Math help with IRA returns please

[jIM_Ohio]

Feh, I have been reading books and websites (SA, MMM, Bogleheads, YNAB) for years and more recently with a specific focus on investing. I am an intelligent, educated woman, but for some reason I'm struggling to grasp concepts on this issue, thus I'm asking questions as part of an ongoing effort to educate myself. Because I struggle to understand investing, I trusted my husband in this area. Believe me, I feel very foolish that I trusted my retirement to him. For what it's worth, I was solely in charge of day to day finances, which may be why we both have no debt including my home, excellent credit, a 401k that we will be splitting and a generous EF.

DS, it appears I have a Lifestyle Growth Portfolio with allocations of (rounded numbers) 33% aggressive growth, 30% growth, 24% growth and income and 13% income growth. I have a Lifestyle Balanced Portfolio with allocations of 26% aggressive growth, 20% growth, 21% growth and income and 32% income. I cannot find anything listing individual stocks/bonds etc.

I'm thinking that a target fund for retirement with Vanguard is what I should do. I seem to remember that they have a tool in which you can input your age and target retirement age. I'll have to research that more though. I also think I will put a few months worth of my EF into Betterment because they appear to be a good place for small and new investors to start. From what I've read, they are very user friendly and make it easy for a new investor to monitor your money, which I think will help me to understand investing better. I've always been more of a hands on learner. If/when I finally grasp this concept better, I can switch over to Vanguard with more confidence.

Thank you for your patience with my questions.

Most funds have a 5 letter symbol which ends with X. Post those

For example PRPFX

If you google PRPFX you would find information on that fund.


It's funny that Hancock called funds aggressive growth, growth, income etc...

because most of us are going to tell you

Large Cap
Mid Cap
Small Cap
Foreign Large
Foreign Small
Bond fund
Government Bond
Corporate Bond
Foreign government bond
Emerging markets stock
Emerging markets bond

and similar.

Educate yourself so you know the difference.

For large cap, most people would use an S&P 500 index fund
for small cap there are 2-3 indexes- Wilshire 4500, Russell 2000 would both work
for foreign there is more than one index
for bonds, there is more than one index

which index is NOT important (except S&P 500, that one is fairly common)
index just means a committee chooses companies once a year to add to index- which is a representative average of companies which are large, medium or small.

For large cap stocks, beating the index is tough
for small cap stocks, the tough part is tracking the index

[happygirl]

That sounded more snarky than I intended. I don't think that I am solely responsible for the good financial decisions made during our marriage, nor am I solely responsible for the bad choices we made. My husband was a hard worker. I didn't work outside the home for most of our marriage. And I'm sure he made what he thought were the best decisions regrading our retirement, but now I'm on my own and I want to make my own wise decisions.

[keelerjr12]

First, most advisors would not know how to calculate a rate of return.

There is more than one way to do it, best way is to keep a running total year over year. You haven't done that, so all you can do is look at money in vs current value.



This is NOT an annualized return, just what your return was over a time period. Over 5 years that looks close to good (8-10% per year).

To the OP, this is the TIME-WEIGHTED rate of return. In this case I think you will be better served by using the MONEY-WEIGHTED rate of return also known as IRR since you know the cashflows. Just a head's up...

Edit: Using the cashflows you listed your annualized return is ~ 12.9%.

[disneysteve]

DS, it appears I have a Lifestyle Growth Portfolio with allocations of (rounded numbers) 33% aggressive growth, 30% growth, 24% growth and income and 13% income growth. I have a Lifestyle Balanced Portfolio with allocations of 26% aggressive growth, 20% growth, 21% growth and income and 32% income.

I can't help but wonder how you ended up with both of those, as they are nearly identical portfolios, as you've illustrated. One is 39% large cap equity, the other is 29%. One is 15% international equity, the other is 13%. And so on.

Each of these Hancock funds is actually a portoflio holding many different funds from other companies (T. Rowe Price, Frankling Templeton, Invesco, PIMCO, etc.).

Here's the problem. You are paying a fortune in fees to Hancock in order to invest in these funds.
First, you are paying a 5% load, meaning 5 cents of every dollar you invest doesn't go into your account. It goes to the adviser.
Second, the annual expenses of these funds are sky high. The Growth portfolio is 1.39% and the Balanced portfolio is 1.35%.

You mentioned Vanguard's Target Funds so lets look at those. I don't know how old you are but let's guess that you are in your 40s and pick the 2035 fund. It is 58% US Stock, 25% Intl Stock, 14% US Bond, and 3% Intl Bond. That doesn't exactly match up with your current holdings but keep in mind that as the target date approaches, the allocation changes automatically to become more conservative.

For this fund, you would pay ZERO load. No 5% going to the broker. If you invest $1,000, what goes into your account is $1,000, not $950. You annual expenses would be 0.18%, not 1.39%. That's almost 1/8 the cost every year.

Jim is absolutely right that you shouldn't pick purely based on performance but let's look at numbers anyway.

1 year: Vanguard 7.24%; Hancock 4.48%
3 year: Vanguard 14.9%; Hancock 13.54%
5 year: Vanguard 11.29%; Hancock 9.73%

It is extremely difficult for a high-expense, load fund to outperform an ultra-cheap index fund because of the costs. Were your returns bad? No. They were quite decent. Could you have done better? Definitely.

Again, I want to emphasize that we aren't comparing identical portfolios, so that makes looking at them side by side inaccurate. But you could move to Vanguard and instead of a target fund, you could build a portfolio nearly identical to what you had at Hancock as far as the allocation is concerned.

[happygirl]

Thank you so much for your help.

It sounds like I should definitely make the move to Vanguard, not only because of the lower fees, but also to step out and start making my own decisions for my life. I'm going to research the advice I got here more as well as reading up on Vanguard. I intend to make this change in February, so I'll probably have more questions, although it sounds like Vanguard will be able to help me quite a bit, but my hope is once I'm settled in with Vanguard, I won't do much more than passively watching it and make my monthly deposits for quite a while, so I shouldn't have so many questions then!

This forum is really wonderful!

[disneysteve]

it sounds like Vanguard will be able to help me quite a bit,

One thing Vanguard won't do (or at least not for free) is give investment advice. They won't tell you which funds to choose or how much to put into each one. That's up to you to decide. They can probably answer general questions about which funds might be most appropriate for different purposes but that's probably as far as they'll go.

[happygirl]

I think that will be okay though. I can focus my research specifically on what to invest in over the next few weeks so I can make a decision that fits my style, then I just have to tackle how to move the funds from one account to another.

[happygirl]

Hi everyone, I just wanted to give a brief update.

The customer service at Vanguard has been excellent. They have walked me through the entire process and they kept excellent notes so when I've had to call with additional questions, each person knew my situation clearly and could assist me right away.

I am currently waiting for my accounts to be moved over from John Hancock to Vanguard, which should take another two or so weeks. For peace of mind I will probably use a target fund initially, but I plan to continue educating myself and I've been told I can make changes later.

I really appreciate the input from this forum. You helped bolster my confidence so I had the nerve to do what to many seems like no big deal, but to me was a huge step into my new life.