Hi Readers,

Four times a year, I post my portfolio performance after each quarter. My purpose is to show you how a broadly diversified, low-cost balanced portfolio reflects the stock and bond markets’ performances. When a friend tells me that their portfolio declined in value, when the stock and bond market returns went up, SOMETHING IS WRONG! Likewise, if my friend says that their portfolio gained value when the stock and bond market lost, you will feel great, but be careful as there is wrong there too. Overconfidence is a prime killer of long term gains.

The point is that we all want our portfolios to increase no matter what the market does. But that’s not a long-range, buy and hold with occasional rebalancing works. Your portfolio must go up when the market goes up and go down when the market decreases.

Additionally, when your portfolio goes higher than the averages, your portfolio may not be as diversified as you think. This is especially true of anybody within ten years of retiring or in retirement. If you are 55 and older, taking too much unknown stock market risk is dangerous. Here is an article to consider: https://www.cnbc.com/2018/08/07/4-questions-that-signal-you-are-taking-too-much-market-risk.html

My portfolio reflects a conservative diversification strategy because I am 72 and retired and I need my nest egg to fund my retirement. Every quarter I share how my portfolio is performing to give you an idea of how a portfolio works in coordination with the stock and bond markets. Why every quarter, you might ask? The Securities and Exchange Commission (SEC) requires all publically traded companies (corporations selling stocks. Not all corporations have stocks for sale) to report a variety of financial data every three months–March 30, June 30 and September 30, known as the Quarterly Report. The December 31st report includes the data for the 4th quarter but additionally, all financial data for the year are tabulated for the history books.

My carefully constructed group of diversified, low-cost investments is an almost perfect model of a boring portfolio. The one exciting feature of this “boring” example is the 10.5% return year-to-date!  

Year-to-Date Return: 10.5% That’s not boring!

Allow me to define “boring.” According to Webster’s, boring means an activity which is “‎Mundane · ‎Monotonous · ‎Tedious · ‎Dull”.  My portfolio just sits there day after day, month after month, year after year with the same investments that I have had for years. At my age in retirement, I make withdrawals when I need money to fund my retirement activities. That’s the only time I make changes, and much of these withdrawals is required by the IRS. Required Minumum Distribution (RMD) means that at 70.5 years old, I have to take a minimum withdrawal because Uncle Sam wants his money after years of deferring income taxes in my 403(b) when I was working.

Bonds Soar in 2019!

The story of my portfolio returns so far this year is my bonds. I have most of my portfolio in bonds because I am 72. I follow John Bogle’s general rule of thumb to have a percentage of bonds approximately equal to my age. In the table above, the total international bond index and total bond market index have returned 9.28% and 8.68% respectfully. With those kinds of returns in the bond market, it is no surprise that my overall portfolio climbed to 10.5% return.

 

 

Costs in Dollars

I’ll show you what my .07% costs mean in dollars. If my portfolio had 2.0% cost, $33,400 would have been deducted. Instead, only $1169.00 was deducted by Vanguard. Along with 20 million other investors, we love Vanguard because of its extremely low costs. I am in great company and invested in a great company.

My costs compared to what many people who also employ an expensive financial adviser are worth repeating.

2.0% cost x portfolio value = $33,400 (Note: 2.0% cost is common in the financial industry).

My actual cost (.0007% x portfolio value = a minuscule cost, $1,167!!!!!!)

I kid you not!!!!!

Your take away: How to monitor your financial adviser to make sure he or she is looking out for your best interests

Monitoring your financial adviser is more complicated than learning and discovering to be your own manager of your money. Many articles have been written to show you how to do this.

Here is a short cut: If you have a financial adviser you have permission to copy this portfolio, my costs, returns, and my calculation and show it to him or her. Ask your adviser what is your year-to-date return as of September 30, 2019, and what are the advisor’s costs, including investment costs such as I have above, and what is your adviser’s fee. And compare my diversification, return, and costs with what I have posted here. Advisers fees are usually in the form of a monthly retainer, assets under management (AUM) or hourly fee.

Remember, I have no adviser and encourage all readers to become DIY (do it yourself). Consequently, you will be paying more because of the adviser, but how much more and are your returns similar to my returns with the conservative diversification plan I have as a retired educator. Recall I have a conservative portfolio with only 33% stocks and 67% bonds. If you are young, you should have more stocks and less bonds than I have, and thats perfectly fine. Thus your return should be higher than my 10.5% If they can not or will not answer these two basic questions like I have illustrated here, hire an adviser who will.  You are probably paying your adviser a lot of money so they owe this to you.

 

 

Admittedly, my portfolio is as simple as what John Bogle has suggested for decades. He said that all you need is the two investments I already have in my portfolio-Vanguard Total Stock Market (ticker symbol VTI) and Vanguard Total Bond Market Index (VBTLX).

Historically, October has been a volatile month but then the markets make up for lost returns during the holidays and the new year. If a 10.5% return holds up by the time December 31, 2019 rolls around, I will be one happy camper! Stay tuned for my end of the year 2019 report for the financial history books.

bye for now,

Steve

Steve’s BIO

Stephen A. Schullo, Ph.D. (UCLA ’96) taught in the Los Angeles Unified School District (LAUSD) for 24 years and UCLA Extension teaching educational technology to student teachers. Steve wrote investment articles for the United Teacher-Los Angeles (UTLA) union newspaper for 13 years. He urged teachers to stay the heck away from the annuity salespeople which aggressively permeate our schools and district offices. He has been featured and quoted in many mainstream media articles about 403(b) plans, including the Los Angeles Times, NY Times, and U.S. News and World Report. He co-founded an investor self-help group 403bAware for teacher colleagues and wrote 7,500 posts in three investment forums since 1997. He testified at California State legislative hearings. As a result of all of these efforts, he honored the “Unsung Hero” award by his teacher’s union for his retirement planning advocacy in 2002.

Since 2006, he served (and still serves) as a volunteer on LAUSD’s Investment Advisory Committee as a “Member-at-Large” and former co-chair. The committee contains collective bargaining reps from the unions and monitors the district’s tax-deferred retirement plans, 457b/403b, of 55,000 former and current LAUSD employees, worth $2.8 billion in total assets.

He started this blog in 2012 to help all PreK-12 public school educators nationwide, especially his Los Angeles Unified School District colleagues. He belongs to a small national group of 403(b) advocates (mostly teachers) who want to bring closer attention to the 403(b). During the last 25 years, 38 newspaper articles have been published and each one says the same thing, TSAs (Tax Sheltered Annuities) are terrible 403(b) plans and the salesperson gets the benefit from lucrative commissions and high costs. Nobody in educational leadership reads these articles NOR talk about the proper place for annuity products publically. We come together at 403bwise.com and 403bwise Facebook page https://www.facebook.com/groups/349968819000560/ Come on over if you want to join us so we can help our colleagues avoid these self-conflicted and high-cost Tax-sheltered Annuities (TSAs).