On the Money is a monthly advice column. If you want advice on spending, saving, or investing — or any of the complicated emotions that may come up as you prepare to make big financial decisions — you can submit your question on this form. Here, we answer two questions asked by Vox readers, which have been edited and condensed.
I have a personal adviser that I pay to manage my investment portfolio — but I’m not sure whether I should continue paying this adviser. 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 out between three accounts. My wife and I each have a Roth IRA, and we also have a taxable brokerage account. Two of the ETFs are in each account. Should I continue paying my Vanguard advisor to manage this portfolio?
Dear Advised,
The portfolio your adviser created for you is extremely well balanced. It’s also extremely diversified, in the sense that it includes an enormous variety of individual investments within four larger categories. You and your wife are currently invested in four exchange-traded funds (ETFs) that are designed to track broad segments of the market:
In other words, you are invested in four ETFs that are made up of many, many smaller investments within the indices listed above — total stock, total international stock, total bond, and total international bond. Since you’re effectively invested in everything, your portfolio is likely to increase in value as long as the market itself doesn’t crash.
This kind of investment strategy is designed to get you through the ups and downs of the market without a lot of risk, especially because I’m assuming your adviser is gradually adjusting the ratio of stocks to bonds as you and your wife approach retirement. Stocks offer greater growth potential than bonds but come with greater volatility, so a good investment adviser will slowly shift more of your investments over to bonds as you age. (Since 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 you don’t need to pay an adviser for that.
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Vanguard personal advisers offer additional services beyond portfolio rebalancing, including guidance on how to withdraw money during retirement and strategies on how to manage the taxes associated with investments, so you may have the opportunity to get more out of your advisor than you would out of a target-date fund.
It’s also worth noting that your typical target-date retirement fund is likely to come with a higher expense ratio than a Vanguard ETF, costing you 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 only has an expense ratio of 0.03 percent, which means that less of your money goes towards administering the fund.
I’m not suggesting that you drop your adviser and transfer all of your investments into a target-date retirement fund. I’m not a professional investment advisor myself, which means I cannot provide specific investment advice — plus, I have an extremely limited knowledge of your situation. However, I can suggest that you talk to your adviser about the full range of services they offer and ask yourself whether you are interested in taking advantage of those services.
If you decide you’d rather manage your investments on your own, you could always keep your current portfolio as-is and rebalance it yourself, adjusting the percentage of stocks to bonds every few years.
If you are planning to retire in 2050, for example, you can take a look at Vanguard’s VFIFX glidepath and literally replicate it with your own ETFs. At age 40, for example, VFIFX puts roughly 55 percent of your investments 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 has adjusted 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 sounds too confusing, or if you aren’t sure whether you have enough time to schedule and track regular portfolio reallocations, you may want to just stick with your current adviser.
It’s also worth noting that a good investment adviser may be able to keep you from making impulsive decisions, such as selling during a temporary downturn — and may also be able to advise you on other financial issues such as how much to withdraw during retirement. They may even be able to help you with estate planning, if that’s important to you and your wife. Feel free to ask your advisor what you can expect over the next few decades, and use that response to help you decide whether or not to maintain the relationship.
No matter what you decide to do next, your current portfolio puts you in a great place to get started.
