Advise for a three funds portfolio with Interactive Brokers (US resident)

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Topic Author
zarzou
Posts: 9
Joined: Mon Nov 09, 2020 9:28 am

Advise for a three funds portfolio with Interactive Brokers (US resident)

Post by zarzou »

Hi Blogleheads!

I will be living in the US for the next 2-5 years with a possible migration between the US and EU in the future. My understanding is that Interactive Brokers is among the best options for that situation given they

- have no monthly fees for >100k investment,
- have low transaction fees,
- offer the possibility to migrate the account to outside the US when I decide to move, and
- have great currency conversions fees.

My questions are:

1- Is my above cited conclusion regarding IB superiority for my situation correct?

2- If yes, what would be the three US-Domiciled funds you would recommend for simple passive strategy using IB in the US? (I tried to look around but most advise I found regarding using IB were related to investing from outside the US..)

Thanks,
lakpr
Posts: 6203
Joined: Fri Mar 18, 2011 9:59 am

Re: Advise for a three funds portfolio with Interactive Brokers (US resident)

Post by lakpr »

1. Unquestionably yes.
2. Did some research on your behalf, looks like the below funds are available for no commission and a reasonable expense ratio at IBKR. Not Vanguard-level low, but reasonable.

https://www1.interactivebrokers.com/en/ ... ?f=46321#/

Code: Select all

FIDELITY MID CAP INDEX                   	FSMDX	0.03%
DFA ENHANCED US LARGE COMPANY PORTFOLIO 	DFELX	0.15%
TIAA-CREF International Eq Index-Premier	TRIPX	0.21%
DFA TA US CORE EQUITY 2 PORTFOLIO       	DFTCX	0.23%
NORTHERN TRUST INVESTMENTS INC 
NORTHERN INTERNATIONAL EQUITY INDEX FUND	NOINX	0.24%
DFA GLOBAL EQUITY PORTFOLIO             	DGEIX	0.28%
NORTHERN TRUST INVESTMENTS INC 
NORTHERN EMERGING MARKETS EQUITY INDEX FUND	NOEMX	0.30%
NORTHERN TRUST INVESTMENTS INC 
NORTHERN GLOBAL SUSTAINABILITY INDEX FUND	NSRIX	0.30%
BR Total Stock Market Index - A	                BASMX	0.32%
DFA SELECTIVELY HEDGED GLOBAL EQUITY PORT	DSHGX	0.35%
DFA US SMALL CAP PORTFOLIO              	DFSTX	0.35%
DFA WORLD EX US CORE EQUITY PORT        	DFWIX	0.35%
iShares MSCI EAFE Intl Index - A        	MDIIX	0.35%
JOHNSON ENHANCED RETURN FUND            	JENHX	0.36%
PUTNAM EQUITY SPECTRUM FUND CLASS A     	PYSAX	0.41%
BR LifePath Index 2025 Fund - Investor A	LILAX	0.45%
BR Small/Mid Cap Index Fund - Investor A	BSMAX	0.45%
COLUMBIA LARGE CAP INDEX FUND           	NEIAX	0.45%


Of these, I would recommend FSMDX for mid-cap, NOINX for international (meaning ex-US), DFELX or NEIAX for large-cap and DFSTX for small-cap.

I would be wary of any fund name that has "A" at the end, that indicates class-A shares meaning they are front-end load funds.
All other funds either carry commissions to buy, or have higher expense ratios, so stick to this curated list I think you would be good ...
zorgs10
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Joined: Tue Oct 14, 2014 7:16 pm

Re: Advise for a three funds portfolio with Interactive Brokers (US resident)

Post by zorgs10 »

If you're open to using ETFs, you could follow one of the ETF-based portfolios described on https://www.bogleheads.org/wiki/Three-fund_portfolio.
Scroll down to the section named 'Three-fund Portfolios using ETFs '.
Topic Author
zarzou
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Joined: Mon Nov 09, 2020 9:28 am

Re: Advise for a three funds portfolio with Interactive Brokers (US resident)

Post by zarzou »

Thanks Lakpr!
lakpr wrote: Thu Nov 19, 2020 5:50 pm 1. Unquestionably yes.
Is that really that clear? even given the difference of fees with vanguard for example? Wouldn't it be more interesting to use a cheaper broker while in the US, then IB when I am in Europe?
lakpr wrote: Thu Nov 19, 2020 5:50 pm Of these, I would recommend FSMDX for mid-cap, NOINX for international (meaning ex-US), DFELX or NEIAX for large-cap and DFSTX for small-cap.
Thanks. To keep it simple (the least number of funds), would that make sense to pick for the stocks part:
1) US market: DFELX (cheaper than NEIAX). Would that be a kind of equivalent of SP500?
2) International excluding US: NOINX. I am curious to know why you picked NOINX and not TRIPX (cheaper)?

Thanks for your time.
Topic Author
zarzou
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Joined: Mon Nov 09, 2020 9:28 am

Re: Advise for a three funds portfolio with Interactive Brokers (US resident)

Post by zarzou »

Thanks zorgs10.
zorgs10 wrote: Thu Nov 19, 2020 8:55 pm If you're open to using ETFs, you could follow one of the ETF-based portfolios described on https://www.bogleheads.org/wiki/Three-fund_portfolio.
Scroll down to the section named 'Three-fund Portfolios using ETFs '.
I went to that website but there is no mention of Interactive Brokers. Are you suggesting to go with another broker for my case? Do you have recommendations for ETF with IB?
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whodidntante
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Re: Advise for a three funds portfolio with Interactive Brokers (US resident)

Post by whodidntante »

zarzou wrote: Sat Nov 21, 2020 10:40 am Thanks zorgs10.
zorgs10 wrote: Thu Nov 19, 2020 8:55 pm If you're open to using ETFs, you could follow one of the ETF-based portfolios described on https://www.bogleheads.org/wiki/Three-fund_portfolio.
Scroll down to the section named 'Three-fund Portfolios using ETFs '.
I went to that website but there is no mention of Interactive Brokers. Are you suggesting to go with another broker for my case? Do you have recommendations for ETF with IB?
A major advantage of ETFs is you can own them regardless of who your broker is. They are also generally tax efficient compared to mutual funds and some are low cost. I highly recommend building your portfolio on ETFs over mutual funds.
lakpr
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Re: Advise for a three funds portfolio with Interactive Brokers (US resident)

Post by lakpr »

zarzou wrote: Sat Nov 21, 2020 10:37 am Thanks Lakpr!
lakpr wrote: Thu Nov 19, 2020 5:50 pm 1. Unquestionably yes.
Is that really that clear? even given the difference of fees with vanguard for example? Wouldn't it be more interesting to use a cheaper broker while in the US, then IB when I am in Europe?
Your original post did not indicate the possibility that you are open to opening a brokerage account with Vanguard then close it / transfer it to IBKR before you move to Europe. I assumed, perhaps incorrectly, that you want to set it and forget it, with flexibility to have the accounts open both here in the US and after you moved to Europe. With these mutual funds, I think that's possible. If you are indeed open to the idea that you want to migrate to IBKR after you leave the US, yes opening a mutual fund account with Vanguard to start with and then transfer over, is good idea.

But if you ARE open to the idea of opening at one brokerage firm and then transfer to IBKR, I would also seriously consider the idea of ETFs, there are any number of brokers in the US who offer fee-free ETFs for purchase, and they are easily transferable.
zarzou wrote: Sat Nov 21, 2020 10:37 am
lakpr wrote: Thu Nov 19, 2020 5:50 pm Of these, I would recommend FSMDX for mid-cap, NOINX for international (meaning ex-US), DFELX or NEIAX for large-cap and DFSTX for small-cap.
Thanks. To keep it simple (the least number of funds), would that make sense to pick for the stocks part:
1) US market: DFELX (cheaper than NEIAX). Would that be a kind of equivalent of SP500?
2) International excluding US: NOINX. I am curious to know why you picked NOINX and not TRIPX (cheaper)?

Thanks for your time.
1) Not quite. DFELX is an actively managed fund, whereas NEIAX is an index fund. NEIAX does follow the S&P 500 index. Then again, a difference of 0.15% ER vs. 0.30% ER does warrant taking a closer look at the actively managed fund. I haven't done that research.
2) Ah, this is an oversight. Yes, TRIPX is cheaper, I didn't see any major difference between the two, so either would be fine. Note that I haven't really dug into the prospectus, I have only done the sorting-by-ER research to find the cheapest mutual funds available, then among these tried to pick the ones that hew closer to the Boglehead 3-fund (or actually 2-fund, since I excluded bonds) portfolio.
vsquid
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Re: Advise for a three funds portfolio with Interactive Brokers (US resident)

Post by vsquid »

whodidntante wrote: Sat Nov 21, 2020 10:53 am
zarzou wrote: Sat Nov 21, 2020 10:40 am Thanks zorgs10.
zorgs10 wrote: Thu Nov 19, 2020 8:55 pm If you're open to using ETFs, you could follow one of the ETF-based portfolios described on https://www.bogleheads.org/wiki/Three-fund_portfolio.
Scroll down to the section named 'Three-fund Portfolios using ETFs '.
I went to that website but there is no mention of Interactive Brokers. Are you suggesting to go with another broker for my case? Do you have recommendations for ETF with IB?
A major advantage of ETFs is you can own them regardless of who your broker is. They are also generally tax efficient compared to mutual funds and some are low cost. I highly recommend building your portfolio on ETFs over mutual funds.
Yes. You can buy Vanguard, ishares etc ETFs on interactive brokers. When in US, you can start with IBKR lite that has free trades. You can then upgrade to pro once you are moving to Europe or want to use margin.
Topic Author
zarzou
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Joined: Mon Nov 09, 2020 9:28 am

Re: Advise for a three funds portfolio with Interactive Brokers (US resident)

Post by zarzou »

whodidntante wrote: Sat Nov 21, 2020 10:53 am A major advantage of ETFs is you can own them regardless of who your broker is. They are also generally tax efficient compared to mutual funds and some are low cost. I highly recommend building your portfolio on ETFs over mutual funds.
Got it, thanks!
lakpr wrote: Sat Nov 21, 2020 12:30 pm Your original post did not indicate the possibility that you are open to opening a brokerage account with Vanguard then close it / transfer it to IBKR before you move to Europe. I assumed, perhaps incorrectly, that you want to set it and forget it, with flexibility to have the accounts open both here in the US and after you moved to Europe. With these mutual funds, I think that's possible. If you are indeed open to the idea that you want to migrate to IBKR after you leave the US, yes opening a mutual fund account with Vanguard to start with and then transfer over, is good idea.
You assumed correctly. I prefer keeping only one account, unless it really really does not make sense economically.
lakpr wrote: Sat Nov 21, 2020 12:30 pm But if you ARE open to the idea of opening at one brokerage firm and then transfer to IBKR, I would also seriously consider the idea of ETFs, there are any number of brokers in the US who offer fee-free ETFs for purchase, and they are easily transferable.
Got it. This option is also valid if I decide to keep only IBKR no? It seems that the consensus in this conversation is going toward using ETFs rather than mutual funds.
Can you explain what do you mean by "they are easily transferable"? Do you mean I keep the same ETFs that are domiciled in the US while I am in Europe or they transfer the domicile of the ETFs I have from the US to Europe (without me cashing them out and buying the new ones)?
lakpr wrote: Sat Nov 21, 2020 12:30 pm 1) Not quite. DFELX is an actively managed fund, whereas NEIAX is an index fund. NEIAX does follow the S&P 500 index. Then again, a difference of 0.15% ER vs. 0.30% ER does warrant taking a closer look at the actively managed fund. I haven't done that research.
2) Ah, this is an oversight. Yes, TRIPX is cheaper, I didn't see any major difference between the two, so either would be fine. Note that I haven't really dug into the prospectus, I have only done the sorting-by-ER research to find the cheapest mutual funds available, then among these tried to pick the ones that hew closer to the Boglehead 3-fund (or actually 2-fund, since I excluded bonds) portfolio.
Got it, I really appreciate the effort!
vsquid wrote: Sat Nov 21, 2020 1:53 pm Yes. You can buy Vanguard, ishares etc ETFs on interactive brokers. When in US, you can start with IBKR lite that has free trades. You can then upgrade to pro once you are moving to Europe or want to use margin.
Super helpful, thanks!
jw50
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Re: Advise for a three funds portfolio with Interactive Brokers (US resident)

Post by jw50 »

IB would be a great choice.

I use IB pro as gives better execution price!

Use ETFs:
VTI, VXUS and BND to construct your 3 fund portfolio.
afan
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Re: Advise for a three funds portfolio with Interactive Brokers (US resident)

Post by afan »

I can believe that some brokers may give better execution than others for some trades. But here the OP has been directed to three of the most liquid etfs in the market. The spreads will always be a penny. There may be a chance to get inside that trivial spread, but the savings would be minimal. Not sure it is worth even considering execution quality for such trades.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama
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