Diversify within Roth account?

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BostonButterfly
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Diversify within Roth account?

Post by BostonButterfly » Mon Jun 18, 2018 9:31 am

I understand, and do, treat our entire portfolio as one and allocate across the entire portfolio. Currently our Roth accounts hold one fund: FTIPX - Fidelity Total International Index Fund. As I think about adding our 2018 Roth contributions, I love the simplicity of just adding to this one fund. But I wonder if I should be diversifying within the Roth. I chose to invest in International in our Roths because I believe it offers the possibility of good long term growth. But I have learned that I know nothing as an investor, and I won't know the outcome of this investment for a very long time. If I'm wrong on this International "bet", it will hurt doubly so because it is in a Roth. This makes me feel like I should be adding a total market index to the account to diversify the risk. Am I overthinking this?? Should I be concerned about diversification within the Roth accounts?

As an aside: our Roths are very small in relation to our overall portfolio, so maybe kind of moot in the overall scheme of things.

delamer
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Re: Diversify within Roth account?

Post by delamer » Mon Jun 18, 2018 9:32 am

Not sure what you mean by this:

“If I'm wrong on this International "bet", it will hurt doubly so because it is in a Roth.”

Dolcetto
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Re: Diversify within Roth account?

Post by Dolcetto » Mon Jun 18, 2018 9:36 am

delamer wrote:
Mon Jun 18, 2018 9:32 am
Not sure what you mean by this:

“If I'm wrong on this International "bet", it will hurt doubly so because it is in a Roth.”
Perhaps that the value of a dollar in a Roth account is greater because taxes have already been paid on it? Not sure.

Dottie57
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Re: Diversify within Roth account?

Post by Dottie57 » Mon Jun 18, 2018 9:40 am

BostonButterfly wrote:
Mon Jun 18, 2018 9:31 am
I understand, and do, treat our entire portfolio as one and allocate across the entire portfolio. Currently our Roth accounts hold one fund: FTIPX - Fidelity Total International Index Fund. As I think about adding our 2018 Roth contributions, I love the simplicity of just adding to this one fund. But I wonder if I should be diversifying within the Roth. I chose to invest in International in our Roths because I believe it offers the possibility of good long term growth. But I have learned that I know nothing as an investor, and I won't know the outcome of this investment for a very long time. If I'm wrong on this International "bet", it will hurt doubly so because it is in a Roth. This makes me feel like I should be adding a total market index to the account to diversify the risk. Am I overthinking this?? Should I be concerned about diversification within the Roth accounts?

As an aside: our Roths are very small in relation to our overall portfolio, so maybe kind of moot in the overall scheme of things.
I actually have Roth in Total stock and Total international stock. At my allocations for stock.

Don’t bet , just treat it as the rest of your portfolio - which should not be a bet.

Maybe look at the prospectus for FTIPX and look for the section on risks. You should know why you want international stock.

BostonButterfly
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Re: Diversify within Roth account?

Post by BostonButterfly » Mon Jun 18, 2018 10:17 am

Ok - "bet" was the wrong choice of wording. My point is that twenty years from now, I'll look back on the international investment and see that I either chose wisely, or not. If my entire Roth was in one International index fund, and that fund had zero or negative growth over twenty years, then I would have fared better had I diversified the investments in that account.

And as Dolcetto stated - I view the value of the dollar greater in the Roth account because the tax is already paid. Why would anyone not view tax free growth as more valuable?

delamer
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Re: Diversify within Roth account?

Post by delamer » Mon Jun 18, 2018 2:25 pm

BostonButterfly wrote:
Mon Jun 18, 2018 10:17 am
Ok - "bet" was the wrong choice of wording. My point is that twenty years from now, I'll look back on the international investment and see that I either chose wisely, or not. If my entire Roth was in one International index fund, and that fund had zero or negative growth over twenty years, then I would have fared better had I diversified the investments in that account.

And as Dolcetto stated - I view the value of the dollar greater in the Roth account because the tax is already paid. Why would anyone not view tax free growth as more valuable?
I understand your thinking, but as you say you don’t know which of your investments will have the most growth for another 20 years. Maybe it would have been better to put all your small cap into the Roth.

If you are comfortable with your overall allocation, then putting some of each type of stocks into Roth, tax deferred, and taxable would hedge your bet.

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Tamarind
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Re: Diversify within Roth account?

Post by Tamarind » Mon Jun 18, 2018 2:32 pm

I think you are overthinking it a little. I do keep more than one fund in all accounts that are taking in new contributions, but that is to enable easier rebalancing in the event that one part of my AA over- or underperforms so much that new contributions aren't large enough to rebalance. While this reason is not completely unconnected to the one you suggest (my Roth is mostly international because it has high expected return and international is much cheaper with VG than with my 401k), I'm not trying to make any guesses about which part of my AA will outperform.

aristotelian
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Re: Diversify within Roth account?

Post by aristotelian » Mon Jun 18, 2018 2:37 pm

I have 100% of my international in taxable so that I can get the tax credit for foreign taxes withheld. Our Roth accounts are 100% U.S. stock. You could do one account in U.S. and one in international. Or who knows, maybe your bet will turn out right. It was right last year.

BostonButterfly
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Re: Diversify within Roth account?

Post by BostonButterfly » Mon Jun 18, 2018 2:58 pm

Tamarind wrote:
Mon Jun 18, 2018 2:32 pm
I think you are overthinking it a little. I do keep more than one fund in all accounts that are taking in new contributions, but that is to enable easier rebalancing in the event that one part of my AA over- or underperforms so much that new contributions aren't large enough to rebalance. While this reason is not completely unconnected to the one you suggest (my Roth is mostly international because it has high expected return and international is much cheaper with VG than with my 401k), I'm not trying to make any guesses about which part of my AA will outperform.
This makes sense to me. I think this pushes me into the direction of adding Total Market Index to my Roth rather than just the International Index.

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GerryL
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Re: Diversify within Roth account?

Post by GerryL » Mon Jun 18, 2018 3:10 pm

Interesting timing on this question. I just had Vanguard re-run my financial plan and one recommendation that came back was to consolidate my Total International Stock fund as much as possible in my Roth. (I posted a question about this the other day.) If I take their advice, my Roth would be 100% international stock with the remainder needed to meet my AA in the tIRA. The FA explained that this makes sense for me since I won't likely need to tap the Roth (unless I want to) and I can let the account grow aggressively for my legacy.

BostonButterfly
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Re: Diversify within Roth account?

Post by BostonButterfly » Mon Jun 18, 2018 3:29 pm

GerryL - have you decided whether you will take their advice?

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GerryL
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Re: Diversify within Roth account?

Post by GerryL » Mon Jun 18, 2018 4:40 pm

BostonButterfly wrote:
Mon Jun 18, 2018 3:29 pm
GerryL - have you decided whether you will take their advice?
Yes, I do plan to fill the Roth with the International Stock fund. I don't think, however, that I will implement their other suggestion around bonds. They recommend adding two funds -- short-term and intermediate-term bonds -- to my current Total Bond and Total International Bond funds. Weighing the slight advantage of more diversity against the increased complexity, I can live with the status quo.

CnC
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Re: Diversify within Roth account?

Post by CnC » Mon Jun 18, 2018 4:49 pm

Correct me if I'm wrong but shouldn't you put international in your taxable account because the foreign tax fee is a write off in a taxable account.

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grabiner
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Re: Diversify within Roth account?

Post by grabiner » Mon Jun 18, 2018 10:21 pm

CnC wrote:
Mon Jun 18, 2018 4:49 pm
Correct me if I'm wrong but shouldn't you put international in your taxable account because the foreign tax fee is a write off in a taxable account.
While this is true, the higher yields and lower qualified dividend percentage on international funds offset this benefit. Currently, the tax cost is about the same for Total Stock Market and Total International; which one is better depends on your tax bracket.

And it is better to tax-defer any fund if you can; what goes in taxable only matters if you must invest in taxable (because your tax-favored accounts are maxed out, or because you are investing money to be spent before you can draw on the retirement funds).
Wiki David Grabiner

TwstdSista
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Re: Diversify within Roth account?

Post by TwstdSista » Tue Jun 19, 2018 4:24 am

Our Roth accounts hold one fund as well -- Fidelity Total Stock Market Index Fund Premium Class (FSTVX) ER 0.035%. I've considered switching one account over to FTIPX, but it's just something I keep in the back of my mind. For now, my actual AA is within 1% of my desired AA so it isn't necessary.

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