Rearranging portfolio to be more simple - should I go with the Fidelity ZERO funds?

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redstar
Posts: 42
Joined: Thu Jul 13, 2017 11:15 pm

Rearranging portfolio to be more simple - should I go with the Fidelity ZERO funds?

Post by redstar » Wed Aug 29, 2018 8:19 am

Hi everyone. I tried some robo-advisors out last year, but have decided to move to a simpler portfolio after reading a lot of Bogleheads and some reccomended books. I would love it if someone could look over my plan and provide any advice, and I have two specific questions at the bottom.

Emergency Fund: 3 months of expenses.
Debt: None
Tax Filing Status: Single
Tax Rate: 12% Federal, 3.07% State (my normal income is not taxed at this rate)
State of Residence: Pennsylvania
Age: 25
Desired Asset Allocation: 85% stocks / 15% bonds
Desired International Allocation: 50% of stocks (approximately market weight)

Current total protfolio is in the low six figures.

Current retirement assets

Taxable (Fidelity)
* 79.81% Misc Assets
* I have ton of stuff in here due to transferring out of the robo-advisors, including a bunch of stocks due to Wealthfront's Direct Indexing. I plan to sell all of it using 500 free trades at Fidelity. Some of it is long-term, and others are short-term. I may hold onto the short-term lots until they hit long-term, in which case switching to this portfolio would be gradual over the next year.
* If there is a reason why people want to see what is in here, let me know. It's just a long and unruly list.

Roth IRA (Vanguard)
* 4.72% Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) (0.05%)

403b (Vanguard) (57.08% Roth / 42.92% Traditional)
* 14.15% Vanguard Total Bond Market Index Fund Institutional Shares (VBTIX) (0.04%)
I have the option of having a TIAA account too, but I currently do not.

Contributions:
New annual Contributions:
$5,500 to Roth IRA
$18,500 to Roth 403b
I don't actually contribute this much new money. I contribute about $12,000 total in new money, and remove about $12,000 from Taxable to move more into the 403b from my paycheck.

Available funds:

Funds available in 403(b)
* Vanguard Total Bond Market Index Fund Institutional Shares (VBTIX) (0.04%)
* Vanguard Emerging Markets Stock Index Fund Institutional Shares (VEMIX) (0.11%)
* Vanguard Inflation-Protected Securities Fund Institutional Shares (VIPIX) (0.07%)
* Vanguard Institutional Index Fund Institutional Shares (VINIX) (0.04%)
* Vanguard Mid-Cap Index Fund Institutional Shares (VMCIX) (0.04%)
* Vanguard Real Estate Index Fund Institutional Shares (VGSNX) (0.10%)
* Vanguard Small-Cap Index Fund Institutional Shares (VSCIX) (0.04%)
* Vanguard Total International Stock Index Fund Institutional Shares (VTSNX) (0.09%)
* Vanguard Institutional Target Retirement Fund(s) (2015-2065 in 5-yr increments) (0.09%)
* Vanguard Federal Money Market Fund (VMFXX) (0.11%)

Proposed Allocation:

403b (Vanguard):
* 14.15% Vanguard Total Bond Market Index Fund Institutional Shares (VBTIX) (0.04%)

Roth IRA (Vanguard):
* 0.85% Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) (0.05%)
* 3.88% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) (0.04%)

Taxable (Fidelity):
* 38.62% Fidelity ZERO Total Market Index Fund (FZROX) (0.00%)
* 42.50% Fidelity ZERO International Index Fund (FZILX) (0.00%)

Questions:
1. Am I placing the correct assets in each account? I read the wiki on asset placement, but it seems to me that I should want that Roth space to grow the most (as taxes are already paid) so I should put as much equity as possible in there.

2. Are these fidelity zero-ER funds a good idea in my taxable account? It sounds nice, and I can get a combined ER of only 1bp with them, but I saw someone mention that they can't match vanguard's patent on distributions.

3. Are there any other critiques before I pull the trigger and move all of this?

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mhc
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Re: Rearranging portfolio to be more simple - should I go with the Fidelity ZERO funds?

Post by mhc » Wed Aug 29, 2018 8:36 am

Looks like you have a good grasp of how to build a portfolio.

The ZERO funds at Fidelity are new, so it's hard to say how they will be over the long haul, but it seems quite reasonable to go with them.

Good job. I probably wouln't put 0.85% bonds in my Roth. I would just be a little light on bonds. +/- a few percent doesn't matter much. What you are doing is fine.

mervinj7
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Joined: Thu Mar 27, 2014 3:10 pm

Re: Rearranging portfolio to be more simple - should I go with the Fidelity ZERO funds?

Post by mervinj7 » Wed Aug 29, 2018 11:07 am

Congrats on a 6-figure portfolio at such a young age!
The Fidelity ZERO funds are very new and thus have no history to analyze. Thus, it's difficult to gauge fund issues like index tracking error and tax efficiency. Instead, I would recommend using the commission-free ETFs from iShares in taxable Fidelity accounts; ITOT and IXUS.

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GoldStar
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Joined: Wed May 23, 2018 10:59 am

Re: Rearranging portfolio to be more simple - should I go with the Fidelity ZERO funds?

Post by GoldStar » Wed Aug 29, 2018 11:42 am

I'll offer the contrary view that there is no evidence that the Fidelity ZERO funds are NOT good choices in your taxable account.
They will likely have large inflows for a while and little tax-drag in my opinion - but since there's no history - its yet to be seen.
Given we know they are tracking similar indexes to other similar funds, and given we know their ERs are the lowest, and given we don't know how they will perform relative to other index-funds with the same goals (could be same, better, or worse - but likely little difference) - I would go with them since the known's are advantageous.

gostars
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Re: Rearranging portfolio to be more simple - should I go with the Fidelity ZERO funds?

Post by gostars » Thu Aug 30, 2018 12:45 am

I'd probably skip the bond fund in the Roth, because (1) in low 6 figures you probably don't have enough for Admiral shares at that percentage, and (2) the higher 403b contributions will balance it out soon enough. Might as well just go 100% stock. If anything, I'd move the Roth to Fidelity and put the FZROX there where potential future tax issues are irrelevant, then hold ITOT in taxable so it can be TLHed as needed.

redstar
Posts: 42
Joined: Thu Jul 13, 2017 11:15 pm

Re: Rearranging portfolio to be more simple - should I go with the Fidelity ZERO funds?

Post by redstar » Thu Aug 30, 2018 4:53 am

gostars wrote:
Thu Aug 30, 2018 12:45 am
I'd probably skip the bond fund in the Roth, because (1) in low 6 figures you probably don't have enough for Admiral shares at that percentage, and (2) the higher 403b contributions will balance it out soon enough. Might as well just go 100% stock. If anything, I'd move the Roth to Fidelity and put the FZROX there where potential future tax issues are irrelevant, then hold ITOT in taxable so it can be TLHed as needed.
What are the possible tax issues I might have with FZROX? Do you just mean in relation to TLH and wash sales?

rkhusky
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Joined: Thu Aug 18, 2011 8:09 pm

Re: Rearranging portfolio to be more simple - should I go with the Fidelity ZERO funds?

Post by rkhusky » Thu Aug 30, 2018 7:04 am

redstar wrote:
Thu Aug 30, 2018 4:53 am
gostars wrote:
Thu Aug 30, 2018 12:45 am
I'd probably skip the bond fund in the Roth, because (1) in low 6 figures you probably don't have enough for Admiral shares at that percentage, and (2) the higher 403b contributions will balance it out soon enough. Might as well just go 100% stock. If anything, I'd move the Roth to Fidelity and put the FZROX there where potential future tax issues are irrelevant, then hold ITOT in taxable so it can be TLHed as needed.
What are the possible tax issues I might have with FZROX? Do you just mean in relation to TLH and wash sales?
See: viewtopic.php?f=10&t=257743&newpost=409 ... d#p4094360

redstar
Posts: 42
Joined: Thu Jul 13, 2017 11:15 pm

Re: Rearranging portfolio to be more simple - should I go with the Fidelity ZERO funds?

Post by redstar » Tue Sep 11, 2018 9:00 pm

I'm now thinking of just using VTI and VXUS in my taxable account at Fidelity. I have a bunch of free trades so I don't need to worry about trading fees. This would also allow me to easily move them to Vanguard and convert them to mutual funds down the line, if I wanted to do so. The Fidelity ZERO funds will keep me locked in to Fidelity as my brokerage, which I'm not sure I want.

dachshunddad
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Re: Rearranging portfolio to be more simple - should I go with the Fidelity ZERO funds?

Post by dachshunddad » Tue Sep 11, 2018 9:29 pm

I use fidelity also.

I personally think Zero funds are a good choice. As others have said, time will tell but we are splitting hairs mostly. I plan to use Zero funds in my retirement accounts. I'd consider ishares also in your taxable. They are transferable to other brokerages and typically ETF's are better in taxable. I'm going with ITOT/IXUS.

gostars
Posts: 439
Joined: Mon Oct 09, 2017 7:53 pm

Re: Rearranging portfolio to be more simple - should I go with the Fidelity ZERO funds?

Post by gostars » Wed Sep 12, 2018 12:34 am

redstar wrote:
Tue Sep 11, 2018 9:00 pm
I'm now thinking of just using VTI and VXUS in my taxable account at Fidelity. I have a bunch of free trades so I don't need to worry about trading fees. This would also allow me to easily move them to Vanguard and convert them to mutual funds down the line, if I wanted to do so. The Fidelity ZERO funds will keep me locked in to Fidelity as my brokerage, which I'm not sure I want.
You cannot convert Vanguard ETFs to mutual funds. The conversion only works in the other direction, mutual fund to ETF. Buying VTI and VXUS (or ITOT and IXUS) is still a good idea in a taxable account though.

redstar
Posts: 42
Joined: Thu Jul 13, 2017 11:15 pm

Re: Rearranging portfolio to be more simple - should I go with the Fidelity ZERO funds?

Post by redstar » Wed Sep 12, 2018 8:07 am

Thanks, I didn’t realize those conversions were one way only.

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