Investment Allocation Questions

[Bucky83]

I am new to the Bogleheads, but recently completed the book and am eager to move from a financial advisor to DIY. I'd like to seek advice from the group to see whether to stay on my current plan or change to different funds.

Currently my 403b plan is through Fidelity and I'm using the Fidelity Freedom 2040 Fund. Is it better to change out of the 2040 fund as the expense ratio is 0.45%. I was thinking of changing to the following to keep 80/20:
- 55% Fidelity 500 Index (large cap) 0.015 expense ratio
- 25% Fidelity Extended Market Index (mid) 0.035 expense ratio
- 20% Fidelity US Bond Index 0.025 expense ratio

My wife and I also have a Vanguard Roth IRA brokerage account using VASGX (Vanguard LifeStrategy Growth Fund with expense ratio of 0.14%) as well as a Vanguard taxable brokerage account with VAGSX. I was looking at keeping with 80/20 and switching to following:
- 80% VTSAX (Vanguard Total Stock Market Index Fund) with expense ratio of 0.04%
- 20% VBTLX (Vanguard Total Bond Market Index Fund) with expense ratio of 0.05%.

I do like the current funds as I don't need to rebalance, but I am willing to do this. Let me know what is best for investments and keeping costs/expenses low.

Eagerly await recommendations,

Mark

[oldcomputerguy]

Welcome to the forum!

Fidelity typically offers their target-date funds in two versions: one is actively-managed, one is passively-managed (based on index funds). The ER you quote makes me think that you're in the actively-managed version, so you might want to see if the index version is available to you, as it will have a lower ER.

[dbr]

Your asset allocation should be by total portfolio rather than account by account (though people do run account by account).

You might want to think about tax efficient fund placement: https://www.bogleheads.org/wiki/Tax-eff ... _placement

[Duckie]

Currently my 403b plan is through Fidelity and I'm using the Fidelity Freedom 2040 Fund. Is it better to change out of the 2040 fund as the expense ratio is 0.45%. I was thinking of changing to the following to keep 80/20:
- 55% Fidelity 500 Index (large cap) 0.015 expense ratio
- 25% Fidelity Extended Market Index (mid) 0.035 expense ratio
- 20% Fidelity US Bond Index 0.025 expense ratio

My wife and I also have a Vanguard Roth IRA brokerage account using VASGX (Vanguard LifeStrategy Growth Fund with expense ratio of 0.14%) as well as a Vanguard taxable brokerage account with VAGSX. I was looking at keeping with 80/20 and switching to following:
- 80% VTSAX (Vanguard Total Stock Market Index Fund) with expense ratio of 0.04%
- 20% VBTLX (Vanguard Total Bond Market Index Fund) with expense ratio of 0.05%.

Some comments:

1. When you figure your stock/bond ratio you figure it across your entire retirement portfolio, not each account separately. If you want 80% stocks and 20% bonds you should try to put all the bonds in pre-tax accounts. If your 403b is pre-tax that would be a perfect place for bonds. You want to avoid putting bonds in Roth IRAs or taxable accounts.
   ____
2. Because of wash sale rules it is better to NOT hold the same assets in IRAs as in taxable. VTSAX is fine in taxable but hold a different but similar fund/ETF in the Roth IRAs. You could hold VLCAX (US Large Cap) or an ETF like ITOT, SCHB, or IWV.
   ____
3. I don't know how much is in each account so the following just has hypothetical numbers. You want an AA of 80% stocks, 20% bonds, with 0% of international. As an example:
   
   Joint taxable at Vanguard -- 10%
   10% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)
   
   His 403b at Fidelity -- 70%
   40% (FXAIX) Fidelity 500 Index Fund (0.015%)
   10% (FSMAX) Fidelity Extended Market Index Fund (0.035%)
   20% (FXNAX) Fidelity U.S. Bond Index Fund (0.025%)
   
   His Roth IRA at Vanguard -- 10%
   10% (ITOT) iShares Core S&P Total U.S. Stock Market ETF (0.03%)
   
   Her Roth IRA at Vanguard -- 10%
   10% (ITOT) iShares Core S&P Total U.S. Stock Market ETF (0.03%)

Just some possibilities.

[Bucky83]

I will include the following to better reflect my situation:

Current accounts include the following:

- 403b is 542,547 in Fidelity Freedom 2040 (expense ratio - 0.45)
- Vanguard Roth IRA for me is 17,226 in Vanguard LifeStrategy Growth Fund (VAGSX) (exp ratio of 0.14)
- Vanguard Roth IRA for my wife is 40,263 in Vanguard LifeStrategy Growth Fund (VAGSX) (exp ratio of 0.14)
- Joint Taxable Brokerage account for my wife and me is 4,156 in Vanguard LifeStrategy Growth Fund (VAGSX) (exp ratio of 0.14)

I'm moving to DIY rather than using my Financial Advisor and I have questions about if it's better to stay in my current funds or switch to those recommended by Bogleheads. I'd like to do an 80/20 (stock/bonds) allocation, so in my Workplace Fidelity Account I plan to use:

-Fidelity 500 Index (large cap) expense ratio of 0.015
- Fidelity Extended Market Index (mid) expense ratio of 0.035
- Fidelity US Bond Index. expense ratio of 0.025

One question I have is when calculating the 80/20 allocation, I would add up all of my accounts and use that as 80/20? Based on this and a prior response I should put 20% of my total account as bonds in the 403b?

Another question I have is why is it recommended to not have same accounts for brokerage and Roth IRA accounts? Can my wife and my Roth IRA's be the same or different?

Thanks.

[Duckie]

Current accounts include the following:

- 403b is 542,547 in Fidelity Freedom 2040 (expense ratio - 0.45)
- Vanguard Roth IRA for me is 17,226 in Vanguard LifeStrategy Growth Fund (VAGSX) (exp ratio of 0.14)
- Vanguard Roth IRA for my wife is 40,263 in Vanguard LifeStrategy Growth Fund (VAGSX) (exp ratio of 0.14)
- Joint Taxable Brokerage account for my wife and me is 4,156 in Vanguard LifeStrategy Growth Fund (VAGSX) (exp ratio of 0.14)

Okay, you want an AA of 80% stocks, 20% bonds, with 0% of international. With the above numbers you could have:

• Joint taxable at Vanguard -- $4K -- 1%
  1% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)
  
  His 403b at Fidelity -- $543K -- 90%
  55% (FXAIX) Fidelity 500 Index Fund (0.015%)
  15% (FSMAX) Fidelity Extended Market Index Fund (0.035%)
  20% (FXNAX) Fidelity U.S. Bond Index Fund (0.025%)
  
  His Roth IRA at Vanguard -- $17K -- 3%
  3% (ITOT) iShares Core S&P Total U.S. Stock Market ETF (0.03%)
  
  Her Roth IRA at Vanguard -- $40K -- 6%
  6% (ITOT) iShares Core S&P Total U.S. Stock Market ETF (0.03%)

Something to think about.

One question I have is when calculating the 80/20 allocation, I would add up all of my accounts and use that as 80/20?

Yes, the 80/20 ratio applies to all accounts earmarked for retirement.

Based on this and a prior response I should put 20% of my total account as bonds in the 403b?

Yes. It is better to put all your fixed income (bonds) in pre-tax accounts. Since the 403b is the largest account and has good, low-cost funds that would be more than suitable.

Another question I have is why is it recommended to not have same accounts for brokerage and Roth IRA accounts?

Because of the above mentioned wash sale rules it is better to not hold the same assets in taxable as anywhere else. The IRS specifically mentions IRAs when it comes to wash sales but many people consider employer plans to be included. Read the rules about the 61-day window (30 days before taxable sale for a loss, day of sale, and 30 days after sale). Unless you're paying attention it is easy to mess it up and have the loss temporarily disallowed. In most cases you will recover that loss but there is extra figuring because you have to keep track of that loss. And if you make a mistake some losses are permanently disallowed.

Can my wife and my Roth IRA's be the same or different?

You can hold the same asset (ITOT for example) in your IRA as your wife does. As long as you don't hold it in taxable you never have to think about wash sales. If you also hold ITOT in taxable you have to pay attention if thinking about selling in taxable. Many people have their dividends automatically reinvested, especially in IRAs. If you sell ITOT in taxable for a loss and automatically reinvest in ITOT in the Roth IRA within the 61-day window you trigger a wash sale even if it happens in your wife's accounts or at another brokerage.