Portfolio mix-retirement

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Topic Author
GB8888
Posts: 5
Joined: Sun Feb 16, 2020 12:42 pm

Portfolio mix-retirement

Post by GB8888 »

Hello all,

This is my first time posting. I really enjoy the blog and have read the Guide to Investing and the Little Book on Common Sense Investing and thought they were fabulous. I would like to read your thoughts on my current retirement portfolio and if you have any thoughts or suggestions:

1. Emergency fund: 6 months
2. Debt: Mortgage only at 3.8%
3. Tax filing: Single
4. Tax rate:
-federal: 22%
-State: 4.757%
5. State of residence: MD
6. Age: 34
7. Desired asset allocation: 100% stocks
-20% international
8. Current portfolio total: mid 6 figures

Portfolio allocation
I. 401K: (Fidelity)
-Fidelity 500 index (FXIAX): 34.62% exp ratio .015%
-Fidelity growth company K (FGCKX) 15.38% exp ratio .75% (was planning to swap all shares into SP500 index when current mgr retires)
-Fidelity small cap index ( FSSNX) 3.85% exp ratio .025%
-Fidelity extended market index (FSMAX) 7.69% exp ratio .045%
-Fidelity intl index (FSPSX) 15.38% exp ratio .035%

II. Roth IRA (Vanguard)
-Total Stock Market Index (VTSMX) 16.15% exp ratio .14%
-Small value index (VISVX) 2.31% exp ratio .19%
-Internation index (VTIAX) 2.31% exp ratio .11%
-Internation Growth (VWIGX) 2.31% exp ratio .43% (will not let this exceed 1/3 of ROTH intl holdings in the future)


401K Options:
-Col Dividend Inc I2 (CDDRX) exp ratio .630%
-FID 500 Index (FXIAX) exp ratio .015%
-Fid Contra Fund (FCNKX) exp ratio .730%
-Fidelity Equity Income (FEIKX) ER .510%
-Fidelity Growth Co (FGCKX) ER .75%
-FID Magellan K (FMGKX) ER .59%
-FID Ext Market Index (FSMAX) ER .045%
-Fidelity Growth Strategy (FAGKX) ER .430%
-Fidelity Value K (FVLKX) ER .49%
-Fidelity small cap index (FSSNX) ER .025%
-Fid Stock Selector Sm Cap (FDSCX) ER .75%
-Fid intl discovery (FIGRX) ER .78%
-Fid intl index ( FSPSX) ER .035%
-Fidelity Freedom Funds (Various) ER .78%
-Fidelity Capital and income (FAGIX) ER .69%
-Fid total Bond index (FTBRX) ER .450

Thank you all for taking the time to read.
obgraham
Posts: 1271
Joined: Mon Jan 28, 2013 7:30 pm

Re: Portfolio mix-retirement

Post by obgraham »

If you want to be 100% in equities, why consider those bond funds?

Also, to me, you have a bunch of duplications, and sectors of the market funds. Are you trying to time things? You could simplify and still be where you wish to be.

Finally, heavy as you are in stocks, you need to accept that the downturn, yet to come but inevitable, will hit you pretty hard. That would not be the time to have second thoughts! In the long run, however, you will be sitting pretty.

Just one old guy's opinion.
Topic Author
GB8888
Posts: 5
Joined: Sun Feb 16, 2020 12:42 pm

Re: Portfolio mix-retirement

Post by GB8888 »

Thanks for the reply,

Just to clarify, the 401K options are funds available in my 401K plan not funds I have invested in. I have only invested in funds that are under the 401K and Roth IRA section, not the 401K options section. I understand I have a slight overweighting in smaller and mid caps due to being in total stock market index and the small and mid cap indexes I am in. I am not in a bond fund, this is just an option in my 401K plan. I just followed the 1st timer portfolio format the forum suggested.

Thank you
theorist
Posts: 690
Joined: Sat Sep 28, 2019 11:39 am

Re: Portfolio mix-retirement

Post by theorist »

Looks pretty good! Minor comments:

— 100% equities is aggressive for 34. Minimum of (Age - 20, 30) percent in bonds is sort of a reasonable measure of an aggressive plan. So 85/15 would seem more reasonable to me. The acceptable bond fraction seems to have declined with the # of years of good markets :-). (But, others would probably be fine with 100% equities at your age — I gather I’m conservative.)

— your international exposure is mostly through FSPSX. This is a good choice, but as it tracks the MSCI EAFE index, it doesn’t give emerging markets exposure. Since in the coming twenty years one expects a lot of growth in those economies — but also a lot of volatility — you should consider whether you want exposure there. (I do, but this is a personal decision.)

Relatedly, I’d probably slightly up the overall international exposure, based on both the fraction of world cap in international markets, and the 2020s forecasts of Vanguard, T Rowe Price, Blackrock etc. weakly predicting foreign outperformance due to valuations. (Or more precisely, they strongly suggest it, but the history of forecast accuracy is weak :-)). But again, opinions vary widely on this, and 20% is enough to get most of the diversification benefit of foreign exposure.

Good luck!
Topic Author
GB8888
Posts: 5
Joined: Sun Feb 16, 2020 12:42 pm

Re: Portfolio mix-retirement

Post by GB8888 »

Thank you for the thoughtful reply theorist. Unfortunately my company's 401K does not offer any international funds with a weighting geared toward international emerging markets or international small caps. I will consider adding to my Roth or a taxable account later on.
retired@50
Posts: 3472
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Portfolio mix-retirement

Post by retired@50 »

GB8888 wrote: Sun Feb 16, 2020 1:10 pm -Fidelity growth company K (FGCKX) 15.38% exp ratio .75% (was planning to swap all shares into SP500 index when current mgr retires)
I'd suggest you trim this holding, or swap into SP500 now, but I'm an indexer at heart.

Regards,
This is one person's opinion. Nothing more.
sycamore
Posts: 1225
Joined: Tue May 08, 2018 12:06 pm

Re: Portfolio mix-retirement

Post by sycamore »

I plugged your US stocks funds (%'s relative to the total of US stocks, not all stocks) into Morningstar's Instant X-ray which reported this stock style allocation:

Code: Select all

        Val Core  Gro
Lg      18   24   28
Med      5    6    8
Sm       3    4    4
By contrast, Vanguard Total Stock Market by itself is

Code: Select all

        Val Core  Gro
Lg      24   29   24
Med      5    6    6
Sm       2    2    2
You have a relatively small tilt in US stocks to Large and Small, and to Growth. That's no problem but you could do it a lot simpler: go with just the 500 fund in the 401k and use a couple of funds in the Roth IRA to get the overall mix you want. This will work for a while, but if your 401k growth and contributions outstrip your Roth, you may need to re-arrange funds a bit.

A simpler portfolio/fewer funds is a good idea. I think it can help avoid tinkering later on -- for some people, once you start adding one fund here and another fund there, what's to stop from adding yet another one?

The above suggestion is a small nit. Overall you've got a good portfolio with very low costs. Lucky you such good 401k options!
lakpr
Posts: 6066
Joined: Fri Mar 18, 2011 9:59 am

Re: Portfolio mix-retirement

Post by lakpr »

GB8888 wrote: Sun Feb 16, 2020 1:10 pm Portfolio allocation
I. 401K: (Fidelity)
-Fidelity 500 index (FXIAX): 34.62% exp ratio .015%
-Fidelity growth company K (FGCKX) 15.38% exp ratio .75% (was planning to swap all shares into SP500 index when current mgr retires)
-Fidelity small cap index ( FSSNX) 3.85% exp ratio .025%
-Fidelity extended market index (FSMAX) 7.69% exp ratio .045%
-Fidelity intl index (FSPSX) 15.38% exp ratio .035%
Slight restatement of essentially the same recommendation of retired@50.

I understand that you want a small-cap tilt, and more specifically a small-cap value tilt. A 4:1 allocation between Fidelity 500 Index and Fidelity Extended Market index would let you approximate the total stock market index. Excluding the international index, the above percentages add up to 61.5%. I suggest that you divide it into 40:10:11.5 between the Fidelity 500 index, Fidelity Extended market index and Fidelity Small Cap index. The first 40:10 allocations would achieve the total stock market risk and returns; the additional 11.5 to small cap index gives you the tilt that you are seeking.
Topic Author
GB8888
Posts: 5
Joined: Sun Feb 16, 2020 12:42 pm

Re: Portfolio mix-retirement

Post by GB8888 »

Really good recommendations Lakpr. Is there a "safe" limit to a small cap tilt (like 20%-30% total portfolio) allocation? I want to be aggressive but not irresponsible with the asset allocation. I'm not saying your advice was irresponsible I was just wondering if you or anyone else had a limit to total small or mid cap allocations one could reasonably have in their total retirement portfolio.

Thank you
retired@50
Posts: 3472
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Portfolio mix-retirement

Post by retired@50 »

GB8888 wrote: Sun Feb 16, 2020 6:15 pm Really good recommendations Lakpr. Is there a "safe" limit to a small cap tilt (like 20%-30% total portfolio) allocation?
Are you a reader? If so, I'd suggest you head down to the public library and check out William J. Bernstein's books. Particularly, "The Intelligent Asset Allocator", "The Four Pillars of Investing", and "The Investor's Manifesto". He's an excellent writer of finance and investing topics. He discusses a number of portfolios with value tilts in his text.

Regards,
This is one person's opinion. Nothing more.
Topic Author
GB8888
Posts: 5
Joined: Sun Feb 16, 2020 12:42 pm

Re: Portfolio mix-retirement

Post by GB8888 »

Great,

Thanks. Bernstein was on my read list but I'll bump him up a few notches.
lakpr
Posts: 6066
Joined: Fri Mar 18, 2011 9:59 am

Re: Portfolio mix-retirement

Post by lakpr »

GB8888 wrote: Sun Feb 16, 2020 6:15 pm Really good recommendations Lakpr. Is there a "safe" limit to a small cap tilt (like 20%-30% total portfolio) allocation? I want to be aggressive but not irresponsible with the asset allocation. I'm not saying your advice was irresponsible I was just wondering if you or anyone else had a limit to total small or mid cap allocations one could reasonably have in their total retirement portfolio.

Thank you
Very good question, never really thought about it critically. Perhaps a 50% more allocation than market cap is about the threshold you should use for "tilt" -- and no scientific reason for that recommendation.

We know small caps to be 18% of the market by capitalization. So if you want to do a small cap tilt, I think allocating up to 27% should be safe enough.

Emerging markets form about 15% of international stocks, which themselves make up about 45% of world markets. So allocating 150% * 15% * 45% = 10% of the overall portfolio to emerging markets should be the upper limit.
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