I'm new to the Bogleheads. After hearing Tony Robbins talk about compounding fees on a Tim Ferris podcast, I read the book Money, Master the Game and got fired up to learn about this stuff and optimize my portfolio while I'm still young. That led me to Little Book of Common Sense Investing, A Random Walk Down Wall Street, and several other podcasts.
I've started trying to implement some of this on my own, but run into several questions. Any insights would be greatly appreciated!
Emergency funds: Done (but will be looking to move this into a Money Market fund at some point)
Debt: None
Tax Filing Status: Single
Tax Rate: ~ 28% Federal, 10% State
State of Residence: CA
Age: 27
Desired Asset allocation: 90% stocks / 10% bonds?
Desired International allocation: 15% of stocks?
Current retirement assets
Portfolio Size: Low five-figures. Just starting out.
His 401k at Fidelity
No company match.
Both Traditional and Roth 401k options are offered. I took a stab at contributing 3:1 (Roth:Traditional) for benefits of tax-free growth plus tax-diversification in retirement.
Started partially moving into the Index options. Previously I was selecting active mutual funds in the Small/Mid/Large/International cap categories:
18% Fidelity 500 Index Fund - Premium Class (FUSVX) (.05%)
13% Invesco Diversified Dividend Fund R5 Class (DDFIX) (.54%)
10% Oppenheimer International Small-Mid Company Fund Class Y (OSMYX) (1.18%)
9% T. Rowe Price New Horizons Fund (PRNHX) (.79%)
9% Fidelity® Extended Market Index Fund - Premium Class (FSEVX) (.07%)
Funds available in his 401(k)
In addition to the ones already invested above. Only including the ones I think folks will care about for now, but I can add exhaustive list if desired:
Fidelity® International Index Fund - Premium Class (FSIVX) (.12%)
Fidelity® U.S. Bond Index Fund - Premium Class (FSITX) (.07%)
(Some AM Cent target-date funds, etc.)
His Roth IRA at American Funds
I think I got caught up with a Broker when I was younger. Been making small contributions to this for a long time.
28% American Funds Growth Fund of America (AGTHX) (.66% plus 5.75% front-end sales load)
His Roth IRA at Vanguard
Recently opened this as a first step to potentially move away from American Funds.
13% Vanguard Total Stock Mkt Idx Inv (VTSMX) (.16%)
Contributions
Probably will start with 15% of gross income.
Thoughts:
Here's what I'm thinking:
- Move all of my American Funds investment account over to Vanguard Roth IRA. Run from sales loads and find a fee-only fiduciary adviser moving forward.
- Change Fidelity 401k investment allocations to something like:
* 55% FID 500 INDEX PR (I read on bogleheads that you can combine the 500 index with the extended market to mimick the total U.S. market.)
* 20% FID EXT MKT IDX PR
* 15% FID INTL INDEX PR (This doesn't seem to have emerging market exposure.)
* 10% FID US BOND IDX PR (Maybe 20% would be more appropriate for my age, but I'm still confused why Dave Ramsey still insists there's high correlation between stocks and bonds and recommends totally excluding them.) - Modify my Vanguard Roth IRA allocations to account for the shortcomings in the Fidelity 401k options (maybe add some REIT exposure or Total International exposure?)
1. How does the above plan-of-action look?
2. Does it make sense to diversify across the 401k and Roth IRA, or due to slightly different account types should they be treated as independent lazy portfolios?
3. OSMYX looks like it has performed well. 9.5% average annual return over the last 10 years. It seems like the 1.18% expense ratio was high, but worth it, at the time that I contributed to that fund for my international exposure. Is it simply the average annual return less the expense ratio to determine the net return? Am I missing something there? The Fidelity International Index Fund - Premium Class (FSIVX) by comparison has returned only 1.76% over the last 10 years with an expense ratio of .12%. I don't know if I am understanding why indexing here would be better, but I proposed it above because it seemed to follow the model. Same logic for the DDFIX and PRNHX mutual funds. The returns look generous even with a slightly higher expense ratios. I am leaning toward ditching them, but not totally convinced.
4. The Fidelity International Index Fund - Premium Class (FSIVX) doesn't appear to include emerging market exposure as recommended in A Random Walk Down Wall Street. Does this mean it shouldn't quite count as my complete international allocation?
5. I started moving fund allocations within my 401k to add some of those Fidelity index funds, and my portfolio summary showed 3 to 4 figures lower the next day. I can't figure out if that is expected. I saw lots of "REALIZED G/L" transactions, which I assume are realized gain/losses. But I figured the exact amount invested in one fund would be moved to buy shares of another without any loss in actual net investment. Just curious if anyone has any gut insight into what I was seeing here.
Look forward to discussing. Let me know if you need any more info! Thanks all.