Vanguard’s recommended list of funds for investors via “hybrid” robo-advisor
Monday Money Tip: Investment help online and on the cheap
ERIN E. ARVEDLUND, INQUIRER STAFF WRITER
POSTED: Monday, April 6, 2015
Robo-advisers. They’re coming from the future, for your assets.
Actually, the term is just slang for low-cost, Internet-only money managers. Start-ups such as WiseBanyan.com and Betterment.com automate investing with few or no humans involved and offer extras such as tax-loss harvesting.
Betterment’s pitch: Investors pay a fraction of what it would cost at a traditional broker or money manager. Some, like WiseBanyan, offer money management for free. But how?
These young robo-advisers generally invest using ETFs, or exchange traded funds, rather than mutual funds.
At local investment giant Vanguard, the new robo-adviser is a hybrid. Clients of Vanguard Personal Advisor Services “have an online client experience but also an ongoing virtual relationship with an adviser,” says spokeswoman Katie Henderson.
That is, Vanguard Personal Advisor Services recommends mutual funds in which to invest and combines automatic investing with some human help from a financial planner.
Currently a pilot program, Personal Advisor Services will be broadly available by the end of the second quarter, according to Henderson. Account minimums are $100,000 but could drop to $50,000 eventually.
If WiseBanyan.com is free, how does a start-up ever make money? Cofounder Vicki Zhou says $30 million in assets and 6,000 clients are not charged fees for management, but the firm aims to up-sell insurance, mortgages, and other services down the road. Average account size is $5,000. WiseBanyan custodies its client assets with traditional broker FOLIOfn Investments in McLean, Va.
Charles Schwab advertised its robo-adviser service as free, which drew howls of protest from competitors. They noted that Schwab directs up to 30 percent of every robo-adviser account into cash, deposited at Schwab Bank. The bank then earns interest on the account.
“They sweep the cash into their bank, and then brand the robo-adviser as free,” Zhou says. “That creates mistrust of the industry, which is bad for everyone.”
Vanguard’s pilot robo-adviser is not free, although it does use low-cost index funds. Fees total 0.30 percent of the amount in an account annually, 0.44 percent including the cost of the underlying index funds.
Personal Advisor Services had $10 billion in assets by year-end 2014, up from $4.2 billion in the third quarter. Vanguard ramped up quickly by moving a portion of existing Asset Management Services clients over to the Personal Advisor pilot. Against the more than $3 trillion the firm now manages, its robo-adviser is a drop in the bucket.
Vanguard’s recommended index funds are all Admiral-share-class mutual funds – not ETFs, although Henderson estimates the costs are the same.
“We have a large amount of flexibility in terms of recommendations based on the client’s individual needs or preferences, but these are the top recommended mutual funds based on our investment methodology,” she adds.
Monday Money Tip: Personal Advisor Advice
Vanguard recommends these funds to customers of the new Personal Advisor Services. (You can invest in other Vanguard mutual funds, too; no exchange traded funds yet, however). All mutual funds are “Admiral” share class.
Portfolio Recommendation Fees
(both taxable and tax-exempt bonds)
Total Stock Market Index (VTSAX) 0.05%
Total Int’l Stock Market Index (VTIAX) 0.14%
Total Bond Market Index (VBTLX) 0.08%
Total Int’l Bond Market Index (VTABX) 0.19%
Limited-Term Tax Exempt* (VMLUX) 0.12%
Intermediate-Term Tax Exempt* (VWIUX) 0.12%
Long-Term Tax Exempt* (VWLUX) 0.12%
*Purchased in taxable accounts only
earvedlund@phillynews.com
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Read more at http://www.philly.com/philly/business/20150406_Monday_Money_Tip__Investment_help_online_and_on_the_cheap.html#syJTS3I1RaTyeOtH.99
Your, or your family’s, Hurricane Sandy hardship may qualify for 401(k) withdrawal
Happy New Year 2013!
It’s something called the “401(k) hardship distribution.” But you must act by February 1st.
In response to Hurricane Sandy, the IRS liberalized what are known as “hardship withdrawal” rules for victims who had losses resulting from Sandy. Under the relief, 401(k) plans allow participants to take out money until February 2013.
The IRS has said 401(k) plans and similar employer-sponsored retirement plans allow you to take out loans or hardship distributions if you are a victim of Hurricane Sandy or members of victims’ families.
What isn’t well-known is that even a person who lives outside the disaster area can take out a retirement plan loan or hardship distribution and use it to assist a son, daughter, parent, grandparent, or other dependent living or working in a Sandy-affected region.
To qualify, hardship withdrawals must be made by Feb. 1, 2013.
Employees of public schools and tax-exempt organizations with 403(b) tax-sheltered annuities, as well as state and local government employees with 457(b) deferred-compensation plans, may also be eligible to take advantage of streamlined loans and liberalized hardship distribution rules, according to FINRA, the Financial Industry Regulatory Authority (www.finra.org).
Generally, we’re not allowed to take money out of a 401(k) plan while still employed and before reaching age 59½ years. If we do take money early, we pay a 10 percent penalty. There are, of course, exceptions such as death, divorce, or disability.
However, if your plan provides for hardship distributions, and you can show that you have an immediate need, you may be entitled to funds. State disaster areas are eligible, and President Obama declared emergencies in certain cities as well.
Read more at the Philly Inquirer’s website: http://www.philly.com/philly/business/20130101_Your_Money__Sandy_hardships_may_qualify_you_for_401_k__withdrawals.html#ixzz2Gpji8BeC
IRS Raises 401k Contribution Limits
Your Money: I-bonds are an alternative to CDs
We receive pleas for assistance from readers quite often, especially those holding hard-earned savings in certificates of deposit, or bank CDs. The interest rate earned on these is not even keeping up with inflation, currently tracking between 1 percent and 2 percent.
Cry for help received!
Series I savings bonds can offer savers a way to earn better-than-average returns. Sold by the U.S. Treasury, I-bonds offer rates that fluctuate with the inflation rate, which usually increases when the economy improves. Savers who purchase an I-bond before November will receive an effective 1.11 percent annual yield on bonds redeemed after one year, according to MyBankTracker.com.
Series I savings bonds are an alternative to savings accounts or CDs. Though today’s horrific interest rates are very low, those looking to earn some extra cash and have up to $10,000 to invest can earn up to three times the current national average of the 1-year CD rate tracked by MyBankTracker.com (0.55 percent annual percentage yield, or APY). Currently, the highest 12-year CD is 1.10 percent with Bank of Internet and CIT Bank (with a $25,000 minimum).
For more information on I-bonds, visit the Treasury’s website (www.treasurydirect.gov) or call: 800-722-2678 or 800-553-2663.
Are stocks fairly priced?
The Federal Reserve’s low-interest-rate policy is designed to push investors out of savings accounts and back into riskier assets such as stocks. So we checked in with Gluskin Scheff economist David Rosenberg, the strategist whose research we can’t afford! His view is that the stock market is fully priced, meaning its value likely won’t go much higher.
“With earnings now contracting and record margins being squeezed, the reduced prospect of more multiple expansion is likely to leave the major averages range-bound at best over the near- and intermediate-term.” In English, that means stocks aren’t expensive, they’re just about right.
Rosenberg says the trailing price-to-earnings ratio of the stock market is now 15.5. “But looking at five decades of history, we see that the average PE multiple at the peak of the market is 16 times – we are a half-point from that right now.”
From his perspective, “there are slices of the stock market that I do like, even if I am not excited for the S&P 500 as a whole.” It is the part of the equity sphere that behaves like a bond: dividend growth, dividend yield, corporate bonds, municipal bonds, Canadian banks, gold mining stocks (that now pay a dividend), energy and energy infrastructure, consumer staples and discount retailers.
The Fed policy of near-zero interest rates isn’t working, according to Van Hoisington, the longtime money manager of Hoisington Capital. “How the Fed expects the U.S. to gain any economic traction from higher stock prices when rising commodity prices are curtailing real income and spending is puzzling,” he writes in his latest quarterly letter to clients (link at http://bit.ly/Shs2S1).
For every dollar of gained real income, consumption rises about 70 cents, he estimates. Conversely, the Fed actions are causing real incomes to decline, which has a 70-cent negative impact on spending for every dollar loss.
Former Fed Chairman Paul Volcker says the Fed’s latest initiative, a new round of so-called quantitative easing, or QE3, “is understandable, but it will fail to fix the problem.”
401(k) contributions
The IRS just recently announced that it is increasing the 401(k) annual contribution limit to $17,500 in 2013. This is up from $16,500 in 2011, and $17,000 in 2012. The catch-up contribution limit remains $5,500. I found a handy chart of the various limits on 401(k) contributions at the 401(k) Help Center at http://bit.ly/TN51FP.
For the full news release, visit the IRS website at http://1.usa.gov/XKGXYu.
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