It turns out that most people today have had some exposure to the investment markets via their 401k or 403b or an inherited account. If they looked at it at all, they have, at the very least, heard some of the jargon. Part of my job is to find the starting point for proceeding with the instruction.
Why is all of this worth the hassle? Why not just pick up the phone and call 3 advisors in your area and pick the one that is most appealing? There are several reasons why this could be hazardous to your financial health. First, chances are the advisor will charge you between 1% and 2% of the market value of your assets on an annual basis. Doesn't sound like much, but it is. Think about it like this: in retirement, you can draw down approximately 4%/year, adjusted for inflation, of your nest egg. Thus, even before accounting for compounding and the upward movement of the market over time, you will give up approximately 1 year's worth of retirement funding every 4 years, by paying 1%/year!
Secondly, choosing the typical advisor to manage your assets could involve numerous other costs such as expensive mutual funds trading costs, etc. Thirdly, you retain control of your assets. Finally, as pointed out yesterday, chances are the average advior will underperform the market.
Yesterday we saw that the Schwab models specified for us the asset classes to invest in along with targeted percentages. In the specific case we are considering, the client transferred in some Vanguard exchange traded funds. These are well diversified and low cost. We keep them. How do we invest the cash? As we showed yesterday, it is very easy to see where we are out of balance. The following shows the "Large Cap Equity" sector under target by $32,784.
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To get it on target and to find an investment for this sector, go to the listing of the commisison free Schwab funds. At the link, click "Domestic ETFs" on the left hand side. You'll find several choices, including large cap value and large cap growth. A good choice is SCHX, which includes both.
The next step is to get a current price of SCHX. This is easily done at the Schwab site (or just about any financial website, including Yahoo! Finance, Bloomberg, etc.). The price is $31.45, so that by simple division ($32,784/$31.45) we find that buying approximately 1,000 shares will get the sector close to target.
As practical points, I would suggest checking trading volume and maybe execute this trade in steps by doing 500 initially and then 500 an hour later, say. Also, I wouldn't place the trade at the market opening because sometimes overnight news will cause an initial spike in the price.
For homework, you may want to see if you can figure out how to bring the "Fixed Income" sector on target. For this purpose, begin by finding the ticker symbol and price of the brand new Schwab Aggregate Bond ETF.
Tomorrow: Monitoring the portfolio and additional considerations.