Back in March, we decided to bite the bullet and transfer our investments from Edward Jones to Vanguard. You can read Part I of this adventure HERE. At the time of that post, we had just initiated the transfers. I wanted to give an update on where things stand and what my thoughts are on the process.
As Things Stand
We’ve successfully transferred our Traditional and Roth IRAs as well as our daughters’ custodial accounts. Our joint account and the kiddos’ 529 plans remain for now. We will get to those eventually, but over 90% of the funds have been moved. The transferred funds are also now exchanged for Vanguard Funds.
The Process
In Part I I discussed the process to initiate the transfers (fill out forms online, print and get a Medallion Signature Guarantee, mail in hard copies, notify my former advisor, etc.) After Vanguard received the forms we were notified that the transfers would commence. From Vanguard’s receipt of the forms to money changing hands was about a week and a half or so.
I expected the funds would have been transferred into our settlement fund when they reached Vanguard. This was not the case. The funds went into a brokerage account (FundAccess) and remained invested in the former mutual funds.
Next, I had to individually sell off each fund, of which there were many. As I previously discussed we had 34 mutual funds (many overlapping, but held in separate IRA/Roth accounts). Each trade incurred a transaction fee of $20 or so. I believe there were some additional fees incurred for the transfers themselves.
Yikes. That’s like $680.
Is it worth it? (I’ll get to that.)
Next, once the sold funds settled into the money market settlement fund, I had to buy Vanguard Funds. This was a piece of cake. The hardest part was settling on our allocation between stocks and bonds, which funds, and whether we would invest in conventional mutual funds or exchange traded funds (ETFs).
What Allocation Did We Go With?
Basically, we settled on a 85% stock/15% bonds allocation. I am now an advocate of simple index fund investing. More specifically, we chose to go with the approach outlined by JL Collins NH in his “Simple Path to Wealth” and put the stock component in Vanguard’s Total Stock Market Index (VTSAX) and the bond portion into the Total Bond Index Fund (VBTLX). For the smaller funds (under $3,000) we went solely with the Total Bond Market ETF (VTI) since we were below the minimum purchase for the lowest expense ratio funds. A couple funds ended up between the $3,000 and $10,000 range and these were placed into the Investor Shares versions of these funds (VTSMX for the Total Stock Market and VBMFX for the Total Bond Market). As an end result, we basically own 2 funds, in each account (Roth, Traditional IRA, etc.). A far cry from where we were a month ago.
Why not put a portion into the Total International Stock Market fund? Since the top US companies have a large international presence, I don’t think we will miss much opportunity abroad. I suspect that international funds are subject to higher volatility… and I know they carry higher expense ratios.
Speaking of those expense ratios…
The Vanguard expense ratios range from 0.04-0.05% for the Admiral Shares and ETFs and 0.15% for the Investor Shares funds. The weighted average expense ratio is now 0.047%. At Edward Jones it was 1.003%. (that’s not a typo).
Putting that into perspective: on $160,000 (roughly the amount transferred) the annual fees would be approximately $1,600 at Edward Jones, vs $75 at Vanguard. That is $1,525 savings in fees this year alone. Factoring in the transaction fees of $680 and we are still saving $845 this year.
That is not bad at all. But if you like that number, then you will love these numbers.
Comparing the Edward Jones portfolio to the new Vanguard lineup yields some staggering numbers. Let’s assume both portfolios would have a matching market return of 6% annually (I don’t think they will, but let’s keep apples to apples here). The chart below illustrates the portfolio balances for the next 30 years.
Let’s pick some points off this baby:
| Years | Portfolio Difference |
| 5 | $9,506 |
| 10 | $28,825 |
| 15 | $48,628 |
| 20 | $84,685 |
| 30 | $216,815 |
By fiddling around with the numbers, it appears the Edward Jones funds would need to outperform the Vanguard funds by approximately 1% per year to match the Vanguard portfolio balance. I personally don’t see that happening. In fact, I’m more inclined to believe the reverse to be true (Vanguard funds to outperform the higher expense ratio funds). This is mainly due to the low fund transactions and low management fees.
Looking at this one final, and perhaps most the most important, way: If I am targeting retirement within a 15-20 year window, then the difference in portfolio performance equates to approximately 1 year of living expense.
If I can shave a year off my working career by spending a few hours moving money around, then I consider that a home run. It’s hard for me to imagine a higher return on time invested.
As an added bonus, almost all of our investments are now in a single location, which greatly simplifies tracking everything.
I am interested in your thoughts on our switch and allocation strategy. Does our approach make sense? Are we missing additional opportunities to improve our performance?
Thanks for reading and check back in next week!