why would a fiduciary advisor recommend 60/40 in every account? (no tax location)
- Raspberry-503
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why would a fiduciary advisor recommend 60/40 in every account? (no tax location)
I'm no longer with the advisor so I can't ask them
But something that I don't get is that they insisted the "right" way to set up my accounts was to have each account in a 60/40 AA, regardless of taxable/non-taxable. At the time I sort of asked why they wouldn't practice "tax location" and they told me they did because the bonds in taxable were tax-efficient (munis and passive ETFs). I wasn't quite savvy enough at the time to realize this was not really an answer.
I can see how having ONLY stocks in your taxable could be a problem: unless you have a well-stocked emergency fund, any sudden need of cash in a downmarket would prompt you to sell stocks when they're low, so instead have a cushion of tax-efficient bonds (e.g. munis) or just build an EF
I've always assumed the reason was that their computer model couldn't look at multiple accounts, including some they don't manage, so they maintain the AA in each individual account. What other reasons might you not want to follow the principles in https://www.bogleheads.org/wiki/Tax-eff ... _placement
If it matters, I'm towards the top of the high 22% tax bracket and investment accounts total in the low 7 figures roughly 50% in rollover IRA, 20% in 401(k) and 30% in taxable
But something that I don't get is that they insisted the "right" way to set up my accounts was to have each account in a 60/40 AA, regardless of taxable/non-taxable. At the time I sort of asked why they wouldn't practice "tax location" and they told me they did because the bonds in taxable were tax-efficient (munis and passive ETFs). I wasn't quite savvy enough at the time to realize this was not really an answer.
I can see how having ONLY stocks in your taxable could be a problem: unless you have a well-stocked emergency fund, any sudden need of cash in a downmarket would prompt you to sell stocks when they're low, so instead have a cushion of tax-efficient bonds (e.g. munis) or just build an EF
I've always assumed the reason was that their computer model couldn't look at multiple accounts, including some they don't manage, so they maintain the AA in each individual account. What other reasons might you not want to follow the principles in https://www.bogleheads.org/wiki/Tax-eff ... _placement
If it matters, I'm towards the top of the high 22% tax bracket and investment accounts total in the low 7 figures roughly 50% in rollover IRA, 20% in 401(k) and 30% in taxable
Re: why would a fiduciary advisor recommend 60/40 in every account? (no tax location)
More funds in each account = More commissions for someone in the industry?
Was this a fiduciary with Assets Under Management? Or just a consultation?
Was this a fiduciary with Assets Under Management? Or just a consultation?
Re: why would a fiduciary advisor recommend 60/40 in every account? (no tax location)
I can imagine that they might have experienced someone panic selling or blaming them if one account fell dramatically.
Re: why would a fiduciary advisor recommend 60/40 in every account? (no tax location)
As long as they were using tax efficient funds, it likely wasn't a violation not their fiduciary duty.
Moreover, even in bogleheads, a lot of people find AA in every account easier to understand and have to be convinced to act otherwise. As such, I would expect it to be pretty common advice to keep the planner client relationship less strained.
Moreover, even in bogleheads, a lot of people find AA in every account easier to understand and have to be convinced to act otherwise. As such, I would expect it to be pretty common advice to keep the planner client relationship less strained.
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Re: why would a fiduciary advisor recommend 60/40 in every account? (no tax location)
60/40 in every account is fine as long as the bonds in the taxable account are municipal bonds.
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Re: why would a fiduciary advisor recommend 60/40 in every account? (no tax location)
I believe there is someone here on bogleheads who recommends this (longinvest?). May prevent behavioral errors and may be more tax neutral regarding future tax law changes. I expect he will chime in.
I do not follow it myself.
I do not follow it myself.
In broken mathematics, We estimate our prize, --Emily Dickinson
Re: why would a fiduciary advisor recommend 60/40 in every account? (no tax location)
I keep the same asset allocation across my accounts: 401(k), Roth IRA, and taxable. I know this isn't recommended on the Bogleheads Wiki, but it makes issues around rebalancing easier, as I add to all of the accounts regularly. I hope I'm allowed this one heresy.
50% VTSAX | 25% VTIAX | 25% VBTLX (retirement), 25% VTEAX (taxable)
Re: why would a fiduciary advisor recommend 60/40 in every account? (no tax location)
As others have mentioned, this isn't insane or anything, some people recommend it as being conceptually easier, and it side-steps the issue of whether you need to apply a discount to different types of accounts based on the tax cost of accessing those funds.Raspberry-503 wrote: ↑Thu Oct 21, 2021 2:38 pm I'm no longer with the advisor so I can't ask them
But something that I don't get is that they insisted the "right" way to set up my accounts was to have each account in a 60/40 AA, regardless of taxable/non-taxable. At the time I sort of asked why they wouldn't practice "tax location" and they told me they did because the bonds in taxable were tax-efficient (munis and passive ETFs). I wasn't quite savvy enough at the time to realize this was not really an answer.
That said, it's one thing for an advisor to suggest a reasonable plan of action, it's another for them to respond to your question by saying that's the way it should be. I'd expect a knowledgeable advisor to notice that you maybe have more interests in the topic than most, and follow up with a discussion of how you could do more tax-efficient placement.
So my assumption would simply be that this advisor is just following a script and may not have a strong foundation in why things are done the way they are, and how different alternatives play out. AFAICT from experience with people working for retail banks and brokerages (or insurance agents, or real-estate brokers), they aren't often super knowledgeable about the underpinnings of the stuff they are working on, they're mostly knowledgeable about sales issues. If you want someone with actual knowledge of how things work, you often will do better to find someone who is working independently.
To be fair to the advisor, tax-efficient placement is a minor tweak. I tend to bin these things by whether they'll let you retire years early, months early, or weeks early, and then prioritize based on that. I think tax-efficient placement is probably more towards the months-early category than years-early.
This doesn't always follow, IMHO. It is pretty tax efficient to sell stocks when they are low, at least compared to selling them when they are high. The goal is not to construct the most tax-efficient portfolio, it is to generate the best net outcome.Raspberry-503 wrote: ↑Thu Oct 21, 2021 2:38 pm I can see how having ONLY stocks in your taxable could be a problem: unless you have a well-stocked emergency fund, any sudden need of cash in a downmarket would prompt you to sell stocks when they're low, so instead have a cushion of tax-efficient bonds (e.g. munis) or just build an EF
I mean, it could be? My "computer model" is a Perl script, and it didn't require brain surgery or rocket science. I bet if someone paid me for a year or two to do a real version of it, it would probably be able to handle a variety of sensible cases like people who have an account somewhere else which has to be logged manually, or people who have a large existing position of employer stock, or people whose parents gave them an oil or perfume company. Because I think those are all really good cases for a brokerage to handle well, if they'd like to get more business in the future.Raspberry-503 wrote: ↑Thu Oct 21, 2021 2:38 pm I've always assumed the reason was that their computer model couldn't look at multiple accounts, including some they don't manage, so they maintain the AA in each individual account. What other reasons might you not want to follow the principles in https://www.bogleheads.org/wiki/Tax-eff ... _placement
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Re: why would a fiduciary advisor recommend 60/40 in every account? (no tax location)
Having bonds in taxable can prove advantageous if you retire early, want to qualify for premium subsidies for medical insurance obtained under the Affordable Care Act, and make Roth conversions. My planning for next year shows that selling some of our taxable bond funds results in a very small increase to our taxable income, allows for $500+ monthly ACA premium subsidies, and enables us to convert about $30k to a Roth account; our stock etfs all have significant gains that would be included in taxable income when calculating ACA subsidies and which would result in little to no room for Roth conversions. That said, I don’t know that 40% in bonds in a taxable account is necessary.
Re: why would a fiduciary advisor recommend 60/40 in every account? (no tax location)
It is insane. Or more likely laze.
Yes it is conceptually easier. And yes it can address behavioral issues. Except that you are paying good money to a professional to address those issues. They should have the training, resources, and discipline. This is a pretty low bar for a advisor to clear.
The purpose of a asset allocation is to meet the client's goals. Maximize after tax return while minimize risk. Ability to meet unexpected liquidity issues. a.k.a. emergency fund. These are pretty standard goals. I have a hard time that the mathematically optimal asset allocation would wind up with the same asset allocation across accounts. I mean it is theoretically possible that the stars would align just so - just not very likely.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
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Re: why would a fiduciary advisor recommend 60/40 in every account? (no tax location)
Mindboggling, I've discussed my opinion about it in the One-Fund Portfolio thread. Here's the text of one post about it:mindboggling wrote: ↑Thu Oct 21, 2021 3:15 pm I believe there is someone here on bogleheads who recommends this (longinvest?). May prevent behavioral errors and may be more tax neutral regarding future tax law changes. I expect he will chime in.
I do not follow it myself.
longinvest wrote: ↑Sun Feb 07, 2021 7:07 am Using a single identical LifeStrategy or Target Retirement fund in all accounts (Traditional, Roth, ..., and even taxable once tax-advantaged accounts are full) all lifelong is good enough. The optimal asset allocation and the optimal asset location strategy will only be known after death.
Earlier in this thread, I've provided a proof that a mirrored asset allocation is mathematically-guaranteed not to turn out to have been the worst asset location strategy over one's lifetime.
Some people might consider this mathematical guarantee, of not being the worst asset location strategy, "not very attractive", yet I have not seen a mathematical proof of a "more attractive" asset location strategy that is guaranteed to always beat a simple mirrored allocation strategy.
It's quite similar to indexing, when you think about it. William Sharpe's theorem guarantees that a simple total-market cap-weighted index investment strategy will never be worse than average (before fees). Some people might consider this mathematical guarantee "not very attractive", yet I have not seen a mathematical proof of a "more attractive" investment strategy that is guaranteed to always beat it.
Aiming for paying fewer taxes is an illogical objective (see this earlier post). The logical objective is to aim to end up with more money to spend after paying taxes. Simplistic one-year calculations are insufficient to achieve this objective. A lifelong analysis of portfolio contributions and after-tax withdrawals is required. Unfortunately, there are more unknown parameters (such as future unanticipated asset returns, future unanticipated tax law changes, and future unanticipated investor circumstance changes) to this analysis than known parameters.
When taking risk into consideration, one quickly discovers the necessity to consider the effective tax-adjusted asset allocation (justified by mathematics) within analyses. Most analyses fail this requirement.
Note that a mirror asset allocation is inherently tax-adjusted (see this post).
The One-Fund Portfolio, which consists of a single identical low-cost globally-diversified all-in-one balanced index fund (or ETF) with a fixed or gliding allocation in all accounts (including taxable), eliminates the need to rebalance and greatly simplifies investing, especially for caretakers or a surviving spouse, and can help sidestep a long list of behavioral pitfalls.
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
Re: why would a fiduciary advisor recommend 60/40 in every account? (no tax location)
Not really. In this scenario, sell $X stocks in taxable for whatever emergency you have. Exchange $X bonds for $X stocks in tax deferred. Easy peasy AND you can tax loss harvest.Raspberry-503 wrote: ↑Thu Oct 21, 2021 2:38 pm
I can see how having ONLY stocks in your taxable could be a problem: unless you have a well-stocked emergency fund, any sudden need of cash in a downmarket would prompt you to sell stocks when they're low, so instead have a cushion of tax-efficient bonds (e.g. munis) or just build an EF
The advisor likely did this because he is lazy or the systems are bad. The other option is that he assumes his clients would be confused by tax optimization and ask him more questions.
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Re: why would a fiduciary advisor recommend 60/40 in every account? (no tax location)
Thanks everyone, lots of great answers, and the advisor was it paid by AUM.
As i was discussing some of the answers with my wife, she pointed out that she thought we were more "sophisticated" (savvy?) clients than average, so maybe it was for KISS purpose, but then I would have love for the advisor to explain it that way (or explain why it's doesn't matter much in the end as explained in the answers)
As i was discussing some of the answers with my wife, she pointed out that she thought we were more "sophisticated" (savvy?) clients than average, so maybe it was for KISS purpose, but then I would have love for the advisor to explain it that way (or explain why it's doesn't matter much in the end as explained in the answers)
Re: why would a fiduciary advisor recommend 60/40 in every account? (no tax location)
My bigger concern about the advisor would be why did they use municipal bonds for someone in the 22% tax bracket?Raspberry-503 wrote: ↑Thu Oct 21, 2021 2:38 pm But something that I don't get is that they insisted the "right" way to set up my accounts was to have each account in a 60/40 AA, regardless of taxable/non-taxable. At the time I sort of asked why they wouldn't practice "tax location" and they told me they did because the bonds in taxable were tax-efficient (munis and passive ETFs). I wasn't quite savvy enough at the time to realize this was not really an answer.
If it matters, I'm towards the top of the high 22% tax bracket and investment accounts total in the low 7 figures roughly 50% in rollover IRA, 20% in 401(k) and 30% in taxable
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Re: why would a fiduciary advisor recommend 60/40 in every account? (no tax location)
It’s a good strategy if you really want the allocation you picked.Raspberry-503 wrote: ↑Thu Oct 21, 2021 9:46 pm Thanks everyone, lots of great answers, and the advisor was it paid by AUM.
As i was discussing some of the answers with my wife, she pointed out that she thought we were more "sophisticated" (savvy?) clients than average, so maybe it was for KISS purpose, but then I would have love for the advisor to explain it that way (or explain why it's doesn't matter much in the end as explained in the answers)
https://youtu.be/vTFP36EfZa0
Re: why would a fiduciary advisor recommend 60/40 in every account? (no tax location)
Or you could do this: https://www.madfientist.com/how-to-acce ... nds-early/ClaycordJCA wrote: ↑Thu Oct 21, 2021 5:49 pm Having bonds in taxable can prove advantageous if you retire early, want to qualify for premium subsidies for medical insurance obtained under the Affordable Care Act, and make Roth conversions. My planning for next year shows that selling some of our taxable bond funds results in a very small increase to our taxable income, allows for $500+ monthly ACA premium subsidies, and enables us to convert about $30k to a Roth account; our stock etfs all have significant gains that would be included in taxable income when calculating ACA subsidies and which would result in little to no room for Roth conversions. That said, I don’t know that 40% in bonds in a taxable account is necessary.
Re: why would a fiduciary advisor recommend 60/40 in every account? (no tax location)
If paid by AUM I don't think they are a "fiduciary" advisor.Raspberry-503 wrote: ↑Thu Oct 21, 2021 9:46 pm Thanks everyone, lots of great answers, and the advisor was it paid by AUM.
As i was discussing some of the answers with my wife, she pointed out that she thought we were more "sophisticated" (savvy?) clients than average, so maybe it was for KISS purpose, but then I would have love for the advisor to explain it that way (or explain why it's doesn't matter much in the end as explained in the answers)
Re: why would a fiduciary advisor recommend 60/40 in every account? (no tax location)
Probably because the client had some unreasonable fear of paying taxes. Or maybe the local are high enough local taxes to make it pay off. Maybe the rate spread at the time made it make sense. It is a somewhat reasonable way of going. Start sticking munis in the tax deferred account and we can talk about crazy:). And I am not sure how easy it wold be explain that they 50/50 portfolio they are holding is actually a 60/40 portfolio after tax adjustment. But we are all going to be guessing about what the guy was thinking.venkman wrote: ↑Thu Oct 21, 2021 10:51 pmMy bigger concern about the advisor would be why did they use municipal bonds for someone in the 22% tax bracket?Raspberry-503 wrote: ↑Thu Oct 21, 2021 2:38 pm But something that I don't get is that they insisted the "right" way to set up my accounts was to have each account in a 60/40 AA, regardless of taxable/non-taxable. At the time I sort of asked why they wouldn't practice "tax location" and they told me they did because the bonds in taxable were tax-efficient (munis and passive ETFs). I wasn't quite savvy enough at the time to realize this was not really an answer.
If it matters, I'm towards the top of the high 22% tax bracket and investment accounts total in the low 7 figures roughly 50% in rollover IRA, 20% in 401(k) and 30% in taxable
I think a lot of people also have some unrealistic expectations about what the avearage financial advisor has knowledge of and can do. You are going to get pretty cookie cutter portfolios with minor tweaks unless you are way up the networth scale. Nothing wrong with that if the base portfolio is decent.
Re: why would a fiduciary advisor recommend 60/40 in every account? (no tax location)
Why not? In my experience the majority of fiduciary advisors are paid by AUM.wetgear wrote: ↑Fri Oct 22, 2021 3:27 pmIf paid by AUM I don't think they are a "fiduciary" advisor.Raspberry-503 wrote: ↑Thu Oct 21, 2021 9:46 pm Thanks everyone, lots of great answers, and the advisor was it paid by AUM.
As i was discussing some of the answers with my wife, she pointed out that she thought we were more "sophisticated" (savvy?) clients than average, so maybe it was for KISS purpose, but then I would have love for the advisor to explain it that way (or explain why it's doesn't matter much in the end as explained in the answers)
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Re: why would a fiduciary advisor recommend 60/40 in every account? (no tax location)
Tl;DR every post above. But can anyone suggest reasonable/current estimates for the following:
Total Bond Yield: ??
Muni Bond Yield: ??
I'd like to estimate what tax efficiency means in this case so I better understand it.
Re: why would a fiduciary advisor recommend 60/40 in every account? (no tax location)
SEC Yield. The best easy estimate that there is. It will give you actionable data.
There better stuff requires lots of work, access to holdings, bond models, etc.
Last edited by alex_686 on Fri Oct 22, 2021 3:59 pm, edited 1 time in total.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Re: why would a fiduciary advisor recommend 60/40 in every account? (no tax location)
Rick Ferri has posted that he believes that taxable and tax deferred accounts should be allocated the same.
The problem with the tax efficient placement of assets among accounts is that if overdone, you doom the tax deferred retirement accounts to low returns. I for one, would not put all my stocks in taxable accounts and all my bonds in tax deferred accounts.
As far as me, it depends upon how much money is in taxable accounts compared to tax deferred accounts.
For most people, the bulk of their liquid assets are in tax deferred accounts such as workplace savings plans (401(k), 403(b), 457, etc.) and have relatively smaller amounts in taxable accounts. In this case, you invest the retirement accounts for maximum gain. It really comes down to this: do you want a smaller monthly check in retirement or a larger one? I vote for the larger one.
If you have large taxable accounts and large tax deferred retirement accounts, it makes sense to make the taxable accounts more stock heavy and the retirement accounts more bond heavy. As said above, I would not go overboard on this. TIPS should go in tax deferred accounts as they are tax inefficient. REITs are more tax efficient than they used to be but I would probably place them in tax deferred accounts. If you are in a high tax bracket, Municipal Bonds go in your taxable account. US Treasuries and other US Government obligations are exempt from State Income taxes and can go into a taxable account. You can put Foreign Stock Indexes in taxable accounts in order to claim foreign tax credit. The reason you put stocks in taxable accounts is for favorable capital gains tax treatment on realized gains and dividends. Funds that come out of tax deferred retirement accounts come out as ordinary income, so you get no favorable tax treatment capital gains and dividends from stocks held in those tax deferred accounts.
A myth is that tax deferred accounts turn capital gains and dividends from stocks into ordinary income. Another poster pointed this out to me on this forum. You get a deduction from ordinary income when you make contributions to these retirement accounts: the deduction comes as a reduction in taxable wages on your W-2 if the contribution was made to a workplace savings account, if you make a deductible contribution to a Traditional IRA you can take the deduction on your tax return. It is deducted as ordinary income and it comes out as ordinary income. You may as well maximize your returns within the account. Deductible contributions to retirement accounts are really deferred wages.
Another thing to take into consideration is what your taxes will look like in retirement. There are things like taxability of Social Security, Roth Conversions, the Net Investment Income Tax for high earners, etc. But that is another topic.
The problem with the tax efficient placement of assets among accounts is that if overdone, you doom the tax deferred retirement accounts to low returns. I for one, would not put all my stocks in taxable accounts and all my bonds in tax deferred accounts.
As far as me, it depends upon how much money is in taxable accounts compared to tax deferred accounts.
For most people, the bulk of their liquid assets are in tax deferred accounts such as workplace savings plans (401(k), 403(b), 457, etc.) and have relatively smaller amounts in taxable accounts. In this case, you invest the retirement accounts for maximum gain. It really comes down to this: do you want a smaller monthly check in retirement or a larger one? I vote for the larger one.
If you have large taxable accounts and large tax deferred retirement accounts, it makes sense to make the taxable accounts more stock heavy and the retirement accounts more bond heavy. As said above, I would not go overboard on this. TIPS should go in tax deferred accounts as they are tax inefficient. REITs are more tax efficient than they used to be but I would probably place them in tax deferred accounts. If you are in a high tax bracket, Municipal Bonds go in your taxable account. US Treasuries and other US Government obligations are exempt from State Income taxes and can go into a taxable account. You can put Foreign Stock Indexes in taxable accounts in order to claim foreign tax credit. The reason you put stocks in taxable accounts is for favorable capital gains tax treatment on realized gains and dividends. Funds that come out of tax deferred retirement accounts come out as ordinary income, so you get no favorable tax treatment capital gains and dividends from stocks held in those tax deferred accounts.
A myth is that tax deferred accounts turn capital gains and dividends from stocks into ordinary income. Another poster pointed this out to me on this forum. You get a deduction from ordinary income when you make contributions to these retirement accounts: the deduction comes as a reduction in taxable wages on your W-2 if the contribution was made to a workplace savings account, if you make a deductible contribution to a Traditional IRA you can take the deduction on your tax return. It is deducted as ordinary income and it comes out as ordinary income. You may as well maximize your returns within the account. Deductible contributions to retirement accounts are really deferred wages.
Another thing to take into consideration is what your taxes will look like in retirement. There are things like taxability of Social Security, Roth Conversions, the Net Investment Income Tax for high earners, etc. But that is another topic.
A fool and his money are good for business.
Re: why would a fiduciary advisor recommend 60/40 in every account? (no tax location)
An advisor is paid to manage both the portfolio and the client. Protecting clients from their own behavioral mistakes is one of the services the advisor is being paid to do.
One way to do that is to mirror risk from one account to another by holding the same or similar asset allocations in each account. This will reduce the likelihood that a client will panic over losses in one account during a downturn.
It might not be the Boglehead mainstream way, but there is nothing anti-fiduciary about this practice. If I recall correctly, even Rick Ferri used to do this when he was managing other people's money.
One way to do that is to mirror risk from one account to another by holding the same or similar asset allocations in each account. This will reduce the likelihood that a client will panic over losses in one account during a downturn.
It might not be the Boglehead mainstream way, but there is nothing anti-fiduciary about this practice. If I recall correctly, even Rick Ferri used to do this when he was managing other people's money.
Link to Asking Portfolio Questions
Re: why would a fiduciary advisor recommend 60/40 in every account? (no tax location)
It biases their decisions more than flat or hourly fees.alex_686 wrote: ↑Fri Oct 22, 2021 3:42 pmWhy not? In my experience the majority of fiduciary advisors are paid by AUM.wetgear wrote: ↑Fri Oct 22, 2021 3:27 pmIf paid by AUM I don't think they are a "fiduciary" advisor.Raspberry-503 wrote: ↑Thu Oct 21, 2021 9:46 pm Thanks everyone, lots of great answers, and the advisor was it paid by AUM.
As i was discussing some of the answers with my wife, she pointed out that she thought we were more "sophisticated" (savvy?) clients than average, so maybe it was for KISS purpose, but then I would have love for the advisor to explain it that way (or explain why it's doesn't matter much in the end as explained in the answers)
https://www.wealthmanagement.com/busine ... iduciaries
https://www.advisorperspectives.com/art ... -standards
Even simple things like a slightly more risky AA for their clients than would be optimal otherwise benefits the AUM paid advisors. Most of the time this works out great for both parties but when it doesn't it hurts the individual clients a lot more than it does the advisor who only takes a hit on income that year where the client may lose a great deal of their assets.
Re: why would a fiduciary advisor recommend 60/40 in every account? (no tax location)
I don't think it is at all unusual for a fiduciary advisor to be paid by AUM. Advisors have to be paid somehow. AUM is less biased than selling on commission or to get front load fees.
In fact, when the fiduciary rules went into effect, places like Edward Jones ditched the commission models (no longer allowed in certain accounts) and went to an AUM models.
Unfortunately, the "fiduciary rules" were a classic example of good intentions being undermined by unintended consequences. In the end, investors did not receive the benefits that were intended.
There is no perfect scenario if you want someone else to manage the money for you. If you want a fiduciary without AUM, your best bet is to hire an advice only advisor for an hourly fee...but then you have to implement the plan and manage the money yourself. This is just not possible for every investor.
In fact, when the fiduciary rules went into effect, places like Edward Jones ditched the commission models (no longer allowed in certain accounts) and went to an AUM models.
Unfortunately, the "fiduciary rules" were a classic example of good intentions being undermined by unintended consequences. In the end, investors did not receive the benefits that were intended.
There is no perfect scenario if you want someone else to manage the money for you. If you want a fiduciary without AUM, your best bet is to hire an advice only advisor for an hourly fee...but then you have to implement the plan and manage the money yourself. This is just not possible for every investor.
Link to Asking Portfolio Questions
Re: why would a fiduciary advisor recommend 60/40 in every account? (no tax location)
Not to mention that you'll have more tax loss/gain harvest opportunities as well as more significant unrealized gains to be erased upon death compared to bonds.
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Re: why would a fiduciary advisor recommend 60/40 in every account? (no tax location)
I say that because most people are not knowledgeable about investing and probably should be balanced in both taxable and non-taxable. That stops them from fixating on one account over another, and helps prevent bad behavior.
However, if someone is knowledgeable about asset location strategies and the tax benefit of doing it and is willing to be disciplined about it, then they should asset locate taxable and non-taxable accounts.
Rick Ferri
The Education of an Index Investor: born in darkness, finds indexing enlightenment, overcomplicates everything, embraces simplicity.
Re: why would a fiduciary advisor recommend 60/40 in every account? (no tax location)
I consider having my taxable brokerage account and tax deferred accounts at the same allocation to be a form of diversification. Asset location principles seem to depend on tax laws remaining the same for decades. Obviously, this will not happen. So for someone in the 22% tax bracket now, I think it is unknowable what the optimal tax placement will be over 50+ years of investing.
I am willing to assume that the Roth IRA will not be taxed on withdrawal, so it is invested more aggressively.
I am willing to assume that the Roth IRA will not be taxed on withdrawal, so it is invested more aggressively.
Re: why would a fiduciary advisor recommend 60/40 in every account? (no tax location)
As a client of Rick's, I can confirm this. Rick was helpful in rearranging my accounts tax efficiently so that tIRA is now all bonds and Roth and taxable are all equities. I understand I will likely have a rising equity glide path later in life, which is ideal for me. I also love that the tIRA is set up to likely have the lowest expected return. That results is lower RMDs later, also a win.Rick Ferri wrote: ↑Sat Oct 23, 2021 7:07 pmI say that because most people are not knowledgeable about investing and probably should be balanced in both taxable and non-taxable. That stops them from fixating on one account over another, and helps prevent bad behavior.
However, if someone is knowledgeable about asset location strategies and the tax benefit of doing it and is willing to be disciplined about it, then they should asset locate taxable and non-taxable accounts.
Rick Ferri
Re: why would a fiduciary advisor recommend 60/40 in every account? (no tax location)
It is excellent toinclude the considerations and rationale's rather than just operate by short cut sound bytes about something.Rick Ferri wrote: ↑Sat Oct 23, 2021 7:07 pmI say that because most people are not knowledgeable about investing and probably should be balanced in both taxable and non-taxable. That stops them from fixating on one account over another, and helps prevent bad behavior.
However, if someone is knowledgeable about asset location strategies and the tax benefit of doing it and is willing to be disciplined about it, then they should asset locate taxable and non-taxable accounts.
Rick Ferri
Re: why would a fiduciary advisor recommend 60/40 in every account? (no tax location)
Yes, a strategy to minimize returns in tax deferred retirement accounts to have lower RMDs later is a good strategy if you have substantial monies in taxable accounts and if your income in retirement is going to be relatively large. For most Bogleheads, this is probably not their situation, so for most people maximizing returns in tax deferred accounts is the winning strategy.BabaWawa wrote: ↑Sun Oct 24, 2021 6:15 amAs a client of Rick's, I can confirm this. Rick was helpful in rearranging my accounts tax efficiently so that tIRA is now all bonds and Roth and taxable are all equities. I understand I will likely have a rising equity glide path later in life, which is ideal for me. I also love that the tIRA is set up to likely have the lowest expected return. That results is lower RMDs later, also a win.Rick Ferri wrote: ↑Sat Oct 23, 2021 7:07 pmI say that because most people are not knowledgeable about investing and probably should be balanced in both taxable and non-taxable. That stops them from fixating on one account over another, and helps prevent bad behavior.
However, if someone is knowledgeable about asset location strategies and the tax benefit of doing it and is willing to be disciplined about it, then they should asset locate taxable and non-taxable accounts.
Rick Ferri
I have seen folks who work in High Tech who in their early thirties have large 6 figure taxable and 6 figure retirement accounts, who live in a big house, and who have larger amounts of monies tied up in company stock options and in company stock. They are worth something like $3 million, have index fund portfolios, and post here wondering if they are doing something wrong. This is not the norm for Americans, I am happy for their success but the advice given to them will be different from advice given to someone with a more humble situation.
It seems like a battle to get people to save and invest in the first place. Lots of folks will do well to have $500,000 in liquid assets, have their house paid off, and their kids put through college by the time they retire. The ideal would be to have $1,000,000 or more in the retirement stash but lots of folks won't be able to achieve that.
A fool and his money are good for business.
Re: why would a fiduciary advisor recommend 60/40 in every account? (no tax location)
Thanks for your answer. Best wishes, Ned.Rick Ferri wrote: ↑Sat Oct 23, 2021 7:07 pmI say that because most people are not knowledgeable about investing and probably should be balanced in both taxable and non-taxable. That stops them from fixating on one account over another, and helps prevent bad behavior.
However, if someone is knowledgeable about asset location strategies and the tax benefit of doing it and is willing to be disciplined about it, then they should asset locate taxable and non-taxable accounts.
Rick Ferri
A fool and his money are good for business.
Re: why would a fiduciary advisor recommend 60/40 in every account? (no tax location)
I didn't say the strategy was to minimize returns in my IRA. By placing the least tax efficient assets in the IRA (bonds) that was an outcome. And I still believe many here use that tax efficient strategy to place most of equities in taxable and Roth accounts and bonds in IRA. Of course I'm fortunate that my IRA is roughly 40% of my portfolio, coincidentally the same as my allocation to bonds.nedsaid wrote: ↑Sun Oct 24, 2021 10:11 amYes, a strategy to minimize returns in tax deferred retirement accounts to have lower RMDs later is a good strategy if you have substantial monies in taxable accounts and if your income in retirement is going to be relatively large. For most Bogleheads, this is probably not their situation, so for most people maximizing returns in tax deferred accounts is the winning strategy.BabaWawa wrote: ↑Sun Oct 24, 2021 6:15 amAs a client of Rick's, I can confirm this. Rick was helpful in rearranging my accounts tax efficiently so that tIRA is now all bonds and Roth and taxable are all equities. I understand I will likely have a rising equity glide path later in life, which is ideal for me. I also love that the tIRA is set up to likely have the lowest expected return. That results is lower RMDs later, also a win.Rick Ferri wrote: ↑Sat Oct 23, 2021 7:07 pmI say that because most people are not knowledgeable about investing and probably should be balanced in both taxable and non-taxable. That stops them from fixating on one account over another, and helps prevent bad behavior.
However, if someone is knowledgeable about asset location strategies and the tax benefit of doing it and is willing to be disciplined about it, then they should asset locate taxable and non-taxable accounts.
Rick Ferri
I have seen folks who work in High Tech who in their early thirties have large 6 figure taxable and 6 figure retirement accounts, who live in a big house, and who have larger amounts of monies tied up in company stock options and in company stock. They are worth something like $3 million, have index fund portfolios, and post here wondering if they are doing something wrong. This is not the norm for Americans, I am happy for their success but the advice given to them will be different from advice given to someone with a more humble situation.
It seems like a battle to get people to save and invest in the first place. Lots of folks will do well to have $500,000 in liquid assets, have their house paid off, and their kids put through college by the time they retire. The ideal would be to have $1,000,000 or more in the retirement stash but lots of folks won't be able to achieve that.