[USER]

Looking thing for a little guidance. I didn’t know about FIRE until about a year or so ago. I’m behind, but playing catch-up as much as I can.

I’ve been consulting with a free financial consultant for a few years.

He’s encouraging me to do a backdoor Roth conversion and open up an IRA with his organization. He claims I will have more choices.

There will also be fees, of course, even if his team doesn’t actively manage the account.

Right now, my largest retirement accounts looks like this (see photos please). Fees are about $450/year. It’s from an ex employer so it’s just sitting there in an aggressive mix.

Unfortunately, most of it is pretax so I’d like to start slowly converting it to a Roth if I can.

Questions:
– Are these generally good investment options?

– Is it worth converting to an IRA with a firm that will actively manage it or at least offer more investment options with per transaction fees?

– This seems like a low annualized rate of return for an aggressive portfolio. Thoughts on that?

– Anything else I could do to make up for two lost decades? I have two jobs and live frugally.

Stats:
– 53
– 500k in traditional and Roth
– About $80k in HYS for emergencies
– Making up for lost savings years by choosing aggressive options until I hit 55-ish.

– Laid off in 2023 so lost 6 month’s of savings. Now very concerned about another layoff at this age and don’t count on any future earnings.

– About $160k left on mortgage. Home is dumpy and needs about $100k in repairs to avoid selling as is.

– Parcel could be split into two 2.5 acre home lots but I’d have to pay about $30k in back taxes and end up with improvement costs and three HOA fees if they don’t sell. Plus I lose my privacy and peace.

– Anticipated inheritance of 1 M but I’m not relying on it.
– Anticipated $60k in pension funds.

– Maxing everything that I can while still paying the bills.
– Lost my high-wage job but current salary is still above average for a single person.

– Learning as much as I can from you guys to make up for not understanding this stuff in my younger years and being in low wage jobs until my 40s.

[Vasilios]

Stop immediately and speak with a financial advisor with a CFP

[Richard]

A Roth conversion and setting up an account with this person should be 2 separate decisions. I would NOT do the latter.

[William]

I know some people will disagree… but if you plan on having your IRA in index funds why not go with something simple like Robinhood?

They will give you a match too, no need to pay any fees.

[Tristan]

As a wealth manager I’ll say there is no such thing as a “free financial consultant”. Obviously I see value in paying someone for their advice/management/whatever when needed, but no one works for free.

Not saying this persons advice may or may not be good and appropriate and they may be a great person to work with.

But before doing that I would seek clarity on how they get paid and if that plays in to what they recommend and how they go about those recommendations.

[Jule]

I would absolutely NOT open an account with a sales (that’s the actual technical name of a large brokerage “advisor”) person.

You can do this yourself and save the fees by opening an IRA with Vanguard or Fidelity.

[Christopher]

Each of those 3 funds are great! But you could consider adjusting the allocation. Being more aggressive sometimes means more volatility that could lead to lower returns in the short term.

The Total Market Index includes both of the other 2 but at a percentage based on market capitalization.

The Fidelity Total Market Index is my favorite, out of the 3, with the Schwab S&P 500 Index being a close second.

Keep learning! Read a few books about investing. Consider listening to The Money Guy Show, they have a Financial Order of Operations (FOO) that helps people know where their money could go next.

Create a plan! Keep it simple! If you move your money, consider Vanguard, Fidelity, or Schwab as the custodian for your traditional IRA and Roth.

[David]

– Are these generally good investment options? Yes they are generally good investment options.

But you have way too much in the Small Caps fund IMO.

I would adjust that to be 10% or less. The other two funds are fine.

They have overlap but it doesn’t really matter. You should not be paying fees for someone to put you into those funds.

I don’t understand why you are paying a fee for that. It’s not a lot of money but still why pay it if you don’t have to.

– Is it worth converting to an IRA with a firm that will actively manage it or at least offer more investment options with per transaction fees?

As mentioned by other converting to a ROTH and hiring firm to do active management of your money are separate decisions.

You don’t really need more investment options than that. You’re probably better off just sticking with the index funds you have.

The Roth conversion decision is somewhat complicated and you have to consider many factors.

If you really think you’ll inherit $1M that could be a consideration because your future income and tax bracket could be a factor in the decision.

In its simplest form, the decision in favor or against a Roth Conversion can be boiled down to one question: Are you paying a lower tax rate now than you will be in retirement?

If yes, there’s a good chance that conversions make sense. If not, a conversion likely does not make sense.

Honestly, you need to go through this with an FA and an accountant and you need to educate yourself so you fully understand the decision before you do it.

Doesn’t sound like you’ve wrapped your head around this enough to make that call yet.

– This seems like a low annualized rate of return for an aggressive portfolio. Thoughts on that?

You have way too much small caps which have not performed as well as large caps. That is why you are underperforming badly.

The total stock market is comprised of only 2% small caps. You have a like 30% small caps.

If you want to be overweight small caps go for like 5% or 10% max if you really think they’re going to outperform.

Long story short is that Small Caps may outperform when interest rates drop.

But if there is a recession or fear of a recession they will not do well.

Small caps are riskier than large cap stocks.
– Anything else I could do to make up for two lost decades?

I have two jobs and live frugally. Earning as much as you can, investing as much as you can and spending less.

Continuing to educate yourself about your $. Sounds like you are doing it.

[Travis]

First and foremost, I’m going to recommend you start with talking to a Fee Only Fiduciary Financial Advisor.

There’s a lot of things that go into determining if a ROTH conversation is a good option or how much to convert and what frequency based on income, taxes, tax loss harvesting opportunities, etc.

Another option that might work for you is to call a low cost broker like Charles Schwab and talk to them about rolling over your current portfolio into something like their Schwab Intelligent Portfolios.

It’s a Robo Advisor service that doesn’t have an advisor fee and uses low-cost ETFs to keep the cost down.

It’s basically a set it and forget option in which you can adjust the risks you want to take.

Also, while this isn’t investment advice, I do want to give you something to think about with your portfolio allocation.

A simple aggressive portfolio allocation will look something like this (I stress simple because you can add additional things like Mid-Caps, Emerging Markets, etc.).You can also reduce some of the allocations a bit and add VGT or FTEC if you want a bit more technology exposure.

50% Large Cap (VV or SCHX)
20% Small Cap (VB or SCHA)
25% International (VXUS or SCHF)
5% Cash

I don’t know your specifics or when you want to retire but you should have at least 15 years until retirement if you plan on having an aggressive portfolio.

One thing I also want to add is you may want to look into bonds as well. For one, bonds haven’t been this appealing for close to 20 years.

Bonds trade inversely to interest rates so assuming rates begin to come down, bond prices should go up.

You can also use them to lower your portfolio’s volatility by adding some low Beta treasury ETFs.

Finally, most low cost bond ETFs like BND and SCHR are yielding 4-5% with minimal risk right now.

[Author]

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