On the Money is a monthly advice column. If you’re looking for advice on spending, saving or investing — or any complicated emotions that may come up when you’re getting ready to make a big financial decision — you canSubmit your question in this form. Here, we answer two questions asked by Vox readers, which have been edited and condensed.
I have a personal advisor who I pay to manage my investment portfolio — but I’m not sure if I’ll continue to pay this advisor. My investments are with Vanguard because of its low ETF fees. I have a total of four ETFs: VTI, VXUS, BND and BNDX. These ETFs are spread across three accounts. My wife and I each have a Roth IRA and we also have a taxable brokerage account. Each account contains two ETFs. Do I need to continue paying Vanguard Advisors to manage this portfolio?
Dear advice,
The portfolio your advisor has created for you is highly balanced. It is highly diversified, in the sense that it includes a wide variety of individual investments within four broad categories. You and your spouse currently invest in four exchange-traded funds (ETFs) designed to track broad segments of the market:
- VTI: Vanguard Total Stock Market Index Fund ETF
- VXUS: Vanguard Total International Stock Index Fund ETF
- BND: Vanguard Total Bond Market Index Fund ETF
- BNDX: Vanguard Total International Bond Index Fund ETF
In other words, you invest in four ETFs that are composed of many, many small investments in the indices listed above — Total Stocks, Total International Stocks, Total Bonds, and Total International Bonds. Because you’re effectively invested in everything, your portfolio has the potential to increase in value until the market itself crashes.
This type of investment strategy is designed to get you through market ups and downs without much risk, especially since I’m assuming your advisor is gradually adjusting the ratio of stocks to bonds as you and your spouse retire. Stocks offer higher growth potential than bonds but come with more volatility, so a good investment advisor will gradually shift more of your investments into bonds as you age. (Because bonds are less volatile, a bond-heavy portfolio should lose less of its value if the market drops before or during your retirement years.)
That said, a target-date retirement fund does exactly the same thing and doesn’t require you to pay an advisor.
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Vanguard Personal Advisors offers additional services beyond portfolio rebalancing, including guidance on how to withdraw money in retirement and strategies on how to manage taxes related to investments, so you can get more from your advisor. Target-date funds.
It’s also worth noting that your typical target-date retirement fund may come with a higher expense ratio than the Vanguard ETF, meaning you’ll cost more money over time. VFIFX, for example, which is Vanguard’s target-date retirement fund for people planning to retire between 2048 and 2052, has an expense ratio of 0.08 percent. Your VTI ETF has an expense ratio of just 0.03 percent, meaning less of your money goes toward managing the fund.
I’m not suggesting you ditch your advisor and move all your investments into a target-date retirement fund. I’m not a professional investment advisor myself, which means I can’t offer specific investment advice — plus, I have very limited knowledge of your situation. However, I would suggest that you talk to your advisor about the full range of services they offer and ask yourself if you would be interested in taking advantage of those services.
If you decide to manage your investments yourself, you can always keep your current portfolio as it is and keep it your own by adjusting the percentage of stocks to bonds every few years.
If you’re planning to retire in 2050, for example, you might want to take a look Vanguard’s VFIFX Glidepath And literally replicate it with your own ETF. At 40, for example, VFIFX puts about 55 percent of your investment in stocks, 35 percent in international stocks, 8 percent in bonds and 2 percent in international bonds. By the time you reach age 65, VFIFX adjusts your investments to include 30 percent stocks, 20 percent international stocks, 25 percent bonds, 15 percent international bonds and the remaining 10 percent in short-term TIPS, which are inflation-protected securities. .
If that seems too confusing, or if you’re not sure if you have enough time to schedule and track regular portfolio rebalancing, you may want to just stick with your current advisor.
It’s also worth noting that a good investment advisor may be able to prevent you from making emotional decisions like selling during a temporary downturn — and may be able to advise you on other financial matters, such as how much to withdraw in retirement. They may even be able to help you with estate planning, if that’s important to you and your spouse. Feel free to ask your advisor what you can expect in the next few decades and use that feedback to help you decide whether or not to keep the relationship.
No matter what you decide to do next, your current portfolio puts you in a great place to start.
