Two questions here:

  1. What is the best investment strategy for low risk income-oriented investor?
  2. What is an acceptable fee for IRA money management?

I have a 401k account I am looking to roll over into IRA. I would like to make some early disbursements (about half the account over a few years) for the purpose of educational expenses. I was wondering what type of low risk investments would yield the best ROI. The financial adviser at my bank has offered to help and invest it for me but I am concerned that it might not be the best choice as I suspect they probably charge high fees. What would be an acceptable fee?

  • 2
    " I would like to make some early disbursements (about half the account over a few years) for the purpose of educational expenses" I would strongly recommend NOT doing that. You'll pay a 10% penalty PLUS your marginal tax rate, and you lose all future earnings on the rest, which is probably more than the interest you're paying.
    – D Stanley
    Sep 21 '18 at 22:13
  • 3
    Not an answer, but something not to do. "The financial adviser at my bank has offered to help and invest it for me". Just no.
    – void_ptr
    Sep 21 '18 at 22:14
  • 2
    @DStanley There's no penalty if used for qualified higher education expenses. The latter points are valid.
    – Hart CO
    Sep 21 '18 at 22:23
  • @HartCO Thanks. I don't know that was true for a traditional IRA as well. But yes, you'd still pay income tax (and I still wouldn't recommend it).
    – D Stanley
    Sep 21 '18 at 22:25

Risk and reward go hand in hand. Choosing the type of investment is a compromise between the return we want and the risk (fluctuation in value) that we can tolerate. Because of that, there is no low risk investment that yields a high ROI with consistency over time.

As I have written previously, after doing it myself for 35+ years, I considered turning it all over to an asset management company last year. After meeting with a number of them, I found a knowledgeable financial adviser that I really liked and came close to doing it. The 1.00 to 1.25 pct annual fee troubled me because in this era of deep discount commissions, that's a nice chunk of change that would come out of my pocket. At my age, perhaps not as onerous as being 25-30 and having that compounding sucked out for 30-50 years.

One thing that I realized but did not follow through on was that I could have opened a managed money account for the minimum (some as low as $5-$10k) and then mirrored the transactions with low fee ETFs in my brokerage account. My commission cost would have been a fraction of their 1.00 to 1.25 pct annual fee.

  • Do you think the strategy for $10k is the same as a strategy for seven figures, only in lower quantity? It would surprise me if it were. Some investments aren't available below a certain threshold, and personally I start with an anchor of moderately low risk, then the larger my portfolio gets, the more likely I am to add the occasional more risky investment. Not saying a professional would do the same... but I wouldn't want to make any guarantees that they wouldn't.
    – Ben Voigt
    Sep 24 '18 at 4:30
  • @Ben Voigt - Yes and no. Investment management, albeit somewhat cookie cutter in its approach, is now being offered by more and more brokers. A popular one offers different tiers of service (and amount of min investment) and the amount you invest doesn't change allocation. The top Tier charges more and for that, you get more personalized service but the dollar amount you put in is still irrelevant. There's a risk tolerance evaluation and equity vs fixed allocation is derived from that. The one that was best fit me had a $25k minimum. But yes, I could have mimicked their performance easily. Sep 24 '18 at 11:22

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