Opening a new SIMPLE IRA and taxable account for the first time

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koldude
Posts: 5
Joined: Sun Mar 20, 2016 12:53 am

Opening a new SIMPLE IRA and taxable account for the first time

Post by koldude » Sun Mar 20, 2016 1:16 am

Emergency funds: Have 3 months of income saved in High Yield Savings Account (Ally Bank)
Debt: Debt-free!
Tax Filing Status: Single
Tax Rate: 25% Federal, 4.75% State
State of Residence: MD
Age: 24
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: ??% of stocks (Not sure what my target is here)
Size of Portfolio: $20K

Current retirement assets

Roth IRA at Vanguard
75.43% Vanguard Total Stock Market Index Admiral Shares (VTSAX) (0.05%)
5.97% Vanguard Total International Stock Market Index Investor Shares (VGTSX) (0.19%)
18.6% Vanguard Total Bond Market Index Investor Shares (VBMFX) (0.20%)

Contributions

New annual Contributions
$5,500 Roth IRA
$12,500 SIMPLE IRA
$5,000 taxable

Questions:
1. I am opening up a new SIMPLE IRA with Fidelity, as well as a new taxable brokerage account with Vanguard, and I wanted some ideas on what/how to invest in to build my portfolio. I am very familiar with Vanguard Fund offerings, since I have had my Roth IRA with them for about 8 years now. I have also been told by reps at Fidelity that I can still invest in Vanguard Mutual Funds through them, but I may pay some sort of a commission fee everytime I buy more shares. My main question is, should I stick with the approach of the "Lazy Portfolio" that I am trying to do in my Roth IRA, or should I start focusing on more sector-specific funds or funds dealing in Small/Mid-Cap stocks or Emerging Markets or REITs.

2. I currently invest in my Roth IRA on a weekly basis throughout the year, and I enjoy the simplicity of not having to think about going online and inputting a buy order, rather just having it completely automated through Vanguard. I have heard from others that if I start to invest in ETFs, dollar-cost averaging like this becomes more complicated (because you can only purchase whole-number shares, so any excess money has to wait until the next purchase period in order to get invested). However, ETFs tend to match the expense ratios of Vanguard Admiral Shares, which I only qualify for in 1 of my funds (VTSAX), and getting to that 10K threshold on any of my other funds is likely to take some time. Does it make sense for me to utilize ETFs in either my SIMPLE IRA or my new taxable account? Or should I just stick with the mutual funds directly and make life a bit easier? I would love to get your thoughts.

I appreciate any help you all can provide. Feel free to let me know if you think I can clarify anything, and thank you in advance for your replies.

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in_reality
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Joined: Fri Jul 12, 2013 6:13 am

Re: Opening a new SIMPLE IRA and taxable account for the first time

Post by in_reality » Sun Mar 20, 2016 4:22 am

How much you contribute is the only thing that matters now. Focus on your career.

Sector funds are never needed. The exact split to small/ mid/ EM is much less important than the amount you can save.

Fidelity has the Spartan class of super cheap index funds, as well as some great IShares ETFs if you eventually form a specific portfolio target. Lazy is fine forever though.

Sticking to mutual funds or saving a tiny bit with ETFs. It's really what you prefer.

As for international 20-40% is usually recommended. If I were young like you, I might just add some emerging markets to the US and call it a day for a while. Total market international is the usual recommendation. EM has been really down though and valuations are super cheap giving them lots of upside. Well they are cheap for a reason of course so I am not saying they will outperform. US valuations are high so can't go up so dramatically but the economy is ok so everyone likes them. Anyway... EM in taxable will give you the best opportunity to Tax loss harvest because EM is well EM.

krow36
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Location: WA

Re: Opening a new SIMPLE IRA and taxable account for the first time

Post by krow36 » Sun Mar 20, 2016 4:39 pm

You don't say if you are an employee or the employer in the SIMPLE IRA. Assuming you are an employee, you will be contributing each pay period, and mutual funds work just fine. The Fidelity Spartan Index funds are very good substitutes for the Vanguard 3 index funds you've mentioned. I think your taxable account could be at either Fidelity or Vanguard (or both?), using those same index mutual funds.

koldude
Posts: 5
Joined: Sun Mar 20, 2016 12:53 am

Re: Opening a new SIMPLE IRA and taxable account for the first time

Post by koldude » Sun Mar 20, 2016 11:53 pm

@In_reality: Thanks for your feedback. I agree that the contribution amount is most important; this is the first year that my employer started offering this plan, so I definitely want to take full advantage of the maximum contribution limit as well as my employer match. I was mainly wondering whether my "lazy portfolio" method made more sense. I think that at least for the SIMPLE IRA, I'll try to duplicate the 3-fund solution I am using in my Roth. As for my taxable account, I think I need a bit more time to figure out how I want to allocate my funds. As of right now, I feel that I'm underexposed to real estate, so I definitely want to add that to my portfolio, either through VGSIX or VGXRX. I'll also consider EM for the taxable account, thanks for the heads-up.

@krow36: Thanks for your feedback. Yes, I am an employee contributing to the SIMPLE. I just took a look at the SPARTAN funds (Fidelity's website had them listed in a different category as their other MFs, I didn't see that before), and I think that they're probably what I'm going to go for.

To everyone else: please feel free to add any other feedback you may have.

Thanks!

JDDS
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Re: Opening a new SIMPLE IRA and taxable account for the first time

Post by JDDS » Mon Mar 21, 2016 12:22 am

I'd stick with the mutual funds to keep it simple. I would not worry about the slightly higher investor shares expense ratio--these are small amounts with the low balances. Eventually you'll qualify for admiral shares.

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in_reality
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Joined: Fri Jul 12, 2013 6:13 am

Re: Opening a new SIMPLE IRA and taxable account for the first time

Post by in_reality » Mon Mar 21, 2016 12:26 am

There is no need, in fact you probably don't want to, replicate your portfolio in each account.

View your accounts as one portfolio. It's easier and let's you put tax inefficient funds (bonds, REITS) where they should be (tax sheltered).

Also what typically happens is people get a 401(k) with mostly expensive options and maybe one cheap S&P 500 fund. So it's best to use only the best fund(s) in the 401(k) and then complete your portfolio in your IRAs/taxable where you have more freedom to choose and fund.

koldude
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Joined: Sun Mar 20, 2016 12:53 am

Re: Opening a new SIMPLE IRA and taxable account for the first time

Post by koldude » Tue Mar 22, 2016 10:27 am

Ok, Thanks for all the feedback everyone.

Here's my plan:

1. Open Fidelity SIMPLE IRA account and buy 50% FSTMX (Spartan Total Market Index Fund) and 50% FSIIX (Spartan International Index Fund), and let that sit for a couple of years (maybe 20).
2. Buy VTSAX in Vanguard Taxable (plan to invest 10K initially so that I can get the Admiral Shares). My plan is to still only invest around 5K per year, and pretty much only this fund.
3. Sell ~$3K of VTSAX in my Roth IRA and then invest that in VBMFX so that the bond portion of my portfolio will remain around 20%.

I will update to Bogleheads if there's anything to report.

Again, thanks very much to everyone who gave me ideas!

nolapepper
Posts: 170
Joined: Wed Mar 25, 2015 3:06 pm

Re: Opening a new SIMPLE IRA and taxable account for the first time

Post by nolapepper » Wed Mar 23, 2016 2:29 pm

why not keep everything together at Vanguard to keep life easier? We opened simple IRA last year and transferred Roth IRA to vanguard. It is nice to have everything together and easier to rebalance/TLH etc.

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