Read on Twitter
I think that Vanguard’s Advisors Alpha has meaningfully overstated the stated value.
However, here are some thoughts on value that advisors can/do provide starting from a baseline of a 100% allocation to a target date fund:
However, here are some thoughts on value that advisors can/do provide starting from a baseline of a 100% allocation to a target date fund:
1/ customizing an asset allocation on an individualized basis.
Some examples: TDF makes assumptions about savings rates, retirement dates and ignores other sources of income (pensions, business sales, etc).
Some examples: TDF makes assumptions about savings rates, retirement dates and ignores other sources of income (pensions, business sales, etc).
2/ Customizing withdrawal rates
TDF & 4% rule don’t mix. Most TDF have 70% bonds from age 70+. The 4% rule assumes constant 50% bonds. This simple diff gives very diff in withdrawal rate.
This is just the start of customizing withdrawals for client to max their withdrawals.
TDF & 4% rule don’t mix. Most TDF have 70% bonds from age 70+. The 4% rule assumes constant 50% bonds. This simple diff gives very diff in withdrawal rate.
This is just the start of customizing withdrawals for client to max their withdrawals.
3/ Can do some portfolio construction to improve withdrawals.
Can add low volume stocks and decrease bonds, decrease bonds and increase other diversified, intelligently add leverage. All have been shown to improve withdrawal rates and don’t require cross sectional mispricing.
Can add low volume stocks and decrease bonds, decrease bonds and increase other diversified, intelligently add leverage. All have been shown to improve withdrawal rates and don’t require cross sectional mispricing.
4/ Tax location optimization.
This can range from simple rules of thumb to very complex (build in timeline from plan, lifetime tax expectation, future tax rates, etc)
This can range from simple rules of thumb to very complex (build in timeline from plan, lifetime tax expectation, future tax rates, etc)
5/ Tax efficient withdrawals
Creating a plan on determine what, when and how much to withdrawal from accounts of different tax type can be incredibly valuable but dependent on each clients situation.
Creating a plan on determine what, when and how much to withdrawal from accounts of different tax type can be incredibly valuable but dependent on each clients situation.
6/ Tax Efficient Savings Plan
Helping to create a customized waterfall of savings strategy based on tax and account type can be very valuable and helps feed value created by tax efficient withdrawal type.
Helping to create a customized waterfall of savings strategy based on tax and account type can be very valuable and helps feed value created by tax efficient withdrawal type.
7/ Long Term Tax Planning
Identifying client based tax epochs is important but understanding how to prioritize and fill (or empty) tax brackets is very valuable.
Eg - is it more valuable long-term to recognize income via 0% capital gains or to do Roth conversions?
Identifying client based tax epochs is important but understanding how to prioritize and fill (or empty) tax brackets is very valuable.
Eg - is it more valuable long-term to recognize income via 0% capital gains or to do Roth conversions?
8/ Estate Tax Planning
This alone (for the clients for whom it is applicable) May be the single highest value producing strategy.
However, even for clients that are not subject to estate tax, understanding how and when to gift to family members can be valuable.
This alone (for the clients for whom it is applicable) May be the single highest value producing strategy.
However, even for clients that are not subject to estate tax, understanding how and when to gift to family members can be valuable.
9/ Charitable Giving Planning
The simple analysis of gifting appreciated securities, bunching (and how to utilize the bunching...maybe time to clean out an IRA to allow back door Roth) and QCD I have found to be incredibly valuable.
The simple analysis of gifting appreciated securities, bunching (and how to utilize the bunching...maybe time to clean out an IRA to allow back door Roth) and QCD I have found to be incredibly valuable.
10/ Estate Documents
Helping clients get, understand and the implement their estate documents is vitally important and often overlooked.
Often a client has said “yes, I have estate documents” only to find out that they are old, don’t work or have wrong key people.
Helping clients get, understand and the implement their estate documents is vitally important and often overlooked.
Often a client has said “yes, I have estate documents” only to find out that they are old, don’t work or have wrong key people.
11/ Insurance Need Analysis
Everyone should understand their insurance need and have proper insurance in place (life, disability, homeowners, vehicle, umbrella).
Get correct terms, amounts, etc. and make sure they are properly priced.
Everyone should understand their insurance need and have proper insurance in place (life, disability, homeowners, vehicle, umbrella).
Get correct terms, amounts, etc. and make sure they are properly priced.
Fin/ A PORTFOLIO IS NOT A PLAN
Clearly it is a part of the plan (and should be the result of a plan), but there is so much that someone needs to address, understand how they fit together and interact. This is what an advisor should be addressing!
Clearly it is a part of the plan (and should be the result of a plan), but there is so much that someone needs to address, understand how they fit together and interact. This is what an advisor should be addressing!
