Need advice about my portfolio setup

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Topic Author
dpow
Posts: 11
Joined: Thu Feb 08, 2024 2:08 pm

Need advice about my portfolio setup

Post by dpow »

I'm a new investor looking for some advice. I am interested in setting up an evenly balanced portfolio that is 20% large cap, 20% mid cap, 20% small cap, 20% international, and 20% bonds. So if I go with Fidelity then maybe I could go with a portfolio that looks something like this:

20% Large Cap FXAIX
20% Mid Cap FSMDX
20% Small Cap FSSNX
20% International FTIHX
20% Bonds FXNAX

However, Fidelity also offers FSKAX, which is a combination of large, medium, and small caps all in one fund. So rather than invest in 3 separate funds for large, medium, and small cap, would I be better off just doing FSKAX for all of my domestic stocks? This is what it would look like:

60% Domestic FSKAX
20% International FTIHX
20% Bonds FXNAX

Would I have better balance and stability with the first option? Or would I be better off doing the second option instead? Or are they both pretty much the same?
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retired@50
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Location: Living in the U.S.A.

Re: Need advice about my portfolio setup

Post by retired@50 »

dpow wrote: Sat Feb 10, 2024 1:51 pm I'm a new investor looking for some advice. I am interested in setting up an evenly balanced portfolio that is 20% large cap, 20% mid cap, 20% small cap, 20% international, and 20% bonds. So if I go with Fidelity then maybe I could go with a portfolio that looks something like this:

20% Large Cap FXAIX
20% Mid Cap FSMDX
20% Small Cap FSSNX
20% International FTIHX
20% Bonds FXNAX

However, Fidelity also offers FSKAX, which is a combination of large, medium, and small caps all in one fund. So rather than invest in 3 separate funds for large, medium, and small cap, would I be better off just doing FSKAX for all of my domestic stocks? This is what it would look like:

60% Domestic FSKAX
20% International FTIHX
20% Bonds FXNAX


Would I have better balance and stability with the first option? Or would I be better off doing the second option instead? Or are they both pretty much the same?
To my eye, the second portfolio in green, is much simpler, and more "Boglehead like". This is what I'd choose.

Using the first option over-weights Mid cap and Small cap stocks in your mix. This could be considered a "tilt" toward mid and small cap companies that would likely create more volatility in your portfolio and could set you up for regret and/or disappointment due to the tracking error from the overall market.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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Squirrel208
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Re: Need advice about my portfolio setup

Post by Squirrel208 »

dpow wrote: Sat Feb 10, 2024 1:51 pm However, Fidelity also offers FSKAX, which is a combination of large, medium, and small caps all in one fund. So rather than invest in 3 separate funds for large, medium, and small cap, would I be better off just doing FSKAX for all of my domestic stocks? This is what it would look like:

60% Domestic FSKAX
20% International FTIHX
20% Bonds FXNAX
Welcome to the Boglehead community! What you describe above is a recognized and oft-recommended investment strategy here. See this wiki article for more info on the three-fund portfolio.
rockstar
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Re: Need advice about my portfolio setup

Post by rockstar »

Start with looking over the three fund portfolio here. Then read the threads about bond funds versus individual bonds. And read the arguments for and against international. Then intentionally do what works best for you personally. Finance is personal.
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retiredjg
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Re: Need advice about my portfolio setup

Post by retiredjg »

As a new investor, don't look for the best funds or the funds you think you want. Look at what is in your work plan(s) and pick the lowest cost funds that that more or less fill the bill for the portfolio you want. Then build the rest of your portfolio around that.

For example, if you have a 401k that offers 500 index, use that instead of total stock market. If the 401k offers a total bond index fund that is fine, but if they do not, pick something that will do. Then hold your international in other accounts (maybe taxable, maybe Roth IRA).

Depending on what is available, your 3 fund-like portfolio might actually contain none of the 3 funds.

Long story short - don't try to fit the funds you want into the accounts you have. Find the best building blocks in the accounts you have and build your portfolio around that.
Outer Marker
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Re: Need advice about my portfolio setup

Post by Outer Marker »

Taylor Larimore's landmark post on the three fund portfolio, which explains why option 2 is far superior, is worth a careful read. viewtopic.php?t=88005 A lot of wisdom there. Take your time, follow all the links, and really digest it. If you read nothing else on investing, you'll know more than 99% of investors.
bonesly
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Location: WA

Re: Need advice about my portfolio setup

Post by bonesly »

dpow wrote: Sat Feb 10, 2024 1:51 pm 60% Domestic FSKAX
20% International FTIHX
20% Bonds FXNAX
I'd pick the simpler 3-Fund portfolio quoted above (2nd option).

“When there are multiple solutions to a problem, choose the simplest one.” -- John C. Bogle
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mhadden1
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Location: North Alabama

Re: Need advice about my portfolio setup

Post by mhadden1 »

bonesly wrote: Sat Feb 10, 2024 3:25 pm
dpow wrote: Sat Feb 10, 2024 1:51 pm 60% Domestic FSKAX
20% International FTIHX
20% Bonds FXNAX
I'd pick the simpler 3-Fund portfolio quoted above (2nd option).

“When there are multiple solutions to a problem, choose the simplest one.” -- John C. Bogle
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Retired 12/31/2015
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Beensabu
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Re: Need advice about my portfolio setup

Post by Beensabu »

dpow wrote: Sat Feb 10, 2024 1:51 pm Would I have better balance and stability with the first option? Or would I be better off doing the second option instead? Or are they both pretty much the same?
FSKAX is more like:

70% large cap
20% mid cap
10% small cap

So you wouldn't be evenly weighted among capitalizations in the US market. How important is that even weighting to you and why?

If not that much or you don't particularly have a reason, then FSKAX would be simpler.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
Topic Author
dpow
Posts: 11
Joined: Thu Feb 08, 2024 2:08 pm

Re: Need advice about my portfolio setup

Post by dpow »

Beensabu wrote: Sat Feb 10, 2024 6:35 pm
dpow wrote: Sat Feb 10, 2024 1:51 pm Would I have better balance and stability with the first option? Or would I be better off doing the second option instead? Or are they both pretty much the same?
FSKAX is more like:

70% large cap
20% mid cap
10% small cap

So you wouldn't be evenly weighted among capitalizations in the US market. How important is that even weighting to you and why?

If not that much or you don't particularly have a reason, then FSKAX would be simpler.
Well I've spent years listening to Dave Ramsey talk about having an equal distribution between large, medium, small, and international stock. So that's what I liked about my first option. I figured that equal distribution would probably have more stability. But most people seem to feel that my second option is the better one.
gavinsiu
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Re: Need advice about my portfolio setup

Post by gavinsiu »

I think both portfolio would have very similar returns. The first portfolio would have a tilt toward smaller stocks. My preference would be the second portfolio because it's simpler, but if you prefer the former, that would be ok, too. I would not however do like a equally weighted index.

I listened to Dave Ramsey in the past and agree with his philosophy of working hard, reducing debt, and investing in equity. However, I have disagreement with his emphasizes on non-index funds and safe withdraw rates.
02nz
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Re: Need advice about my portfolio setup

Post by 02nz »

dpow wrote: Sun Feb 11, 2024 6:14 am
Beensabu wrote: Sat Feb 10, 2024 6:35 pm
dpow wrote: Sat Feb 10, 2024 1:51 pm Would I have better balance and stability with the first option? Or would I be better off doing the second option instead? Or are they both pretty much the same?
FSKAX is more like:

70% large cap
20% mid cap
10% small cap

So you wouldn't be evenly weighted among capitalizations in the US market. How important is that even weighting to you and why?

If not that much or you don't particularly have a reason, then FSKAX would be simpler.
Well I've spent years listening to Dave Ramsey talk about having an equal distribution between large, medium, small, and international stock. So that's what I liked about my first option. I figured that equal distribution would probably have more stability. But most people seem to feel that my second option is the better one.
Davey Ramsey is great for getting out of debt, but his investment "advice" is worse than worthless.
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