Portfolio Review / Investment Strategy - 23 y/o

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Topic Author
thebigredmachine1
Posts: 8
Joined: Tue Jul 02, 2024 12:12 pm

Portfolio Review / Investment Strategy - 23 y/o

Post by thebigredmachine1 »

I graduated from college a little over a year ago and have been working and investing steadily since July of 2023. I would like some input on my portfolio and strategy. If there is anything you see that you disagree with or something that I should be aware of, please let me know. Thank you all.

Emergency funds: 3-5 months of expenses in SPAXX within Fidelity brokerage. MCOL City with a fairly secure job.
Debt: None. I pay off my credit card in full every month.
Tax Filing Status: Single
Tax Rate: 22% (federal)
State of Residence: North Carolina

Age: 23

Desired Asset allocation: 99% stock / 1% bonds (this is current due to TDF)
Desired international allocation: 25% of stocks

Total Portfolio: ~ $60k

Brokerage - 34.5% of portfolio
1.9% FSKAX - Fidelity Total Market Index Fund - .01% ER
2.0% FSMDX - Fidelity Mid Cap Index Fund - .03% ER
5.1% FTIHX - Fidelity Total International Index Fund - .06% ER
25.5% FXAIX - Fidelity 500 Index Fund - .01% ER

Roth IRA - 41.4% of portfolio
10% FZILX - Fidelity Zero International Index - 0.0% ER
31.4% FZROX - Fidelity Total Market Index - 0.0% ER

Employer 401(k) - 24.1% of portfolio
Lifepath Index 2065 (BlackRock) - .05% ER
Employer Contributions - 5%
Pre-Tax Contribution - 11%
Roth 401(k) Contribution - 16%

Available funds in 401(k) plan:
Acadian All World Ex-US Equity
Blackrock Equity Dividend CL M
Blackrock Lg Cap Growth Eq
Blackrock Russell 2000 Fund
Dodge & Cox Stock Fund
Earnest Partners SMID CP Core
MFS International Growth
Northern GLBL Sustainability
State Street Real Asset
T Rowe Large-Cap Growth
Vanguard Institutional 500 INdex - .01% ER
Vanguard Institutional Extended Market - .02% ER
Vanguard Institutional Total International Stock Market - .05% ER
PIMCO Total Return Fund
Vanguard Inflation-Protected
Vanguard Institutional Total Bond Market Index - .02% ER
Western Asset Core Bond
BlackRock Global Allocation CIT
LifePath Index 2025 Fund
….
LifePath Index 2065 Fund - .05% ER
Lifepath Index Retirement Fund
PIMCO All Asset Fund

I have a small overlap in the taxable due to investing before learning of Bogleheads. I have been investing in FTIHX in the taxable, in order to get more international exposure (25% desired allocation).

Questions
Overall, does this seem like a good game plan going forward?
I have recently been contributing to FTIHX in taxable to increase international exposure. I have a desired 75/25 split but open for discussion.

I am prioritizing my 401(k) as much as I can right now and I hoping to maintain the high contribution rates going forward. Is there a recommendation for going completely pre-tax or Roth contributions?

I do not mind being invested in the target date fund but I can be pretty risk tolerant at the moment.
What are your thoughts on potentially going 100% S&P500 index? I know this is not diversified for BH but I would like to hear discussion on this since I am 23 and have at least 30 years until retirement.
Or, what are thoughts on reconstructing a two fund portfolio with the Vanguard Total Market Index and the Vanguard Int. Index? Would this be counterproductive since the TDF ER is only .05%?

Roth IRA- I know desired equity allocation varies widely, but in general do you find that a 75/25 split for domestic/international is adequate?
Again, I would be potentially interested in going 100% S&P500 in the Roth.

Taxable - Going to increase emergency funds once international allocation is higher.
Is SPAXX a good holding for an emergency fund or are there other MMF in Fidelity that are more advantageous?
Is there any benefit to holding FXAIX over FSKAX for dividend/tax considerations? Or vice versa? Is it more tax efficient to hold Vanguard Index Funds in Fidelity Brokerage over Fidelity mutual funds?

Any other considerations or items that I should be wary of? How quickly should I prioritize setting up a HSA?

I know this is a brain dump but just looking for any insight. If you can answer one question or provide your thoughts on a topic I would greatly appreciate it.
Mattman25
Posts: 104
Joined: Wed Nov 01, 2023 1:38 pm

Re: Portfolio Review / Investment Strategy - 23 y/o

Post by Mattman25 »

You are off to a great start, see my comments in red.
thebigredmachine1 wrote: Tue Jul 02, 2024 2:38 pm I have a small overlap in the taxable due to investing before learning of Bogleheads. I have been investing in FTIHX in the taxable, in order to get more international exposure (25% desired allocation).
How much of a tax hit would it be if you get rid of the non-three fund investments in your taxable brokerage this year?

Questions
Overall, does this seem like a good game plan going forward?
I have recently been contributing to FTIHX in taxable to increase international exposure. I have a desired 75/25 split but open for discussion.

I am prioritizing my 401(k) as much as I can right now and I hoping to maintain the high contribution rates going forward. Is there a recommendation for going completely pre-tax or Roth contributions?
At your age, with all of the salary increases you have coming ahead in your career, you should probably be 100% Roth. Maybe reconsider if you hit the 24% bracket or if/when federal tax brackets raise in 2025. Unless you think you might do early retirement?

I do not mind being invested in the target date fund but I can be pretty risk tolerant at the moment.
What are your thoughts on potentially going 100% S&P500 index? I know this is not diversified for BH but I would like to hear discussion on this since I am 23 and have at least 30 years until retirement.
Why wouldn't you include extended market in order to recreate the total stock market index?

Or, what are thoughts on reconstructing a two fund portfolio with the Vanguard Total Market Index and the Vanguard Int. Index? Would this be counterproductive since the TDF ER is only .05%?
I would do this and save 2-3 basis points. I don't see total STOCK market in your 401(k) options, just bond market. But with the extended market (i.e. everything not included in S&P 500) you can recreate a good 2-fund portfolio with these 3 funds:
Vanguard Institutional 500 Index - .01% ER
Vanguard Institutional Extended Market - .02% ER
Vanguard Institutional Total International Stock Market - .05% ER


Roth IRA- I know desired equity allocation varies widely, but in general do you find that a 75/25 split for domestic/international is adequate?
Again, I would be potentially interested in going 100% S&P500 in the Roth.

Taxable - Going to increase emergency funds once international allocation is higher.
Is SPAXX a good holding for an emergency fund or are there other MMF in Fidelity that are more advantageous?
Is there any benefit to holding FXAIX over FSKAX for dividend/tax considerations? Or vice versa? Is it more tax efficient to hold Vanguard Index Funds in Fidelity Brokerage over Fidelity mutual funds?

Any other considerations or items that I should be wary of? How quickly should I prioritize setting up a HSA?
See the wiki's prioritization list: https://www.bogleheads.org/wiki/Priorit ... nvestments. HSA's are very high priority. Make sure it is an HSA not an FSA.

Other ideas:
- Disability insurance
- Term life insurance if/when you have dependents
- Adequate rental/auto insurance or umbrella policy
- Backdoor Roth
- Mega Backdoor Roth
- Diversify out of company stock if you receive stock benefits
- 529 account if kids may be in your future
PerfectName
Posts: 118
Joined: Sat Aug 15, 2020 5:09 pm

Re: Portfolio Review / Investment Strategy - 23 y/o

Post by PerfectName »

Some scattershot remarks, not necessarily well-aligned with your questions, but hopefully useful.

-Good for you in being this structured in your investments and investment planning this early in your career
-overall nothing you have looks crazy
-100% equity for Roth is often considered a good thing
-SP500 vs total stock market is subject to a lot of discussion. Neither is a bad choice. In theory, TSM is better since it is more diversified, but people like Warren Buffet have said SP500 is the best way to go. I think SP500 has also been performing better for the last many years (although I haven't used portfolio visualizer to check that--trying it yourself would be a good exercise for the reader)
-how much to have as US vs international is an ongoing debate. I personally have little in international, but many people would advocate that it be 20-30% of just the equity portion of your portfolio.
-once you have your emergency fund in place, it makes perfect sense to be heavy in equities and low (or very low)on bonds, for someone your age
-concur with the comment to ensure you have disability insurance, and would also suggest you consider an umbrella policy
User avatar
retired@50
Posts: 13950
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Portfolio Review / Investment Strategy - 23 y/o

Post by retired@50 »

thebigredmachine1 wrote: Tue Jul 02, 2024 2:38 pm
I am prioritizing my 401(k) as much as I can right now and I hoping to maintain the high contribution rates going forward. Is there a recommendation for going completely pre-tax or Roth contributions?
Welcome to the forum.

For the question above, see the wiki page on Traditional versus Roth. https://www.bogleheads.org/wiki/Traditional_versus_Roth
I would suspect that using a traditional 401k contribution, and a Roth IRA outside of the workplace plan would be a good choice.
I do not mind being invested in the target date fund but I can be pretty risk tolerant at the moment.
What are your thoughts on potentially going 100% S&P500 index? I know this is not diversified for BH but I would like to hear discussion on this since I am 23 and have at least 30 years until retirement. Or, what are thoughts on reconstructing a two fund portfolio with the Vanguard Total Market Index and the Vanguard Int. Index? Would this be counterproductive since the TDF ER is only .05%?
Diversification is important, regardless of your age. Stick with the low cost target date fund and make your life just a little bit easier.
Roth IRA- I know desired equity allocation varies widely, but in general do you find that a 75/25 split for domestic/international is adequate?
Again, I would be potentially interested in going 100% S&P500 in the Roth.
You should be setting your US/International percentage at the WHOLE portfolio level, not the individual account level. If you like the idea of 75% US and 25% International then implement that.
Taxable - Going to increase emergency funds once international allocation is higher.
Is SPAXX a good holding for an emergency fund or are there other MMF in Fidelity that are more advantageous?
Is there any benefit to holding FXAIX over FSKAX for dividend/tax considerations? Or vice versa? Is it more tax efficient to hold Vanguard Index Funds in Fidelity Brokerage over Fidelity mutual funds?
The Fidelity mutual fund FSKAX is fine. If you have to pay state level income taxes in your state (NC) then consider using FDLXX instead of SPAXX. It doesn't have as high a yield as the Vanguard Treasure Money Market fund (VUSXX), but it should help you save on state income taxes on your cash savings.
See link: https://fundresearch.fidelity.com/mutua ... /31617H300

Regards,
"All of us would be better investors if we just made fewer decisions." - Daniel Kahneman
dcabler
Posts: 5060
Joined: Wed Feb 19, 2014 10:30 am
Location: TX

Re: Portfolio Review / Investment Strategy - 23 y/o

Post by dcabler »

You're off to a decent start. My daughter is nearly 23 and has also been working post-college for about a year.

For her, I suggested the following, which she has implemented in both her taxable brokerage account and her Roth 401K:
70% US Large Cap (SP500 fund)
30% International developed

This matches approximately the current split of the ETF with the ticker URTH, but does so with a lower e/r than URTH does. Slightly different funds in her Roth 401K than her taxable account based on what's available in the 401K, but the results are nearly identical.

I'm suggesting to her not to start adding bonds until around mid-career..

Cheers.
User avatar
ruralavalon
Posts: 26841
Joined: Sat Feb 02, 2008 9:29 am
Location: Illinois

Re: Portfolio Review / Investment Strategy - 23 y/o

Post by ruralavalon »

Welcome to the forum :D .

Congratulations on starting young, being debt free, using tax-advantaged accounts investing in diversified funds with low expense ratios. You are already doing a lot of things right.

About how much (in dollars) do you believe that you might be able to contribute annually to investing (total, all accounts)?

How much (in dollars) do you currently contribute annually to each account?

thebigredmachine1 wrote: Tue Jul 02, 2024 2:38 pm I graduated from college a little over a year ago and have been working and investing steadily since July of 2023. I would like some input on my portfolio and strategy. If there is anything you see that you disagree with or something that I should be aware of, please let me know. Thank you all.

Emergency funds: 3-5 months of expenses in SPAXX within Fidelity brokerage. MCOL City with a fairly secure job.
Debt: None. I pay off my credit card in full every month.
Tax Filing Status: Single
Tax Rate: 22% (federal)
State of Residence: North Carolina

Age: 23

Desired Asset allocation: 99% stock / 1% bonds (this is current due to TDF)
Desired international allocation: 25% of stocks

Total Portfolio: ~ $60k

Brokerage - 34.5% of portfolio
1.9% FSKAX - Fidelity Total Market Index Fund - .01% ER
2.0% FSMDX - Fidelity Mid Cap Index Fund - .03% ER
5.1% FTIHX - Fidelity Total International Index Fund - .06% ER
25.5% FXAIX - Fidelity 500 Index Fund - .01% ER

Roth IRA - 41.4% of portfolio
10% FZILX - Fidelity Zero International Index - 0.0% ER
31.4% FZROX - Fidelity Total Market Index - 0.0% ER

Employer 401(k) - 24.1% of portfolio
Lifepath Index 2065 (BlackRock) - .05% ER
Employer Contributions - 5%
Pre-Tax Contribution - 11%
Roth 401(k) Contribution - 16%

Available funds in 401(k) plan:
Acadian All World Ex-US Equity
Blackrock Equity Dividend CL M
Blackrock Lg Cap Growth Eq
Blackrock Russell 2000 Fund
Dodge & Cox Stock Fund
Earnest Partners SMID CP Core
MFS International Growth
Northern GLBL Sustainability
State Street Real Asset
T Rowe Large-Cap Growth
Vanguard Institutional 500 INdex - .01% ER
Vanguard Institutional Extended Market - .02% ER
Vanguard Institutional Total International Stock Market - .05% ER
PIMCO Total Return Fund
Vanguard Inflation-Protected
Vanguard Institutional Total Bond Market Index - .02% ER
Western Asset Core Bond
BlackRock Global Allocation CIT
LifePath Index 2025 Fund
….
LifePath Index 2065 Fund - .05% ER
Lifepath Index Retirement Fund
PIMCO All Asset Fund

I have a small overlap in the taxable due to investing before learning of Bogleheads. I have been investing in FTIHX in the taxable, in order to get more international exposure (25% desired allocation).

Questions
Overall, does this seem like a good game plan going forward?
I have recently been contributing to FTIHX in taxable to increase international exposure. I have a desired 75/25 split but open for discussion.
In my opinion 25% of stocks in international stocks is within the range of what is reasonable.


thebigredmachine1 wrote: Tue Jul 02, 2024 2:38 pmI am prioritizing my 401(k) as much as I can right now and I hoping to maintain the high contribution rates going forward. Is there a recommendation for going completely pre-tax or Roth contributions?
Your employer's plan offers excellent funds with very low expense ratios.

I suggest making maximum annual employee contributions ($23k) as a priority over contributions to the taxable brokerage account and as a priority over contributions to the Roth IRA. Any employer match does not count towards the employee maximum, it's extra.

How much (in dollars) do you currently contribute annually to the 401k account?

Wiki article, Prioritizing investments. "If the company plan offers good, low-cost funds, it may be preferable to contribute to the company plan before contributing to an IRA"


thebigredmachine1 wrote: Tue Jul 02, 2024 2:38 pmI do not mind being invested in the target date fund but I can be pretty risk tolerant at the moment.
In your 401k account I suggest using EITHER a target date fund

OR a combination of these funds:
1) Vanguard Institutional 500 INdex - .01% ER;
2) Vanguard Institutional Total International Stock Market - .05% ER; and
3) Vanguard Institutional Total Bond Market Index - .02% ER.

A target date fund is pretty aggressive as is. Using an allocation fund (like a target date fund) seems to insulate the investor against behavioral errors and so produce higher investor returns. Morningstar Mind the Gap 2019.

For a very simple portfolio you could use target date funds in both the 401k account and the Roth IRA

Using the three funds I mentioned does allow you to select your own desired asset allocation, and arrange fund location to be very tax-efficient.

Wiki article, Tax-efficient fund placement


thebigredmachine1 wrote: Tue Jul 02, 2024 2:38 pmWhat are your thoughts on potentially going 100% S&P500 index? I know this is not diversified for BH but I would like to hear discussion on this since I am 23 and have at least 30 years until retirement.
In my opinion an asset allocation of 100% stocks is not wise for even for a very young investor.


thebigredmachine1 wrote: Tue Jul 02, 2024 2:38 pmOr, what are thoughts on reconstructing a two fund portfolio with the Vanguard Total Market Index and the Vanguard Int. Index? Would this be counterproductive since the TDF ER is only .05%?
In my opinion an asset allocation of 100% stocks is not wise for even for a very young investor.


thebigredmachine1 wrote: Tue Jul 02, 2024 2:38 pmRoth IRA- I know desired equity allocation varies widely, but in general do you find that a 75/25 split for domestic/international is adequate?
Again, I would be potentially interested in going 100% S&P500 in the Roth.
In my opinion 25% of stocks in international stocks is within the range of what is reasonable.

In a Roth IRA prefer to use stock funds rather than
bond funds.


thebigredmachine1 wrote: Tue Jul 02, 2024 2:38 pmTaxable - Going to increase emergency funds once international allocation is higher.
Is SPAXX a good holding for an emergency fund or are there other MMF in Fidelity that are more advantageous?
Is there any benefit to holding FXAIX over FSKAX for dividend/tax considerations? Or vice versa? Is it more tax efficient to hold Vanguard Index Funds in Fidelity Brokerage over Fidelity mutual funds?
I suggest establishing an emergency fund a top priority ahead of contributions to the taxable brokerage account.

Wiki article, Prioritizing investments
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
bonesly
Posts: 1684
Joined: Mon Dec 18, 2017 9:28 pm
Location: WA

Re: Portfolio Review / Investment Strategy - 23 y/o

Post by bonesly »

thebigredmachine1 wrote: Tue Jul 02, 2024 2:38 pm Brokerage - 34.5% of portfolio
1.9% FSKAX - Fidelity Total Market Index Fund - .01% ER
2.0% FSMDX - Fidelity Mid Cap Index Fund - .03% ER
5.1% FTIHX - Fidelity Total International Index Fund - .06% ER
25.5% FXAIX - Fidelity 500 Index Fund - .01% ER

Roth IRA - 41.4% of portfolio
10% FZILX - Fidelity Zero International Index - 0.0% ER
31.4% FZROX - Fidelity Total Market Index - 0.0% ER

Employer 401(k) - 24.1% of portfolio
Lifepath Index 2065 (BlackRock) - .05% ER
You've gotten good responses from other poster upstream and while I scanned those other responses, I didn't search for any mention of Wash Sales. You can potentially get into that situation if you hold the same fund in both a Taxable Brokerage account and in a tax-advantaged account (Roth IRA and/or Trad 401k).

You're holding "Fidelity Total Market Index" in both Taxable and Roth IRA, but they're different symbols, so hopefully Fidelity would not flag any sales of FSKAX at a loss as "wash sales" if you happened to purchase FZROX (through direct contribution or auto-reinvest of distributions) within ±31 days of the loss sale date.
-- FSKAX seems to track - Dow Jones U.S. Total Stock Market Index: Dow Jones U.S. Total Stock Market Index SM is a float-adjusted market capitalization-weighted index of all equity securities of U.S. headquartered companies with readily available price data. 3,853 holdings.
-- FZROX seems to track - Fidelity U.S. Total Investable Market Index TR: The Fidelity U.S. Total Investable Market Index, is a float-adjusted market capitalization-weighted index designed to reflect the performance of the U.S. equity market, including large-, mid- and small-capitalization stocks. 2,626 holdings.

Same concern with "Total International Index" but I'm guessing, without verifying, that the ZERO version (FZILX) uses Fido's proprietary index and is not quite the same as FTIHX.

While I think you don't have a problem with either fund-pair, it's something to consider in future purchase planning (don't hold the same ticker symbol in both Taxable and somewhere in Tax-Advantaged if possible).

As an aside, you're Taxable account is also holding S&P-500 (FXAIX) which is incredibly overlapped with TSM (FSKAX), so I'd probably ditch the latter as you're also holding a mid-cap fund (which is also overlapped with TSM, but maybe you were aiming for an overweighting/tilt on midcap).
Don't do what Bogleheads tell you. Listen to what we say, consider other sources, and make your own decisions, since you have to live with the risks & rewards (not us or anyone else).
Topic Author
thebigredmachine1
Posts: 8
Joined: Tue Jul 02, 2024 12:12 pm

Re: Portfolio Review / Investment Strategy - 23 y/o

Post by thebigredmachine1 »

Mattman25 wrote: Tue Jul 02, 2024 4:49 pm You are off to a great start, see my comments in red.

Thank you very much for taking the time to respond!
thebigredmachine1 wrote: Tue Jul 02, 2024 2:38 pm I have a small overlap in the taxable due to investing before learning of Bogleheads. I have been investing in FTIHX in the taxable, in order to get more international exposure (25% desired allocation).
How much of a tax hit would it be if you get rid of the non-three fund investments in your taxable brokerage this year?

Small/mid cap fund is very small but S&P500 has done pretty well (28% return) so that would be more. I am not too sure how to calculate the actual tax hit, but what are some reasons to do this? I understand consolidation and less overlap but if i stop contributing to them, what is the harm in continuing to hold them? Also, wouldn't it be beneficial to sell come January of 2025 so I do not incur tax hit until 2026?

Questions
Overall, does this seem like a good game plan going forward?
I have recently been contributing to FTIHX in taxable to increase international exposure. I have a desired 75/25 split but open for discussion.

I am prioritizing my 401(k) as much as I can right now and I hoping to maintain the high contribution rates going forward. Is there a recommendation for going completely pre-tax or Roth contributions?
At your age, with all of the salary increases you have coming ahead in your career, you should probably be 100% Roth. Maybe reconsider if you hit the 24% bracket or if/when federal tax brackets raise in 2025. Unless you think you might do early retirement?

Thanks for the guidance. I also have been considering this strategy of Roth 401k contributions until i hit a higher tax bracket or they get raised. I have been splitting them so I can have both options down the road. Why would it be better to contribute traditionally if I were to do early retirement?

I do not mind being invested in the target date fund but I can be pretty risk tolerant at the moment.
What are your thoughts on potentially going 100% S&P500 index? I know this is not diversified for BH but I would like to hear discussion on this since I am 23 and have at least 30 years until retirement.
Why wouldn't you include extended market in order to recreate the total stock market index?

This is pretty much recency bias of the S&P doing so well and people around me believing the S&P500 is the best choice for young investors... in addition to prominent investors like Buffett saying the S&P is the way to go.

Or, what are thoughts on reconstructing a two fund portfolio with the Vanguard Total Market Index and the Vanguard Int. Index? Would this be counterproductive since the TDF ER is only .05%?
I would do this and save 2-3 basis points. I don't see total STOCK market in your 401(k) options, just bond market. But with the extended market (i.e. everything not included in S&P 500) you can recreate a good 2-fund portfolio with these 3 funds:
Vanguard Institutional 500 Index - .01% ER
Vanguard Institutional Extended Market - .02% ER
Vanguard Institutional Total International Stock Market - .05% ER


Apologies, this is what I meant (500, extended, and international)... and you are saying I would save 2-3 basis points by recreating a two-fund strat over the TDF? If i were to do this would i do equal % of 500 and extended to recreate total market and fill in my desired International (40% 500 index, 40% extended, and 20% int?

Roth IRA- I know desired equity allocation varies widely, but in general do you find that a 75/25 split for domestic/international is adequate?
Again, I would be potentially interested in going 100% S&P500 in the Roth.

Taxable - Going to increase emergency funds once international allocation is higher.
Is SPAXX a good holding for an emergency fund or are there other MMF in Fidelity that are more advantageous?
Is there any benefit to holding FXAIX over FSKAX for dividend/tax considerations? Or vice versa? Is it more tax efficient to hold Vanguard Index Funds in Fidelity Brokerage over Fidelity mutual funds?

Any other considerations or items that I should be wary of? How quickly should I prioritize setting up a HSA?
See the wiki's prioritization list: https://www.bogleheads.org/wiki/Priorit ... nvestments. HSA's are very high priority. Make sure it is an HSA not an FSA.

Will do, thank you so much for the info!

Other ideas:
- Disability insurance
- Term life insurance if/when you have dependents
- Adequate rental/auto insurance or umbrella policy
- Backdoor Roth
- Mega Backdoor Roth
- Diversify out of company stock if you receive stock benefits
- 529 account if kids may be in your future
Topic Author
thebigredmachine1
Posts: 8
Joined: Tue Jul 02, 2024 12:12 pm

Re: Portfolio Review / Investment Strategy - 23 y/o

Post by thebigredmachine1 »

PerfectName wrote: Tue Jul 02, 2024 8:52 pm Some scattershot remarks, not necessarily well-aligned with your questions, but hopefully useful.

-Good for you in being this structured in your investments and investment planning this early in your career
-overall nothing you have looks crazy
-100% equity for Roth is often considered a good thing
-SP500 vs total stock market is subject to a lot of discussion. Neither is a bad choice. In theory, TSM is better since it is more diversified, but people like Warren Buffet have said SP500 is the best way to go. I think SP500 has also been performing better for the last many years (although I haven't used portfolio visualizer to check that--trying it yourself would be a good exercise for the reader)
-how much to have as US vs international is an ongoing debate. I personally have little in international, but many people would advocate that it be 20-30% of just the equity portion of your portfolio.
-once you have your emergency fund in place, it makes perfect sense to be heavy in equities and low (or very low)on bonds, for someone your age
-concur with the comment to ensure you have disability insurance, and would also suggest you consider an umbrella policy
Thank you for your response, I appreciate the remarks.

I am leaning towards TSM because of the diversification and since S&P500 is very popular because of the recency bias.

What is your reasoning for little international?
Topic Author
thebigredmachine1
Posts: 8
Joined: Tue Jul 02, 2024 12:12 pm

Re: Portfolio Review / Investment Strategy - 23 y/o

Post by thebigredmachine1 »

retired@50 wrote: Tue Jul 02, 2024 11:43 pm
thebigredmachine1 wrote: Tue Jul 02, 2024 2:38 pm
I am prioritizing my 401(k) as much as I can right now and I hoping to maintain the high contribution rates going forward. Is there a recommendation for going completely pre-tax or Roth contributions?
Welcome to the forum.

For the question above, see the wiki page on Traditional versus Roth. https://www.bogleheads.org/wiki/Traditional_versus_Roth
I would suspect that using a traditional 401k contribution, and a Roth IRA outside of the workplace plan would be a good choice.

Thanks for responding! I have done a bit of research on the difference between the two and I will look at the link you provided again. I feel like it might be a question that cannot be answered until many years from now as tax rates, contributions, and returns are not known.

Would it be reasonable to do both as I am now to give myself the option when withdrawing in retirement?

I do not mind being invested in the target date fund but I can be pretty risk tolerant at the moment.
What are your thoughts on potentially going 100% S&P500 index? I know this is not diversified for BH but I would like to hear discussion on this since I am 23 and have at least 30 years until retirement. Or, what are thoughts on reconstructing a two fund portfolio with the Vanguard Total Market Index and the Vanguard Int. Index? Would this be counterproductive since the TDF ER is only .05%?
Diversification is important, regardless of your age. Stick with the low cost target date fund and make your life just a little bit easier.
Roth IRA- I know desired equity allocation varies widely, but in general do you find that a 75/25 split for domestic/international is adequate?
Again, I would be potentially interested in going 100% S&P500 in the Roth.
You should be setting your US/International percentage at the WHOLE portfolio level, not the individual account level. If you like the idea of 75% US and 25% International then implement that.

I know the international allocation is for the whole equity portion of portfolio but I forgot about the specific holding % within the TDF. The TDF in 401k holds 34% non-us stocks. So I do not need to hold as much in my taxable (to meet my desired overall allocation)... Thanks!
Taxable - Going to increase emergency funds once international allocation is higher.
Is SPAXX a good holding for an emergency fund or are there other MMF in Fidelity that are more advantageous?
Is there any benefit to holding FXAIX over FSKAX for dividend/tax considerations? Or vice versa? Is it more tax efficient to hold Vanguard Index Funds in Fidelity Brokerage over Fidelity mutual funds?
The Fidelity mutual fund FSKAX is fine. If you have to pay state level income taxes in your state (NC) then consider using FDLXX instead of SPAXX. It doesn't have as high a yield as the Vanguard Treasure Money Market fund (VUSXX), but it should help you save on state income taxes on your cash savings.
See link: https://fundresearch.fidelity.com/mutua ... /31617H300

Great thank you for sending info on this. I will look into this and see if I can calculate a tax advantage over SPAXX.

Regards,
I appreciate you taking the time to answer.
Topic Author
thebigredmachine1
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Re: Portfolio Review / Investment Strategy - 23 y/o

Post by thebigredmachine1 »

dcabler wrote: Wed Jul 03, 2024 6:52 am You're off to a decent start. My daughter is nearly 23 and has also been working post-college for about a year.

For her, I suggested the following, which she has implemented in both her taxable brokerage account and her Roth 401K:
70% US Large Cap (SP500 fund)
30% International developed

This matches approximately the current split of the ETF with the ticker URTH, but does so with a lower e/r than URTH does. Slightly different funds in her Roth 401K than her taxable account based on what's available in the 401K, but the results are nearly identical.

I'm suggesting to her not to start adding bonds until around mid-career..

Cheers.
Thanks for the response! I could do something similar in my 401k. Would you be able to provide your reasoning for going 30% international and not doing extended market?
I also do not plan on adding bonds for a little while.
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retired@50
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Re: Portfolio Review / Investment Strategy - 23 y/o

Post by retired@50 »

thebigredmachine1 wrote: Tue Jul 09, 2024 9:10 am
Would it be reasonable to do both as I am now to give myself the option when withdrawing in retirement?
Sure. If you use 50% traditional and 50% Roth you can only be half-wrong. :wink:

If/when you get into a higher tax bracket, the Traditional tax deferral feature will become more valuable.

Regards,
"All of us would be better investors if we just made fewer decisions." - Daniel Kahneman
Topic Author
thebigredmachine1
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Re: Portfolio Review / Investment Strategy - 23 y/o

Post by thebigredmachine1 »

ruralavalon wrote: Wed Jul 03, 2024 9:31 am Welcome to the forum :D .

Congratulations on starting young, being debt free, using tax-advantaged accounts investing in diversified funds with low expense ratios. You are already doing a lot of things right.

Thank you very much!

About how much (in dollars) do you believe that you might be able to contribute annually to investing (total, all accounts)?

I really do not think I can answer this with much confidence. I currently max out Roth IRA and will plan to do going forward. However, my expenses and my salary will definitely be increasing shortly (moving apartments and changing jobs) so I cannot determine how much I may be able to save. I plan on buying a house and having kids so I have been thinking about saving for a down payment.

How much (in dollars) do you currently contribute annually to each account?

Max Roth IRA. I intend to Max 401K or come very close to it. I am not sure why I was investing in my taxable over my 401k (this is one of the first things you learn on this wiki). I guess its because I enjoy saving and actually moving the money to my Fidelity account. But i will be increasing 401k contributions to hopefully max. My guess is that annually I save around 30K.


thebigredmachine1 wrote: Tue Jul 02, 2024 2:38 pm I graduated from college a little over a year ago and have been working and investing steadily since July of 2023. I would like some input on my portfolio and strategy. If there is anything you see that you disagree with or something that I should be aware of, please let me know. Thank you all.

Emergency funds: 3-5 months of expenses in SPAXX within Fidelity brokerage. MCOL City with a fairly secure job.
Debt: None. I pay off my credit card in full every month.
Tax Filing Status: Single
Tax Rate: 22% (federal)
State of Residence: North Carolina

Age: 23

Desired Asset allocation: 99% stock / 1% bonds (this is current due to TDF)
Desired international allocation: 25% of stocks

Total Portfolio: ~ $60k

Brokerage - 34.5% of portfolio
1.9% FSKAX - Fidelity Total Market Index Fund - .01% ER
2.0% FSMDX - Fidelity Mid Cap Index Fund - .03% ER
5.1% FTIHX - Fidelity Total International Index Fund - .06% ER
25.5% FXAIX - Fidelity 500 Index Fund - .01% ER

Roth IRA - 41.4% of portfolio
10% FZILX - Fidelity Zero International Index - 0.0% ER
31.4% FZROX - Fidelity Total Market Index - 0.0% ER

Employer 401(k) - 24.1% of portfolio
Lifepath Index 2065 (BlackRock) - .05% ER
Employer Contributions - 5%
Pre-Tax Contribution - 11%
Roth 401(k) Contribution - 16%

Available funds in 401(k) plan:
Acadian All World Ex-US Equity
Blackrock Equity Dividend CL M
Blackrock Lg Cap Growth Eq
Blackrock Russell 2000 Fund
Dodge & Cox Stock Fund
Earnest Partners SMID CP Core
MFS International Growth
Northern GLBL Sustainability
State Street Real Asset
T Rowe Large-Cap Growth
Vanguard Institutional 500 INdex - .01% ER
Vanguard Institutional Extended Market - .02% ER
Vanguard Institutional Total International Stock Market - .05% ER
PIMCO Total Return Fund
Vanguard Inflation-Protected
Vanguard Institutional Total Bond Market Index - .02% ER
Western Asset Core Bond
BlackRock Global Allocation CIT
LifePath Index 2025 Fund
….
LifePath Index 2065 Fund - .05% ER
Lifepath Index Retirement Fund
PIMCO All Asset Fund

I have a small overlap in the taxable due to investing before learning of Bogleheads. I have been investing in FTIHX in the taxable, in order to get more international exposure (25% desired allocation).

Questions
Overall, does this seem like a good game plan going forward?
I have recently been contributing to FTIHX in taxable to increase international exposure. I have a desired 75/25 split but open for discussion.
In my opinion 25% of stocks in international stocks is within the range of what is reasonable.


thebigredmachine1 wrote: Tue Jul 02, 2024 2:38 pmI am prioritizing my 401(k) as much as I can right now and I hoping to maintain the high contribution rates going forward. Is there a recommendation for going completely pre-tax or Roth contributions?
Your employer's plan offers excellent funds with very low expense ratios.

I suggest making maximum annual employee contributions ($23k) as a priority over contributions to the taxable brokerage account and as a priority over contributions to the Roth IRA. Any employer match does not count towards the employee maximum, it's extra.

How much (in dollars) do you currently contribute annually to the 401k account?

Wiki article, Prioritizing investments. "If the company plan offers good, low-cost funds, it may be preferable to contribute to the company plan before contributing to an IRA"

Thank you for highlighting this. Again, I am not sure why I was not prioritizing 401k.
thebigredmachine1 wrote: Tue Jul 02, 2024 2:38 pmI do not mind being invested in the target date fund but I can be pretty risk tolerant at the moment.
In your 401k account I suggest using EITHER a target date fund

OR a combination of these funds:
1) Vanguard Institutional 500 INdex - .01% ER;
2) Vanguard Institutional Total International Stock Market - .05% ER; and
3) Vanguard Institutional Total Bond Market Index - .02% ER.

A target date fund is pretty aggressive as is. Using an allocation fund (like a target date fund) seems to insulate the investor against behavioral errors and so produce higher investor returns. Morningstar Mind the Gap 2019.

For a very simple portfolio you could use target date funds in both the 401k account and the Roth IRA

Using the three funds I mentioned does allow you to select your own desired asset allocation, and arrange fund location to be very tax-efficient.

Wiki article, Tax-efficient fund placement

Thank you for the resources. I like the idea of potentially recreating a portfolio with the low cost funds provided but might just stick the TDF for now.
thebigredmachine1 wrote: Tue Jul 02, 2024 2:38 pmWhat are your thoughts on potentially going 100% S&P500 index? I know this is not diversified for BH but I would like to hear discussion on this since I am 23 and have at least 30 years until retirement.
In my opinion an asset allocation of 100% stocks is not wise for even for a very young investor.


thebigredmachine1 wrote: Tue Jul 02, 2024 2:38 pmOr, what are thoughts on reconstructing a two fund portfolio with the Vanguard Total Market Index and the Vanguard Int. Index? Would this be counterproductive since the TDF ER is only .05%?
In my opinion an asset allocation of 100% stocks is not wise for even for a very young investor.


thebigredmachine1 wrote: Tue Jul 02, 2024 2:38 pmRoth IRA- I know desired equity allocation varies widely, but in general do you find that a 75/25 split for domestic/international is adequate?
Again, I would be potentially interested in going 100% S&P500 in the Roth.
In my opinion 25% of stocks in international stocks is within the range of what is reasonable.

In a Roth IRA prefer to use stock funds rather than
bond funds.


thebigredmachine1 wrote: Tue Jul 02, 2024 2:38 pmTaxable - Going to increase emergency funds once international allocation is higher.
Is SPAXX a good holding for an emergency fund or are there other MMF in Fidelity that are more advantageous?
Is there any benefit to holding FXAIX over FSKAX for dividend/tax considerations? Or vice versa? Is it more tax efficient to hold Vanguard Index Funds in Fidelity Brokerage over Fidelity mutual funds?
I suggest establishing an emergency fund a top priority ahead of contributions to the taxable brokerage account.

Agreed. Thanks for all your help!

Wiki article, Prioritizing investments
Topic Author
thebigredmachine1
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Re: Portfolio Review / Investment Strategy - 23 y/o

Post by thebigredmachine1 »

bonesly wrote: Wed Jul 03, 2024 5:21 pm
thebigredmachine1 wrote: Tue Jul 02, 2024 2:38 pm Brokerage - 34.5% of portfolio
1.9% FSKAX - Fidelity Total Market Index Fund - .01% ER
2.0% FSMDX - Fidelity Mid Cap Index Fund - .03% ER
5.1% FTIHX - Fidelity Total International Index Fund - .06% ER
25.5% FXAIX - Fidelity 500 Index Fund - .01% ER

Roth IRA - 41.4% of portfolio
10% FZILX - Fidelity Zero International Index - 0.0% ER
31.4% FZROX - Fidelity Total Market Index - 0.0% ER

Employer 401(k) - 24.1% of portfolio
Lifepath Index 2065 (BlackRock) - .05% ER
You've gotten good responses from other poster upstream and while I scanned those other responses, I didn't search for any mention of Wash Sales. You can potentially get into that situation if you hold the same fund in both a Taxable Brokerage account and in a tax-advantaged account (Roth IRA and/or Trad 401k).

You're holding "Fidelity Total Market Index" in both Taxable and Roth IRA, but they're different symbols, so hopefully Fidelity would not flag any sales of FSKAX at a loss as "wash sales" if you happened to purchase FZROX (through direct contribution or auto-reinvest of distributions) within ±31 days of the loss sale date.
-- FSKAX seems to track - Dow Jones U.S. Total Stock Market Index: Dow Jones U.S. Total Stock Market Index SM is a float-adjusted market capitalization-weighted index of all equity securities of U.S. headquartered companies with readily available price data. 3,853 holdings.
-- FZROX seems to track - Fidelity U.S. Total Investable Market Index TR: The Fidelity U.S. Total Investable Market Index, is a float-adjusted market capitalization-weighted index designed to reflect the performance of the U.S. equity market, including large-, mid- and small-capitalization stocks. 2,626 holdings.

Same concern with "Total International Index" but I'm guessing, without verifying, that the ZERO version (FZILX) uses Fido's proprietary index and is not quite the same as FTIHX.

While I think you don't have a problem with either fund-pair, it's something to consider in future purchase planning (don't hold the same ticker symbol in both Taxable and somewhere in Tax-Advantaged if possible).

As an aside, you're Taxable account is also holding S&P-500 (FXAIX) which is incredibly overlapped with TSM (FSKAX), so I'd probably ditch the latter as you're also holding a mid-cap fund (which is also overlapped with TSM, but maybe you were aiming for an overweighting/tilt on midcap).
You are exactly right about the Roth funds being Fidelity proprietary index. I think I read this should not be a concern for wash sales. Thank you for highlighting this concern though. I will be sure to hold different funds between taxable and Roth.

I know they are overlapped. I began investing in S&P500 and mid cap longbefore I learned of this wiki. So then i began investing in TSM and International after already holding the 500 and Mid-cap. I am not sure of what I want to do. Continue with 500 index or sell somewhere down the line and go full TSM/International.
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ruralavalon
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Re: Portfolio Review / Investment Strategy - 23 y/o

Post by ruralavalon »

thebigredmachine1 wrote: Tue Jul 09, 2024 9:29 amMax Roth IRA. I intend to Max 401K or come very close to it. I am not sure why I was investing in my taxable over my 401k (this is one of the first things you learn on this wiki). I guess its because I enjoy saving and actually moving the money to my Fidelity account. But i will be increasing 401k contributions to hopefully max. My guess is that annually I save around 30K.
It's great to see that you are adding around $30k annually to investing, and will be making maximum annual employee contributions to your 401k account (which offers excellent very diversified index funds with very low expense ratios) as a priority over contributions to your taxable account.

You will do very well.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
bonesly
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Re: Portfolio Review / Investment Strategy - 23 y/o

Post by bonesly »

thebigredmachine1 wrote: Tue Jul 09, 2024 9:37 am I know they are overlapped. I began investing in S&P500 and mid cap longbefore I learned of this wiki. So then i began investing in TSM and International after already holding the 500 and Mid-cap. I am not sure of what I want to do. Continue with 500 index or sell somewhere down the line and go full TSM/International.
As long as you're aware, then I don't think you can particularly make a bad decision among: a) continue with 500 index; or b) sell somewhere down the line and go full TSM/International. My only point was to raise awareness of the overlap and consider simplification, but there's no tax-inefficiency to fix, just a bit of added clutter that's harmless if it the added complexity doesn't cause rebalancing difficulties (which should be a non-issue).

I would likely leave them until an stock correction/crash happens that reduces or eliminates unrealized gains on the holdings you want to unwind. New contributions would go to TSM/Int'l. To reiterate if you're not sure what to do, just keep doing what you're doing as I don't think there's a mistake to make here; just clutter to cleanup when the tax-cost for said cleanup would be low enough that you'd pull the trigger.
Don't do what Bogleheads tell you. Listen to what we say, consider other sources, and make your own decisions, since you have to live with the risks & rewards (not us or anyone else).
dcabler
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Re: Portfolio Review / Investment Strategy - 23 y/o

Post by dcabler »

thebigredmachine1 wrote: Tue Jul 09, 2024 9:14 am
dcabler wrote: Wed Jul 03, 2024 6:52 am You're off to a decent start. My daughter is nearly 23 and has also been working post-college for about a year.

For her, I suggested the following, which she has implemented in both her taxable brokerage account and her Roth 401K:
70% US Large Cap (SP500 fund)
30% International developed

This matches approximately the current split of the ETF with the ticker URTH, but does so with a lower e/r than URTH does. Slightly different funds in her Roth 401K than her taxable account based on what's available in the 401K, but the results are nearly identical.

I'm suggesting to her not to start adding bonds until around mid-career..

Cheers.
Thanks for the response! I could do something similar in my 401k. Would you be able to provide your reasoning for going 30% international and not doing extended market?
I also do not plan on adding bonds for a little while.
This combination approximates the MSCI World Index which tracks 23 developed market countries. Currently the index is around 72% US, 28% International.
https://www.msci.com/documents/10199/17 ... fc565ededb
This index is large/mid cap (by Morningstar's definition) and excludes emerging markets.

For somebody like my daughter who has almost her entire working lifetime ahead of her, I didn't feel that was a need to go beyond large/mid caps. It's been shown plenty of times on this forum that there isn't a lot of daylight between, say, an SP500 fund and a total market fund anyway and there are plenty of sources for very cheap SP500 funds. On the international side, while there are developed market funds, there are fewer choices without small caps. On the other hand, even if one did choose a fund that included small caps, the fact that right now international only makes up about 30% means the small caps on the international side really isn't really going to move the needle one way or another for her entire portfolio.

Anyway, pretty cheap to put together and just have to monitor the US/International mix of the index (or the ETF URTH, which tracks it) and rebalance a little bit from time to time.

Cheers.
momopi
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Re: Portfolio Review / Investment Strategy - 23 y/o

Post by momopi »

thebigredmachine1 wrote: Tue Jul 02, 2024 2:38 pm Questions
Overall, does this seem like a good game plan going forward?
I have recently been contributing to FTIHX in taxable to increase international exposure. I have a desired 75/25 split but open for discussion.
I am prioritizing my 401(k) as much as I can right now and I hoping to maintain the high contribution rates going forward. Is there a recommendation for going completely pre-tax or Roth contributions?
I do not mind being invested in the target date fund but I can be pretty risk tolerant at the moment.
What are your thoughts on potentially going 100% S&P500 index? I know this is not diversified for BH but I would like to hear discussion on this since I am 23 and have at least 30 years until retirement.
Or, what are thoughts on reconstructing a two fund portfolio with the Vanguard Total Market Index and the Vanguard Int. Index? Would this be counterproductive since the TDF ER is only .05%?
Roth IRA- I know desired equity allocation varies widely, but in general do you find that a 75/25 split for domestic/international is adequate?
Again, I would be potentially interested in going 100% S&P500 in the Roth.
First, congratulations on your achievements at age 23. When I was your age, I barely had an AA degree from community college.

My suggestion is to choose lower cost index funds, either no fee or 0.01-0.02% fees as much as possible. The longer you live, the more those nickels and dimes will add up.

For your taxable brokerage account, you could continue investing in FSKAX/FXAIX, but for international switch future contribution to to FZILX. I'd suggest 80/20 ratio for domestic/international.

For your 401k, I'd change the contribution to 100% Vanguard S&P 500 index, then rebalance to move money from Lifepath 2065 into S&P 500 index. You can get international exposure with FZILX in your other accounts.

As you get older, you can just change the contribution allocation to add bonds. Quoting Charlie Munger, “The first rule of compounding: Never interrupt it unnecessarily.”. Build up your S&P 500 snowball and let it roll into your retirement.

For your emergency fund, try to keep about 6 month's worth of expenses in the account.
Topic Author
thebigredmachine1
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Re: Portfolio Review / Investment Strategy - 23 y/o

Post by thebigredmachine1 »

momopi wrote: Tue Jul 09, 2024 6:04 pm
thebigredmachine1 wrote: Tue Jul 02, 2024 2:38 pm Questions
Overall, does this seem like a good game plan going forward?
I have recently been contributing to FTIHX in taxable to increase international exposure. I have a desired 75/25 split but open for discussion.
I am prioritizing my 401(k) as much as I can right now and I hoping to maintain the high contribution rates going forward. Is there a recommendation for going completely pre-tax or Roth contributions?
I do not mind being invested in the target date fund but I can be pretty risk tolerant at the moment.
What are your thoughts on potentially going 100% S&P500 index? I know this is not diversified for BH but I would like to hear discussion on this since I am 23 and have at least 30 years until retirement.
Or, what are thoughts on reconstructing a two fund portfolio with the Vanguard Total Market Index and the Vanguard Int. Index? Would this be counterproductive since the TDF ER is only .05%?
Roth IRA- I know desired equity allocation varies widely, but in general do you find that a 75/25 split for domestic/international is adequate?
Again, I would be potentially interested in going 100% S&P500 in the Roth.
First, congratulations on your achievements at age 23. When I was your age, I barely had an AA degree from community college.

Thank you!

My suggestion is to choose lower cost index funds, either no fee or 0.01-0.02% fees as much as possible. The longer you live, the more those nickels and dimes will add up.

I agree, I have very lost cost of funds across all accounts.


For your taxable brokerage account, you could continue investing in FSKAX/FXAIX, but for international switch future contribution to to FZILX. I'd suggest 80/20 ratio for domestic/international.

Why do you recommend this? I know it is a zero cost fund, but I have read here to not use these for Taxable as they are proprietary and cannot be transferred between b/d's. Also, if you recommend to switch to the zero cost fund for Intern., why not also recommend FZROX in taxable over FSKAX?

For your 401k, I'd change the contribution to 100% Vanguard S&P 500 index, then rebalance to move money from Lifepath 2065 into S&P 500 index. You can get international exposure with FZILX in your other accounts.

As you get older, you can just change the contribution allocation to add bonds. Quoting Charlie Munger, “The first rule of compounding: Never interrupt it unnecessarily.”. Build up your S&P 500 snowball and let it roll into your retirement.

Why choose S&P500 in 401(k) instead of adding extended market exposure?

For your emergency fund, try to keep about 6 month's worth of expenses in the account.

I am working on building up my emergency fund now. I have had around 5/6 months expenses but my expenses have been very low, so building it up now.

Thank you for taking the time to respond and providing the information and advice!
momopi
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Re: Portfolio Review / Investment Strategy - 23 y/o

Post by momopi »

thebigredmachine1 wrote: Sun Jul 14, 2024 9:58 am >For your taxable brokerage account, you could continue investing in FSKAX/FXAIX, but for international switch future contribution to to FZILX.
> I'd suggest 80/20 ratio for domestic/international.

Why do you recommend this? I know it is a zero cost fund, but I have read here to not use these for Taxable as they are proprietary and cannot be transferred between b/d's. Also, if you recommend to switch to the zero cost fund for Intern., why not also recommend FZROX in taxable over FSKAX?
As you've already noted, some say Fidelity ZERO funds are not ideal in taxable brokerage account because Fidelity has made it clear that they MUST be held at Fidelity. This means if you move brokerages in future, you'd be forced to sell and generate taxable event.

At your age, your investment horizon is quite long and, even if you're happy with Fidelity today, we can't be sure what will happen to Fidelity's service 20 or 30 years from now.

So if you want to avoid that risk, you can use FSKAX & FXAIX (0.015% fees) instead of FZROX and FTIHX (0.06% fees) instead of FZILX.

thebigredmachine1 wrote: Sun Jul 14, 2024 9:58 am >For your 401k, I'd change the contribution to 100% Vanguard S&P 500 index, then rebalance to move money from Lifepath 2065 into S&P 500 index.
>You can get international exposure with FZILX in your other accounts.
>As you get older, you can just change the contribution allocation to add bonds. Quoting Charlie Munger, “The first rule of compounding:
> Never interrupt it unnecessarily.”. Build up your S&P 500 snowball and let it roll into your retirement.

Why choose S&P500 in 401(k) instead of adding extended market exposure?
Try using back testing tool to compare:
https://testfol.io/
Last edited by momopi on Mon Jul 15, 2024 10:19 am, edited 5 times in total.
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ruralavalon
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Re: Portfolio Review / Investment Strategy - 23 y/o

Post by ruralavalon »

Why choose S&P500 in 401(k) instead of adding extended market exposure
Why simply use a S&P 500 index fund by itself for investing in U.S. stocks?

In the 30+ years since the creation of the first total stock market index fund the two types of funds have had almost identical performance. Morningstargraph (select "max" and compare to "vfinx")

Some years a S&P 500 index fund was a little bit ahead, some years a total stock market index fund was a little bit ahead. Overall there was almost identical performance. Why bother with any unhelpful complications?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
jimkinny
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Re: Portfolio Review / Investment Strategy - 23 y/o

Post by jimkinny »

I would use the Total stock market and total international stock market indexes.

You really do not know your risk tolerance until you have lost a significant amount of money. Being young is part of it but even young folks can over estimate their risk tolerance just as someone older can. The highest returns will likely come from 100% stocks but if you drastically over estimate your risk tolerance and sell after you have lost 40-50% of your 5 year savings, then you have made a costly mistake (maybe). When everything goes bad it is hard to feel the same way we feel when we have nothing but skies. Take the risk you need to take, have the ability to take and are willing to take. It is hard to tell until you have been through it and even then, there is no guarantee we will not a Great Depression like event. Lose your job, lose your investments and no end in sight.
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Re: Portfolio Review / Investment Strategy - 23 y/o

Post by dratkinson »

Data points.



Recommended public library books.

"Part of all you earn is yours to keep." --The Richest Man in Babylon, Clason.

To keep more of what you earn, these books will teach you to invest and avoid serious mistakes.
--The Only Investment Guide You’ll Ever Need, Andrew Tobias. General personal-finance topics,
--or, Making the Most of Your Money, Jane Bryant Quinn. General personal-finance topics.
--The Bogleheads’ Guide to Investing. A structured overview of wise retirement investing.
--Date… or Soul Mate, Warren. Priceless if it helps you avoid the expense of bad relationship/marriage/divorce.

Continuing investor education. Search BH wiki for recommended "books" (search topic). Read several on same topic. Why?
--Where recommended authors agree, that is the central "road to Dublin" and safe for new investors.
--Where they disagree, those are alternate routes, more risky, so should only be followed by those who know their true risk tolerance.



International allocation.

The recommended additional international allocation is 0-50% of stocks. It is reported that S&P500 companies (~80% of TSM) earn ~40% of annual income from foreign operations, so you could have a personal additional international allocation of 0%. The US is ~50% of the world economy---meaning international is the other 50%---so you could have a personal additional international allocation of 50%. Vanguard seems to favor an additional 30% international allocation. Believe Mr Bogle eventually accepted an additional 20% international allocation. Bottom line: Your choice.

Disclosure. I have a small international allocation so I have something to buy when I need to buy stocks, but US is high.



Wash sale: important concepts to understand.
--Wash-sale window. ±30days before/after a TLH (tax-loss harvest) date.
--Replacement shares. Substantially identical investment purchased within a wash-sale window.
--Family accounts. IRS assumes spouses have control over the other's accounts. So investigate all family investments for substantially identical securities that would conflict with TLHing.


Substantially identical security. For the purpose of avoiding a wash sale, what is a substantially identical security?

From: http://www.bogleheads.org/forum/viewtop ... 0#p1591020
"The following is a list of mutual fund transactions that are generally considered to be acceptable under the wash sale rules despite the lack of a concrete definition of "substantially identical security":

1. Sell one index fund and buy another index fund, if the indexes of the two funds are not the same index (e.g., S&P 500 for the Russell 1000).
2. Sell one actively managed fund and buy a fund at another company with different portfolio managers.
3. Sell an index fund and buy an actively managed fund regardless of the fund company.
4. Sell an actively managed fund and buy an index fund regardless of the fund company."

Read the prospectus of each index fund to identify its index tracked.



Taxable accounts configuration---general advice.

Cost basis. Set all taxable account investments to use "specific lot identification" cost basis. Why? To give more control over tax reporting. So you can choose:
--To sell advancing shares with highest cost basis to minimize CG reporting (ST or LT).
--To sell advancing LT shares and benefit from lower LTCG rate (avoid higher STCG rate).
--To sell declining shares with the highest cost basis to maximize TLH (ST or LT).
--To sell declining ST shares and TLH higher STCL benefit (avoid lower LTCL benefit).

Distributions. Set all taxable account investments to NOT automatically reinvest distributions. Why?
--Helps avoid the hassle of small-lot tax reporting.
--Makes it easier to rebalance in large chunks.
--Makes TLHing easier by helping to avoid inadvertent purchases of “replacement shares” which trigger a “wash sale”.

Instead of automatically reinvesting all taxable distributions, redirect them to a bank or investment settlement fund.

Own unique funds in taxable accounts. You can only TLH in a taxable account, but reinvested distributions from any duplicate investment in any family account will cause the replacement-shared/wash-sale issue with TLHing. Therefore it makes TLHing easier to own unique (discrete broad-market sectors, not tax-inefficient all-in-one) funds in taxable accounts.

N.B. If you have discrete funds in a taxable account, and spouse/child has the same discrete funds in their taxable accounts, then you have duplicate funds and the potential for inadvertent replacement shares. In this case, another fix is to use different funds in each account, that results in a similar AA outcome, but not substantially identical funds.
E.G.: Own TSM in one account, S&P500 in second account, and LC in third account.

Can own duplicate funds in tax-advantaged accounts. For ease of management, investments in tax-advantaged accounts can be duplicate all-in-one funds (his/her TDR funds,…) and allowed to automatically reinvest distributions.



Hierarchy of account types and when to use each.

--Tax-deferred accounts (traditional: IRA/401k/...). Everything withdrawn is taxed as ordinary income. Meaning you lose all tax benefit for: QDI (qualified dividend income), LTCG (long-term capital gains), FTC (foreign tax credit), and tax-exempt dividends. But since bond dividends are treated no worse here than in taxable, then it's okay to skew toward bonds ...to reduce expected growth/taxes on withdrawals/RMDs.
Pro: Some contributions are tax deductible.
Con: RMDs.

--Tax-free accounts (Roth: IRA/401k/...).
Pro: Everything withdrawn is tax free. Meaning most tax benefits are preserved/improved.
Con: Contributions are not tax deductible.
Con: FTC is lost.

--Taxable accounts.
Pro: Tax benefits for: QDI, LTCG, FTC, TE dividends, TLHing.
Con: Contributions are not tax deductible.

Giving this hierarchy of desirability:
(less desirable) tax-deferred: taxed as ordinary income --- taxable accounts: receive tax benefits --- tax-free accounts (more desirable)

When to use what?
--If >10years to retirement, it is assumed a Roth contribution has enough time to grow to overcome the tax cost to get into Roth.
--If <10years to retirement, it is assumed a deductible traditional contribution is of more benefit now, then convert to Roth in retirement's lower tax bracket. (If contribution is not deductible then do backdoor Roth, or contribute to taxable account. Your choice.)

Defer the answers to some questions to your retired self. Which would your retired-self prefer?
--A larger Roth? (Assumption: To bequeath.)
--A larger taxable account? (Assumption: To live on.)
--More stocks/growth in your Roth? More bonds/less growth in your Roth?



Investigate your Sch B for opportunities to improve tax efficiency.
--Sch B part 1. Everything reported here (bank/saving bond interest, account opening bonuses) is taxed as ordinary income: eliminate/reduce.
--Sch B part 2. Everything reported here (investment distributions) should have offsetting tax benefits for: QDI, LTCG, FTC, TE dividends.

Once you enter the 24% fed tax bracket, consider adding a municipal bond fund to your taxable account. Why?
--It'll produce more after-tax income than TBM (total bond market index fund).
--It’s dividends don’t add to taxable income so do not push you toward next higher tax bracket.
--Can be grown to be a very large extended-tier of your 1st-tier EFs (checking, savings, CDs, mmkt,...). Once you have ~2yrs of livings expenses in munis, you'll be surprised by how financial emergency shrink to become only financial annoyances.
--If not used for an emergency, then it becomes retirement bonds.



Welcome.
d.r.a., not dr.a. | I'm a novice investor; you are forewarned.
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