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Results of Broker Review

March 15th, 2007 at 10:00 am

Why do I use a full-service broker? It's a good question. My dad was a broker before he was promoted to the home office, so when I needed to do my first 401k rollover it just made sense to ask him to recommend someone. So at least I know I'm dealing with a firm and an individual I can trust. The first time I sold a house, I was originally going to sell it myself, but then balked when I realized how much paperwork was involved in CA. It was a good thing, too, because the realtor correctly priced and sold it for much more than I would have, more than making up for her commission. I think a good broker can help in the same way -- preventing you from making some costly mistakes. DH would probably prefer to see me move the account to Scottrade or someplace similar and manage it ourselves. But I find investing to be really dull, and I know I wouldn't spend enough time on it to do a good job of managing it myself. (I don't agree with DH's investing philosophy, so I'm not comfortable turning the money over to him to manage.) I'm currently trying to educate myself so that I'm an educated client rather than just blindly following what the broker says.

We met with the broker for about 2 hours. His take on the asset allocation was that 50% foreign was just fine. In fact, he recommended that the most aggressive portion of the portfolio should be in funds that have a significant foreign component.

Based on risk tolerance, I'm considered to have a focus on "growth". (The other styles are "income", "aggressive income", "balanced growth & income", and "aggressive growth").

Here's how my retirement portfolio compares to the brokerage recommendation:
cash 4% (rec 0-10%)
income 0% (rec 10-20%)
growth & income 64% (rec 40-50%)
growth 28% (rec 20-30%)
aggressive growth 4% (rec 5-15%)

Although in the past he has urged me to put 10% in a bond fund (ie income), I've always resisted, something I'm reconsidering as I read The Intelligent Asset Allocator. So his recommendation was for me to reduce the growth & income portion by about 20% and move part of it into aggressive growth and part into growth. Since it's in an IRA and the fund family allows changes between the funds without any charge, this is very easy and economic to do. Two of the growth & income funds have so much duplication that he recommended them as good candidates for the move. My "aggressive growth" fund is showing a big profit right now, and when I asked about selling it, he said he could support doing that to take the profit and then dollar cost averaging back in, because it is still a good fund to own.

Here's how my taxable portfolio compares:
cash 4% (rec 0-10%)
income 0% (rec 10-20%)
growth & income 52% (rec 40-50%)
growth 33% (rec 20-30%)
aggressive growth 13% (rec 5-15%)

In the taxable account, we'd like to be closer to 40% growth & income, so he recommended which fund to sell. What he said to do to minimize taxes was to sell an amount equal to the original investment, but to leave the gain. So if you put in $25k and the fund is now worth $35k, you would sell $25k and leave the $10k gain in the fund. No taxes due this year because your sale is equal to your basis. Then if you later wish to sell the remaining $10k, do it when you have a loss that can offset it.

For my ROTH, we're going to sell the one stock that I still own. It's worth about $4k, and is showing a $1k profit. I just don't pay enough attention to own individual stocks.

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