Looking for advice

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Topic Author
Bigt3142
Posts: 13
Joined: Thu Jul 11, 2019 9:09 am

Looking for advice

Post by Bigt3142 » Thu Jul 11, 2019 10:19 am

Long time lurker first time poster. I'm just getting into investing and realizing that I've missed out on a lot of opportunity in my life by not investing sooner. I'm looking for some feedback on my current investment portfolio.

Emergency funds: Currently have three months of expenses in SPRXX Fidelity Money Market Account - $10,000

Debt: Mortgage only - $179,000 at 3.875% just refinanced on a 30 year note

Tax Filing Status: Single

Tax Rate: 22% Federal, 4.95% State

State of Residence: Utah

Age: 35

Income: $80,000

Desired Asset allocation: 90% stocks / 10% bonds (I need to re-balance)
Desired International allocation: 0% of stocks (Change my mind?)

Total Portfolio size $122,000

Current retirement assets

Taxable
17.3% cash (This is in my Fidelity Cash Management Account 100% in SPRXX Fidelity Money Market Account)
21.8% FSKAX Fidelity Total Market Index Fund (0.015%)
2.5% FXAIX Fidelity 500 Index Fund (0.015% expense ratio)

401k
50% FXAIX Fidelity 500 Index Fund (0.015%)
2.8% FUAMX Fidelity Intermediate Treasury Bond Index Fund (0.03%)
Company match is 7% of what I contribute up to 5% of the total. ex.
I do get a company bonus directly to my 401k every year. Last year was $6,800.

Roth IRA at Fidelity
15.5% FXAIX Fidelity 500 Index Fund (0.015%)
1.6% FSKAX Fidelity Total Market Index Fund (0.015%)
I started with the Fideltiy 500 to have all the same index fund but thought later I should go to Total Market instead. Should I sell the 500 and buy the total market?

Rollover IRA at Fidelity (roll over from previous job)
1% FXAIX Fidelity 500 Index Fund (0.015%)

Contributions

New annual Contributions
$19,000 401k (First year I will max it out)
$6,000 Roth IRA (Already maxed)
Taxable anything left over

Available funds in 401(k)
Lifepath Index (0.12%) Funds available 2020 thru 2060 in five year increments
Large Cap
Fid 500 Index Fund (FXAIX) (0.015%)
Fidelity Contra Fund Commingled Pool Class 2 (0.38%)
Fidelity Magellan Commingled Pool (0.43%)
Fidelity OTC Commingled Pool (0.48%)

Mid-Cap
Baron Asset Fund Institutional Class (BARIX) (1.04%)
Fidelity Low-Priced Stock Commingled Pool (0.48%)
Hotchkis & Wiley Mid-Cap Value Fund Class I (0.99%)

Small Cap
Fidelity Small Cap Index Fund (0.025%)

Bonds
FID Intermediate Treasury Bond Index Fund (FUAMX) (0.03%)
PIMCO Total Return Fund Institutional Class (PTTRX) (0.55%)

International
FID Diversified International Commingled Pool (0.58%)
Fidelity Global ex US Index Fund (FSGGX) (0.055%)

Questions:
1. I need to add more bonds to at least get my 10% goal. Should I just buy a higher % as my 401k invests weekly or sell some from my Index to re-balance?

2. I know the recommendation is to have between 20-40% in international but international lags so much and I feel like I'm already so far behind where I should be. Please help me change my mind.

3. Since my 401k only has a 500 index fund, should I also buy the small cap index to get more of a total market fund?

4. Did I make a mistake on investing my refinance in a taxable index? I didn't know where to put it. I refinanced to go from a 15 year to a 30 to give me more cash flow and allow me to max my 401k. I also wanted to get extra money out of my house and available to invest. My house still has 25% equity in it after my cash out.

deikel
Posts: 656
Joined: Sat Jan 25, 2014 7:13 pm

Re: Looking for advice

Post by deikel » Thu Jul 11, 2019 2:23 pm

1) Markets looks good right now, rebalance and contribute to new stock funds
2) If your description of it lagging behind is true, then it would be a prime target to buy now, because eventually the US will lag and the INT will move ahead - think about it as a cheap buying opportunity now. Its part of the diversification, so if it is low now and has been for a while, its a good time to stock up (pun intended)
3) If you compare total market to S+P500 you will find very little (if any) difference - the market weighing causes the largest companies in the S+P500 to dominate by a lot....so counteracting with small caps would require a lot of small caps - go with the S+p500 and enjoy the lower expense ratio or go with Total market ex S+P500 in your taxable to counteract
4) that is literally speculation and leveraging, you took money out of the house (you borrowed money from the bank) and are investing that in the stock market in hopes of better gains - if either the stock market crashes or the housing market collapses or the bond market gets any softer - you loose. The only way you would win is if inflation increases by a lot and/or the stock market continues to rally beyond 4% a year - for the next decade or two. Only you can tell what you think will happen, but from a diversification point of view, I don't think that was a smart move.

Personally I think its more likely that there will be a major market correction within 2-5 years - but my crystal ball is all cloudy as any...and I am saying this since years, so better not to plan for such a thing or better yet, to invest with this possibility already taken into account and diversifying.
Everything you read in this post is my personal opinion. If you disagree with this disclaimer, please un-read the text immediately and destroy any copy or remembrance of it.

HomeStretch
Posts: 800
Joined: Thu Dec 27, 2018 3:06 pm

Re: Looking for advice

Post by HomeStretch » Thu Jul 11, 2019 2:58 pm

After you max out your 401k and IRA, consider putting extra towards mortgage principal.

LeeMKE
Posts: 1844
Joined: Mon Oct 14, 2013 9:40 pm

Re: Looking for advice

Post by LeeMKE » Thu Jul 11, 2019 3:10 pm

+1 Deikel
The mightiest Oak is just a nut who stayed the course.

User avatar
Watty
Posts: 16535
Joined: Wed Oct 10, 2007 3:55 pm

Re: Looking for advice

Post by Watty » Thu Jul 11, 2019 3:26 pm

Bigt3142 wrote:
Thu Jul 11, 2019 10:19 am

Tax Filing Status: Single

Tax Rate: 22% Federal, 4.95% State

Income: $80,000


New annual Contributions
$19,000 401k (First year I will max it out)
$6,000 Roth IRA (Already maxed)
Taxable anything left over
Be sure to check to see if you are eligible to make deductible IRA contributions instead of the Roth IRA contributions. With your income it looks close since the income numbers that determine this are after payroll deductions including 401k contributions.

https://www.irs.gov/retirement-plans/20 ... an-at-work

In about a 26% combined tax rate it would be harder to justify choosing the Roth if you could make a deductible IRA contribution instead.

I have not gone through the details but there are ways to recharterize your prior Roth contributions for this year if you change your mind.

If you are on the borderline it might make sense to make just enough deductible contributions to get down to the 12% federal tax bracket and then use Roth contributions for the rest of the combined $6,000 limit.

Bigt3142 wrote:
Thu Jul 11, 2019 10:19 am
Questions:
1. I need to add more bonds to at least get my 10% goal. Should I just buy a higher % as my 401k invests weekly or sell some from my Index to re-balance?

2. I know the recommendation is to have between 20-40% in international but international lags so much and I feel like I'm already so far behind where I should be. Please help me change my mind.

3. Since my 401k only has a 500 index fund, should I also buy the small cap index to get more of a total market fund?
A simple solution to all of these would be to just use a target date(Lifepath) fund like a 2050 fund if that is when you expect to retire.

In the right situation a low cost target date fund is a great choice. The main reasons not to use them are if you don't have a good low cost one in your 401k, or if you have retirement money in a taxable account where tax efficiency is important.

Even if you have some additional money that you save in a taxable account that would likely be earmarked for something other than retirement so that would not be a factor in your retirement asset allocation.
Bigt3142 wrote:
Thu Jul 11, 2019 10:19 am
Emergency funds: Currently have three months of expenses in SPRXX Fidelity Money Market Account - $10,000
It would be good to build that up to be at least three months expenses. (six would be better by the time you are 45)

It would also be good to have a separate car fund that you put a little bit into each month so that you can pay cash when you need a replacement car.

retiredjg
Posts: 36806
Joined: Thu Jan 10, 2008 12:56 pm

Re: Looking for advice

Post by retiredjg » Thu Jul 11, 2019 3:34 pm

Roth IRA at Fidelity
15.5% FXAIX Fidelity 500 Index Fund (0.015%)
1.6% FSKAX Fidelity Total Market Index Fund (0.015%)
I started with the Fideltiy 500 to have all the same index fund but thought later I should go to Total Market instead. Should I sell the 500 and buy the total market?
I would sell the total market and hold only 500 index in the IRA accounts and 401k. This reduces the chance you will accidentally create a wash sale (but you'd have to also get rid of the 500 index in taxable for it to work entirely).


1. I need to add more bonds to at least get my 10% goal. Should I just buy a higher % as my 401k invests weekly or sell some from my Index to re-balance?
I'd sell to get the portfolio like you want it (sell 500 index and replace it with FID Intermediate Treasury Bond Index Fund (FUAMX) (0.03%) in the 401k). Then maintain that by making sure at least 10% of your contributions go to bonds.

2. I know the recommendation is to have between 20-40% in international but international lags so much and I feel like I'm already so far behind where I should be. Please help me change my mind.
If you believe that international is not needed or that you don't ever want it, that is fine. But if you are waiting for it to start doing well, that is a mistake. The way to really make money in an asset class is to hold it before it goes up. So if you think international will eventually be desirable, go ahead and get some now and just accept that every asset class has good decades and not so good decades.

3. Since my 401k only has a 500 index fund, should I also buy the small cap index to get more of a total market fund?
Personal preference. In reality, the 500 index acts so much like the total market that it makes little difference if you add the small cap.

4. Did I make a mistake on investing my refinance in a taxable index? I didn't know where to put it. I refinanced to go from a 15 year to a 30 to give me more cash flow and allow me to max my 401k.
Does it matter? It's already done. However, I doubt it was a mistake. Every choice has pros and cons. If you wanted the money out of the house, the proper choice was to invest it.

Topic Author
Bigt3142
Posts: 13
Joined: Thu Jul 11, 2019 9:09 am

Re: Looking for advice

Post by Bigt3142 » Thu Jul 11, 2019 6:03 pm

Thank you all for the advice so far. It's great to have the extra input on my specific situation. It seems I change my mind and second guess myself so much I don't ever know what to do.

As far as international funds go, I feel like they will always lag behind the US stocks and that I would be substantially better off sticking with just US index funds but I'm very inexperienced at this so I could very well be wrong. I don't feel like I'm making this decision in an attempt to time the international market because if that was the case you are completely correct, I should be buying now as much as I could while it's down. This is most likely just home town bias.

As far as the Lifepath fund, I considered just buying that fund but saw it has 37% international in it so that is why I ended up not investing in that fund.

I suppose you are correct deikel in the sense that cash out refinance could be viewed as speculation. I didn't feel that way because I was orignally following Dave Ramesy's advice and had a 15 year loan and was throwing all of my extra money at the mortgage until I realized I wasn't putting much to my retirement by following this advice. So I was essentially reversing my prior decision by taking that extra money out to put in the market which also allowed me to max out my 401k from now on.

Topic Author
Bigt3142
Posts: 13
Joined: Thu Jul 11, 2019 9:09 am

Re: Looking for advice

Post by Bigt3142 » Fri Jul 12, 2019 8:17 am

Watty wrote:
Thu Jul 11, 2019 3:26 pm

Be sure to check to see if you are eligible to make deductible IRA contributions instead of the Roth IRA contributions. With your income it looks close since the income numbers that determine this are after payroll deductions including 401k contributions.
I didn't even know I could do this. I will definitely look into it. Last year my MAGI was $65k but I was contributing to a ROTH 401k instead of the standard 401k. I just changed that this week after running a calculator to see it was less cost effective to contribute to my ROTH 401k. So this year I should be less than that. I should have known of the same thing applied to my ROTH IRA as the ROTH 401k.

Thank you!

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