Help Me think it Through ? Please !

My first time here or any investment. Complete NOOB at age 50.
Here is the situation : Have say USD 300k. Risk level on a range of 1 to 10 (10 being max risk) is 5.5 0r 6. Goal is invest to grow the money but not be stupid and loose it all as still learning the ropes. So with that said,

Should one benefit as a new comer (not overwhelmed by this whole thing) to go with comapny like like Smith Barney Fiannacial advisor or a company like Vanguard or Fidelity asset management. What would be pro and cons with Fund company managing my assets versus say Smith Barney, or even A.G. Edwards ?

Appreciate any experience you can share to help me think this through. Thanks in advance

Cheers,

Tortoise
(Believe in Hare and Tortoise Story)

if risk level is a 5.5 or 6 out of 10, and with a "10" risk, I suggest you could get a 12% annual return, would a 7% annual return be the 5.5 or 6?

You don't need an advisor if you are willing to ask questions, and answer others questions. The market on average has a 10% return over most 20-30 year periods. If you want 11% or 12% you need to take on more risk, and if you are willing to accept a lower return (7%??) then you can take on less risk.

Generally speaking, I think most investors have an expectation of a given return (for me it's 9%), and adjust the risks they take to get the desired return with the least amount of risk.

How long can the money stay invested? 5 years? 10 years? 20 years? 30 years?

Thanks jIM_Ohio. The money can stay there for 10 years as I have already funded out the two teenagers 529k's. So if I use Vanguard or Fidelity (lower fee) it would be OK versus AGE or SB. This awy it isa team effort rom mutal fund comapany versus one persons opinion in AGI or SBarney ? more diversified and yes I can be talked into 7 as risk to shoot for 9 %.

Is that what i understand from your reply ?

Thanks again.

Vanguard/Fidelity are mainly self-serve operations, so you have to do a bit of research and choose the fund(s) you want. That said, both firms have some very solid performers in the stable. My husband is in good Old Reliable VFINX (Vanguard 500 Fund, which mimics the S&P). I'm in VTRIX (International Value).

Investing is not about avoiding risks (IMO) it is about managing them. When all risks are accounted for, that is the optimum portfolio for that investor.

If you think 9% is the desired return, I would look to an 80-20 mix (80% equity, 20% bond). I would split the 80% equity into Large Cap, Mid Cap and small cap, plus foreign large cap and foreign small cap. If you like Fidelity, I might suggest their Equity Income fund (FEQIX), Leveraged Company Stock (FLVCX), Small Cap Growth (FCPGX), Diverisified International (FDIVX) and International Discovery (FIGRX). For the bond position, I would look at a fund like Intermediate Bond Fund (FTHRX) and possibly Mortgaged backed securities fund (FMSFX).

I cannot guarantee the 9% return. I would like to think a mix of below would approach 9% and not take on the risk of the whole market.

30% FEQIX
15% FLVCX
10% FCPGX
20% FDIVX
5% FIGRX
15% FTHRX
5% FMSFX

Each year I would increase the position in FTHRX (bonds) by 1%. Meaning sell profits from other funds (sell 1% of each fund) and move to a 70-30 mix in 10 years.

I own similar funds at T Rowe Price (Equity Income-PRFDX, Mid Cap Growth-RPMGX, New Horizons-PRNHX, International Growth and Income-TRIGX, and International Discovery-PRIDX).

My mix is
45% PRFDX (I also have a position in PRWCX included in this)
15% RPMGX
15% PRNHX
15% TRIGX
10% PRIDX

When I am older (20 years to retirement), I will sell 1% of funds to create a bond position similar to what I suggested for you.

Because you are older, I lowered the allocation suggested for small and mid caps, and reduced the large cap position enough to insert bonds.

With Vanguard you might have to use index funds. If you are so inclined, go for it. I think indexes have too much downside risk, but that is my opinion with many, many people which will disagree.

If the above is invested in a taxable account. OUCH! What I suggested will have a tax bite to it.

Great and Thankyou very much jIM_Ohio . This is really good. I have a lot to read over the weekend now but will make a move in 10 days. i am quite decisive.

So bottom line : forget AGI or SBarney etc for ME IN MY CASE > Go with Fidelity.

Yes it is an ouch for it is all taxable.

Puck. Thanks. i hear you.

Cheers,

Tortoise.

Tortoise,

I usually refrain from mentioning any funds by name, but you already have your mind set on Fidelity I'll throw in my two cents. You will definitely be able to find acceptable returns with less risk than the S&P 500. Just as an observation, your posts are screaming balanced fund to me. Take a look at Fidelity Balanced (FBALX).

Great and Thankyou very much jIM_Ohio . This is really good. I have a lot to read over the weekend now but will make a move in 10 days. i am quite decisive.

So bottom line : forget AGI or SBarney etc for ME IN MY CASE > Go with Fidelity.

Yes it is an ouch for it is all taxable.

Puck. Thanks. i hear you.

Cheers,

Tortoise.

If this is taxable, find tax efficient funds... this would be a situation I would consider indexes. Less rebalancing needed, less yearly dividends. Down markets are more painful, so consider increasing bond allocation around 10% and dropping each equity position 5%.

The likelihood of 9% return after taxes still exists, but is lower.

55% total market index
25% foreign index
20% tax exempt bond fund

maybe open a money market fund with 2k or so, and direct all dividends to this fund, then buy more each year to rebalance.

The taxes on the ones I listed above would make you use my name with 4 letter words... don't do it. The balanced fund will shoot off dividends from stocks and bonds which will increase your tax bill.

Tortoise,

Mind if I ask why you are investing all of it into taxable accounts? What are your tax exempt and tax-deferred options? Are you currently using any of them?

pricespector: To tell you the truth I have no idea on Tax deferred Options? Like I said I am knew to this. The only place I had monies are Money Market Vangurad (90%), Vanguard 500 Index 5 % and Fidelity Short Term Bond 5 % . The 529's are in age based funds and now that they are 17, 16 they are almost in money markets by the fund company. I do not qualify for ROTH IRA. Only Simple IRA.

So where should I be looking and what should I be reading up on now.

Now Fidelity has asset management and they take my cash and invest it with 0.95 % charge per annnum. Give it to them or do it myself. On Cross Roads.

if you are asking questions, you will not need to pay someone for help.

do you work? public/private company or government job? companies usually have a 401k plan. If your company has one this is a good place to start. You cannot put "current savings" in this, but it is possible you could live off current savings and oput up to $15,500 into the 401k. On top of your contributions, some companies MATCH what you put in with limitations (my company matches half of 6%, so if I put in 5%, they put in 2.5%, igf I put in 6%, they put in 3%, if I put in 10%, they put in 3% (match is capped at 3%). That'a a 3% raise/ 3% free money.

There are 403b for government and 457 plans for non profits, I THINK.

These plans put money in PRE TAX. meaning if you make $65000, and contribute $15000 you pay taxes on $50,000 (65k-15k=50k). Taxes on 65k might be $9100/year. Taxes on 50k might be 5100 year. So you save on taxes as well (you are also taking home less).

Tortoise,

What is your current Adjusted Gross income (AGI)? Are you self-employed or working for someone under W2 or 1099?

My AGI is in a bit more excess of 100k I am maxed out at work in 401k pretax deductions each year. The monies to be invested are cash accumulated over the very many many years as a diret deposit to ing and vanguard. Work for a private company that is good to its people and thriving.
So is there any tax optimizing mutual fund out there?

Thanks for all the help guys.
Tortoise

I don't know of specific tax-optimizing mutual funds but I can tell you what to look for. The turnover ratio should be low (less than 40%). You can get this from most Web sites that provide fund research (such as Morningstar) of from the Fund company's site. High turnover means 3 things- first, they're holding stocks for short periods so they generate lots of realized capital gains. Your share of those gets reported to you at the end of the year and you have to pay tax on them. Second, in high-turnover funds, many of the dollars are short-term gains (they show the split for you) and the tax rate is higher on those. Finally, more buying and selling means more money gets paid in commissions.

I have a lot of American Funds, which are very low-turnover, but they have a front-end charge. If you invest over $250K, it's 2.5%. That means that if you invest $300K, $7,500 of it disappears immediately (paid as commission). Lots of people have a problem with this, but that's a one-time charge and their annual charges are very low.

My parents have what you described with Fidelity and they love it. My Dad is a retired investment advisor who went into arbitration with B of A after B of A made a mess of their investments in the dot-com boom, so that's a good endorsement. The advantage of that is that they can tailor the investments to your needs and focus on buy-and-hold stocks to minimize tax impact. I've shied away from it because I'm a control freak. I can monitor the returns on the 15 or so mutual funds I have and occasionally dump the underperformers (with some support from my financial advisor), but I won't be able to track 100 stocks. I have a day job.

One thought on bonds- you're dealing with enough $$$ that you might want to buy individual bonds through a broker, not a bond fund. Commissions on bonds are pretty low. The broker can select municipal bonds with interest that's tax-free in your state and for Federal taxes. I live in Kansas and, while there are bond funds for California, New York and other big states, there's none for KS. So, I have a "ladder" of KS municipal bonds ("laddered" because some mature in a few years, some in 5-10 years, some in 10-20 years, etc.)

Please read my disclaimer. This is not investment advice from a pro- this is just something that I do in my spare time!

Thanks Athena, Yes I think I will go with pro Fidelity or Vanguard and let them talior it for me atleast through a year or two. By then I will have learnt a lot more and this would be safer.
Cheers,
Tortoise

Tortoise,
I don't know if you still read through these posts or not, but I thought I would add a couple cents worth.
Having read through all of your posts, I think you should spend a few $$ and get some sound, unbiased investment/retirement savings advice from an independent financial advisor. The cost to you will vary depending on who you hire and how in-depth your plan will be, but I think in your case it will be money well spent. They can put together an all-encompassing, well-diversified plan that takes into account your 401k investments, taxable savings/investments, your Roth IRA, etc, as well as make plans for disbursing your funds back to you as income after you retire. And smart investment decisions now could make a dramatic difference in available income during your retired years. Read through this thread for other posts on the subject:
http://forums.kiplinger.com/showthread.php?t=5675&page=1&pp=15

And here are a couple links where you may find fee-only financial advisors. You might want to talk to a handful of them to compare their level of service, fees, compatability to you and your financial goals, etc.
http://www.napfa.org
http://www.garrettplanningnetwork.com/pages/splash/index.htm

Best of luck,
Rookie