Vanguard Financial Plan Review: (4) Worth It?

This posts concludes my series on the Vanguard financial plan. See previous posts for details about the questionnaire, the written plan, and the consultation.

I think it was a good checkup. The recommended portfolio allocation was sound. It provided a good roadmap for getting on the right course. For this reason, it should be done early, not when you are already close to retirement. I wish I had done it when I was 25 or 30.

Narrow Focus But Right

Coming from Vanguard, the financial plan was heavily focused on the investment part. The recommendations fell in line with the composition of a Target Retirement fund. That’s not a negative. The recommendations by account still gave a clear roadmap for how to go from here to there while taking into consideration tax consequences. Inexperienced investors won’t be led down a wrong path.

It would be better if the financial plan was broader in scope. The written plan didn’t cover much else except investing for retirement. However, I’d rather have one thing right than more things wrong. I read many reports from people who received a broader plan from companies whose names start much earlier in the alphabet than Vanguard, only to have been steered into expensive investments.

The ultimate test: would I be happy if a family member takes the plan and follows it exactly? I would.

Limited Retirement Outlook Tool

The interactive tool for tracking your retirement outlook was useful but limited.

For young investors, it didn’t allow inputs for salary increases above inflation, varied savings rates, one parent staying home for a few years, etc. For older investors, it didn’t allow inputs for lifestyle changes such as downsizing residence, health care expenses before and after Medicare, and so on.

Because it only used the aftcasting method with historical returns, the outlook may be too optimistic. I would look elsewhere for a better planning tool.

Valuable Consultation

The advisor answered both investment and non-investment questions in the consultation session. After one session that comes with the financial plan, you get continued access to the advisor either by having Vanguard manage your accounts for 0.3% per year ($100k minimum) or through the free Ask a CFP Professional service offered only to Voyager Select or Flagship customers ($500k or more at Vanguard).

For a young investor, having Vanguard manage $100k for a year at a cost of $300 is a better deal than paying $250 one-time because you then have the advisor for one full year versus just one session. I think getting coached by an advisor for one year early on will help shape a young investor’s path forward. $300 is a very good price for that. You can cancel after you are fully trained.

If you already have $500k at Vanguard, I think it’s worth it to have an advisor on standby to answer questions. It’s free. You earned it. If nothing else, for the spouse. You will help create some jobs at Vanguard. It’s good to get an opinion from a trained, salaried advisor versus talking to friends, family members, or random people on the Internet. Why go it alone when you can walk with a guide?

I know some financial advisors read this blog. If you are an advisor, please let other readers know where and how you do it better. I know some readers have a financial advisor. If you have one, please let others know where and how your advisor does it better. Thank you.

[Photo credit: Flickr user SalFalko]

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Comments

  1. Brad F says

    Harry
    Do you know if Vanguard accounts through your employer will count towards 500K total if you personal accounts dont exceed the minimum needed?
    Thanks
    Brad

  2. Harry says

    From Vanguard: Vanguard personal services — assistance you can count on

    “We determine eligibility by aggregating assets of all qualifying accounts held by the investor and his or her immediate family members who reside at the same address, including investments in Vanguard mutual funds, Vanguard ETFs┬«, certain annuities through Vanguard, The Vanguard 529 Plan, and certain small-business accounts. Assets in employer-sponsored retirement plans for which Vanguard provides recordkeeping services may be included in determining eligibility if the investor also has a personal account holding Vanguard mutual funds. Vanguard ETFs and Vanguard mutual funds held in a Vanguard Brokerage Account are also included when determining a household’s eligibility; other assets held in a brokerage account are not.”

    • Brad F says

      I called Vanguard. If job related funds held by investment company, even if all assets in Vanguard products, no dice.

      Vanguard needs to trace the MFs back to you, and they can only see lump sump held at outside entity,

      Brad

    • Harry says

      Yes, they said “employer-sponsored retirement plans for which Vanguard provides recordkeeping services.” Your plan has to be administered by Vanguard, not just having Vanguard funds in a plan administered by someone else.

  3. KD says

    Great advice! Is there a minimum for the Vanguard Personal Advisor Services? I did not see one on the webpage.

  4. TJ says

    Harry, you said that someone who is young with around $100k should pay the 0.30% for a year of management. What is the adviser actually going to do for the year? If they just throw me in LifeStrategy Growth or a target date fund, which I could do entirely on my own, I’m not sure that I see the point.

    • Harry says

      I remember I didn’t know much about investing when I was 30. Observing someone managing multiple accounts as one portfolio in several index funds, with consideration for taxes, and having opportunities to ask why they were doing that would be tremendously helpful. They would also have someone to answer questions such as how much to save, 401k, IRA, Roth, down payment for a home, 529 plan, life insurance, mortgage refinance, what to do with employer stock plan, etc. etc. — basically everything I write in this blog!

  5. TJ says

    I guess I just don’t see the need for ongoing consultation with them. After consolidating my Fidelity IRA to Vanguard, I believe I qualify for the $250 plan and I may just do that to get a double check on what I’m doing, and answer the most important question that I think that you just mentioned, “how much should I save?” It’d be interesting to see what their answer is. Is that worth $250, I’m not really sure….I don’t have 100k in assets though, so I don’t qualify for the 0.3% anyway.

  6. Frank Braccio says

    I counsel my family to start early, the earlier the better, starting with VG STAR fund since It requires just $1000. Then pick small cap.index fund next and then a mid cap fund and finally a foreign index fund. The emphasis should be to fund the small cap as much as possible. I am Luke warm on bonds…prefer not to have them. I stumbled across this formula thru the investment college of hard knocks. Recently two economists (?) wrote a manual suggesting such a strategy and I’ve forwarded it to many.

  7. Jason Hull says

    Harry–

    You asked a financial planner to weigh in, so here I am…

    It looks like what you got was really good for what it was. I would have advised on different piece, but, then again, I don’t know your specific situation.

    There are two ways to take this:

    1) If someone gets a plan with me and has sufficient assets in VG (definitely not a stretch for most of my client base), then use them as a sanity check against what I’ve told the client.
    2) For someone who goes to VG first (a very reasonable choice), use me to fill in the blanks (insurance, budgeting, career planning, real estate, entrepreneurship, estate planning, kids’ education funding, psychology, etc.) that the VG planner doesn’t cover.

    If the VG planner will do all of #2 for free, then DON’T PAY FOR ME! Either that, or use me for a couple of hours to sanity check everything that VG has told you.

    Based on what you’ve said, and without my own personal experience going through this (given that a significant portion of our net worth is in RE and small businesses), it seems like a really reasonably priced service.

    However, investing is only about 20% of personal finance.

    • Harry Sit says

      Jason – Thank you for your comments. I agree with your approach. After settling the investing part, if someone wants help in other areas Vanguard advisors don’t do or don’t do well, then work with an hourly financial planner.

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