Please review my Roth IRA - thanks

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Please review my Roth IRA - thanks

Postby xpat73 » Fri Dec 28, 2012 11:56 am

Vehicle: Roth IRA
Company: Fidelity
Age: 39
Single
Income: $107,000
Portfolio Total: $27,317

Stock

Fidelity Spartan 500 Index Fund (Advantage Class) - FUSVX, Expense Ratio .07: $14,000;
Fidelity Spartan Extended Market Index Fund (Investor Class) - FSEMX, Expense Ratio .1: $5,546

Bonds

Fidelity Total Bond Fund, FTBFX , Expense Ratio .45, $5000
Fidelity Capital & Income, FAGIX, Expenses Ratio .77, $3251

Bonds: 30%
Stock: 70%

Before you pounce:

1. I have broken the Bogle rule of age = percentage of bonds. But I just feel I have a greater tolerance for risk so I shaved 10 points off my bond allocation.
2. I know I probably have too much junk bonds in FAGIX
3. I have taken advantage of Fidelity lowering the min amount to get into their lowest expense ratio index funds like FUSVX and FSEMX - trying to follow the Bogle rule of low expense ratio index funds.
4. I do feel like I am paying too high expense ratios for my bond funds - should I just consolidate the FAGIX and FTBFX into a garden variety US long treasury bind fund like:

FLBFX, exp ratio .1 - long term treasure bonds (min to invest $10,000)
FLBIX, expense ration .2 - long term treasury bond (min invest $2,500)

5. My plan would be to transfer my FSEMX shares into the even lower expense ratio mirror fund - Spartan Extended Market Index Fund - Fidelity Advantage Class(FSEVX), Exp ratio .07 (min to invest $10,000) once I have reached that $10,000 min.

6. I have little to no international exposure, but again, it seems to me that the international funds have higher expenses ratios. Are they worth it?

7. How many funds should I have? Do I have too few or too many? I feel like maybe I should have one or two more - provided they had low expense ratios.

8. Am I diversified enough?

Fidelity Cash account (Not in Roth IRA)

9. I have $2500 in cash and will be adding $1000 to it every month going forward. I am saving for a down payment/emergency fund - should I just leave it in cash or should I put it in a conservative bond fund just to stop it losing value to inflation?

Thanks in advance everyone. Le me have it!!
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Re: Please review my Roth IRA - thanks

Postby Jay69 » Fri Dec 28, 2012 1:00 pm

xpat73 wrote:
Before you pounce:

1. I have broken the Bogle rule of age = percentage of bonds. But I just feel I have a greater tolerance for risk so I shaved 10 points off my bond allocation.


So you close to age -10 in bonds, seems good to me. Some like age -20 for bonds.
"Out of clutter, find simplicity” Albert Einstein
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Re: Please review my Roth IRA - thanks

Postby letsgobobby » Fri Dec 28, 2012 1:25 pm

xpat73, is this your entire retirement portfolio? Do you have a 401k, 403b, etc? Do you have a pension? I wouldn't want to look at a just a Roth IRA out of context.

The broadest Fido bond market index is FBIDX, I think. Its expense ratio is 22 basis points. It benchmarks to the Barclays aggregate bond index.
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Re: Please review my Roth IRA - thanks

Postby xpat73 » Fri Dec 28, 2012 1:27 pm

letsgobobby wrote:xpat73, is this your entire retirement portfolio? Do you have a 401k, 403b, etc? Do you have a pension? I wouldn't want to look at a just a Roth IRA out of context.

The broadest Fido bond market index is FBIDX, I think. Its expense ratio is 22 basis points. It benchmarks to the Barclays aggregate bond index.



Yes - it is everything I have.

I am getting close to not being able to contribute to my Roth IRA due to the income phase out.

However, I qualify for my company 401k on Jan 1st.

BUT - the mutual fund options are simply awful (no fidelity, no vanguard, no index funds, high expense ratios, loads) in the plan and it does not match at all.

So I am sticking with my Roth IRA for now.
Last edited by xpat73 on Fri Dec 28, 2012 2:29 pm, edited 2 times in total.
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Re: Please review my Roth IRA - thanks

Postby letsgobobby » Fri Dec 28, 2012 1:48 pm

There is no income phase out for 401k contributions. You may be limited somewhat as a highly compensated employee? But you still should be able to make some contributions. I wonder if you're confusing your eligibility for an IRA or Roth IRA?

I think your Roth IRA allocation is ok, but my concern is that you are missing the forest for the trees. Reducing your expense ratio in your RIRA may save you $50 per year, but you are undersaved and undersaving to achieve a typical retirement, since you are almost 40 and have saved only 1/4 of your annual income. I wouldn't be in a position so suggest how to increase your savings rate, only that you probably need to. Saving $5500 per year in a Roth IRA on an income of $107,000 is generally not a recipe for financial independence.
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Re: Please review my Roth IRA - thanks

Postby xpat73 » Fri Dec 28, 2012 1:53 pm

letsgobobby wrote:There is no income phase out for 401k contributions. You may be limited somewhat as a highly compensated employee? But you still should be able to make some contributions. I wonder if you're confusing your eligibility for an IRA or Roth IRA?

I think your Roth IRA allocation is ok, but my concern is that you are missing the forest for the trees. Reducing your expense ratio in your RIRA may save you $50 per year, but you are undersaved and undersaving to achieve a typical retirement, since you are almost 40 and have saved only 1/4 of your annual income. I wouldn't be in a position so suggest how to increase your savings rate, only that you probably need to. Saving $5500 per year in a Roth IRA on an income of $107,000 is generally not a recipe for financial independence.



Sorry - I meant income phase out for ROTH IRA (not 401k)
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Re: Please review my Roth IRA - thanks

Postby xpat73 » Fri Dec 28, 2012 1:58 pm

I agree.

I went back to school at 30 - now I have alot of student loan debt from law school.(about $95,000)

While I should earn more in the coming years I understand and agree that I have a financial problem.
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Re: Please review my Roth IRA - thanks

Postby Default User BR » Fri Dec 28, 2012 3:30 pm

I recommend listing the 401(k) options. Most think that even without match and poor choices, the tax-deferral is valuable. Remember too that you might change jobs or the plan might improve.


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Re: Please review my Roth IRA - thanks

Postby xpat73 » Fri Dec 28, 2012 3:32 pm

Default User BR wrote:I recommend listing the 401(k) options. Most think that even without match and poor choices, the tax-deferral is valuable. Remember too that you might change jobs or the plan might improve.


Brian


Conservative Allocation
Goldman Sachs Balanced Strategic Portfolio Exp Ratio: .59, Front load - max 5.5%

Health
Eaton Vance Worldwide Health Fund Exp ratio: 1.57 Front load - max 5.75%

Intermediate-Term Bond
Calvert Income Fund Exp ratio 1.3% Front load - max 3.75%
Delaware Corporate Bond Exp ratio .94 - Front load - max load 4.75%

Large Growth
Managers Cadence Capital Apprec R Exp ratio 1.11 Level load 0%
American Funds Growth Fund of America A Exp ratio .71%, Front load - max load 5.75%

Large Value
BlackRock Large Cap Value Exp ratio 1.56, Load: Institutional : 0%
American Funds Wash Mutual Invs A . Exp ratio .62%, Front load - max load 5.75%
Invesco Comstock A

Mid-Cap Growth
Columbia Acorn Fund - Class A Exp ratio 1.06%, front load - max load 5.75%

Mid-Cap Value
Franklin Balance Sheet Exp ratio .94, front load, 5.75%

Moderate Allocation
Invesco Equity and Income A Exp ratio .8, front load - max load 5.5%

Money Market
American Funds Cash Management N/A

Real Estate
Delaware REIT Exp ratio 1.51%, front oad - max load 5.75%

Short Government
Oppenheimer Limited Term Government Bond Exp ratio 1.1%, Load: institutional, max load 0%

Technology
Columbia Seligman Comms & Info A Exp ratio 1.35%, front load - max load 5.75%

World Stock
American Funds Capital World Growth & Income A exp ratio .79%, front load - max load 5.75%
Oppenheimer Global Opportunities exp ratios 1.57%, Institutional load 0%
Last edited by xpat73 on Fri Dec 28, 2012 4:03 pm, edited 1 time in total.
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Re: Please review my Roth IRA - thanks

Postby stan1 » Fri Dec 28, 2012 3:36 pm

xpat73 wrote:I agree.

I went back to school at 30 - now I have alot of student loan debt from law school.(about $95,000)

While I should earn more in the coming years I understand and agree that I have a financial problem.


Ah, that explains it (and with the $107K salary you are probably in much better shape than some of your classmates, sad to say).
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Re: Please review my Roth IRA - thanks

Postby letsgobobby » Fri Dec 28, 2012 3:44 pm

xpat73 wrote:
Default User BR wrote:I recommend listing the 401(k) options. Most think that even without match and poor choices, the tax-deferral is valuable. Remember too that you might change jobs or the plan might improve.


Brian


Here are my 401k options:

Conservative Allocation
Goldman Sachs Balanced Strategic Portfolio

Health
Eaton Vance Worldwide Health Fund

Intermediate-Term Bond
Calvert Income Fund
Delaware Corporate Bond

Large Growth
Managers Cadence Capital Apprec R
American Funds Growth Fund of America A

Large Value
BlackRock Large Cap Value
American Funds Wash Mutual Invs A
Invesco Comstock A

Mid-Cap Growth
Columbia Acorn Fund - Class A

Mid-Cap Value
Franklin Balance Sheet

Moderate Allocation
Invesco Equity and Income A

Money Market
American Funds Cash Management

Real Estate
Delaware REIT

Short Government
Oppenheimer Limited Term Government Bond

Technology
Columbia Seligman Comms & Info A

World Stock
American Funds Capital World Growth & Income A
Oppenheimer Global Opportunities

can you list expense ratios? American Funds are not a horrible fund family, depending on share class. Probably good enough to use the 401k rather than turning it down.
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Re: Please review my Roth IRA - thanks

Postby xpat73 » Fri Dec 28, 2012 4:04 pm

I added the expense ratios and loads. See above.
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Re: Please review my Roth IRA - thanks

Postby bdpb » Fri Dec 28, 2012 5:01 pm

xpat73 wrote:Vehicle: Roth IRA

Stock
Fidelity Spartan 500 Index Fund (Advantage Class) - FUSVX, Expense Ratio .07: $14,000;
Fidelity Spartan Extended Market Index Fund (Investor Class) - FSEMX, Expense Ratio .1: $5,546

Bonds
Fidelity Total Bond Fund, FTBFX , Expense Ratio .45, $5000
Fidelity Capital & Income, FAGIX, Expenses Ratio .77, $3251

2. I know I probably have too much junk bonds in FAGIX
3. I have taken advantage of Fidelity lowering the min amount to get into their lowest expense ratio index funds like FUSVX and FSEMX - trying to follow the Bogle rule of low expense ratio index funds.
4. I do feel like I am paying too high expense ratios for my bond funds - should I just consolidate the FAGIX and FTBFX into a garden variety US long treasury bind fund like:
5. My plan would be to transfer my FSEMX shares into the even lower expense ratio mirror fund - Spartan Extended Market Index Fund - Fidelity Advantage Class(FSEVX), Exp ratio .07 (min to invest $10,000) once I have reached that $10,000 min.
6. I have little to no international exposure, but again, it seems to me that the international funds have higher expenses ratios. Are they worth it?
7. How many funds should I have? Do I have too few or too many? I feel like maybe I should have one or two more - provided they had low expense ratios.
8. Am I diversified enough?


2. I would not own junk bonds. Expert Larry Swedroe suggests they are inefficient because they act like a combination of stocks and bonds, and it's cheaper to invest in stocks directly to get the stock like portion of the junk bond fund.

3. Good work.

4. I would move both bond funds to the Spartan US bond index fund (FSITX). ER is .11%.

5. Your SP500 and extended market funds are allocated approximately the same as Total Market. I would combine them in the Spartan Total market fund to lower ER immediately.

6. There are Spartan Intl funds, too. ERs are low enough that the diversification will swamp the miniscule difference in costs.

7. Three. Total US market, Total Intl market and Total US Bond market.

8. No. You need Intl.
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Re: Please review my Roth IRA - thanks

Postby xpat73 » Fri Dec 28, 2012 5:15 pm

bdpb wrote:
xpat73 wrote:Vehicle: Roth IRA

Stock
Fidelity Spartan 500 Index Fund (Advantage Class) - FUSVX, Expense Ratio .07: $14,000;
Fidelity Spartan Extended Market Index Fund (Investor Class) - FSEMX, Expense Ratio .1: $5,546

Bonds
Fidelity Total Bond Fund, FTBFX , Expense Ratio .45, $5000
Fidelity Capital & Income, FAGIX, Expenses Ratio .77, $3251

2. I know I probably have too much junk bonds in FAGIX
3. I have taken advantage of Fidelity lowering the min amount to get into their lowest expense ratio index funds like FUSVX and FSEMX - trying to follow the Bogle rule of low expense ratio index funds.
4. I do feel like I am paying too high expense ratios for my bond funds - should I just consolidate the FAGIX and FTBFX into a garden variety US long treasury bind fund like:
5. My plan would be to transfer my FSEMX shares into the even lower expense ratio mirror fund - Spartan Extended Market Index Fund - Fidelity Advantage Class(FSEVX), Exp ratio .07 (min to invest $10,000) once I have reached that $10,000 min.
6. I have little to no international exposure, but again, it seems to me that the international funds have higher expenses ratios. Are they worth it?
7. How many funds should I have? Do I have too few or too many? I feel like maybe I should have one or two more - provided they had low expense ratios.
8. Am I diversified enough?


2. I would not own junk bonds. Expert Larry Swedroe suggests they are inefficient because they act like a combination of stocks and bonds, and it's cheaper to invest in stocks directly to get the stock like portion of the junk bond fund.

3. Good work.

4. I would move both bond funds to the Spartan US bond index fund (FSITX). ER is .11%.

5. Your SP500 and extended market funds are allocated approximately the same as Total Market. I would combine them in the Spartan Total market fund to lower ER immediately.

6. There are Spartan Intl funds, too. ERs are low enough that the diversification will swamp the miniscule difference in costs.

7. Three. Total US market, Total Intl market and Total US Bond market.

8. No. You need Intl.


4. FSITX - expense ratio is actually .17%, if that makes any difference.

5. Well I presume you are referring to:

Spartan Total Market Index Fund - Fidelity Advantage Class(FSTVX) - it is a Large Blend fund right now.

The 2 I have are FUSVX (Large Blend) and FSEMX (Small Blend) - I like FSEMX because it gives me some small and mid cap stuff.
Last edited by xpat73 on Fri Dec 28, 2012 5:32 pm, edited 1 time in total.
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Re: Please review my Roth IRA - thanks

Postby Peter Foley » Fri Dec 28, 2012 5:19 pm

4. Do not put your bonds in a long term bond fund - that adds risk on the bond side of your investments. As suggested, go with a total bond fund instead.
7. 3-4 funds are ideal IMHO. I prefer a 4 fund approach with total stock, total international, total bond and a TIPs fund. I think you should have some inflation protection on the bond side.
8. Some international, not necessarily a lot. I'm in the 20%-25% camp on this aspect of AA.
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Re: Please review my Roth IRA - thanks

Postby bdpb » Fri Dec 28, 2012 5:31 pm

xpat73 wrote:
4. FSITX - expense ratio is actually .17%, if that makes any difference.

5. Well I presume you are referring to:

Spartan Total Market Index Fund - Fidelity Advantage Class(FSTVX) - it is a Large Bend fund right now.

The 2 I have are FUSVX (Large Blend) and FSEMX (Small Blend) - I like FSEMX because it gives me some small and mid cap stuff.


4. ER is capped at .11%. http://fundresearch.fidelity.com/mutual-funds/fees-and-features/316146372

5. FSTVX may be labeled Large Blend, but it's really a blend of FUSVX and FSEMX. It's probably a little more like 80% FUSVX and 20% FSEMX. You would have to continue to use FSEMX if you want to overweight small/mid caps compared to total market weight. Play around at http://portfolio.morningstar.com/Rtport/Free/InstantXRayDEntry.aspx.
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Re: Please review my Roth IRA - thanks

Postby xpat73 » Sat Dec 29, 2012 3:42 pm

Thank you for all your posts and feedback.

Happy New Year!
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Re: Please review my Roth IRA - thanks

Postby xpat73 » Sat Dec 29, 2012 3:43 pm

Peter Foley wrote:4. Do not put your bonds in a long term bond fund - that adds risk on the bond side of your investments. As suggested, go with a total bond fund instead.
7. 3-4 funds are ideal IMHO. I prefer a 4 fund approach with total stock, total international, total bond and a TIPs fund. I think you should have some inflation protection on the bond side.
8. Some international, not necessarily a lot. I'm in the 20%-25% camp on this aspect of AA.



Peter - what is a TIPS fund?
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Re: Please review my Roth IRA - thanks

Postby Default User BR » Sat Dec 29, 2012 5:38 pm

xpat73 wrote:Peter - what is a TIPS fund?

http://www.bogleheads.org/wiki/TIPS


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Re: Please review my Roth IRA - thanks

Postby abuss368 » Sat Dec 29, 2012 5:55 pm

You only need three funds.

Taylor Larimore and Vanguard recommend the simplicity and effectiveness of the Three Fund Portfolio:

Total Stock Market Index (US)
Total International Index Market
Total Bond Market

Use "age in bonds" or "age less 10" based on your tolerance for risk. Vanguard recommends 30% of equities to be allocated to International. Most folks on the forum follow this advice.

You really will not need to make things any more complex by adding additional funds or headaches. Don't fall into the trap of collecting funds or slice and dice. Another poster Jerry Lee posted excellent research and advice showing that more than 3 or 4 funds really does not move the needle in either direction.

Advantages:
* low costs
* diversification
* no manager risk
* no style risk
* less paperwork and administration
* tax efficient
* easy to rebalance and maintain
* simplicity

Please post any additional questions or concerns you may have.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + REITs
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Re: Please review my Roth IRA - thanks

Postby Peter Foley » Sat Dec 29, 2012 9:27 pm

A TIPS funds is a fund that invests in Treasury Inflation Protected Securities (bonds that increase with value at the rate of inflation). See the wiki link above for more detail. While I agree with abuss368 that fewer funds are better, I personally would want to have a TIPS fund on the bond side - making 4 my personal minimum over the long haul. Interest rates are at historic lows and government debt is at historic highs. Why wouldn't you add some long term inflation protection? No need to add TIPS right away, perhaps when your total bond fund exceeds 10,000.
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Re: Please review my Roth IRA - thanks

Postby abuss368 » Sat Dec 29, 2012 10:04 pm

Peter Foley wrote:A TIPS funds is a fund that invests in Treasury Inflation Protected Securities (bonds that increase with value at the rate of inflation). See the wiki link above for more detail. While I agree with abuss368 that fewer funds are better, I personally would want to have a TIPS fund on the bond side - making 4 my personal minimum over the long haul. Interest rates are at historic lows and government debt is at historic highs. Why wouldn't you add some long term inflation protection? No need to add TIPS right away, perhaps when your total bond fund exceeds 10,000.


Hi Peter,

I would agree with you. For any investor that wants to focus on the Three Fund portfolio, I certainly would not try to talk them out of it. In addition to the Three Funds, I also like US REITs, Inflation Protected Bond Fund, and I am trying to better understand and warm up to the International REIT / Real Estate fund.

I really do not think anything else is "needed".

Stocks, Bonds, Real Estate, and Cash. Everything else is a spin off of one of the four.
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