Can someone help direct me what to do with 401k?

[DVCcurious]

You are free to believe whatever you want to believe.

You can find a CFP who sells loaded funds. Those are usually just sales people who have no real expertise in tax or investing. One of my friends in college got a job after college selling loaded funds and her knowledge of investing was just terrible and, frankly, wrong. These types will take your money and help you "invest" with their company and take their 6% cut and offer you advice that is not any better than if you just walked up to a guy on the street.

You can find CFPs who manage all your assets and charge you an annual fee of like 1%. These are the types I would recommend. However with 13,000 in assets your manager would get $130 per year. Let's be real here: how much of this manager's time are they going to spend on your account for only $10 per month?

That's why I said $500k as the cutoff. At that point the manager gets $5k per year from managing your account and that's enough money they'll actually put some thought behind it.

There's nothing wrong with having $13k saved. But you need to realize that at that point you should just buy no load funds at fidelity or vanguard. You don't require any special expertise because you just aren't wealthy enough to need it.

Use Vanguards funds because they are low cost - i.e. every mutual fund is going to take a small percentage each year to cover their costs, pay the people who are the "experts." Vanguards are the lowest. And index funds don't take an expert - you invest to the index.

For 90% of people, this is all you need to know, and why pay anyone anything for that?

You are so right. For the vast, vast majority of people all they need is to invest in a low cost index fund and they will be fine. If you don't have a lot of money, your own business, or other "special" circumstances you don't need to pay someone to help you. You will be better off just buying an off-the-shelf S&P 500 index fund and waiting for time to do it's thing.

 

[crisi]

There is a third kind of CFP who will charge you hourly. They are really hard to find, but when you can find them, often the best deal. They aren't selling you highly loaded mutual funds to make their money from commissions, and because they get paid per hour, they'll spent their hour on your $13k. However, you are paying a professional, and a good one is going to cost money. If you are using a CFP because you don't want to do your own research, it can be expensive to have someone explain basics to you, or spend two hours reviewing what you have.

Always ask yourself "how is the financial professional getting paid" - because you are paying him or her. If you aren't, its either someone doing you a personal favor or you are getting sold something with a commission. I bet you NewRVLady's friends sister made out like a bandit for treating a bunch of people with a little respect and all the advice she gave them was advice that was a good deal for her.

 

[eliza61]

There is a third kind of CFP who will charge you hourly. They are really hard to find, but when you can find them, often the best deal. They aren't selling you highly loaded mutual funds to make their money from commissions, and because they get paid per hour, they'll spent their hour on your $13k. However, you are paying a professional, and a good one is going to cost money. If you are using a CFP because you don't want to do your own research, it can be expensive to have someone explain basics to you, or spend two hours reviewing what you have.

Always ask yourself "how is the financial professional getting paid" - because you are paying him or her. If you aren't, its either someone doing you a personal favor or you are getting sold something with a commission. I bet you NewRVLady's friends sister made out like a bandit for treating a bunch of people with a little respect and all the advice she gave them was advice that was a good deal for her.

Very true but as I said originally the 13k hopefully is not the "end" game. The object is to develop a relationship so when the op has 1.3 million they have found a competant person whom they trust. The problem is too many people's say just what you are saying "oh that little bit of money isn't worth much" all the millionaires I know start a little bit of money. When my dh started his business we had developed business relationship with banks , cpas and cfp's well before we had large accounts.
Not all financial planners are crooks out for themselves.
Lol whew I suddenly want to send my guy flowers evidently he's the only honest cfp out there.

 

[tvguy]

Listen, you have 13k. To a financial professional that's nothing. Most CFPs and CPAs won't even bother with anyone who has less than 500k. It's just not worth our time. So if you go to a CFP you're going to get the amount of attention from them that you deserve: nothing. You just don't have enough cash to be worth anybody's time. The CFP has to make money so you'll be charged something, somewhere along the line. There's nothing wrong with this, it's just how business is done.

CFPs provide a valuable service....to those with a lot of money. If that's not you then you don't need a CFP.

A $500 to $1,000 minimum balance is the norm. I suspect any CFP that had your attitude would soon be hearing from the Certified Financial Planner Board of Standards. Realizing that the average IRA balance these days is $89,000, I think most CFP's would be delighted to have an entry level client with $13,000, someone that is going to be a client with growing assets over the next 30 or 40 years.
As for CPA's, my next door neighbor is making a nice living dealing with smaller clients.

 

[crisi]

Very true but as I said originally the 13k hopefully is not the "end" game. The object is to develop a relationship so when the op has 1.3 million they have found a competant person whom they trust. The problem is too many people's say just what you are saying "oh that little bit of money isn't worth much" all the millionaires I know start a little bit of money. When my dh started his business we had developed business relationship with banks , cpas and cfp's well before we had large accounts.
Not all financial planners are crooks out for themselves.
Lol whew I suddenly want to send my guy flowers evidently he's the only honest cfp out there.

When you have $1.3 million, the rules stay the same - you still will do best with your Vanguard index fund, most money managers won't beat it, and again, why pay them to not beat something you can buy with no load and a tiny expense ratio?

Warren Buffetts will instructs his estate to put all his wife's money (the stuff he isn't giving to charity) into Vanguard index funds. In fact, even his charitable contributions are supposed to go into Vanguard index funds - the charities are supposed to use the gain. And he is leaving his wife far more than $1.3 million dollars.

There are some worthwhile questions you look for advice on. Small businesses should have a financial professional - but get a CPA, not a CFP. If you have an estate that will trigger estate tax, you need a professional - but talk to an estate attorney, not a CFP. Taxes should be done by an EA or CPA, not a CFP. Trusts should be set up by a trust attorney (who often also does estates), not a CFP.

 

[tvguy]

I do not know what the fee would be for a CFP who handled that $13,000. I just know that there a number of CFP around here that hold free luncheon seminars......to attract small and beginning investors. So they must make something if they can afford to buy these folks lunch and still make money on servicing their account.

 

[crisi]

I do not know what the fee would be for a CFP who handled that $13,000. I just know that there a number of CFP around here that hold free luncheon seminars......to attract small and beginning investors. So they must make something if they can afford to buy these folks lunch and still make money on servicing their account.

It would generally be embedded in the commission - they'd get 1.3% (or whatever) of your $13k investment for as long as you own it. i.e. it looks free to you, it isn't.

Now, I only plan on making 8-10% a year on stocks, I don't need to give 1.3% every year to anyone.

Or, the fee would be 1% of your assets if you use a high end "wealth consultant" - those are the ones that won't deal with you if your portfolio isn't enough to bring them in a few thousand a year.

Or you pay per hour, but the guys running free seminars aren't usually the ones charging hourly. Plan on $150 to $300 an hour. Probably not really worth it for a $13k rollover.

 

[DVCcurious]

Crisi you and I are in agreement.

CFPs don't provide service for FREE. You have to pay them something for their time.

If you don't own a business, have estate planning issues, or have other "special" circumstances than a CFP won't be able to add value above and beyond what you pay them.

90% of active managers do not beat the S&P 500's performance.

Said another way: If you put your money into index funds at Vanguard and I use a CFP to plan for me you will come out ahead 90% of the time.

Why pay someone to give you sub-par performance?

To the OP: you can do whatever you want, but it's been proven, time and again, that passive investing in index funds is the best way to invest.

 

[tvguy]

It would generally be embedded in the commission - they'd get 1.3% (or whatever) of your $13k investment for as long as you own it. i.e. it looks free to you, it isn't.

Now, I only plan on making 8-10% a year on stocks, I don't need to give 1.3% every year to anyone.

Or, the fee would be 1% of your assets if you use a high end "wealth consultant" - those are the ones that won't deal with you if your portfolio isn't enough to bring them in a few thousand a year.

Or you pay per hour, but the guys running free seminars aren't usually the ones charging hourly. Plan on $150 to $300 an hour. Probably not really worth it for a $13k rollover.

That would be lousy marketing. Getting a new client with $13,000 as their first investment, with the potential of 30 or 40 years of additional investments, sounds like just plain good business.

 

[tvguy]

I asked the CFP we have on our newscasts about this type situation.
He said no major firm is going to turn down someone with only $13,000. An account with a $1 million is certainly going to make him more money, but in a big firm, that account would likely end up with one of the newer CFP's. With work, and additional deposits over the years, in 30 years it could end up as a $1 million account. Every business needs new customers, even entry level ones.

 

[crisi]

I asked the CFP we have on our newscasts about this type situation.
He said no major firm is going to turn down someone with only $13,000. An account with a $1 million is certainly going to make him more money, but in a big firm, that account would likely end up with one of the newer CFP's. With work, and additional deposits over the years, in 30 years it could end up as a $1 million account. Every business needs new customers, even entry level ones.

Sure, the major firms are all commission based. They aren't going to turn down the commission. The point is - why would you pay it? And since they work on commission, their advice has built in conflict of interest - they want to sell you the investments that make them the most money - which means the ones with the highest load.

The folks that will turn you down are the independent wealth managers - they work on a percentage basis - therefore the percentage needs to be worthwhile.

The hourly folks will take you on, if you can find one and if its affordable.

 

[crisi]

(The logic is you never want to use a commission based CFA - due to the conflict of interest. A fee based advisor is best. The ones that work on a percentage of assets are supposed to be more interested in helping your assets grow - since 1% of 1.2M is bigger than 1% of 1M. But you can see where they need to be working with significant assets to make it worth their time. However, as DVCCurious said, few people beat the index, and why would you pay anyone a commission - or any sort of fee actually - to not beat the index?)

 

[tvguy]

(The logic is you never want to use a commission based CFA - due to the conflict of interest. A fee based advisor is best. The ones that work on a percentage of assets are supposed to be more interested in helping your assets grow - since 1% of 1.2M is bigger than 1% of 1M. But you can see where they need to be working with significant assets to make it worth their time. However, as DVCCurious said, few people beat the index, and why would you pay anyone a commission - or any sort of fee actually - to not beat the index?)

And the fund you choose can also impact what you pay. Many in this thread have spoken of Vanguard, which is fund that charges a commission.

 

[havaneselover]

And the fund you choose can also impact what you pay. Many in this thread have spoken of Vanguard, which is fund that charges a commission.

Yeah, about 0.2%. Their fees are so low because they manage so much money ($2.4 trillion). I've had an account with vanguard since my early 20s. Their fees are low and their service is great.

 

[crisi]

And the fund you choose can also impact what you pay. Many in this thread have spoken of Vanguard, which is fund that charges a commission.

Vanguard charges a very low management fee. But a lot of commission based CFPs won't even sell their funds (you can't buy Vanguard through the investment group at my bank - you can self service if you use their brokerage service). Other mutual funds have much higher loads. The ones CFPs push tend to have very high loads, both management fees and commissions - because that's where commission based CFPs make their money.

(Vanguard's management fee is called an expense ratio - well, any mutual fund management fee is the expense ratio - the sales commission is called the load. The load can be front end or back end. Here is a Fool piece on load: http://www.fool.com/school/mutualfunds/costs/loads.htm). Additionally, your broker may charge a trading fee. That's the $10 you pay to buy or sell independent of load. I get 100 free trades a year through Wells Fargo as long as I use their self service web site - talking to someone to help me trade costs me $20 a trade or something - exceeding my 100 costs me $10 a trade).

 

[Kies99]

Sorry, wrong thread.

 

[tvguy]

But to the OP question, you have a whole lot of options.