Starting w/ 1-fund and when to switch to 3-fund

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brett41
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Starting w/ 1-fund and when to switch to 3-fund

Post by brett41 » Wed Mar 25, 2020 7:09 pm

What do you think is the best single fund to start a Roth IRA with for most investors age 25-30?

Target index, Four-in-one, total market?

When is it time to switch to a 3–fund portfolio? 10k, 20k, more?
Last edited by brett41 on Thu Mar 26, 2020 7:15 am, edited 1 time in total.

RadAudit
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Re: Starting w/ 1-fund and when to switch to 3-fund

Post by RadAudit » Wed Mar 25, 2020 7:50 pm

Impossible to say for sure. But, just a SWAG for the options presented, for most people I'd suggest a target retirement fund to start. And then, I wouldn't switch for 40 to 50 years - if then. Why? From what I've seen on this forum, there are too many people who get too fancy with their investment strategies. The simpler the better.
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The cavalry isn't coming, kids. You are on your own.

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calmaniac
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Re: Starting w/ 1-fund and when to switch to 3-fund

Post by calmaniac » Wed Mar 25, 2020 9:21 pm

First question. What is your time horizon for needing this money? A Roth IRA is a long term proposition. You should be thinking about this money on a 30-50 year time horizon and not touching it earlier.

If so, I would invest in an S&P index fund or total market index fund (VTSAX, VTI, SWTSX, etc.) and set it and forget it until you have more time, energy, knowledge, and experience to go 3-fund or whatever. Sticking with a broad market index at this point in your investing career will be fine.

Go 100% equities to start and then you can make more nuanced decisions later. The key is "set it and forget it".
62 yo, ≈3y til retire. AA 70/30: 30% S&P, 16% value, 14% intl, 10% EM, 30% short/int govt bonds. Fed pension now = 60% of expenses. Take SS @age 70 --> pension+SS = 100% of expenses. Life is good

Topic Author
brett41
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Re: Starting w/ 1-fund and when to switch to 3-fund

Post by brett41 » Wed Mar 25, 2020 10:06 pm

Mainly looking at these 3. Or should I just do the 4 fund portfolio I was wanting from the start even beginning with 500 and doing 500 a month?

Fidelity® Four-in-One Index Fund/
FFNOX

Fidelity® Total Market Index Fund
FSKAX

Fidelity Freedom® Index 2055 Fund - Investor Class
FDEWX

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calmaniac
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Re: Starting w/ 1-fund and when to switch to 3-fund

Post by calmaniac » Fri Mar 27, 2020 9:49 am

brett41 wrote:
Wed Mar 25, 2020 10:06 pm
Mainly looking at these 3. Or should I just do the 4 fund portfolio I was wanting from the start even beginning with 500 and doing 500 a month?

Fidelity® Four-in-One Index Fund/
FFNOX

Fidelity® Total Market Index Fund
FSKAX

Fidelity Freedom® Index 2055 Fund - Investor Class
FDEWX
You will be fine with any of these 3.

If I were you would go with the FSKAX because:
• Lower expense ratio (0.015% vs. 0.11%).
• I'm not a big fan of bonds in Roth accounts. I would invest 100% equities in Roth for loooong term growth in Roth and then in a few years when you have a 401k or similar, you can add a bond fund to that. See Asset Location in the BH Wiki
• Keeps things simple at this point.

Given that it is in a Roth, you can always change it in the future as you learn more.

Read as much as you can, if this is of interest to you. For interested beginners, I recommend The Investor's Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between - by William ("Bill") Bernstein. If you are not as interested, maybe just one of the Bogleheads books, set it and forget it.

Good luck!
62 yo, ≈3y til retire. AA 70/30: 30% S&P, 16% value, 14% intl, 10% EM, 30% short/int govt bonds. Fed pension now = 60% of expenses. Take SS @age 70 --> pension+SS = 100% of expenses. Life is good

dbr
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Re: Starting w/ 1-fund and when to switch to 3-fund

Post by dbr » Fri Mar 27, 2020 9:51 am

I think people should start with the investment plan they expect to be in place for the long term. The one consideration is minimum purchase, but it shouldn't take that long to get past those limits.

Stich
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Re: Starting w/ 1-fund and when to switch to 3-fund

Post by Stich » Fri Mar 27, 2020 10:18 am

brett41 wrote:
Wed Mar 25, 2020 7:09 pm
What do you think is the best single fund to start a Roth IRA with for most investors age 25-30?
I am 26 and went through a very similar dilemma. When I first opened my Roth, I chose a target date fund due to my small initial investment. After contributing more, I moved into VTSAX and haven't looked back. I could have started with ETFs, but I preferred to stay in mutual funds to avoid any trading temptation.

To address the second part of your question, I am looking to diversify (in terms of AA) around age 35-40, and will most likely remain 100% stocks until then.

mhalley
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Re: Starting w/ 1-fund and when to switch to 3-fund

Post by mhalley » Fri Mar 27, 2020 12:59 pm

I recall one of the financial gurus (can’t recall which one) saying it was fine to stay with td fund until your portfolio reached 100k, as the amount you are paying in fees is quite low until you start reaching six figures.

KEotSK66
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Re: Starting w/ 1-fund and when to switch to 3-fund

Post by KEotSK66 » Fri Mar 27, 2020 7:59 pm

i know you didn't mention this fund as a possibility but i'd like to suggest wellington

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Wiggums
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Re: Starting w/ 1-fund and when to switch to 3-fund

Post by Wiggums » Fri Mar 27, 2020 8:28 pm

brett41 wrote:
Wed Mar 25, 2020 10:06 pm
Mainly looking at these 3. Or should I just do the 4 fund portfolio I was wanting from the start even beginning with 500 and doing 500 a month?

Fidelity® Four-in-One Index Fund/
FFNOX

Fidelity® Total Market Index Fund
FSKAX

Fidelity Freedom® Index 2055 Fund - Investor Class
FDEWX
I hold the three fund portfolio. Any of those are fine to me.

Topic Author
brett41
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Re: Starting w/ 1-fund and when to switch to 3-fund

Post by brett41 » Fri Mar 27, 2020 9:14 pm

KEotSK66 wrote:
Fri Mar 27, 2020 7:59 pm
i know you didn't mention this fund as a possibility but i'd like to suggest wellington
Seems like the expense ratio is higher and more bonds than would like at my age

Topic Author
brett41
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Joined: Mon Mar 09, 2020 10:20 am

Re: Starting w/ 1-fund and when to switch to 3-fund

Post by brett41 » Fri Mar 27, 2020 9:17 pm

mhalley wrote:
Fri Mar 27, 2020 12:59 pm
I recall one of the financial gurus (can’t recall which one) saying it was fine to stay with td fund until your portfolio reached 100k, as the amount you are paying in fees is quite low until you start reaching six figures.
That’s exactly what I’m trying to find out. I figured there would be some type of recommendation like that. Such as hey just do s&p, total market, or a target date fund until you get to 25k, 50k, or 100k and then maybe switch to a 3 or 4 fund portfolio and dial in your allocations.

Topic Author
brett41
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Joined: Mon Mar 09, 2020 10:20 am

Re: Starting w/ 1-fund and when to switch to 3-fund

Post by brett41 » Fri Mar 27, 2020 9:19 pm

calmaniac wrote:
Wed Mar 25, 2020 9:21 pm
First question. What is your time horizon for needing this money? A Roth IRA is a long term proposition. You should be thinking about this money on a 30-50 year time horizon and not touching it earlier.

If so, I would invest in an S&P index fund or total market index fund (VTSAX, VTI, SWTSX, etc.) and set it and forget it until you have more time, energy, knowledge, and experience to go 3-fund or whatever. Sticking with a broad market index at this point in your investing career will be fine.

Go 100% equities to start and then you can make more nuanced decisions later. The key is "set it and forget it".

When would you recommend to look at the more nuanced decisions? Like what size portfolio?

Topic Author
brett41
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Re: Starting w/ 1-fund and when to switch to 3-fund

Post by brett41 » Fri Mar 27, 2020 9:20 pm

Stich wrote:
Fri Mar 27, 2020 10:18 am
brett41 wrote:
Wed Mar 25, 2020 7:09 pm
What do you think is the best single fund to start a Roth IRA with for most investors age 25-30?
I am 26 and went through a very similar dilemma. When I first opened my Roth, I chose a target date fund due to my small initial investment. After contributing more, I moved into VTSAX and haven't looked back. I could have started with ETFs, but I preferred to stay in mutual funds to avoid any trading temptation.

To address the second part of your question, I am looking to diversify (in terms of AA) around age 35-40, and will most likely remain 100% stocks until then.

Do you think it’s more of an age thing or size of portfolio type thing?

mortfree
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Re: Starting w/ 1-fund and when to switch to 3-fund

Post by mortfree » Fri Mar 27, 2020 9:22 pm

$6k?

I would go with total US (VTI VTSAX ITOT etc).

Roll the dice.

It will take a while or a really good returns until you hit 100k in Roth. So going three fund may never happen within the Roth account.

I am 40’s and created a new Roth at vanguard and am investing in the balanced fund VBIAX

I hold VTI in taxable

GoPackGo
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Re: Starting w/ 1-fund and when to switch to 3-fund

Post by GoPackGo » Fri Mar 27, 2020 10:07 pm

You could just start with ETFs, even at at around $1000 (minimum for a Vanguard Target Date Fund) you can approximate Vanguard Target Retirement 2050 Fund (VFIFX) pretty closely:

VFIFX

Code: Select all

Asset Class          Allocation %
U.S. Stock                  53.6%
International Stock         35.9%
U.S. Bond                    7.5%
International Bond           3.0%
At today's ETF prices (2020-03-27)
$1022.91:

Code: Select all

ETF   No. of Shares  Allocation %
VTI               4         49.7%
VXUS              9         36.4%
BND               1          8.4%
BNDX              1          5.5%
And at $3000 you get closer,
$3056.40:

Code: Select all

ETF   No. of Shares  Allocation %
VTI              13         54.0%
VXUS             25         33.9%
BND               3          8.4%
BNDX              2          3.7%
A few more just for my own amusement :D :

$6109.56

Code: Select all

ETF   No. of Shares  Allocation %
VTI              26         54.0%
VXUS             52         35.3%
BND               5          7.0%
BNDX              4          3.7%
$10117.40

Code: Select all

ETF   No. of Shares  Allocation %
VTI              43         53.9%
VXUS             87         35.6%
BND               9          7.7%
BNDX              5          2.8%
$20078.25

Code: Select all

ETF   No. of Shares  Allocation %
VTI              84         53.5%
VXUS            174         36.1%
BND              17          7.3%
BNDX             11          3.1%
$50064.69

Code: Select all

ETF   No. of Shares  Allocation %
VTI             211         53.5%
VXUS            434         35.9%
BND              44          7.6%
BNDX             27          3.0%
$100113.81

Code: Select all

ETF   No. of Shares  Allocation %
VTI             423         53.6%
VXUS            868         35.9%
BND              87          7.5%
BNDX             53          3.0%
ETFs are also more likely to be portable between brokerages in case you ever want to move your funds to someone else.
Last edited by GoPackGo on Sat Mar 28, 2020 9:05 am, edited 1 time in total.

bigfry
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Re: Starting w/ 1-fund and when to switch to 3-fund

Post by bigfry » Fri Mar 27, 2020 10:14 pm

I am 27 and I personally have 100% of my Roth IRA invested in VTWAX (Vanguard Total World), I am 32 years away from touching that money and I don't see the point in adding bonds until much later (possibly when I am 5-10 years away from retirement). It depends on the individual investor. For most people I would say just use a target date fund and set it and forget it.
Keep it simple, stupid.

Ferdinand2014
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Re: Starting w/ 1-fund and when to switch to 3-fund

Post by Ferdinand2014 » Fri Mar 27, 2020 10:51 pm

brett41 wrote:
Wed Mar 25, 2020 10:06 pm
Mainly looking at these 3. Or should I just do the 4 fund portfolio I was wanting from the start even beginning with 500 and doing 500 a month?

Fidelity® Four-in-One Index Fund/
FFNOX

Fidelity® Total Market Index Fund
FSKAX

Fidelity Freedom® Index 2055 Fund - Investor Class
FDEWX
All excellent choices. Won’t go wrong with any of them. I’d vote for FSKAX or in my case I put 100% into FXAIX (Fidelity 500 index fund). If you like international and fixed ratio then FFNOX. If you like international with glide path then FDEWX. I personally do not want to own a bond fund, especially one that has anything other then 100% pure treasuries that eliminates FFNOX and FDEWX for me. I also do not want anyone changing my investment mix either because of a timeline or because of investment philosophy changes - for example, Fidelity recently added long term treasuries and increased international allocation which you may or may not agree with. So that eliminates FDEWX for me. However, if you are someone who wishes for total bond funds, international and wishes to have 1 fund to do it all then FFNOX and FDEWX are good choices. I only hold treasury bills and FXAIX. Nothing more because I do not want anything else. I would vote for FFNOX if I had to pick between FDEWX or FFNOX. More pure, unchanged ratio, very cheap and no emerging market international. Plus it was your stated preference from the outset. Whatever you pick, it should be something you would be happy holding for the next 10 years or more. I also would not recommend ETF’s. They can’t be set to auto invest at Fidelity and are sneaky encouragers of behavioral mistakes since they can be traded during the day and you need to be careful with time of day and spreads when buying. I much prefer mutual funds that can be set to automatic for both investing and dividends as well as exact dollar amounts.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

Slowtraveler
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Re: Starting w/ 1-fund and when to switch to 3-fund

Post by Slowtraveler » Fri Mar 27, 2020 11:20 pm

I don't understand why you say 3 fund but only include US total market in your choices. I'm about your age. Under current market conditions, I'd go half US, half international broad stock market and forget about it.

I previously held some Wellesley and gold but when the market tanked, I sold out went all in on stocks. I felt terrified in that moment but it was within 5% of the bottom. I was hoping it'd stay there or drop lower because I have many years of cash flow to invest before I need to touch it. The world is still scared, take advantage of this and go 100% into equities as soon as you can. Your future will thank you. As you get older and you see excessive optimism, add some bonds.

Topic Author
brett41
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Re: Starting w/ 1-fund and when to switch to 3-fund

Post by brett41 » Fri Mar 27, 2020 11:41 pm

I was planning on doing

Total Fskax 50%
International ftihx 30%
Bond fxnax 10%
Real estate fsrnx 10%

But I may just do
Fidelity freedom index 2055 fdewx 100%
For about 10 years or maybe more
Or until I get a more sizable portfolio
Will be maxing out this Roth w/ biweekly contributions

I also have a 401k all in Fidelity 500 fxaix
I do 5% and get a 5% match

michaeljc70
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Re: Starting w/ 1-fund and when to switch to 3-fund

Post by michaeljc70 » Sat Mar 28, 2020 8:28 am

You have to determine if you want to hold international stocks. If not, I'd just do the total stock market. A far out target fund isn't going include any significant amount of bonds (VG 2060 fund has ~10% in bonds).

KEotSK66
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Re: Starting w/ 1-fund and when to switch to 3-fund

Post by KEotSK66 » Sat Mar 28, 2020 8:57 am

hi brett

true re ER but the Adm shares of wellington are cheap

re bonds, with such a long horizon maybe you can "afford" some bonds

wellington throws off good income which can be reinvested, compounding on top of that would be the reinvested capital gains. building up shares is important

good luck with your choice

bltn
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Re: Starting w/ 1-fund and when to switch to 3-fund

Post by bltn » Sat Mar 28, 2020 9:10 am

Simplicity is best.
Put your Roth contributions into the Vanguard Index 500 Fund until you are 40. Then look at your accumulation results and decide if you should continue your routine for another decade.
Knowing enough to get an early start portends well for your future. Keep things very simple.

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