Lazy Investment Porfolio Help

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cls1989
Posts: 5
Joined: Thu Aug 09, 2018 1:17 pm

Lazy Investment Porfolio Help

Post by cls1989 » Thu Aug 09, 2018 1:20 pm

Questions:
1. I’m looking to create a lazy investment portfolio (set and forget). I have a few thousand dollars in cash I would like to invest. I was looking at investing in index funds. I was thinking of putting 70% in a stock index fund and 30% in a bond index fund. I would continue to add about $50-100 to these funds each month. Looking for advice. Which index funds to choose? Is my asset allocation (70/30) appropriate for my situation?

Emergency funds: Three to six months of expenses (Yes)
Debt: Indicate if you have any debt (credit card, school loans, car loans, mortgage) and the interest rate you are paying on each loan.
• Student Loan, Principal balance 6,256.50, Average interest rate 3.15%
• Car Loan, Principal balance $9,500, Interest rate: 3.29%

Tax Filing Status: (Single)
Tax Rate: 11.67% Federal, 3.95% State
State of Residence: Michigan
Age: 29
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 20% of stocks
Current retirement assets

Taxable
15% cash (for investing – do not include emergency funds)
0% fund name (ticker symbol) (expense ratio) (NA at this time)
0% stock company name (ticker symbol) (NA at this time)

401k
10% FID FREEDOM 2055 (FDEEX) (0.75%)
Company matches 33% of the first 6%

Roth IRA at Vanguard
N/A – I don’t have a Roth IRA

Rollover IRA at Schwab
N/A – I don’t have a rollover IRA at Schwab

Contributions
New annual Contributions
$3228.05 my 401k contribution so far for 2018 ($2001.80 employer matching contributions)
$0 IRA/Roth IRA
$0 taxable (for retirement, not short-term goals)
Available funds
Funds available in 401(k)
Current balance is $21,929.92
FID FREEDOM 2055 (FDEEX) (0.75%)

ExitStageLeft
Posts: 722
Joined: Sat Jan 20, 2018 4:02 pm

Re: Lazy Investment Porfolio Help

Post by ExitStageLeft » Thu Aug 09, 2018 3:49 pm

Welcome to the forum! If you earned at least $5,500 this year (or will by year end) you can put that much into a Roth IRA. That is a much better option than putting it into a taxable brokerage account.

Your Fidelity Freedom Fund in the 401k has an expense ratio that is higher than most folks would prefer. Can you post which funds are available in the 401k?

cls1989
Posts: 5
Joined: Thu Aug 09, 2018 1:17 pm

Re: Lazy Investment Porfolio Help

Post by cls1989 » Thu Aug 09, 2018 4:03 pm

Hello, thank you for the response. I don't know much about Roth IRA's. Does it matter which broker I open the Roth IRA with? I currently have a 401K with fidelity, so I would prefer to go through the same broker if there's no real difference. How much should I contribute to a Roth IRA?

When you ask which funds are available in the 401k, I'm guessing your talking about the asset allocation? If that's the case please see the breakdown below.

Domestic Stock 52%
Foreign Stock 34%
Bonds 7%
Short-Term 7%
Unknown 0%
Other 1%

Finally, what are your thoughts on index funds? Is it not worth the investment since it is a taxable account?

Thanks again for the help.

Flyer24
Posts: 135
Joined: Sun Apr 08, 2018 4:21 pm

Re: Lazy Investment Porfolio Help

Post by Flyer24 » Thu Aug 09, 2018 4:11 pm

You need to list the names of funds that are available and their expense ratios..not your allocation.

delamer
Posts: 5470
Joined: Tue Feb 08, 2011 6:13 pm

Re: Lazy Investment Porfolio Help

Post by delamer » Thu Aug 09, 2018 4:13 pm

Why did you decide to invest in a brokerage account rather than pay down your debt?

Flyer24
Posts: 135
Joined: Sun Apr 08, 2018 4:21 pm

Re: Lazy Investment Porfolio Help

Post by Flyer24 » Thu Aug 09, 2018 4:18 pm

You don’t need to invest in a taxable account right now. You want to maximize your 401K and Roth IRA before doing anything taxable. Although, you first priority should be your student loan payoff.

Steps:

1) Contribute enough to get 401K match
2) Put rest towards student loan
3) When loan is paid, contribute $5500 a year to Roth IRA
4) Max out 401k

Your allocation is too conservative for your age. You don’t want that much bonds.

Doctor Rhythm
Posts: 164
Joined: Mon Jan 22, 2018 3:55 am

Re: Lazy Investment Porfolio Help

Post by Doctor Rhythm » Thu Aug 09, 2018 4:29 pm

cls1989 wrote:
Thu Aug 09, 2018 4:03 pm
Hello, thank you for the response. I don't know much about Roth IRA's. Does it matter which broker I open the Roth IRA with? I currently have a 401K with fidelity, so I would prefer to go through the same broker if there's no real difference. How much should I contribute to a Roth IRA?

When you ask which funds are available in the 401k, I'm guessing your talking about the asset allocation? If that's the case please see the breakdown below.

Domestic Stock 52%
Foreign Stock 34%
Bonds 7%
Short-Term 7%
Unknown 0%
Other 1%

Finally, what are your thoughts on index funds? Is it not worth the investment since it is a taxable account?

Thanks again for the help.
I am still a bit confused by your portfolio description. You say you have 15% of your portfolio in cash in a taxable account, 10% in a Fidelity target date fund in your 401k. Where is the other 75% of your savings?

Can you list the full content of your taxable and your 401k accounts: which funds you own and what % of your total portfolio is represented by each fund? You don't have to list the breakdown of the target date fund, which I assume is what is described above.

Oh, and as far as what we think about index funds on this forum: Yes, we like them...a lot.

ExitStageLeft
Posts: 722
Joined: Sat Jan 20, 2018 4:02 pm

Re: Lazy Investment Porfolio Help

Post by ExitStageLeft » Thu Aug 09, 2018 6:35 pm

cls1989 wrote:
Thu Aug 09, 2018 4:03 pm
Hello, thank you for the response. I don't know much about Roth IRA's. Does it matter which broker I open the Roth IRA with? I currently have a 401K with fidelity, so I would prefer to go through the same broker if there's no real difference. How much should I contribute to a Roth IRA?
Fidelity is fine. Many folks also go with Vanguard, Schwab, and others. If you open the Roth account, put $5,500 in FDEWX.

cls1989 wrote:
Thu Aug 09, 2018 4:03 pm
When you ask which funds are available in the 401k, I'm guessing your talking about the asset allocation? If that's the case please see the breakdown below.
Sorry, I should have said which mutual funds are available. If you have access to all the funds that Fidelity offers, you should exchange all your shares of FDEEX for the INDEX version of the fund, FDEWX.

cls1989 wrote:
Thu Aug 09, 2018 4:03 pm
Finally, what are your thoughts on index funds? Is it not worth the investment since it is a taxable account?
It's Rule #6.

cls1989
Posts: 5
Joined: Thu Aug 09, 2018 1:17 pm

Re: Lazy Investment Porfolio Help

Post by cls1989 » Thu Aug 09, 2018 8:04 pm

I apologize. I am a total beginner trying to put together a simple portfolio. So I will try to clarify my situation. I try to save 15% per year. I currently save 10% in my 401k. All 10% goes into Fidelity Freedom 2055 Fund (FDEEX). The expense ratio for this 401k investment is 0.75%. The other 5% of my savings goes into an online savings that gets 1.8%. This is where I believe I can make an improvement. Instead of putting this 5% into an online savings, it sounds like I would be better off putting it into a Roth IRA that's invested in FDEWX.

cls1989
Posts: 5
Joined: Thu Aug 09, 2018 1:17 pm

Re: Lazy Investment Porfolio Help

Post by cls1989 » Fri Aug 10, 2018 7:42 am

I browsed the fidelity site and below is a list of all of the 401k investment options for my employer. I currently hold the FID FREEDOM 2055 (FDEEX) investment.

Name/Inception Date and Gross Expense Ratio**
FID 500 INDEX PR (FUSVX) 02/17/1988 0.015%
FID CAP APPREC K (FCAKX) 11/26/1986 0.410%
FID VALUE DISCOV K (FVDKX) 12/10/2002 0.630%
INVESCO DIVRS DIV R6 (LCEFX) 12/31/2001 0.440%
FID EXT MKT IDX PR (FSEVX) 11/05/1997 0.045%
FID VALUE K (FVLKX) 12/01/1978 0.510%
J H ENTERPRISE N (JDMNX) 09/01/1992 0.670%
MM PR SM CAP OPP I (MSOOX) 07/17/1998 0.700%
NORTHERN SM CAP VAL (NOSGX) 03/31/1994 1.130%
FID GLB XUS IDX PR (FSGDX) 09/08/2011 0.060%
FID INTL DISCOVERY K (FIDKX) 12/31/1986 0.820%
FID INTL SM CAP OPP (FSCOX) 08/02/2005 1.130%
INVS DEVELOP MKTS A (GTDDX) 01/11/1994 1.450%
FID REAL ESTATE INVS (FRESX) 11/17/1986 0.760%
FID BALANCED K (FBAKX) 11/06/1986 0.460%
FID FREEDOM 2005 (FFFVX) 11/06/2003 0.490%
FID FREEDOM 2010 (FFFCX) 10/17/1996 0.530%
FID FREEDOM 2015 (FFVFX) 11/06/2003 0.570%
FID FREEDOM 2020 (FFFDX) 10/17/1996 0.610%
FID FREEDOM 2025 (FFTWX) 11/06/2003 0.660%
FID FREEDOM 2030 (FFFEX) 10/17/1996 0.700%
FID FREEDOM 2035 (FFTHX) 11/06/2003 0.740%
FID FREEDOM 2040 (FFFFX) 09/06/2000 0.750%
FID FREEDOM 2045 (FFFGX) 06/01/2006 0.750%
FID FREEDOM 2050 (FFFHX) 06/01/2006 0.750%
FID FREEDOM 2055 (FDEEX) 06/01/2011 0.750%
FID FREEDOM 2060 (FDKVX) 08/05/2014 0.750%
FID FREEDOM INCOME (FFFAX) 10/17/1996 0.470%
FID CAPITAL & INCOME (FAGIX) 11/01/1977 0.670%
FID TOTAL BOND (FTBFX) 10/15/2002 0.450%
FID US BOND IDX PR (FSITX) 03/08/1990 0.025%
FID GOVT MMKT (SPAXX) 02/05/1990 0.420%
Last edited by cls1989 on Sat Aug 11, 2018 8:23 am, edited 2 times in total.

Flyer24
Posts: 135
Joined: Sun Apr 08, 2018 4:21 pm

Re: Lazy Investment Porfolio Help

Post by Flyer24 » Fri Aug 10, 2018 8:26 am

Please list the expense ratios with the funds available.

Cop51
Posts: 97
Joined: Sun Jul 09, 2017 12:42 am
Location: NJ

Re: Lazy Investment Porfolio Help

Post by Cop51 » Fri Aug 10, 2018 8:45 am

Continue what you can to get the max contribution from the employer match. After that contribute up to the $5500 into the ROTH IRA. If you still have money to invest go back to your 401k to add more to that. At far as the extra 5% in cash. You'll want 3-6 months cash emergency fund. Are you saving for a house? are you saving because you might be relocating? The 5% cash savings might not be a bad thing if you have a goal for the cash. If not you should be contributing more to the tax advantage accounts.

passiveTiger
Posts: 43
Joined: Tue Apr 17, 2018 9:22 pm

Re: Lazy Investment Porfolio Help

Post by passiveTiger » Fri Aug 10, 2018 8:07 pm

cls1989 wrote:
Fri Aug 10, 2018 7:42 am
I browsed the fidelity site and below is a list of all of the 401k investment options for my employer. I currently hold the FID FREEDOM 2055 (FDEEX) investment.

FID 500 INDEX PR (FUSVX) 02/17/1988
FID CAP APPREC K (FCAKX) 11/26/1986
FID VALUE DISCOV K (FVDKX) 12/10/2002
INVESCO DIVRS DIV R6 (LCEFX) 12/31/2001
FID EXT MKT IDX PR (FSEVX) 11/05/1997
FID VALUE K (FVLKX) 12/01/1978
J H ENTERPRISE N (JDMNX) 09/01/1992
MM PR SM CAP OPP I (MSOOX) 07/17/1998
NORTHERN SM CAP VAL (NOSGX) 03/31/1994
FID GLB XUS IDX PR (FSGDX) 09/08/2011
FID INTL DISCOVERY K (FIDKX) 12/31/1986
FID INTL SM CAP OPP (FSCOX) 08/02/2005
INVS DEVELOP MKTS A (GTDDX) 01/11/1994
FID REAL ESTATE INVS (FRESX) 11/17/1986
FID BALANCED K (FBAKX) 11/06/1986
FID FREEDOM 2005 (FFFVX) 11/06/2003
FID FREEDOM 2010 (FFFCX) 10/17/1996
FID FREEDOM 2015 (FFVFX) 11/06/2003
FID FREEDOM 2020 (FFFDX) 10/17/1996
FID FREEDOM 2025 (FFTWX) 11/06/2003
FID FREEDOM 2030 (FFFEX) 10/17/1996
FID FREEDOM 2035 (FFTHX) 11/06/2003
FID FREEDOM 2040 (FFFFX) 09/06/2000
FID FREEDOM 2045 (FFFGX) 06/01/2006
FID FREEDOM 2050 (FFFHX) 06/01/2006
FID FREEDOM 2055 (FDEEX) 06/01/2011
FID FREEDOM 2060 (FDKVX) 08/05/2014
FID FREEDOM INCOME (FFFAX) 10/17/1996
FID CAPITAL & INCOME (FAGIX) 11/01/1977
FID TOTAL BOND (FTBFX) 10/15/2002
FID US BOND IDX PR (FSITX) 03/08/1990
FID GOVT MMKT (SPAXX) 02/05/1990 7 day yield as of 07/31/2018   1.56%
Holy smokes!

FDEEX has a 0.75% ER that is primarily composed of underlying actively managed funds (https://fundresearch.fidelity.com/mutua ... /315793851).

If it was me at 29 and solely in regards to your 401(k) options, I would only consider these four funds in these percentages:

FUSVX (0.015%) - 57%
FSEVX (0.045%) - 15%
FSGDX (0.06%) - 18%
FSITX (0.025%) - 10%

That would give you the S&P 500 (FUSVX), an additional 3,000+ US stocks other than the S&P 500 (FSEVX), 2,000+ foreign developed and emerging market stocks (FSGDX), and a fund that tracks the Bloomberg Barclays U.S. Aggregate Bond Index (FSITX) for a weighted ER of 0.029%.

0.029% ER for that mix is a lot better than the 0.75% ER fund that you have now, and that 0.029% ER provides a broad mix of US and international stocks and the U.S. bond market.

Allocations that I made were 90% equity and 10% debt overall, 80% US equity and 20% foreign equity for the equity portion, and 80% S&P 500 and 20% extended US market for the US equity portion.

I lowered the S&P 500 allocation less than 1% and raised the extended US market allocation less than 1% to make them whole numbers. Every deferred plan I have had has wanted whole number allocations.

Adjust those allocations to taste for your tolerance. If you do not want international or want more, then drop FSGDX from the allocation or increase it. If you want more or less bonds, adjust FSITX up or down. You may want to fine tune my 80/20 for FUSVX and FSEVX, but 75-80% for FUSVX and 20-25% for FSEVX should be pretty close. If you just want your US equity allocation to be all S&P 500 and not pay three times more for the rest of the market, drop FSEVX from the allocation.

You have a lot of options other than 0.75% ER.

I also would not use FDEWX (0.14%). Fidelity minimums have been dropped, so you could pick 3 funds and have total US market, total international market, and total US bond market for a lot less than 0.14%.

I think FDEWX was suggested to you so that you don't have to do a lot of selection, because you stated that you are a "total beginner." If making selections is too hard, you're probably doing the best that you can do by choosing one target fund.

Picking one fund is a lot easier, but it clearly costs more.

cls1989
Posts: 5
Joined: Thu Aug 09, 2018 1:17 pm

Re: Lazy Investment Porfolio Help

Post by cls1989 » Sat Aug 11, 2018 8:58 pm

I appreciate the responses. I updated the list of 401k investment options for my employer with the expense ratios. passiveTiger I see what you are saying about the difference in expense ratios. I would like my asset allocation to be 80/20. Using the recommended list of funds you provided would the below distribution be ok?

Fund / Expense Ratio / Investment Distribution
FUSVX / (0.015%) / 55%
FSEVX / (0.045%) / 10%
FSGDX / (0.06%) / 15%
FSITX / (0.025%) / 20%

ExitStageLeft
Posts: 722
Joined: Sat Jan 20, 2018 4:02 pm

Re: Lazy Investment Porfolio Help

Post by ExitStageLeft » Mon Aug 13, 2018 2:08 pm

cls1989 wrote:
Sat Aug 11, 2018 8:58 pm
I appreciate the responses. I updated the list of 401k investment options for my employer with the expense ratios. passiveTiger I see what you are saying about the difference in expense ratios. I would like my asset allocation to be 80/20. Using the recommended list of funds you provided would the below distribution be ok?

Fund / Expense Ratio / Investment Distribution
FUSVX / (0.015%) / 55%
FSEVX / (0.045%) / 10%
FSGDX / (0.06%) / 15%
FSITX / (0.025%) / 20%
That looks great to me. It yields you a 0.027% expense ratio. On a $10,000 balance that is $2.67 per year, compared to $75 in fees with the Fidelity target date fund.

RIMDBogle
Posts: 46
Joined: Thu Jul 12, 2018 10:13 pm

Re: Lazy Investment Porfolio Help

Post by RIMDBogle » Mon Aug 13, 2018 3:15 pm

Good see this topic.
Allocations that I made were 90% equity and 10% debt overall, 80% US equity and 20% foreign equity for the equity portion, and 80% S&P 500 and 20% extended US market for the US equity portion.
What is the boglehead norm to split/slice 20% foreign equity into Developed Market, Emerging market?

Will it help to add small cap piece to 20% foreign equity ?

If yes, how do we split this 20% foreign equity ?

What is the benchmark index/fund to monitor/compare as proxy to this portfolio?

Thanks for sharing.

passiveTiger
Posts: 43
Joined: Tue Apr 17, 2018 9:22 pm

Re: Lazy Investment Porfolio Help

Post by passiveTiger » Tue Aug 14, 2018 9:07 pm

RIMDBogle wrote:
Mon Aug 13, 2018 3:15 pm
Good see this topic.
Allocations that I made were 90% equity and 10% debt overall, 80% US equity and 20% foreign equity for the equity portion, and 80% S&P 500 and 20% extended US market for the US equity portion.
What is the boglehead norm to split/slice 20% foreign equity into Developed Market, Emerging market?

Will it help to add small cap piece to 20% foreign equity ?

If yes, how do we split this 20% foreign equity ?

What is the benchmark index/fund to monitor/compare as proxy to this portfolio?

Thanks for sharing.
I do not claim to speak for Boglehead norms, but I think that a default would be the worldwide weighted capitalization of roughly 55% US and 45% rest of the world - https://investor.vanguard.com/etf/profile/portfolio/vt.

I would use a total international stock market index fund for the international allocation. If you wanted to use an index comparison, FTSE Global All Cap Index and similar indexes could work for a worldwide breakdown. The last time that I looked a year or so ago, the US market was 52% of the index, international developed was 38%, and international developing (or emerging) was 10%.

So, international was roughly 80% developed and 20% developing. Vanguard uses the FTSE Global All Cap ex US Index (same as FTSE Global All Cap Index - except the US is excluded) for its VGTSX/VXUS/VTIAX Total International Stock Index Fund.

I am not a slice-and-dicer, so someone who is interested in adjusting (or "tilting") holdings for size or characteristics or both (e.g., adding a U.S. market small cap value index fund) will have to ask someone else about that. I do not think it is stupid to do that. I am just not convinced it is worth the effort. Those that do it will often put forth the data to support their case, and if others are convinced, they can do it.

http://johncbogle.com/wordpress/wp-cont ... 0op-ed.pdf

The Vanguard Target Retirement portfolio applicable to the OP's age of 29 has a 60/40 allocation between US and the rest of the world - https://investor.vanguard.com/mutual-fu ... dings/1487.

John Bogle has said that international allocation is an unnecessary risk, and the return from US stocks should be fine. He has softened that a little it appears, but has generally stayed the course on that opinion - https://www.cnbc.com/2017/10/17/vanguar ... -bias.html.

Because the OP stated that a 20% allocation was desired, I went with that. 20% would also be splitting the difference between the allocation Vanguard uses (i.e., 40%) and what John Bogle has stated in the past (0%).

I did not go with the OP's 20% allocation to bonds (i.e., I used 10%), because I think that is relatively conservative for someone who is 29, but if the OP sleeps better with 20% bonds, it should be 20% bonds.

I went with 80/20 on the S&P 500 and extended market funds in the OP's 401(k) options, because that should approximate the entire US market. I would not have issues with 75/25 or even 70/30. 65/35, 60/40, and lower allocations to the S&P 500 seem to be getting away from the market representation too much.

passiveTiger
Posts: 43
Joined: Tue Apr 17, 2018 9:22 pm

Re: Lazy Investment Porfolio Help

Post by passiveTiger » Tue Aug 14, 2018 9:22 pm

cls1989 wrote:
Sat Aug 11, 2018 8:58 pm
I appreciate the responses. I updated the list of 401k investment options for my employer with the expense ratios. passiveTiger I see what you are saying about the difference in expense ratios. I would like my asset allocation to be 80/20. Using the recommended list of funds you provided would the below distribution be ok?

Fund / Expense Ratio / Investment Distribution
FUSVX / (0.015%) / 55%
FSEVX / (0.045%) / 10%
FSGDX / (0.06%) / 15%
FSITX / (0.025%) / 20%
To the the whole percentage amount, the allocations would be with 80/20 on US/international and 80/20 equity/debt:

FUSVX / (0.015%) / 51% - 80% of US allocation in S&P 500
FSEVX / (0.045%) / 13% - 20% of US allocation in US extended market
FSGDX / (0.06%) / 16% - 20% of equity allocation in international developed and developing markets
FSITX / (0.025%) / 20%

If your plan makes you round to 5% allocations, this is a little closer:

FUSVX / (0.015%) / 50%
FSEVX / (0.045%) / 15%
FSGDX / (0.06%) / 15%
FSITX / (0.025%) / 20%

As long as you know that you are over-weighting the S&P 500 over the extended market some (85/15 vs 80/20 with your 55/10 split), your allocations seem fine. You may have done the homework and found that the S&P 500 is 85% of the total US market now, and if it is, go with that.

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