Schwab, Vanguard or Fidelity?

[RunningwithScissors]

Which of these three do you prefer and why? (Functionality, access to specific funds, customer support, fees, etc.)

Share the aspects you like and/or dislike about each.

I've read comparison sheets until my eyes are crossed, so now I'd like to hear personal opinions from people coming from a range of different backgrounds.

(Yes, I know there are more platforms out there, but I'd specifically like to get feedback about these three.)

Thanks

 

[Eli22]

I use all three, and have been satisfied with my experience on all platforms. That being said, I don’t “actively” manage my investments on these three…I’m kind of a set it and forget it girl with these accounts, so I honestly don’t know if my experience will help. I am more active with my brokerage accounts at WF and Chase. I don’t recall any fees for any of my accounts, the websites all are easy to navigate, and anytime I’ve reached out to CS, I’ve been able to talk to a “real person.”

I do like using my Schwab account for travel - I move money from money market into the checking and use my debit card for withdrawals anywhere (they reimburse all fees). It allows me to keep the travel money funds separate from my other money/accounts for peace of mind.

 

[RunningwithScissors]

I use all three, and have been satisfied with my experience on all platforms. That being said, I don’t “actively” manage my investments on these three…I’m kind of a set it and forget it girl with these accounts, so I honestly don’t know if my experience will help. I am more active with my brokerage accounts at WF and Chase. I don’t recall any fees for any of my accounts, the websites all are easy to navigate, and anytime I’ve reached out to CS, I’ve been able to talk to a “real person.”

I do like using my Schwab account for travel - I move money from money market into the checking and use my debit card for withdrawals anywhere (they reimburse all fees). It allows me to keep the travel money funds separate from my other money/accounts for peace of mind.

Thank you, that's good info.

 

[Mrsz1ppy]

Most of my brokerage funds are with Schwab, and I get pretty good service—a dedicated phone number, waived fees for wires, and a reduced margin rate from the published one. Fidelity gives me more commission-free trades at the moment, but commission free is not really free anywhere. I also like the debit card I can use anywhere with no fee. Been a customer since the 1990s.

Also at Chase and Interactive Brokers. Never been at Vanguard.

 

[Peary]

Toss up between Fidelity and Schwab, I'm far more used to Fidelity. I currently have all 3, including Vanguard.

Functionality & Customer Support: Vanguard is the absolute worst. Customer service is garbage. UI is terrible. Even the Bogleheads over at bogleheads.org don't like using Vanguard. If you want their mutual ETFs with low expense ratio, you can get them at Fidelity or Vanguard, for the same low low price. I see no reason to use Vanguard, other than my work uses it for 401K.

My vote goes to Fidelity here, since I hardly use Schwab. I hardly use Schwab, it's only for company stocks.

Access to specific funds & fees: No real difference to me. I buy Vanguard ETFs over at Fidelity. I also buy treasuries and brokered CDs at Fidelity. I don't know whether Schwab or Vanguard have treasuries or brokered CDs. Maybe. Long story short, for the average retail investor, there isn't anything at Vanguard that Schwab or Fidelity doesn't have.

If you want to day trade or get cheap margin rates, you can look into Interactive Brokers. But I don't think you're seeking to do that.

For stuff like Pledged Asset Lines, I've read that Schwab and Interactive Brokers give the best rates.

 

[missy]

No experience with Vanguard

Fidelity: we have been with them for over 25 years
Customer support excellent
Fees reasonable
Website is easy to navigate and they have very good retirement tools online

Schwab: we have only a little experience with Schwab and feel they are more sales oriented than customer driven

 

[RunningwithScissors]

Thank you guys so much. I really appreciate you guys taking the time to share your experiences. I'm reading through and taking notes on each of them. @Mrsz1ppy @Peary @missy @Eli22

 

[monarch64]

I’m with Vanguard and my family has been for decades. The Boglehead mentality fits my investment style very well.

I will never do business with Schwab after what they did to a woman named Courtney Kotzian over another employee sexually harassing her and stalking her to the point she had to leave her home in Nebraska and move states. They protected the perpetrator and actively tried to squash her story. You can Google and find all the information. They do not support women.

 

[rainwood]

I have IRA accounts with all 3, but prefer T. Rowe Price to all of them. I'm not an active investor, but find TRP the easiest to use and gives me the best performance with their exchange traded funds.

 

[LilAlex]

All are good as brokerages, imo. We only do ETFs and they are all traded on all platforms like individual stocks.

We currently use all three. I agree they are the overall leaders out there for most general needs. I do not day-trade or buy and sell sub-share volumes, etc., or use any within-platform tools to tell me what to do or buy. For those niche needs, there may be better apps or platforms -- but most of those seem like gimmicks to me that are mostly designed to "gamify" investing for low-earning kids.

We have consciously avoided consolidating into one platform; I still have a little paranoia. It also, potentially, lets us capitalize on a transfer bonus when the time comes.

Vanguard is the clunkiest interface (and customer service) by a mile and they just managed to make it a little worse (appearance-wise). It's fine for VG MFs but I do not like their brokerage interface. For automated (programmed) buying of VG MFs in taxable -- like twice monthly from your savings account -- it is the only way to go, AFAIK. We use VG for this only. We also use "their" (Nevada's, actually -- not my state) 529 plans and it is nice to see these balances on your "accounts" screen -- although it is not 100% seamless. (EDIT: We crossed a threshold where the in-state tax benefit was more than offset by the more favorable fee structure in this out-of-state 529 plan -- although it is still not quite as good as non-529 VG fees.)

Fidelity is fine. Good tools for research -- which I do not use to decide what to buy but it's easier than clicking out into Morningstar when I am loss-harvesting and need to fact-check around a "partner" fund for ETF. Our employer plans are held there and my perception is maybe colored by the at-times clunky overlay of the plan interface.

I like Schwab the best -- and was not aware of the issue @monarch64 mentioned. It has the cleanest and most compact interface if you have a bunch of holdings and multiple accounts, imo. The key for me is that it is trivial to buy and sell ETFs in one ticket with one simultaneous transaction in the same millisecond. I have not mastered this on any other platform. The only buying /selling we do is re-balancing and tax-loss harvesting -- and I really like not sitting out of the market for a day -- or five minutes -- between selling and buying. I am usually only loss-harvesting when the world is ending and those are chaotic and volatile trading days. (EDIT: It is very easy to have capital gains display on your account holdings page and I just keep mine sorted by CG low-to-high so I know at a glance [and loss = red] what TLH opportunities are there. On VG, I need to dig.)

If I could only use one, I would use Schwab.

I am commenting only on the brokerage account interface. For investment management/advice, the only one I would use is the 0.3% per year Vanguard PAS. I am pretty confident that Fidelity advisors will push you into spendier-than-necessary (although not outrageously expensive) funds. That has been Fidelity's MO at every turn, including a daughter's experience with her employer plans there.

As I said on another thread a million years ago, for taxable accounts, I would stick to ETFs now so that you are not locked into a custodian with a proprietary MF -- you can always transfer everything out "in kind" to another brokerage without fear of capital gains hit or being stuck out of the market for two weeks.

Oh, and they all seem to "refresh" their interface just often enough to keep you off balance so that you struggle to find your cost-basis, 1099s, etc.

 

[monarch64]

@LilAlex I have found Vanguard’s ux very simple and concise. I have a PA so just call him (he’s been working with us for years as well, super chill guy) if I have questions, but you have to have a pretty large amount invested to get that service. I imagine most people use digital advising and that can be daunting. Your overview of all 3 was very informative, thank you for sharing all that with us!

 

[missy]

@RunningwithScissors I wasn't sure where to put this so hope it's OK to share here
FYI interesting opinion piece:

Forget What You've Learned About Investing in the Last 20 Years​

The volatility in stock markets is telling us the story of huge structural change — one that takes us back to an old normal.

By
Merryn Somerset Webb


December 9, 2022, 12:00 AM EST

​

The Association of Investment Companies recently polled UK fund managers, asking them what sectors they expect to perform best over the next year and over the next five years. The top two answers over both time frames were energy (28% over 12 months) and information technology (21%). All the other sectors lagged far behind (11% said healthcare).
This pretty much sums up the divide in today’s market. There are those who think everything will soon be back to some approximation of the normal of the last 20-30 odd years — inflation and rates will fall, the various supply crunches will sort themselves out, governments will relax and the market will revert to valuing growth above all. These are the people whose first question to every equity strategist is “when do we start buying tech again?”

https://www.bloomberg.com/opinion?re_source=postr_index

Then there are those who find this terrifyingly naïve, who believe that this year does not represent a blip, nor anything close to an ordinary business cycle. For them, the volatility in the stock markets is telling us the story of a huge structural change — one that is taking us back to a different kind of normal, one that might mean you need to forget everything you have learned about investing over the last 20 years.
Think about the world of the last few decades. It has been a time of falling and low inflation, of plentiful (and pliant) labor, cheap energy, easy access to capital, globalization and a gradual shift in the world’s wealth from tangible things (energy infrastructure, machines, factories, inventory and the like) to the intangible (patents, data, brand value, etc.). In 1975, notes Saxo Bank’s Steen Jakobsen in my recent podcast, intangible assets made up around 17% of the world’s wealth; the rest was real stuff. By 2020, that number surged to 90%. The intervening period had been a perfect time to invest in technology companies.
Now look to today. All of these trends are changing. Globalization is firmly in reverse — countries are backing away from the cheap, easy supply chains that once characterized trade with China and are looking to move manufacturing home. Apple Inc. Chief Executive Officer Tim Cook tweeted earlier this week about the opening of a new chip plant in Arizona, making clear that he is “proud to become the site’s largest customer.”

It isn’t just manufacturing either, it’s mining too. Look to North Carolina and you will see that it is home to the first rise in US production capacity of lithium (needed for batteries for electric cars) in more than a decade. The UK has just approved its first new coal mine in 30 years — just as British Steel has said it will stop importing Russian coal. Green grandstanding is suddenly less important than actually having the energy we need, which is no longer cheap thanks to the end of Russian exports and our own failure to invest in fossil fuel production.
Labor is no longer remotely pliant. In the UK, a perfect wage-price cycle is getting underway — real wages are falling and everyone now understands that in a way they did not when inflation was 2%. So the strikes have begun. Rail, health care, postal service and university workers are all on the go. In the US, consumer price expectations came in at 5.9%, up from 5.4% in September, and the labor market is, as Economic Perspectives’ Peter Warburton puts it, “tight as a drum.” Expect wage growth all around.
When the tide goes out, you can see who has been swimming naked, or so Warren Buffett likes to say. He meant it to refer to the corporate world. But it works just as well for countries: A nasty mix of general geopolitical tension, pandemic policy and war has meant that the tide of globalization — of cheap Chinese manufacturing and cheap Russian energy — has gone out for us. And we have been found to be less dressed than we should be.

Our physical world is too small to deal with the demand created by the energy shortage and the supply crunch. We haven’t got enough willing workers, manufacturing capacity or energy assets. So now we have to build them. The next few decades won’t be about apps, brands and eyeballs. They will be (in fact, already are) about building energy assets, improving electricity grids and building new manufacturing capacity across the western world. Think capital expenditure boom and industrial super-cycle.

In this environment, knowing how to invest in companies dealing in intangibles in a low-inflation environment is useless. You need to know how to invest in tangibles (the “builders of supply” as consultancy TS Lombard call them) in a middling-inflation environment — and you need to know how to do that at reasonable valuations, given that the end of the low-interest-rate world is also the end of the world in which price doesn’t matter.
Last year, 75% of those surveyed by the AIC said they expected global stock markets to rise in 2022 (this may be why, on AJ Bell numbers, only 13% of UK active funds this year outperformed their passive equivalents). This year, only 56% expect the same for 2023 — a clear lack of consensus! Either way, it seems likely that the market leaders will be energy, resources and industrials.
Consider me on the side that says this is not a blip — the same side as Morris Chang, founder of Taiwan Semiconductor Manufacturing Company. As he said: “Globalization is almost dead and free trade is almost dead. A lot of people still wish they would come back, but I don't think they will be back.” Forget everything you have learned about investing in the last 20 years.


"

 

[kgizo]

Not to add complexity, but we switched from Fidelity to UBS. Better customer service and access to more investment opportunities. A lot of it depends on working with someone who listens to you and that you like working with. Think they all cover any switching fees so make a change if you aren’t happy. Good luck!

 

[LilAlex]

Not to add complexity, but we switched from Fidelity to UBS.

A bit of apples vs oranges. Question was about brokerage platforms that (I infer) one could use to self-manage. UBS is an old-school full-service broker and I assume, in your case, a money manager. I am not familiar with anyone using UBS as their discount brokerage alone but maybe that is a new thing. Their speciality is separating clients from their money. You may know all of this. If you do not, look up the expense ratio for everything you are invested in. (Google: [symbol] expense ratio.) I am super-curious -- can I challenge you to list those numbers here? Not the dollar-amounts, of course, but the expense ratio for each mutual fund?

If you get exceptional service, you are paying for it. I will do that for 90 min in a restaurant but I will not do that over a 40-year investment horizon. At even a modest fee level (wrap fee + fund expense ratio), your investment manager will earn more from your investments than you do (!) over thirty years. I have said this before here to no great fanfare but I will keep saying it.

The biggest win for "financial services" firms is convincing you to invest in expensive funds that give them kickbacks. After a lot of work, my household finally has an aggregate expense ratio that is < 0.1%. (There are some things that we are stuck with because of capital gains, etc.) Anything below 0.25% is probably OK -- law of diminishing returns, etc.

Mountains of data show that the key to investment success for retail clients like most of us on this forum -- and really even for the nine-figure crowd -- is index investing with the lowest possible expense ratio. And the easiest thing to control is expense ratio. Just as interest compounds, an annual one- or two-percent fee "haircut" compounds (in a very sad way) over your investing lifetime.

The Association of Investment Companies recently polled UK fund managers, asking them what sectors they expect to perform best over the next year and over the next five years.

First sentence kills it right there. No one has long-term reliably predicted which sectors will outperform. Anyone who could would be a trillionaire. And they asked investment companies -- which are almost universally unsuccessful in outperforming.

 

[missy]

A bit of apples vs oranges. Question was about brokerage platforms that (I infer) one could use to self-manage. UBS is an old-school full-service broker and I assume, in your case, a money manager. I am not familiar with anyone using UBS as their discount brokerage alone but maybe that is a new thing. Their speciality is separating clients from their money. You may know all of this. If you do not, look up the expense ratio for everything you are invested in. (Google: [symbol] expense ratio.) I am super-curious -- can I challenge you to list those numbers here? Not the dollar-amounts, of course, but the expense ratio for each mutual fund?

If you get exceptional service, you are paying for it. I will do that for 90 min in a restaurant but I will not do that over a 40-year investment horizon. At even a modest fee level (wrap fee + fund expense ratio), your investment manager will earn more from your investments than you do (!) over thirty years. I have said this before here to no great fanfare but I will keep saying it.

The biggest win for "financial services" firms is convincing you to invest in expensive funds that give them kickbacks. After a lot of work, my household finally has an aggregate expense ratio that is < 0.1%. (There are some things that we are stuck with because of capital gains, etc.) Anything below 0.25% is probably OK -- law of diminishing returns, etc.

Mountains of data show that the key to investment success for retail clients like most of us on this forum -- and really even for the nine-figure crowd -- is index investing with the lowest possible expense ratio. And the easiest thing to control is expense ratio. Just as interest compounds, an annual one- or two-percent fee "haircut" compounds (in a very sad way) over your investing lifetime.



First sentence kills it right there. No one has long-term reliably predicted which sectors will outperform. Anyone who could would be a trillionaire. And they asked investment companies -- which are almost universally unsuccessful in outperforming.

That’s why we invest in multiple sectors to hedge our bets. So far it’s worked out well for us. I thought the piece was interesting. Of course you’re correct in that no one can predict the future. All we can do is make educated guesses.

 

[LilAlex]

switched from Fidelity to UBS

Gonna knock UBS one last time on this thread. This is all third-party information that I am sharing below since UBS does not brag about their high fees. "Up to 2.5%" annually (!) -- and that is not even including a possible manager fee on top of that and the potentially high fees of the investment vehicles that you are in. The end result could be truly tragic.

They better give good service. As long as you and your family know exactly what the total damage is. I have never seen one of these high-fee advisors be up front about their fee structure. Or they say they are worth it because of their superior performance -- and it never is. If they could truly get superior performance, they would never waste their time managing your money!








And this from another third-party site (that I can not vouch for). Note that "cons" in the heading is just in contrast to "pros," which I did not screenshot. But if the shoe fits...

 

[RunningwithScissors]

Thank you again everyone for taking the time to comment with your observations. Greatly appreciated.

 

[LilAlex]

... and while I am muttering to myself, this is a GREAT post -- from the cringily-named (and irritatingly right-leaning) White Coat Investor but equally applicable to any occupation or financial situation.

https://www.whitecoatinvestor.com/bad-investor/

It totally supports my bias that there is no such thing as a "good investor." There are only: 1) bad investors; and 2) other. I try to stay in the second category. I am knowledgeable and give occasional advice but I will never accept being called a "good investor" -- because it's a false label.

I agree with at least 34 of these 35. Not sure about #8 (hey -- now I am officially clickbait: "Number 8 will blow your mind!"); I am no fan of ESG investing but I totally get why institutional investors pressure Big Oil on climate change because the entire value of their investment is on the line.

 

[LilAlex]

OK, one more just for the archives. I stumbled across this staggering (no, have not been drinking) bit of news today:



This was published on 12/16/22 and presumably did not even include the latest 3% drop.

The total US stock market was down ~ 19% for the year and the total US bond market was down ~ 11% (and those numbers do include the big drops in the equity market this week, through Friday, 12/16/22).



So a typical, sensible asset allocation "should" be down ~ 15 - 18% so far this year -- not 39%. This is insane! This is almost on par with the worst market crashes of my (not brief) lifetime.

Maybe you are thinking that the average retail investor's 18% return for 2021 really hit it out of the park and that accounts for their dreadful underperformance so far in 2022. But, no; money invested in the total US stock market gained > 26% in 2021 and bonds lost ~ 1.6% -- so a typical index investor gained 12 - 24% or so.

As has been shown over and over and over, retail investors are terrible stock- (and fund-) pickers. Pros can be less awful but, over time, they are all worse than simple index investing. Retail investors forget that their performance differs from that of the assets they hold because they tend to buy after the run-up and sell after the major drop.

 

[smitcompton]

Hi,
Well. Lil Alex, you just made me go look at my portfolio, as I had deliberately avoided it for the last week as I didn't want to be depressed during the holidays. Whew, its not as bad as You made it seem with those stats. I am that retail investor, with Ameritrade, recently bought out by Schwaab, who enjoys picking stocks, and speculates occasionally. I am down16% from the tippy top. Now here's the thing. It takes people a certain amount of time to incorporate a large financial gain to be their own. Its why experts say to wait to spend money if you win the lottery or get a substantial inheritance. You are less likely to spend carelessly if you see it as your own.
I am down 16 %, but I'm still up from the last two years. I'm good. I can't maximize everything. I do the best I can.
Now, to offset the slide, I am always 50-60% in cash. That has been a poor investment for the last 4 or 5 yrs. But now its reversing. I just got 4.60% on cash. I'm happy, and moved all my Cds as they become due to T-bills, while maintaining my stock portfolio. How long it will last, I don't know.
The real reason for the post has to do with a trust fund I have set up. There is a trust within a trust for my son. One niece with be the trustee. She will have to manage the assets put aside for him. Originally, she and I had thought she would continue to use my portfolio to "play the market", as I do. I think you have convinced me that I should instruct her to use an index fund to increase the capital to make distributions to him. I think MamaBee also has a trust for her son, so Mamabee if you read this tell me please how your trustee will handle the capital. I think Lil Alex is right. An index fund would be best for her. Alex, give me your best advise, so I can pass it on to her. If you don't mind, I will, continue to make or lose money as a retail investor, but my niece should probably use the index fund.

Thanks, to anyone with info. Thanks Lil Alex
Annette

 

[LilAlex]

The real reason for the post has to do with a trust fund I have set up

Well, you are calling my bluff. I am not a financial professional. But more importantly, every trust scenario is different. I have been involved with a handful of trusts and endowments. Is this $100 million for the "Smitcompton Family Charitable Trust" or is this more like $100K to keep a minor child housed and fed for some years until majority in the unlikely event of your passing? Huge difference.

It's a function of risk-tolerance, duration of the need, objective of the trust (decent-sized distribution each year or just overall growth), state and federal law, size of the pot of money, etc. (Those are just off the top of my head -- but you get the picture.) Do you want a trust you can revise or revoke while you are living? Do you want a trust that only kicks in when you pass away, etc?

In terms of asset allocation, a trust is like retirement -- can you stomach the prospect of a 50% drop the first or second year? (That's pretty crippling, long term.) If this is short term, that would favor conservative investment (imo) and perhaps professional management. If it's long term and you go with the pros, you will lose most of your money to them in fees, I fear (see below). if you are truly 50 - 60% cash, I infer that you are super-risk-averse and that should inform your asset allocation.

Real-world example: A family member requires a special-needs trust that may have to last the better part of a century. How to structure that? State mandates professional oversight so with trustee fee and the high-cost assets that corporate trustee will use to fill the trust (i.e., kickbacks -- I mean "revenue-sharing"), erosion of principal could be 3 - 5% per year even without distributions! (Then multiply that by 50 - 75 years.) On top of that, taxes are pretty bad within a trust if the proceeds are not distributed.

Another family member was widowed and deceased spouse's assets passed to her in trust. Given that she was very elderly and ill and could not travel, she lived entirely off her social security and did not even touch the trust proceeds that were distributed to her annually and, even if she had, would not have needed them for more than a few years. Those assets remained invested in the the stock and bond markets in the same 50:50 asset allocation that they had been under the deceased spouse's direction. This would not be appropriate for your scenario, I am guessing.

Yet another: A non-profit endowment was restricted by law to a tiny universe of "super-safe" investment options including US treasuries. What happens to long-term treasuries when interest rates increase by 4% in one year? It means a > 40% drop on a decent-sized slice of their assets. Lots of angst and finger-pointing.

It's hard for amateurs like us to do this -- and it so expensive to have it professionally run. With no other guidance or reference points in your post, I recommend starting with fee-only advice from an estate attorney specializing in trusts at a major firm with an emphasis on estate planning. This will be a few $thousand. Others here may have better or more specific advice.

I have dealt with a handful of estate attorneys and some are amazing and very professional and upfront. "For your kinda scenario -- and this is not a promise -- but I estimate $3,000 - 4,000 for [some task] and it is very unlikely to be much higher." Others are terrible and terrible liars: "Yes, I have done this all day long for thirty years and yet I still haven't the slightest idea how much this will cost you in the end -- within an order of magnitude -- or how much it typically costs or what I expect this to be; we just keep billing and see how it goes!" If you get a story like the second one, run away. It's of course not like a body-work quote for your Camry but someone should be familiar with the range of incurred expenses for a given service.

The best trustee is a smart, trusted, high-integrity friend or relative -- but even those go off the rails all the time.

I got the Trusts for Dummies book that was a little helpful -- but the attorney was the most help.

There is so much more to trusts than asset allocation alone. It's fraught enough giving investment advice to the typical 20 - 60 year-old solvent earner living below their means (i.e., programmed investing into cheap index funds, like I always tout here) even before superimposing the trust complexity.

 

[smitcompton]

Hi,
My Revocable Trust was established in 2009. Almost all assets were put in the name of the trust and my son would have been the successor trustee and get it all. easy --peasy
I am 83 and my son is 64. He now suffers from a severe mental illness and is unable to handle his affairs properly. If the trust remained intact, my ex-husband and his family would reap the benefits of my assets. Panic struck as I contemplated this possibility. We have been divorced for almost 60 yrs. New plan needed, So my estate attorneys constructed the trust within a trust. My son will have the right to either live in my house or choose another abode which will continue to be owned by the trust. I need to know he will not be homeless. My son does not need all the funds so I have allocated 600,000. toward his care. The rest is divided between my 2 nieces. One niece is the trustee and therein lies my ignorance . What index fund should she use "Vanguard 0.3 expense ratio PAS (meaning?)? I want a name of an index fund that she could put the 600,000 into.

I know you are not a financial advisor. But I hope you can name some possible finds for her and I to explore.

Thanks,
Annette

 

[LilAlex]

I know you are not a financial advisor. But I hope you can name some possible finds for her and I to explore.

Wow -- 83?! Well you're somethin' else then!

I resisted giving specific advice because I felt I had incomplete information and insufficient skill to do so. But I will make a few observations.

You have an excellent understanding of the trust, the assets within the trust, and of the specific issues. That's the most important thing because it means you can talk to a pro and correctly frame the issue fairly painlessly for a pro. Second, you have enough assets to catch the attention of a (potential) professional trustee -- so you may get pro bono advice were you to shop around.

I think you and your niece should, together, talk to an advisor with your specific question. See my first point above: you can beautifully and clearly frame this question and ask what the anticipated fee would be for a one-time asset review -- to meet with you, discuss with you the goals of the already-up-and-running trust, and ascertain the most appropriate (not the "best") asset allocation for your highly individualized circumstances and needs. Someone may be very accommodating because they smell the opportunity for professional trusteeship -- which is basically an annuity for the advisor!.

As you know, money is funny. I hope your niece is solvent, reliable, and incorruptible. As I went through this as a trustee (and not as a beneficiary) for many years and many late nights, my spouse was constantly amazed at the opportunities for theft and misuse -- both internally (by me) and externally. There is no supervision. There are no trust police. The beneficiaries are usually young or kept in the dark. There was nothing to stop me from buying myself a Tesla or vacation home. Yes -- it's illegal and immoral. But the victims have to know and complain. Almost no one can piece together a paper trail. There aren't even paper statements anymore. Move the trust assets once and you (and they) lose access to all of your detailed online reporting! And the trustee can do lots of things for their own benefit that are (only arguably) for the benefit of the beneficiary (bigger house with a view!) and there is a lot of leeway there.

Back to your trust. I think you will need to be fairly conservative but not too conservative. You will need (potentially) > 20 years of support for your son (I am sorry to hear about his challenges -- that is truly heartbreaking for a parent).

Vanguard has professional trust management through their Vanguard National Trust Company (I had to Google it): https://investor.vanguard.com/advice/trust-services. This will include asset allocation.

What stopped me from even taking a stab at asset allocation for you is your current 50 - 60% cash allocation. I know you are pretty free-wheeling with the other half but it makes it hard for me to gauge your true aggregate risk tolerance. "I would never smoke a cigarette -- but I'm pretty cool with street racing and the occasional drunken Russian Roulette."

I don't see interest rates continuing to skyrocket, I suspect that equities will rebound, and inflation is probably here to stay -- but toward the lower end of the big range between the negligible over the past decade and the ridiculous over the past year. So with that in mind, I think 40:10:50 as US total stock market: total international stock: total US bond market would be a defensible mix for your time horizon and it's not a terrible time to implement that. You can do this a thousand ways with ETFs but one would be VTI, VXUS, and BND in a 40:10:50 mix. VTI is Vanguard Total Stock Market Index Fund ETF, VXUS is Vanguard Total International Stock Index Fund ETF, and BND is Vanguard Total Bond Market Index Fund ETF. "Gun to my head," I would probably do something like this -- being underaggressive is just as much an error as being overaggressive. Any professional could call me an idiot for this advice -- in either direction ("Too much!" "Not enough!"). The liars and dreamers will contend that they can "beat" the broader markets. They can't -- and they can't touch it over two decades -- that is a promise!

If the current trust assets are not in cash, you need to be careful about timing your sales if there are a lot of capital gains -- you could get hit with a big tax bill. Unlike income, the 15% threshold for CG in trusts is a measly $2800 (!) and the 20% threshold is only ~ $13,000 (vs. half-a-million in income outside the trust to reach that generally rich-people-only bracket). So if assets have been in there a long time and accumulated a lot of gains, there could be very big single-year tax implications to sell! So please do not do what I (only grudgingly) suggested above without understanding the tax implications!

Someone who listens very carefully to your needs and expectations and painstakingly elicits your risk tolerance and gently counters with the need to bake in some risk in your portfolio to help ensure long-term returns could likely come up with a model that lets you sleep more comfortably at night than mine might.

You can post your exact question on Bogleheads Forum and see what the hive over there thinks.

 

[smitcompton]

Hi,

Thank you Lil Alex! This is exactly what I hoped you would provide. ETF Vangard VTI looks perfect to explore. I need to keep it simple for my niece. I've talked to professional managers, and find most want millions to take you on. My oldest friend, who is 86, tells me her accountant tells her every year that the fees she pays are too high. She pays 13,000 a yr in fees with BlackRock. She says they make money for her so she is not changing.
I do not intend to sell my stocks. I already told my niece to get the Wall Street Journal on the day I die to get the closing prices, so that can become her basis.
The cash (cds and T-bills are allocated for my nieces.) The three people -2 nieces and my son get fairly equal shares. His trust does"nt get funded until I die.. Thats when some selling may occur. I sold Alibaba, with a large capital gain, but the taxes were much less than I expected. The IRS did the calculation. I made over 100,000 on that transaction, but I had a tax loss to offset. I do my own taxes too.
I hope I left my niece enough money so that she will take care of my son with his allocation. Her flaw is that she is a people pleaser and will agree to do things, but doesn't always follow through. I think she feels important being the trustee. I left my son some cash as well-separate, so he will have a jingle in his pocket.

Thank You again. It gives me a starting lineup.
I enjoy your posts and your humor. You are a nice addition here.!

Annette

 

[LilAlex]

Thanks for the kind words, @smitcompton. In terms of the forum, I try to add more than I subtract -- but some days it's touch-and-go.

Day of death valuations are easy to get online -- even months or years later -- so no worries there. I remember an estate attorney contracting with a third party that did this for like $10 or $20 per security (!) and I thought that was insane when I could just look in Yahoo Finance or Google Finance or Morningstar and get 100 or so in a few minutes.

Best of luck to you and your family. They are fortunate to have you looking out for them.

 

[cflutist]

Vanguard vs. Fidelity vs. Schwab

SmartAsset compares three of the largest investment companies based on usability, trade experience, offerings and cost. Learn more here.

finance.yahoo.com

We have IRAs and brokerage accounts with Fidelity Private Client Group and have brokerage accounts at Merrill. There are some mutual funds that have a load at one but not the other.

Hubby likes the stock trading software at Fidelity more than at Merrill so he does all of his trading at Fidelity.

 

[RunningwithScissors]

Hey @LilAlex

Can you explain why you personally buy or prefer ETFs over index mutual funds? I more-or-less understand what ETFs are and how the two are different, but I don't think I understand why one would be preferable to the other.

Because I think I don't understand ETFs as well as old fashioned mutual funds, I've shyed away from them. But I think I need to get over my hesitancy by understanding their benefits better.

I'm not an educated investor (I'm educated, just not in the financial world) but many years ago I used to be the secretary of a billionaire who was a founding partner of a private equity company in DC. One time I sheepishly asked him how to select what to buy in my 401K. His advice to me was "1. Go broad and cheap; 2. If you are risk adverse, keep the fund American and European and med to large cap; if you are okay with risk, consider the rest of the world and/or small cap. 3. Don't invest too heavily in bonds at your age." (I was in my 20's at the time).

So, since then, I've been following his advice. I don't know if it was good advice or not, but it has worked well for me so far. (I buy and hold index funds -- unsexy, but so am I!) But I really, really need to take the time to learn more and expand my understanding on everything, not only investing, but social security maximization, tax reduction, longterm care insurance, annuities and other secure income streams, etc. etc.

That's my goal in 2023 -- grow my knowledge and make sure my retirement plan is on track and I'm aware of all the aspects of it that I should be aware of so I can make more informed decisions.

I've been listening to a podcast called The Retirement & IRA Show and their general philosophy about retirement planning seems to make a lot of sense to me intuitively. Also, I'm trying to read books that take a variety of different approaches so that I can get a lay of the land of the different theories out there to see where I fit.

 

[LilAlex]

@RunningwithScissors, I wrote this a year ago here and I think it still reflects how I feel (you can probably just search for posts that mention "ETF" and you will find two threads). The only new distinction is that today (!) I was unable to TLH with some ETFs in my Schwab account because it would not let me use the settled funds from the SELL transaction to fund the simultaneous BUY transaction. Not sure why this failed when I have been doing this for years (I have a call in but we know how that will go) but it was not a huge loss to harvest and I presume I will use it next year. Anyway, this is a "me" thing and not an ETF thing but it tempers one of the benefits that I enjoy most (not having to sit out of the market when tweaking your asset allocation to re-balance or loss-harvest).

Your old boss gave you great advice. For maximum diversification, most knowledgeable folks would now use index funds (his "broad and cheap"). I agree with his take on international and bonds. You pick the most appropriate asset allocation for your life stage, risk aversion, and level of wealth and then stick with it for decades and tune out the noise. It is very unsexy, as you point out. It is low-drama. (It is not "safe" but it can not be safe or there is no prospect for respectable returns.) Like us, you probably fared comparatively well this year and avoided the average investor's 40% portfolio decline that I wrote about up above. (We are down way less than half that, as the indices would predict.)

The best books, imo, are the Boglehead Guides (one is Investing and one is Retirement Planning, I think) and Jack Bogle's Little Book of Common Sense Investing. Lots of "aha" wisdom in his tiny, dense book whereas the former are mostly unexciting practical advice like my Dad gave me. I have handed out a bunch of these -- including to my kids' then-HS-aged friends, somewhat inexplicably.

ETF vs. MF...

They are very similar, as you imply.

I was irrationally afraid of ETFs when they were new. I do not fully understand them. I also do not fully understand mutual funds (MFs), though -- or even how a $5 bill is actually worth $5, for that matter. ETFs have finally been "stress-tested" (e.g., March 2020) so they are not quite the black box that they were. They are safe and widely used -- but there can be some wacky pricing for minutes or even hours during an insane market. Savvy investors generally do not trade during those hours anyway.

All our old investments and our employer-plan assets are in MFs. For the last four years or so, all of our new taxable investments have been ETFs. I am comfortable with ETFs and prefer them now.

MFs are priced at the end of the trading day for a single day price -- whether you are buying or selling. ETFs trade like stocks all day, with a bid-ask spread (see below).

There is (in theory) a slight tax advantage to ETFs. I do not know if this will apply in practice. (I forget why but you can Google it.)

If you want to do programmed investing -- like every month, automatically, or from every paycheck, you must use MFs. Plus, that's all you have access to in most employer plans (unless you use a "BrokerageLink"-type window and day-trade with your retirement but that is not a good idea. Understatement.)

ETFs are very portable so, unlike an MF, you will not get forced to liquidate your holding at an inopportune market-time when you leave a brokerage account because you have learned that they are evil or you have been wooed by an attractive transfer bonus elsewhere (keep your eyes open). I really like this feature -- especially as the brokerage market consolidates and customer service deteriorates. And because I hope to pass down some our biggest "gainers" to the next generation rather than take the capital gains hit.

ETFs and MFs can have low or not-so low expense ratios. Always look them up. You can find them on Morningstar or just Google the fund name and go straight to the fund-family site. You can poke around SPDR or iShares and see what their offerings are. For Vanguard and others, they can have near-identical ETFs and MFs with near-identical expense ratios. I use the factors above and below to decide on which to use, but I skew toward ETFs almost exclusively now.

Because ETFs are stock-like and have a bid-ask spread (i.e., the price you get for selling them is slightly lower than the price you get when buying them), you must only use heavily-traded ETFs. I use an assets-under-management threshold of $1 billion. (And that is not super-high for a heavily-subscribed indexed ETF.) For the hot, new (= small), sector-focused ETFs, the bid-ask spread can be huge so you can actually lose a percent or even two when you buy or sell in a volatile market (ask me how I know). For the large index ETFs, the "spread" is a negligible fraction of a percent. You can log on to your account and start a pretend trade with an ETF and you will see how tiny the spread is and watch it widen and narrow slightly depending on which way the market is heading -- and you will see the ETF price fluctuate just like for a stock trade. I did this a few times before making an actual buy -- just don't click "BUY" or whatever. (Do not do this after market hours because you will see an "after-hours" quote that can have a spread of like 10% and is virtually meaningless.) There are great, cheap index ETFs from iShares, SPDR, Schwab, Vanguard, and others and you should be able to buy them in any brokerage.

There are third-party ETF databases that will let you screen for market segment (total US stock market), assets under management, expense ratio, etc. Google the bolded words in this paragraph and you will get to one. It is ad-heavy and annoying but you can quickly rank the biggest/cheapest US large-cap index ETFs, for example. In any one category, there are a handful of obvious great (huge, dirt-cheap) choices and tens of bad ones.

If you must sell at the intraday high or buy at the intraday low (rather than just an end-of-day price for an MF), you will need ETFs. The only reasons we ever trade are: 1) tax-loss harvesting (look it up if you care; it is not essential); and 2) re-balancing if our stock:bond ratio drifts off course by 5%, say (like after a big stock-market run-up; this is essential). For these two purposes, I like to know where I am in the day's range so I love ETFs for this. But for programmed buying (monthly, biweekly) which is essentially "dollar-cost averaging," MFs are fine.

Summary: both are fine, with a few subtle distinctions that are situation-specific.

 

[diamondseeker2006]

You may have decided by now, but like @missy, we have had Fidelity accounts for over 20 years (maybe 30?). I think Fidelity is very user-friendly. It is easy to research and compare funds on their site. We have an advisor (accessible locally) if we need to ask something (which we recently did when doing a new estate plan). We do not use their managed accounts due to the higher fees (and prefer a more simple method in the next paragraph). We have all our brokerage and retirement accounts there, and we have one local bank. We wanted to simplify things as much as possible.

I read some great advice from Warren Buffett once. He said that when he dies, he has instructed his trustee to invest 90% of his wife's inheritance in an S&P 500 fund and 10% in cash/bonds, etc. He says very few fund managers can beat a diversified large cap fund over time. Jack Bogle of Vanguard also had a very simple method of investing in two or three index funds. Vanguard used to be the lowest cost source of funds, but Fidelity has many funds that are as low and several with lower fees. And with the option of many low (and zero) fee mutual funds, I don 't really get the appeal of ETFs for those of us who buy and hold funds long term. Some don't offer automatic reinvestment of dividends and that would be a big no for me.

FXAIX is an excellent S&P 500 fund in which to start investing some money. The prices of everything are low right now and may go lower in 2023. So it is a great time to dollar-cost-average and put money in while the prices are low. It has low turnover of stocks which makes it a good fund for a taxable or tax-advantaged account. Of course, one of our money market funds is getting 4.26% right now, which is amazing considering the last many years of negligible interest. 4.26% is especially appealing in a down market. But it won't last long term because interest rates will likely start coming down in several months to a year.

(Just skimmed @LilAlex 's post above mine and she mentions some of the things I wrote about including Bogle! The only thing I would say I have a different experience on is that we definitely were able to transfer mutual funds from one brokerage firm to ours when my mother-in-law's assets were divided. We did not have to sell any stocks or mutual funds we wanted to keep. But I can't see us ever leaving Fidelity anyway.)

 

[diamondseeker2006]

A bit of apples vs oranges. Question was about brokerage platforms that (I infer) one could use to self-manage. UBS is an old-school full-service broker and I assume, in your case, a money manager. I am not familiar with anyone using UBS as their discount brokerage alone but maybe that is a new thing. Their speciality is separating clients from their money. You may know all of this. If you do not, look up the expense ratio for everything you are invested in. (Google: [symbol] expense ratio.) I am super-curious -- can I challenge you to list those numbers here? Not the dollar-amounts, of course, but the expense ratio for each mutual fund?

If you get exceptional service, you are paying for it. I will do that for 90 min in a restaurant but I will not do that over a 40-year investment horizon. At even a modest fee level (wrap fee + fund expense ratio), your investment manager will earn more from your investments than you do (!) over thirty years. I have said this before here to no great fanfare but I will keep saying it.

The biggest win for "financial services" firms is convincing you to invest in expensive funds that give them kickbacks. After a lot of work, my household finally has an aggregate expense ratio that is < 0.1%. (There are some things that we are stuck with because of capital gains, etc.) Anything below 0.25% is probably OK -- law of diminishing returns, etc.

Mountains of data show that the key to investment success for retail clients like most of us on this forum -- and really even for the nine-figure crowd -- is index investing with the lowest possible expense ratio. And the easiest thing to control is expense ratio. Just as interest compounds, an annual one- or two-percent fee "haircut" compounds (in a very sad way) over your investing lifetime.



First sentence kills it right there. No one has long-term reliably predicted which sectors will outperform. Anyone who could would be a trillionaire. And they asked investment companies -- which are almost universally unsuccessful in outperforming.

I wish I had time to read all your posts...maybe tomorrow! I remember agreeing with you in the past! I am not familiar with UBS, but oh my gosh, my in-laws used Edward Jones and later Stifel when their investment advisor changed firms. You can imagine how sick I was that most of their mutual funds had a 5%+ front end load and the expense ratios weren't good, either! I definitely think those types of financial advisors make more money than the customer. I have a lot of evidence that it is true!

"Mountains of data show that the key to investment success for retail clients like most of us on this forum -- and really even for the nine-figure crowd -- is index investing with the lowest possible expense ratio. And the easiest thing to control is expense ratio. Just as interest compounds, an annual one- or two-percent fee "haircut" compounds (in a very sad way) over your investing lifetime."

I didn't even need to post. I should have just attached all your posts!