Assistance with Garret Recommendation

[snafu]

Before taking any action, check with a Vanguard representative for their proposal on $410,000. allocation and recommendation for changes including existing V holdings. You may find Bond Exchange Traded Funds slightly more cost efficient than a Bond Fund if you have/open a discount brokerage a/c.

While you need to be able to sleep without worrying, your age and years give you a great deal of flexibility in managing your investments. There has been so much change since 2008, I can't imagine what the next 30 years will bring. The demographics have shifted.

[firehawkocean]

Thanks for all the advice everyone.

The fees associated with the Annuity are what bother me.

The annuity costs $240/year and the representative on the phone mentioned that the contract price is locked in (I wonder if the price is truly "locked in").

The "Monument Advisor - Franklin Income Securities C12" has a "prospectus gross exp ratio" of .72 and the "PIMCO VIT Real Return Admin is .66. She wanted me to put 50k in each of those funds.

So, if I am calculating this right, $1,320 a year would be charged on (example) 200k at .66 plus the $240/year. This amounts to $1560/year in fees. This seems hard to justify when my money will be unavailable (unless i want a 10% charge) until 59.5yrs old.

Even will dividends being taxed at 15%, Vanguards admiral funds are charging around .06 a year expense ratio (VFIAX)! On a 7% dividend on 200K, I would only be paying $210 in taxes on that dividend. It seems like I would need a lot more in the annuity to justify tying me money up.

Am I missing something here?

[disneysteve]

Am I missing something here?

Nope. You're seeing exactly why so many of us here don't use a paid financial advisor. Even the "fee only" ones are apparently crooked. I would love to know what kind of kick back this person is getting from recommending these things to unsuspecting clients.

[firehawkocean]

Nope. You're seeing exactly why so many of us here don't use a paid financial advisor. Even the "fee only" ones are apparently crooked. I would love to know what kind of kick back this person is getting from recommending these things to unsuspecting clients.

Thanks Steve,

Can anyone else vouch for what Steve is saying regarding this seeming "fishy"?

[firehawkocean]

I had another question:

If I am in the 30% tax bracket, would it not make sense to invest in municipal bonds? They are tax free and pretty secure. But they don't earn a whole lot

[disneysteve]

Thanks Steve,

Can anyone else vouch for what Steve is saying regarding this seeming "fishy"?

I think everyone else already expressed a similar opinion.

Did the advisor ever explain to you why she was recommending these things to you?

[MonkeyMama]

Thanks Steve,

Can anyone else vouch for what Steve is saying regarding this seeming "fishy"?

Um, yeah. What he said.

The word "annuity" pretty much sums it up - huge red flag. But I do agree with everything else that has been said. I have no love for financial advisors. & it's not against them personally, but the problem is when people want to give up their assets to be overlooked or invested by someone else? That is when the sharks move in. IT's just hard to find any useful advice in the sea of sharks.

[kv968]

I had another question:

If I am in the 30% tax bracket, would it not make sense to invest in municipal bonds? They are tax free and pretty secure. But they don't earn a whole lot

A municipal bond fund or ETF would make sense.

Sticking with Vanguard funds, they have many intermediate-term bond funds availiable in Admiral Shares (minimum $50k investment). Here are some of them:

VBILX - Intermediate-term Bond Index - invests 50% gov't/50% corporate. Expense ratio of 0.11 (Admiral Class) and an SEC yield of 2.44%

VFIDX - Inter. Investment Grade - invests in mostly corp. and pooled loans and some gov't. ER of 0.12 and SEC yield of 3.35%

VWEAX - High Yield Corp. - invests in "junk bonds". ER of 0.13 and SEC yield of 6.82%

VWIUX - Inter. Tax-Exempt - invests in various municipal bonds. ER of 0.12 and SEC yield of 2.48%

If you're in the 30% tax bracket, that 2.48% yield in the muni fund would equate to a 3.54% taxable yield. As you can see the tax adjusted yield is higher for the muni's in all but the high yield fund.

With that said, you may still owe state and local income taxes on the muni income and you'd owe taxes on any capital gains. As with anything, I wouldn't recommend putting all of your fixed income assets in just one sector so you'd want to diversify. However owning some muni's (especially in a taxable account) would make sense.

[firehawkocean]

Thanks for all the comments. They help a lot.

I forgot to take into account that the fee-only adviser had my wife and I take a questionnaire, to ascertain our risk tolerance. I came out as moderate, and my wife came out at conservatively moderate. Therefore, perhaps that is why ouradviser is suggesting the annuity loaded with all the bonds.

Besides the annuity, she did suggested that we add another 43K (on top of about 70K) to funds that offer Vanguard Admiral Shares. I asked her about further about the annuity and she said through email:

START OF QUOTE

If you were going to invest the money into mutual funds that paid
"qualified" dividends, I would agree.

However, if you have the investments in bond funds, the dividends are not
"qualified" - because the underlying investments are bonds - so the tax rate
on those is your ordinary rates - so for you that's 33% Federal - not 15%.
The same goes if you keep the investments in CDs or money market accounts or
savings accounts.

END OF QUOTE

So, with the annuity, she is trying to save me the 33% federal non-qualified dividend tax rate. I have thought of investing in Municipal bonds in CA before (where I live) but have heard from various professionals that they are junk nowadays.

[firehawkocean]

Hello everyone,
I have decided to not go with the annuity suggested by my fee-only adviser. I am planning on buying 50K in the Vanguard IT Municipal Bond Admiral Shares Fund VCADX instead. Since I am in the 33% tax bracket, I figure that the VCADX will give me a reasonable net yield while still providing me fairly solid security. Any objections? Is there a particular time that is best to buy Municipal Bonds? I was thinking the 2nd of January 2012. My adviser had suggested waiting until the new year to make changes to my Vanguard account because of the dividends coming up.
Thanks a bunch!

[disneysteve]

Hello everyone,
I have decided to not go with the annuity suggested by my fee-only adviser. I am planning on buying 50K in the Vanguard IT Municipal Bond Admiral Shares Fund VCADX instead. Since I am in the 33% tax bracket, I figure that the VCADX will give me a reasonable net yield while still providing me fairly solid security. Any objections? Is there a particular time that is best to buy Municipal Bonds? I was thinking the 2nd of January 2012. My adviser had suggested waiting until the new year to make changes to my Vanguard account because of the dividends coming up.
Thanks a bunch!

I agree with waiting until after the annual distribution has been paid (which may have already happened). January 2 is fine. Since you are investing a large amount, you might want to consider spreading it out over a few months to dollar-cost-average.

[firehawkocean]

I agree with waiting until after the annual distribution has been paid (which may have already happened). January 2 is fine. Since you are investing a large amount, you might want to consider spreading it out over a few months to dollar-cost-average.

I am wondering if I should even deal with a treasuries fund like VFIUX for diversification. I live in CA and am in 33% tax bracket. Plus, the treasury funds are not throwing off that much yield right now. I definitely can't see throwing 50K into this fund since that is the Admiral shares minimum. Any thoughts?

[disneysteve]

I am wondering if I should even deal with a treasuries fund like VFIUX for diversification. I live in CA and am in 33% tax bracket. Plus, the treasury funds are not throwing off that much yield right now. I definitely can't see throwing 50K into this fund since that is the Admiral shares minimum. Any thoughts?

Have you considered buying individual bonds rather than a fund?

[kv968]

Hello everyone,
I have decided to not go with the annuity suggested by my fee-only adviser. I am planning on buying 50K in the Vanguard IT Municipal Bond Admiral Shares Fund VCADX instead. Since I am in the 33% tax bracket, I figure that the VCADX will give me a reasonable net yield while still providing me fairly solid security. Any objections? Is there a particular time that is best to buy Municipal Bonds? I was thinking the 2nd of January 2012. My adviser had suggested waiting until the new year to make changes to my Vanguard account because of the dividends coming up.
Thanks a bunch!

Being in the 33% tax bracket, assuming you pay ~9% state tax and with an SEC yield of 2.47% as of 12/29, VCADX will actually yield you ~4.3% which is pretty good.

As far as buying in goes, Jan 2nd should be good but as DisneySteve said, dollar cost averaging in over a few months might be best. If you go that route, it'd be best if you bought in at the beginning of each month since they have a distibution at the end of every month.

[disneysteve]

As far as buying in goes, Jan 2nd should be good but as DisneySteve said, dollar cost averaging in over a few months might be best. If you go that route, it'd be best if you bought in at the beginning of each month since they have a distibution at the end of every month.

VCADX has a $50,000 minimum investment so OP can't dollar cost average in.