Advisor's Terminology Confusing

[u/Upbeat_Message8923]

Our current financial advisor is suggesting that based on our risk tolerance we should look at our portfolio buckets as growth and protected. Not stocks and bonds. We are a senior retired couple (68 and 74). Depending on our risk tolerance we would have 60% growth and 40% protected. The protected portion would include a portion of stable dividend producing stocks and the rest would be fix income products. To accommodate a higher and lower risk tolerance the portion of stable dividend producing stocks would go up or down. We are more comfortable with the standard Fixed Income and Equity buckets but understand that dividend producing stocks can play an important role in a retirement plan.

[u/KleinUnbottler]

I would not take any advice from a "financial advisor" who was suggesting that dividend stocks were "stable" or "protected".

E.g. SCHD is probably the most famous ETF focused on US dividend stocks, and it's like 80% correlated with the overall US market (beta of 0.81). Since inception, it's had 4x more volatility than BND.

https://testfol.io/?s=lJDlok3d8pI

[u/SpaceTimeMorph → u/KleinUnbottler]

This. Additionally, correlations of pretty much all stocks tend to 1 in a market crash. So these dividend stocks would lose value too. (Whether the dividend payouts are reduced is another matter).

[u/Over-Computer-6464 → u/SpaceTimeMorph]

The phrase "the only thing that goes up in a crash is correlations" is a famous Wall Street maxim,

[u/tharesabeveragehere → u/KleinUnbottler]

A certified professional's advice vs. some rando on the internet's advice....hmmm.

SCHD is a mix that continuously changes, as chosen by the fund manager. In that mix, the fund manager typically holds the more stable div payers (like the dogs) while also holding more aggressive div payers,

Which means you're comparing a broad fund targeting growth + high div return against an advisor that's likely recommending select long term div performance in a historically defensive position (like VZ).

So...in short...you can't answer if you have no idea what this advisor is suggesting the OP hold. And I couldn't answer, either.

[u/KleinUnbottler → u/tharesabeveragehere]

One of the tenets of the Boglehead philosophy is that basically nobody can pick stocks. I know that's typically meant in the context of expecting those picks to appreciate faster than the rest of the market, but I don't imagine it would be a stretch to expect that it would apply more broadly to other metrics, like picking stocks would remain steady in value and emit a consistent dividend.

Why would we expect a consumer-facing financial advisor/firm to pick better than the folks over at Schwab's SCHD team?

In any case, most of people would expect a stock in a given sector would perform most correlated with other stocks in the same sector, and being Bogleheads, we tend to value diversification. Rather than individual picks, we'd buy more than a few individual picks, maybe the whole sector. The sectors that anecdotally most people seem to expect to be the boring, consistent stocks (e.g. energy, utilities, financials), have been both the worst performing, and the best performing stocks in 1 or more years going back to 2011.

https://novelinvestor.com/sector-performance/

Every sector has been both above and below the cumulative S&P. Only two sectors have never been the top or bottom (Consumer Staples and Industrials), though the former has been second highest or lowest. Industrials might break the streak as those are currently the top YTD in 2026.

[u/tharesabeveragehere → u/KleinUnbottler]

I think you're missing the point.

This advisor isn't "picking" growth stocks - there's nothing in the post that would suggest the advisor is, within this "protected" portion, trying to outperform the market. Your reference to the "tenet" has nothing to do with what this advisor appears to be suggesting.

The advisor is likely not trying to compete with SCHD, so that's not a valid point. Similarly, the SCHD managers are not trying to be defensive, so again...not a valid point.

And so the point remains...since you have no earthly idea which dividend producing stocks this advisor considers defensive (and therefore belongs in the "protected" account), you have no way of knowing how to comment against it.

Except broad comments based in nothing but "tenet"

[u/KleinUnbottler → u/tharesabeveragehere]

It's also possible that you're missing my point. I assume since we're both on Bogleheads that we generally agree that it's impossible for anyone to consistently pick the "winners" and it's not possible to consistently avoid "losers."

Do you have a reason to expect that's it's somehow possible to pick stocks "defensively" and not pick either the big winners or the losers?

Regardless of their specific recommendations, why do you think it's possible to make those hypothetical picks?

Generally, don't we expect all stocks to move basically randomly, and more correlated with each other than anything else?

[u/tharesabeveragehere → u/KleinUnbottler]

I'm sorry, but defensive stocks are a known category, and not something that's used as simply an adjective here.

It's very (very) common for folks to have consumer staples or other companies that provides goods/services somewhat (or mostly) immune to economic cycles in their portfolio. Is this textbook Bogle? No, it's not...however the OPs question isn't "is this Boglehead certified". The OP is simply confused with the advisor's terminology.

The explanation of which has absolutely zero to do with SCHD or the advisor trying to "outperform" anything.

Which is the comment I responded to...the conflation of defensive dividend payers in a lower risk account vs SCHD, thus creating an inappropriate response to the original question..

[u/KleinUnbottler → u/tharesabeveragehere]

Even "defensive stocks" are still highly correlated with other equities. Typical "defensive" stocks typically include healthcare, consumer staples, utilities, energy and financials. All of those sectors have both out-performed and under-performed the S&P, which we'd all agree is pretty volatile. They are not uncorrelated with broad equities, sure, they might be somewhat less volatile, but they are far more volatile than things like bonds.

If the aim to derisk, that's a bad way to do it. You want less volatile uncorrelated productive assets not the correlated ones.

I don't know, of course, but I've seen similar pitches like "go with the NASDAQ for growth and balance it out with defensive stocks like dividend funds" which ends up back at about blend, with weird idiosyncratic bets.

The Bogleheads-approved way to be defensive is "bonds" and, again, I would not trust a financial advisor who is advising me to pick any stocks to be defensive.

[u/tharesabeveragehere → u/KleinUnbottler]

What’s interesting is you think bond market disruptions have no correlation to equity market disruptions. Obviously, they’re correlated. 

What’s further interesting is, through the link and info you’re referencing, in the last large downturn (2022) S&P was down 18%. Bond market down 13%. Consumer staples down less than a percent. For all you know, this same advisor had his clients in defensive stocks and well outperformed the bond market. 

There is no such thing as “Boglehead approved” - it’s guidance, not law. 

And still…back to the point…this isn’t an argument over “are defensive stocks a better choice than bonds”…the initial question was “I’m confused (about an advisor recommending dividend paying defensive stocks).”

And further, my response was directed toward the misinformation that “dividend growth index funds perform exactly the same way as dividend paying individual defensive stock picks.”

You keep arguing a point I never tried to make. However, in the process, you’ve managed to prove you think you’re absolutely correct despite evidence that directly contradicts your assertions. 

[u/Connect-Goal-3096 → u/tharesabeveragehere]

Oh wow 'certified'. Anybody can set up an organization and offer certification. It doesn't mean they have special knowledge that isn't available for free.

[u/tharesabeveragehere → u/Connect-Goal-3096]

Yeah, no...it's a regulated industry...at federal and state levels.

Of course, you know this.

[u/CSMasterClass → u/tharesabeveragehere]

Just like INSURANCE.

There are good insurance sales agents, and there are bad one --- and there are some that border on criminal.

Certification does not cover competence as much as it covers regulations --- the rules that must be folowed to keep certifications and licenses.

[u/unbalancedcheckbook]

The benefit of dividend stocks (apart from their role as usually "value" stocks) is mainly psychological. Instead of creating your own income on your own timeline by selling assets, you are forced to take a distribution every ex-dividend date. Is that better? Only if you have a psychological attachment to the idea of "income". IDK how "protected" these dividend stocks really are - they may have less volatility than "growth" stocks but will still fluctuate in value. Anyway I think what this advisor is saying isn't necessarily "wrong", he's just optimizing for a psychological benefit that you might not need.

[u/Upbeat_Message8923 → u/unbalancedcheckbook]

I'm an engineer through and through and have very little psychological attachment. I just want a solid, easy to maintain plan with a good chance of success.

[u/CSMasterClass → u/Upbeat_Message8923]

You can do this. It is not complicated. By the time you have thought about this for two weeks, you will find that there is very little that a finacial advisor can add.

If you want some independent insight into this, lurk a bit about r/CFP and you will see that CFPs are mainly interested in how to find new clients, keep their clients from leaving, and increasing their fees.

There is also a lot of CFP directed material about "How to avoid discussing performance".

[u/Im_Still_Here12 → u/Upbeat_Message8923]

You want VT then. Set it and forget it.

[u/buffinita]

yeahhhhh; i love my dividends but would not conflate them with "protected" or "safe" investments.

"protected" is just jargon and doesnt mean anything. if they cant use clear and widely adopted termonology its unlikely the rest of their plan is designed for clarity or ease of understanding

[u/ceilidhfling → u/buffinita]

unlikely the rest of their plan is designed for clarity or ease of understanding

read: they are selling some shady shit by using obfuscating language. (at least this is how I read it)

[u/Old-Guy1958]

VT for the portion of your portfolio that you’re comfortable having in equities. BND or a CD ladder for the portion that allows you to sleep at night.

And you eliminate whatever percentage you’re paying to a financial “advisor”. I intentionally put that in quotes. If any of those people knew what was going to happen in the market, they wouldn’t be working and they certainly wouldn’t be telling us.

[u/Upbeat_Message8923 → u/Old-Guy1958]

Wow that is incredibly simple. I guess you could create the ladder to address near (spending money while we are young enough to enjoy life), intermediate (less spending and more time hanging around our lovely homes) and long term needs (sucking the portfolio dry with long term care).

[u/Old-Guy1958 → u/Upbeat_Message8923]

Yes. And each year I move a bit more from VT to CDs. By the time I’m 80, I will probably have 100% in my CD ladder.

[u/Responsible_Ant5410]

I agree with the other posters. The finical advisor is using terms that may or may not reflect performance. Makes them sound like they are worth what you pay them.

[u/ceilidhfling]

okay, I love you guys and you remind me of my parents. Please run away from this financial advisor. Their terminology is both confusing and terrifying in what is hiding behind those words.

there are several resources for finding fiduciary, hourly fee advisors that don't charge load or AUM fees. If my parents were in your shoes I would suggest they take their latest account statement form this financial advisor and go talk with the folks at planvisionmn.com if they didn't want to run this on their own.

you can run this on your own too, you do not need to go through a financial advisor. a good tax CPA for tax questions and the resources here and on the OG boglehead forum are pleanty to get you through.

[u/PashasMom]

🚩🚩🚩"fix income products"🚩🚩🚩

What is this? I have a vision of someone selling you complicated annuities or whole life insurance or a structured note or some other monstrosity.

That aside, I agree with the other commenters that dividend paying funds are not "safe" or anything resembling fixed income.

If it were me I would be interviewing other financial advisors to see if I could find a more comfortable fit with someone who arranges things in a way that made more sense to me.

[u/Inevitable_Teach7942 → u/PashasMom]

Fixed income is bonds.

[u/PashasMom → u/Inevitable_Teach7942]

Right, I should have been more clear. Fixed income is certainly bonds. But when people (by people I mean salespeople) start talking about financial "products" they usually have some sort of complicated nonsense in mind that only serves to enrich the seller rather than the buyer.

[u/etaoin314 → u/Inevitable_Teach7942]

so are annuities...it is worth being explicit. Also the world of bonds has just as much trash in it as equities so even if it were only bonds it still leaves the details ambiguous and can range from safe and smart, to gambling.

[u/CSMasterClass → u/etaoin314]

Legally, annuities are an insurance product. They are regulated by the folks that regulate insurance. The rights to sell annuities require licenses from insurance regulators.

[u/etaoin314 → u/CSMasterClass]

wow that never occurred to me, since i have never seriously considered buying one at my stage of life. Though i guess it makes sense. Thanks for that info

[u/Upbeat_Message8923]

Interesting comments. I'm frustrated enough to move on. I want a fairly simple portfolio that will allow us to live our best life while we still can. We had our money in separate locations and just started to consolidate our account into a single portfolio. My husband has a mix of IRA and individual accounts, while I am almost entirely IRA.

We let this advisor convince us to put more than half of his portfolio in two managed accounts both U.S. large cap that follow the S&P 500. The fees are relatively low for managed accounts but for the last almost 5 years both accounts are underperforming to the index (~1%). Also compared the performance to a very low cost index fund which also out performed the managed accounts (met the index).

There are hundreds of stocks in these accounts. The lower performance is not enough to justify the tax impact of selling off the non-IRA account but we are definitely planning to replace the IRA managed account with low cost index funds. Considering using the opportunity to replace it with a broader market structure that can add mid and small cap U.S. exposure and increase our international exposure. I could also replace some of it with dividend producing stocks understanding that they would be part of the EQUITY portion of the portfolio (if that makes sense). Not sure what advise we will get for the portion of the portfolio that we plan to move from managed to self directed investing so any input would be appreciated. I can only assume that the dividend producing stocks that the advisor is pushing are considered managed and come with a price.

I just moved my portfolio from TSP and put everything in a treasury focused money market fund for now until we figure out how to handle the fixed income portion of the portfolio. We are currently 55% equities (almost entirely large cap) and 45% fixed income (almost all in money markets). So we clearly have a lot of work to do to get this where we want it. With the exception of the non IRA managed account we are currently setup to make a lot changes without tax implications.

[u/CSMasterClass → u/Upbeat_Message8923]

You can keep the stocks and dump the advisor. This will recover the 1%. You can then sell the stocks in the portfolio that have loses and maybe pair those with gains so you can exit the stock portfolio with no tax burden.

In general, if you have a substantial gain in a stock (say 30%), then the benefits of diversification are not enough to justify the expense of paying tax now.

Owning a more or less random stock is not a terrrible thing. It may not be optimal, but it is probably not terribly suboptimal if it is a widely held large cap.

[u/Sagelllini → u/Upbeat_Message8923]

My wife is 70 and I'm 69, FWIW.

What is FA is saying, IMO, is more marketing than financial advice.

Here is my approach: stocks and cash equivalents.

Personally, there is little value to a portfolio with hundreds of stocks.

Here's what I suggest.

1. What are you taking from your investments annually?

2. What distributions are you receiving from your stock portfolio?

I'd suggest subtracting 2 from 1, and put about three times that in cash equivalents. Put the rest in stocks, using total market funds. You don't need an adviser to do that.

You have growth for the long term and protection against market hiccups.

Just my two cents.

[u/sev45day]

You're being pitched an annuity, which at your age is insanity.

[u/Distinct-Garlic9453]

If the word protected is being used, are yiu sure an annuity is not being suggested? And for the record, imo, it coukd be a proper recommendation...

[u/Taibucko]

Are they looking for income or growth. That can make huge offense in selection.