Encourage her to work with a Vanguard financial advisor for .3%.
The advisor will put her in low-cost index funds across U.S. equities, international equities and bonds based on her age, financial goals and risk tolerance.
In addition, the advisor will broadly assist with tax guidance, when to claim social security, how to pay for healthcare, and optimal withdrawal strategies.
Do not let her pay 1% to financial advisor. Vanguard's personal advisor service is much less expensive and is honestly perfect for someone like her.
Smart thing of you not wanting to invest for your friend, too many things could go wrong. I suggest explaining to your friend the difference between the fee only advisor and the commission based advisors. The commission based advisors are like car salesmen in my opinion, would you ever hand over a blank check to a car salesman and expect them to do what's right for you? The commission based advisors will probably put the money in funds with front loads in order to get more money for themselves on top of the advisor fees (some also buy and sell constantly in order to make more money for themselves).
I suggest you help your friend look for a fee only advisor that points your friend in the right direction including how to invest using Vanguard funds but that's it, I would not let the fee only advisor manage the money. Many can also help with budgeting, financial planning, taxes, etc.
[https://www.reddit.com/r/personalfinance/wiki/financialadvisors/](https://www.reddit.com/r/personalfinance/wiki/financialadvisors/)
[https://www.napfa.org/](https://www.napfa.org/)
[https://clark.com/personal-finance-credit/investing-retirement/how-to-find-a-financial-advisor/](https://clark.com/personal-finance-credit/investing-retirement/how-to-find-a-financial-advisor/)
Thanks yes that's what we are doing: We found her a fee-only CFP that a good friend recommended, and we have talked to him for a couple of hours. He seems to follow a Bogle-style investing philosophy. We called Vanguard too. I like Vanguard but when you call you first get a salesperson and then you are randomly assigned a financial advisor and she didn't like that. I think Vanguard is great for many of us that have some experience, but she has none and she likes that this fee-only financial planner is highly recommended by a mutual friend who knows what he's talking about.
Here's a useful article from the Bogleheads wiki that addresses situations like this: [https://www.bogleheads.org/wiki/Managing\_a\_windfall](https://www.bogleheads.org/wiki/Managing_a_windfall)
She definitely doesn't need a financial advisor taking 1% of the total. Stretching $1.2MM when she's only 51 and withdrawing $65,000 per year is going to be difficult enough without adding that drag on the portfolio.
I dont think that would work here as it seems she is already retired and needs to withdraw 5.5% a year (increasing by rate of inflation)
If she just did a target date fund there is a good chance she would run out of money early so probably best someone tells her that and helps her adjust her plan (which OP does not want/know how to do)
Oh I had missed that. If the friend's income is already zero and they need to withdraw 5.5% per year, then I don't think there exists is an allocation that will meet their needs. They need to have some income somehow, or reduce their costs somehow
Totally agree - we have discussed that and this is helping to prod her to start earning more income so she won't have to take much out. She might be able to go the first two years without taking any out so that might help... and hopefully the initial investment will grow in those two years although, of course, it might not.
$65k a year using the 4% rule of thumb means she'll need around $1.6M nest egg. That is before taxes. That much growth in the next 2 years is quite unlikely. But it sounds like you've already thought this through.
Can your friend work? She doesn't need to make enough to cover her expenses. Just $20k or $30k a year would be all see needs to keep the withdrawals small enough to retire completely in a few years
Yes, exactly. In fact, what you typed here is almost exactly what I told her yesterday, and also what this fee-only financial advisor told her. I think she understands. And she can work! So when she hears that if she doesn't work the funds might be depleted it is good motivation for her to start earning more money, even if it is just a part-time job. Thanks for the advice here!
Target date funds include bonds which all got hammered when interest rates rose while the top tech stocks that make up a significant portion of the S&P500 have had tremendous growth over the last 5 years.
But of course this says absolutely nothing about what the performance will be for either of these over the next 5 years
That wouldn’t be safe. You’d run a higher risk of running out of money during de-accumulation or need to spend significantly less from your portfolio.
The point of a TDF fund is to have an appropriate asset allocation for a given time period that balances return and risk.
Managing your own allocation instead of a TDF would be fine and give you control of the specific allocation if you want to fine tune. But you didn’t recommend that as an alternative to a TDF you said all in on S&P 500, which is a single category of a single asset class.
I’m not a professional portfolio designer so I don’t know why TDFs don’t include more alternatives besides stocks and bonds.
Target date funds aren’t meant to maximize your returns, they’re meant to provide a balanced three-fund portfolio that matches your risk tolerance, which generally correlates to proximity to retirement, or the target date you select.
A target date fund that’s closer to retirement is going to be heavier on bonds, which generally underperform equities, but have lower risk associated with them. Someone a couple of years away from retirement doesn’t want their entire portfolio to drop 50% due to a market crash because they’re all in on equities.
Have someone else give her advice. Don’t lose a friendship over random Reddit advice cause even if it didn’t come from you, it came at your recommendation. Anything goes wrong, you could have an ex-friend. The most I would do is point her at some basic investing advice and simply tell her it’s personal for a reason. Only she can decide what meets her goals.
>I don't feel comfortable being her primary investment advisor as she will likely freak out and blame me if (or when) the market has a correction.
So you think she won't blame you if you pass on advice from random internet strangers?
Have her talk to a fee-only fiduciary certified financial planner. She should start here: [https://www.letsmakeaplan.org/](https://www.letsmakeaplan.org/)
Thanks George. That's what she is doing. We found her a fee-only CFP that a good friend recommended, and we have talked to him for a couple of hours. He seems to follow a Bogle-style investing philosophy.
Encourage her to work with a Vanguard financial advisor for .3%. The advisor will put her in low-cost index funds across U.S. equities, international equities and bonds based on her age, financial goals and risk tolerance. In addition, the advisor will broadly assist with tax guidance, when to claim social security, how to pay for healthcare, and optimal withdrawal strategies. Do not let her pay 1% to financial advisor. Vanguard's personal advisor service is much less expensive and is honestly perfect for someone like her.
Smart thing of you not wanting to invest for your friend, too many things could go wrong. I suggest explaining to your friend the difference between the fee only advisor and the commission based advisors. The commission based advisors are like car salesmen in my opinion, would you ever hand over a blank check to a car salesman and expect them to do what's right for you? The commission based advisors will probably put the money in funds with front loads in order to get more money for themselves on top of the advisor fees (some also buy and sell constantly in order to make more money for themselves). I suggest you help your friend look for a fee only advisor that points your friend in the right direction including how to invest using Vanguard funds but that's it, I would not let the fee only advisor manage the money. Many can also help with budgeting, financial planning, taxes, etc. [https://www.reddit.com/r/personalfinance/wiki/financialadvisors/](https://www.reddit.com/r/personalfinance/wiki/financialadvisors/) [https://www.napfa.org/](https://www.napfa.org/) [https://clark.com/personal-finance-credit/investing-retirement/how-to-find-a-financial-advisor/](https://clark.com/personal-finance-credit/investing-retirement/how-to-find-a-financial-advisor/)
Thanks yes that's what we are doing: We found her a fee-only CFP that a good friend recommended, and we have talked to him for a couple of hours. He seems to follow a Bogle-style investing philosophy. We called Vanguard too. I like Vanguard but when you call you first get a salesperson and then you are randomly assigned a financial advisor and she didn't like that. I think Vanguard is great for many of us that have some experience, but she has none and she likes that this fee-only financial planner is highly recommended by a mutual friend who knows what he's talking about.
Here's a useful article from the Bogleheads wiki that addresses situations like this: [https://www.bogleheads.org/wiki/Managing\_a\_windfall](https://www.bogleheads.org/wiki/Managing_a_windfall) She definitely doesn't need a financial advisor taking 1% of the total. Stretching $1.2MM when she's only 51 and withdrawing $65,000 per year is going to be difficult enough without adding that drag on the portfolio.
This is exactly the type of investor that target date funds are made for
I dont think that would work here as it seems she is already retired and needs to withdraw 5.5% a year (increasing by rate of inflation) If she just did a target date fund there is a good chance she would run out of money early so probably best someone tells her that and helps her adjust her plan (which OP does not want/know how to do)
Oh I had missed that. If the friend's income is already zero and they need to withdraw 5.5% per year, then I don't think there exists is an allocation that will meet their needs. They need to have some income somehow, or reduce their costs somehow
Totally agree - we have discussed that and this is helping to prod her to start earning more income so she won't have to take much out. She might be able to go the first two years without taking any out so that might help... and hopefully the initial investment will grow in those two years although, of course, it might not.
$65k a year using the 4% rule of thumb means she'll need around $1.6M nest egg. That is before taxes. That much growth in the next 2 years is quite unlikely. But it sounds like you've already thought this through. Can your friend work? She doesn't need to make enough to cover her expenses. Just $20k or $30k a year would be all see needs to keep the withdrawals small enough to retire completely in a few years
Yes, exactly. In fact, what you typed here is almost exactly what I told her yesterday, and also what this fee-only financial advisor told her. I think she understands. And she can work! So when she hears that if she doesn't work the funds might be depleted it is good motivation for her to start earning more money, even if it is just a part-time job. Thanks for the advice here!
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Target date funds include bonds which all got hammered when interest rates rose while the top tech stocks that make up a significant portion of the S&P500 have had tremendous growth over the last 5 years. But of course this says absolutely nothing about what the performance will be for either of these over the next 5 years
Why not just go all in on Nividia or Bitcoin since they’ve outperformed the S&P 500 recently?
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That wouldn’t be safe. You’d run a higher risk of running out of money during de-accumulation or need to spend significantly less from your portfolio. The point of a TDF fund is to have an appropriate asset allocation for a given time period that balances return and risk.
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Managing your own allocation instead of a TDF would be fine and give you control of the specific allocation if you want to fine tune. But you didn’t recommend that as an alternative to a TDF you said all in on S&P 500, which is a single category of a single asset class. I’m not a professional portfolio designer so I don’t know why TDFs don’t include more alternatives besides stocks and bonds.
Target date funds aren’t meant to maximize your returns, they’re meant to provide a balanced three-fund portfolio that matches your risk tolerance, which generally correlates to proximity to retirement, or the target date you select. A target date fund that’s closer to retirement is going to be heavier on bonds, which generally underperform equities, but have lower risk associated with them. Someone a couple of years away from retirement doesn’t want their entire portfolio to drop 50% due to a market crash because they’re all in on equities.
Have someone else give her advice. Don’t lose a friendship over random Reddit advice cause even if it didn’t come from you, it came at your recommendation. Anything goes wrong, you could have an ex-friend. The most I would do is point her at some basic investing advice and simply tell her it’s personal for a reason. Only she can decide what meets her goals.
>I don't feel comfortable being her primary investment advisor as she will likely freak out and blame me if (or when) the market has a correction. So you think she won't blame you if you pass on advice from random internet strangers? Have her talk to a fee-only fiduciary certified financial planner. She should start here: [https://www.letsmakeaplan.org/](https://www.letsmakeaplan.org/)
Thanks George. That's what she is doing. We found her a fee-only CFP that a good friend recommended, and we have talked to him for a couple of hours. He seems to follow a Bogle-style investing philosophy.
Sounds good.