ETF Picks for Rollover IRA and Allocation

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Ditchwitch
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ETF Picks for Rollover IRA and Allocation

Post by Ditchwitch » Thu Dec 07, 2017 9:50 am

Hi,

I just rolled over my 40K into an IRA at Fidelity and am figuring out which ETFs (or possibly Index funds) and which allocation to select (age 56).

Anyone have ideas about the current picks or can possibly suggest other solid alternatives? Especially in the bond category it seems between long and short term and gov. vs. corporate bonds finding bond ETFs (Index funds) that will have good yields the next 10-12 years while interest rates are rising the next few years could be challenging.

ITOT iShares LARGE 20%

IJH iShares MID-CAP 15%

IJR iShares SMALL-CAP 15%

IXUS iShares INTERNATIONAL 10%

VIG Vanguard LARGE - DIVIDEND 10%

AGG iShares Intermediate-Term Bond 10%

BLV Vanguard Long-Term Bond 10%

VCIT Vanguard Interm-Term Corp Bond 10%

Also, considering other Sector ETFs such as VHT (healthcare) and VNQ (REITs) or low volatility ETFs (USMV) but the main goal is to keep the portfolio simple and yet diversified so that updating rebalancing will be simpler as we approach retirement age.

Stock:Bonds 70:30 ok?

Any other suggestions?

Thanks

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Re: ETF Picks for Rollover IRA and Allocation

Post by livesoft » Thu Dec 07, 2017 10:40 am

You have too many. What was wrong with FSTVX, FSITX, FTIPX? Maybe have IJS as your ETF.

How was your 401(k) allocated before? That might tell us what kind of investor you are.
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Ditchwitch
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Re: ETF Picks for Rollover IRA and Allocation

Post by Ditchwitch » Fri Dec 08, 2017 2:39 pm

"How was your 401(k) allocated before? That might tell us what kind of investor you are."

The rollover IRA monies come from a Principal 401K (2.5yrs), 40% target date and then 60% invested mostly in growth small - large cap funds, a good portion in international and emerging markets. Previous to that funds accumulated for 13 years in a Fidelity 401K where I invested more aggressively, maybe only 5-10% in bonds at then end. Overall I consider myself more risk friendly than the average person at a similar age. If not for the wife I might be happy with a portfolio with a lower percentage of bonds. Admittedly, I am biased to seeing more of the downside of bonds in an up market than the upside from bond investing in a down market b/c historically it seems markets trend more years up than they do take a plunge albeit it those plunges being a bit wilder and maybe one in the making on the horizon. That itself might beg the question whether it's worth considering sitting on the sidelines for a little while before reinvesting to get a better a read where markets might be headed in 2018.

"You have too many. "

Yes, I agree... The goal is to par it down from the maze (10-15 funds) we had in previous portfolios to a simple portfolio (3-6) that wife as well as I understand and can manage/rebalance. She is also not as risk friendly which is making me consider upping the bonds to 30-40%.
On the other hand achieving the goal of a simple 3-4 fund (lazy) portfolio which might be ideal for rebalancing does not need to be achieved over night. That is the main reason I am considering the idea of running initially with a portfolio of 6-8 funds and included international and dividend index funds in my top picks.
I guess the other main question is about bond funds...how many different ones does a portfolio really need or would it be sufficient to have e.g. iShares total bond AGG or Vanguard's BND ETFs. I find the maze of long term, intermediate term gov. and corporate bond ETFs a bit confusing...

"What was wrong with FSTVX, FSITX, FTIPX?"

There's nothing wrong with them, e.g. I like FSTVX in Fidelity's line up but then most large index funds now offer ETFs that track the same index with very similar ERs. And at Fidelity's buying many iShares ETFs is free and does not require a minimum investment so I don't really see a downside to going with the ETF that mirrors the index fund. Also, there are some Vanguard funds that look very good that are expensive to buy at Fidelity ($75 oer trade) so buying those Vanguard ETFs in bulk for $4.95 seems a lot cheaper.

"Maybe have IJS as your ETF."
I had IJS on my broader watchlist. It has a Morningstar Bronze Medal rating which made me rank it below others including Schwabs SCHA, iShares IJR & IJT and Vanguards VB or VBK small-cap ETF offerings which all have Silver or Gold and some even 5-Star ratings. I am open to discussion though.

I should mention that I spent a couple of weeks researching mostly Vanguards and iShares/BlackRock offerings before homing in on a short list. That work included gathering data from Morningstar into a table and then trimming down a list of ~50 ETFs and Index funds to the ones I put out a list here for discussion.

One more note...b/c I like Vanguard index funds I seriously considered going with a Vanguard account but b/c most index funds have the ETF option as well now coupled with the better tools Fidelity has to offer for research made me set the account up with Fidelity.

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Tyler Aspect
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Re: ETF Picks for Rollover IRA and Allocation

Post by Tyler Aspect » Fri Dec 08, 2017 2:54 pm

What does your taxable holdings look like? You should post using the format of the pinned topic "Asking Portfolio Questions".

"IF" you do not have other investments, then possibly this:

25% VTI - US stock
25% VT - global stock
25% VGIT - US government bond
25% VCIT - US corporate bond
Last edited by Tyler Aspect on Fri Dec 08, 2017 4:40 pm, edited 1 time in total.
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Re: ETF Picks for Rollover IRA and Allocation

Post by livesoft » Fri Dec 08, 2017 3:16 pm

With no taxable holdings (this thread is about your IRA), I don't see why you don't go with Freedom Index fund or the Four-in-One Index fund.
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Re: ETF Picks for Rollover IRA and Allocation

Post by sunnywindy » Fri Dec 08, 2017 4:03 pm

In general, the most important decision you propose is your stock/bond mix of 70/30. This seems fine. The next decision you have made is how to allocate the 70% and the 30%. All the funds you have chosen are super low cost and if you implemented this proposal, you would be fine. But, there are some inconsistencies, so it can be made better.

First, the stocks. You have chosen to overweight mid and small caps stocks versus the overall market - this is fine as long as you know the risk/return of that decision. This is an 'offensive' decision to produce greater returns but with more volatility. You have also chosen VIG - an excellent index, but a defensive fund that will hold up slightly better in bear markets and lag in bull markets. Why are you mixing offensive and defensive strategies? The gains of one will be lost by another and you will end up in the same place as if you just held the Total Market Index. Your international allocation is 10%, quite a bit low in my book as a higher allocation (I would use 20%) would offer more diversification. Still, 10% will be ok.

Second, the bonds. Why do you have two intermediate funds? What purpose does this serve? I would consolidate one into the other. But, the larger question is what are you trying to use your bonds for anyway - to make money? to serve as a portfolio anchor? to beat inflation? It's unclear to me what you are trying to do. If you are not exactly sure what you are trying to accomplish, put all the money in one bond fund like AGG or BND.

So, overall, I would recommend you sort out why you are mixing offensive and defensive funds for your US stock allocation simultaneously and what's the purpose of your bond allocation. If everything gets to be too much, just build a three fund portfolio and then you can slice & dice later.
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Ditchwitch
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Re: ETF Picks for Rollover IRA and Allocation

Post by Ditchwitch » Fri Dec 08, 2017 4:47 pm

yes, this thread is only about holdings in non-taxable IRAs.

We have a couple of smaller Roths and a brokerage account both at Fidelity also for emergency cash and funding college. Ccollege kids are almost done so we are ready to now focus more on optimizing our current and any future savings for retirement in 10-12 years. Like I said in the past I invested aggressively and just the last couple of years have started thinking a bit more about rebalancing and how to transition into draw down phases.

"Second, the bonds. Why do you have two intermediate funds? What purpose does this serve? I would consolidate one into the other. But, the larger question is what are you trying to use your bonds for anyway - to make money? to serve as a portfolio anchor? to beat inflation? It's unclear to me what you are trying to do. If you are not exactly sure what you are trying to accomplish, put all the money in one bond fund like AGG or BND."

The main reasoning for bonds seems that they hedge against market downturns...i.e. interest rates rise and equities suffer..so it seems with retirement 12 years away there maybe at least 1-2 more significant downturns possible either BEFORE or DURING draw down periods to hedge against. Personally, I would be entirely happy with one bond ETF like AGG and BND but weeding through Morningstar's reports there were many others that came up so I wanted to get a read from other investors here that pursue the "simple" approach.

"First, the stocks. You have chosen to overweight mid and small caps stocks versus the overall market - this is fine as long as you know the risk/return of that decision. This is an 'offensive' decision to produce greater returns but with more volatility. You have also chosen VIG - an excellent index, but a defensive fund that will hold up slightly better in bear markets and lag in bull markets. Why are you mixing offensive and defensive strategies? The gains of one will be lost by another and you will end up in the same place as if you just held the Total Market Index. Your international allocation is 10%, quite a bit low in my book as a higher allocation (I would use 20%) would offer more diversification. Still, 10% will be ok. "

I agree, this approach may seem "muddled"...this is b/c I like aggressive but also like to hedge my bets (if that makes any sense)...like you say the inclusion of "small" and "mid" separately "total" caused sizeable oversampling...a prior expanded version of this portfolio also included VHT (Vanguard healthcare) and VNQ (Vanguard REITs). When I plugged this into Morningstar's Xray analysis it showed a strong weighting to real estate and healthcare stocks. Again the idea e.g. for healthcare was defense in a downturn...I guess you can't have it all ways so I will need to make up my mind what I want or just be happy with medium results.

"Your international allocation is 10%, quite a bit low in my book as a higher allocation (I would use 20%) would offer more diversification. Still, 10% will be ok. "

From some of the overall feedback I have been getting I am now leaning towards increasing the international allocation to maybe 20% and clipping at the coast of some of the other funds.

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Ditchwitch
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Re: ETF Picks for Rollover IRA and Allocation

Post by Ditchwitch » Fri Dec 08, 2017 5:00 pm

"25% VTI - US stock
25% VT - global stock
25% VGIT - US government bond
25% VCIT - US corporate bond"

Thanks, a simpler portfolio would definitely be very attractive.

What kind of performance would such a Vanguard only ETF portfolio have had the last 15 years relative to other major indices and market returns? What's a reasonable rate of return that we can peg this portfolio at over the next 15 years?

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Re: ETF Picks for Rollover IRA and Allocation

Post by livesoft » Fri Dec 08, 2017 5:31 pm

You know that VT completely contains the stocks of VTI within it, right?
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Re: ETF Picks for Rollover IRA and Allocation

Post by Ditchwitch » Fri Dec 08, 2017 5:38 pm

if there's a dilution of international by overlay with a similar lineup of US stocks and bonds, then I don't see that necessarily as a negative. It would bring the ratio to about 2:1?

I am not opposed to Freedom funds but they do carry higher ERs..

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Re: ETF Picks for Rollover IRA and Allocation

Post by livesoft » Fri Dec 08, 2017 5:42 pm

Freedom Index funds have e.r. of about 0.15% while FFNOX (4-in-1) is now 0.11%
The VT etf you mentioned has an e.r. of 0.11%, too.
Yes, that is higher than 0.03%, but will you not make any behavioral mistakes with your rebalancing and portfolio management?
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Re: ETF Picks for Rollover IRA and Allocation

Post by Ditchwitch » Fri Dec 08, 2017 5:55 pm

I like FFNOX, it may fit the bill with several advantages. I agree also rebalancing can be challenging...it's got Gold/5-Star rating...85:15 equity;bonds seems a bit tilted towards equities..

http://analysisreport.morningstar.com/f ... ture=en_US

I focussed a lot of my research to ERs after all an ER of 0.8% put me several grand behind in savings the past few years that could have contributed handily to compounding savings..I would rather shell out a bit more for some significant benefit like e.g. quality of indexing and ease of rebalancing..since I don't see that actively managed funds really does much good to help an investor...

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Re: ETF Picks for Rollover IRA and Allocation

Post by Tyler Aspect » Fri Dec 08, 2017 7:16 pm

livesoft wrote:
Fri Dec 08, 2017 5:31 pm
You know that VT completely contains the stocks of VTI within it, right?
Yes. This is a nice way to have three servings of US stock and one serving of international stock without involving fractional ratios.
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Ditchwitch
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Re: ETF Picks for Rollover IRA and Allocation

Post by Ditchwitch » Fri Dec 08, 2017 7:35 pm

I am not one who has ever timed the market (always been 100% invested with my retirement portfolios) but the fact that I had to liquidate holdings and now hold cash and then am staring at charts does have me thinking about where things might be headed with interest rates on the rise...not to suggest to go against a fundemental rule but any suggestions how folks might go about timing the reinvestment in the market also might be useful to consider...

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Re: ETF Picks for Rollover IRA and Allocation

Post by livesoft » Fri Dec 08, 2017 7:40 pm

In December, there is the "don't buy the distribution / dividend" idea for taxable accounts which can give you some cover for not buying some things post-haste. But this is an IRA, so you can't really use that. :)
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Ditchwitch
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Re: ETF Picks for Rollover IRA and Allocation

Post by Ditchwitch » Fri Dec 08, 2017 7:56 pm

another consideration would be to combine FFNOX 4-in-1 index with a total bond index to up the bond from 15% in FFNOX to e.g. 30%. One option in doing so would be to pick the underlying Fidelity Bond fund included in FFNOX or another total bond index (international)? Any suggestions for another good bond index fund or ETF like AGG or BND to modify that ratio?

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Re: ETF Picks for Rollover IRA and Allocation

Post by livesoft » Fri Dec 08, 2017 8:12 pm

FSITX / FBIDX is like AGG and/or BND. I own all of them in different accounts.
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Re: ETF Picks for Rollover IRA and Allocation

Post by Ditchwitch » Fri Dec 08, 2017 10:21 pm

Circling back integrating some of the comments into 4 new portfolios:

Option 1: 5-6 iShares/Vanguard ETFs (50:20:30 US, Foreign equity, Bonds, closest to my initial portfolio)
ITOT (or IVV) 30%
IJH (Mid) 10%
IJR (Small) 10%
VEA (Foreign, Large-Cap ex US) 10%
VEU (Foreign, Mid-Cap ex US) 10%
AGG (US Bonds) 30% (or 15:15 US:Foreign?)

Note: by using VXUS for international ex US the portfolio could be cut to 5 ETFs

Option 2: All-In-One Fidelity plus Bond ETF or Fund (85:15 or 70:30 by increasing bond ratio in the mix)
FFNOX (4-in-One)
plus Bond Index Fund (????) or ETF (BND or AGG) to increase ratio of bonds to 30%

Option 3: 4 Vanguard ETFs (40:30:30 US:Foreign:Bonds)
VTI (Total US) 40%
VT (Total World) 30%
VCIT (Corp Bonds) 15%
VGIT (Gov Bonds) 15%

Note: Morningstar Reports are weaker for VCIT and VGIT
http://beta.morningstar.com/etfs/XNAS/VCIT/quote.html
http://beta.morningstar.com/etfs/XNAS/VGIT/quote.html

Option 4: 3 Fidelity Index Funds (50:20:30, US:Foreign:Bonds)
FSTVX (Total US) 50%
FTIPX (Foreign) 20%
FSITX (Bonds) 30%

Note: Morningstar reports are weaker for FSITX (bronze) and FTIPX has low assets and doesn't appear to have much of a track record:
http://beta.morningstar.com/etfs/XNAS/fsitx/quote.html
http://beta.morningstar.com/etfs/XNAS/ftipx/quote.html

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