in my mind that he wants to sell you something you do not need. Unless your individual estates are valued at more than $5 million each, you can avoid this discussion. Yes, this will change in 2 years, but it will still most likely be in the $3 million to $4 milion range. And even if your estates exceed this, there are less costly ways to reduce your total estates.
The other option that will be suggested is some kind of annuity. Forget about all of them, except for no-load immediate annuities, but even this only if you are seeking more income. The banks push these a lot, as do folks like your insurance salesman. A recent Cerulli study found that so-call advisors in banks make annuities more than 40% of all their sales.
The REALLY important question, I think, is whether you should pay for advice. If you are comfortable doing this on your own, and want to take the time to watch the investments (and I mean REALLY watch), then perhaps you will be ok. But, despite the good suggestions offered by folks, things can change very quickly, as you know.
I suspect there could be a lot more than just investment decisions to be made here, Dian. Something like a large inheritance can be a blessing for you and others. But there are planning areas this may impact, such as estate planning, tax planning, charitable gifting, etc. For these reasons, I would consider finding a fee-only CFP. It may be that these other planning areas should be addressed first, ahead of making any investment decisions. Notice I said fee-only and NOT fee-based. There is a difference, in that fee-only means the advisor/planner does not receive commissions from investment sales, while fee-based most likely does. You will want to ask for a copy of their SEC registration document ADV 2, and possibly Part 1, too. Check out their company web site for more information. Ask for referrals from your CPA or your attorney (again, fee-only). Check out FPAnet.org for their planner search section. You can find pretty detailed information there.
With today's ability to work remotely with advisors, you should be able to find someone with whom you are comfortable. Some fee-only advisors are paid by retainer, a flat amount for one year. Others are paid as a percentage of assets managed, which can range from 0.5% to 1.5% on a million dollars. Competent advisors will consider your risk tolerance and lifetime income needs in helping to establish an overall allocation for your ENTIRE portfolio. It could be that you don't need to take much risk at all with these dollars. I would, however, end any conversation with anyone who offers investment suggestions before they have any idea of these two things. A good fee-only advisor will absolutely earn their fee. If you think they have not, you can fire them. At least you won't have bought some ghastly product that cost you a fortune and from which you cannot extricate yourself for many years.
The inheritance could be a wonderful opportunity for you. Just don't forget that the many salespersons and other wolves out there consider it a wonderful opportunity for themselves, too. If want to talk with me offline, I would be glad to suggest compenent fee-only advisors who may work in your geographic area. Go SLOWLY on this.
Thank you Old Joe and BobC! Yes, unfortunately the insurance salesman is still in the picture. My estate-trust attorney provided him the EIN last week and left a message for him to call me to sign the papers that will initiate the transfer of funds to me as trustee. He hasn't called me, and as soon as I complete this message I will try to reach him to ONLY sign the papers. My attorney told me he is planning on meeting with me and my husband RE: my distribution. Won't happen. He is so persistent. He had my uncle in many annuities and life insurance as you would expect. I would just sit back and observe the sales pitch but keep myself out of it. It wasn't my place - it wasn't my money. At one point when my uncle told him he could get a better policy with another company, this salesman brought in the 'top gun' to convince my uncle. Pressure - pressure! It worked. I will just have to be very, very firm with him.
RE: the bank. They have served me well in other areas, however, a former bank manager sat in on a meeting with a client and a former 'financial advisor' who was suggesting an annuity. The mgr. interrupted him and told him that was not an appropriate investment for this customer. Kudos to her! Staff has changed at my bank, and they say the new advisor won't push annuities. They want me to schedule a meeting and at least listen. Doubtful I will.
Thank you for clarifying fee only and fee based. Yes, I will ask my attorney if he would recommend a fee based CFP. I will also check out FPAnet.org. How would I talk with you offline?
In closing, the majority of our rollover IRA's/TSA-403b are invested where I have the option of 4.25% in their guaranteed account. Other options include TRP, VG, Fid - fine funds. I have a majority in the fixed fund and likely will transfer more into this fund now that I will have these additional monies without that guarantee. I have had a WellsTrade account that holds an IRA rollover for many years. It is not perfect but has served my needs. I am very pleased with the mix of funds. I manage it completely online and could do the same with these new monies once I determine a mix of funds/investments. The difference is now I need to be aware of tax liability.
Again, your efforts are very much appreciated. Thank you very much!
Several states still have estate taxes (or inheritance taxes) that kick in at $1M. For example, NYS's rises quickly to 16%. Ignore state taxes at one's peril.
Regarding seeking advice - I agree with you that planning comes first, before investing. If you don't know what you're investing for, or when you'll need what amounts of money, you're flying blind with the investing. It seems that most "advisors" focus on the investing without knowing the person (or even the whole portfolio); I've certainly found that to be the case with the friendly folks at (insert name of discount brokerage here) who seem eager to review your holdings, but not look at the big picture.
It seems to me that there are basically three ways that a service provider can get paid. If it's done "right", they should all come out to roughly the same amount of compensation - a fair amount of pay for good work. And they all create incentives that can distort the service: 1) Commission - encourages churning, using investments that pay higher commission rate (e.g. insurance) 2) Percentage of job (e.g. percentage of AUM for financial advisor) - encourages targeting higher return investments regardless of fit, controlling more assets even if they'd be better invested in something the advisor can't offer 3) Fee for service a - fixed amount for a deliverable, e.g. investment plan, a will, etc. - encourages short cuts, less time dedicated to doing complete job b - hourly rate - encourages padding time, scope of job
Nothing is perfect, and one needs to be prepared to push back. Also to look hard for someone who is genuinely interested in doing the best job, not making the most dollars.
Opps - sorry, BobC. I will ask my attorney to recommend a fee only - NOT fee based CFP. Typing faster than I'm thinking.
I called the insurance salesman for an appointment to sign the papers. He asked if I could meet Wednesday. I told him we didn't need a meeting - I only needed to sign the papers. He asked me if his company could help me. I said 'no'. I told him unlike my uncle I was making my own investment decisions and have for years. He asked me if I was unhappy with his company. I said 'no'. He asked if in the future he could help me. I said 'no' and thank you. Hope that's over. He is mailing me the papers to sign. Maybe this is finally the end of our 'financial' (or otherwise) relationship.
Reply to @Dian: All most interesting ... Same old saw: anywhere there's a buck to be had - or in this case a mil - plenty of eager hands grubbing for it. (-:
Fwiw, I have just done this very process with a sibling and a cousin, women in their late 60s, and after much investigation and soul-searching and analysis of risk and all else, they would up choosing among the four AOx ETFs according to horizon and gut feelings about volatility. These are nicely and broadly blended/balanced funds of funds, cheap, and the single-holding notion was most appealing. I would seriously look at them for a clear solution. AOA, AOR, AOM, and AOK hold just about everything with the bond proportion modulating I believe from ~20%, ~40%, ~60% to ~80% respectively. "Simpler is better" as both relatives put it. If there are downsides to these choices, I have not been able to figure out what they are.
Thank you, david. I feel very comfortable managing a basket of funds that meet my objective. It's either I identify and manage/rebalance, etc. these investments or I involve a fee only CFP. The insurance 'salesman' has been shown the exit; the bank 'financial advisor' won't be giving me his pitch.
I will review-check out your recommendations. Balanced is good, as is simple. Do these funds appear to you to be tax friendly? It looks like you did much research analyzing risk and more before coming to a decision. Thank you very much for taking the time to share your efforts with me.
Thanks hawley. I will print this article so I can read-study further. RE: the boat - advice too late, but thanks anyway. Just put $1200 into the boat because the ignition stuck and burned out the starter. My sister said the happiest day of her life was when they bought their boat - the next happiest day was - you guessed - when they sold it. And, there is no AAA to rescue you when you're alone on the lake. I think that's why strangers wave to you from their boats - so you'll remember them when they're stranded. LOL Thanks again for your efforts!
Comments
The thing about Berkshire is that you get diversity all wrapped up in a single investment. Most at least half-interested investors know about Mr.'s Buffett and Munger and and at least some knowledge of what Berkshire Hathaway are all about. Warren has also been quoted as saying "Nobody ever got rich on their sixth best idea." Since Dian seems to have all the other bases comfortably covered.....
The options that I noted definitely do have some higher risk (Leucadia in particular, as well as Brookfield if there was another 2008), but were more trying to throw a few fairly similar offerings out.
Jardine does have risk foreign and otherwise, but has held up quite well over time and has been a reasonably stable way (obviously, past performance is no guarantee of future results) to invest in EM over recent months and longer term.
Loews (L) is another one (not the retail chain, but the conglomerate run by the Tisch family) that has not done well in recent years, but has an excellent track record over the very long term.
Go by the SEC yield (I was sloppy in my post).
When you (or a fund) own a bond with a high coupon (e.g. one that pays 5% of face value when the going rate is 2%), the bond is priced above face value. As it gets closer to maturity, its price declines toward its face value.
M* would report 5% for the yield, while the SEC yield would approximate the yield to maturity, including the loss of principal. So over time, you can expect to get around 0.7% (2% on the interest, but the NAV will decline by 1.3% to net 0.7%).
Still, for people in a 25% or higher tax bracket, this beats what one would get in nearly all bank/credit union accounts. It has an added side benefit of reducing modified adjusted gross income (MAGI), which can affect things like whether you pay the 3.8% Medicare surtax (for $250K+ couples), whether exemptions are phased out, whether you qualify for Roths, etc. (Note, tax exempt income is included in MAGI for social security taxation purposes.)
I find that this fund will generally do a bit better than one can do with a cash account, so long as one is above the 15% tax bracket. So it can serve as a holding place while deciding what to do with cash.
(I know you already know this info about RPHYX, so this is not directed at you specifically.)
Hank - I will take it slow. And, yes, I definitely will stay within my comfort level - very good, sound advice. I am very pleased to have received the above information and will carefully study it.
andrei - thank you for sharing these funds with me. They are funds I would not have learned about on my own. More studying ahead of me.
The other option that will be suggested is some kind of annuity. Forget about all of them, except for no-load immediate annuities, but even this only if you are seeking more income. The banks push these a lot, as do folks like your insurance salesman. A recent Cerulli study found that so-call advisors in banks make annuities more than 40% of all their sales.
The REALLY important question, I think, is whether you should pay for advice. If you are comfortable doing this on your own, and want to take the time to watch the investments (and I mean REALLY watch), then perhaps you will be ok. But, despite the good suggestions offered by folks, things can change very quickly, as you know.
I suspect there could be a lot more than just investment decisions to be made here, Dian. Something like a large inheritance can be a blessing for you and others. But there are planning areas this may impact, such as estate planning, tax planning, charitable gifting, etc. For these reasons, I would consider finding a fee-only CFP. It may be that these other planning areas should be addressed first, ahead of making any investment decisions. Notice I said fee-only and NOT fee-based. There is a difference, in that fee-only means the advisor/planner does not receive commissions from investment sales, while fee-based most likely does. You will want to ask for a copy of their SEC registration document ADV 2, and possibly Part 1, too. Check out their company web site for more information. Ask for referrals from your CPA or your attorney (again, fee-only). Check out FPAnet.org for their planner search section. You can find pretty detailed information there.
With today's ability to work remotely with advisors, you should be able to find someone with whom you are comfortable. Some fee-only advisors are paid by retainer, a flat amount for one year. Others are paid as a percentage of assets managed, which can range from 0.5% to 1.5% on a million dollars. Competent advisors will consider your risk tolerance and lifetime income needs in helping to establish an overall allocation for your ENTIRE portfolio. It could be that you don't need to take much risk at all with these dollars. I would, however, end any conversation with anyone who offers investment suggestions before they have any idea of these two things. A good fee-only advisor will absolutely earn their fee. If you think they have not, you can fire them. At least you won't have bought some ghastly product that cost you a fortune and from which you cannot extricate yourself for many years.
The inheritance could be a wonderful opportunity for you. Just don't forget that the many salespersons and other wolves out there consider it a wonderful opportunity for themselves, too. If want to talk with me offline, I would be glad to suggest compenent fee-only advisors who may work in your geographic area. Go SLOWLY on this.
RE: the bank. They have served me well in other areas, however, a former bank manager sat in on a meeting with a client and a former 'financial advisor' who was suggesting an annuity. The mgr. interrupted him and told him that was not an appropriate investment for this customer. Kudos to her! Staff has changed at my bank, and they say the new advisor won't push annuities. They want me to schedule a meeting and at least listen. Doubtful I will.
Thank you for clarifying fee only and fee based. Yes, I will ask my attorney if he would recommend a fee based CFP. I will also check out FPAnet.org. How would I talk with you offline?
In closing, the majority of our rollover IRA's/TSA-403b are invested where I have the option of 4.25% in their guaranteed account. Other options include TRP, VG, Fid - fine funds. I have a majority in the fixed fund and likely will transfer more into this fund now that I will have these additional monies without that guarantee. I have had a WellsTrade account that holds an IRA rollover for many years. It is not perfect but has served my needs. I am very pleased with the mix of funds. I manage it completely online and could do the same with these new monies once I determine a mix of funds/investments. The difference is now I need to be aware of tax liability.
Again, your efforts are very much appreciated. Thank you very much!
Several states still have estate taxes (or inheritance taxes) that kick in at $1M. For example, NYS's rises quickly to 16%. Ignore state taxes at one's peril.
Regarding seeking advice - I agree with you that planning comes first, before investing. If you don't know what you're investing for, or when you'll need what amounts of money, you're flying blind with the investing. It seems that most "advisors" focus on the investing without knowing the person (or even the whole portfolio); I've certainly found that to be the case with the friendly folks at (insert name of discount brokerage here) who seem eager to review your holdings, but not look at the big picture.
It seems to me that there are basically three ways that a service provider can get paid. If it's done "right", they should all come out to roughly the same amount of compensation - a fair amount of pay for good work. And they all create incentives that can distort the service:
1) Commission - encourages churning, using investments that pay higher commission rate (e.g. insurance)
2) Percentage of job (e.g. percentage of AUM for financial advisor) - encourages targeting higher return investments regardless of fit, controlling more assets even if they'd be better invested in something the advisor can't offer
3) Fee for service
a - fixed amount for a deliverable, e.g. investment plan, a will, etc. - encourages short cuts, less time dedicated to doing complete job
b - hourly rate - encourages padding time, scope of job
Nothing is perfect, and one needs to be prepared to push back. Also to look hard for someone who is genuinely interested in doing the best job, not making the most dollars.
I called the insurance salesman for an appointment to sign the papers. He asked if I could meet Wednesday. I told him we didn't need a meeting - I only needed to sign the papers. He asked me if his company could help me. I said 'no'. I told him unlike my uncle I was making my own investment decisions and have for years. He asked me if I was unhappy with his company. I said 'no'. He asked if in the future he could help me. I said 'no' and thank you. Hope that's over. He is mailing me the papers to sign. Maybe this is finally the end of our 'financial' (or otherwise) relationship.
Thank you again.
Thank you, BobC. I will email you within the week. Your willingness to assist me is very much appreciated!
These are nicely and broadly blended/balanced funds of funds, cheap, and the single-holding notion was most appealing. I would seriously look at them for a clear solution. AOA, AOR, AOM, and AOK hold just about everything with the bond proportion modulating I believe from ~20%, ~40%, ~60% to ~80% respectively. "Simpler is better" as both relatives put it. If there are downsides to these choices, I have not been able to figure out what they are.
I will review-check out your recommendations. Balanced is good, as is simple. Do these funds appear to you to be tax friendly? It looks like you did much research analyzing risk and more before coming to a decision. Thank you very much for taking the time to share your efforts with me.
Regarding selection of a financial advisor, I have found the following article of interest:
http://www.ritholtz.com/blog/2012/07/checklist-of-errors/