What to do? BALFX

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
mmoneytalks
Posts: 82
Joined: Sun Jan 18, 2015 10:00 am

What to do? BALFX

Post by mmoneytalks »

My $1M+ Retirement portfolio consists of a Fidelity ROTH and tIRA. The tIRA contains MMs and CDs and the ROTH (which is approx 72% of my retirement portfolio) consists of 4 mutual funds and a small MM. The 4 ROTH mutual funds (in order of performance) are:

Fidelity Balanced-FBALX .52% ER
Fidelity Puritan-FPURX .52% ER
Fidelity 4-in-1 Index-FFNOX .11% ER
American Balance Fund Class F1-BALFX .63% ER

I am happy with the performance of FBALX and FPURX (even with a .52% ER). However, I can’t say the same for BALFX. The performance of BALFX is lagging when compared to the other 3 funds and BALFX has the highest fees.

QUESTIONS:
1. Is there any reason to hold onto BALFX?
2. If I sell BALFX, is there a comparable fund I can buy in place of BALFX or should I just buy more of the other 3 funds in my ROTH?

NOTE: My current retirement portfolio AA is 50/50 but I’m OK with a 60/40 AA since I have a pension with COLA which covers all expenses and then some and I also have a $100K+ taxable savings account.

Thank you!
sycamore
Posts: 6309
Joined: Tue May 08, 2018 12:06 pm

Re: What to do? BALFX

Post by sycamore »

mmoneytalks wrote: Sun Jul 25, 2021 1:53 pm My $1M+ Retirement portfolio consists of a Fidelity ROTH and tIRA. The tIRA contains MMs and CDs and the ROTH (which is approx 72% of my retirement portfolio) consists of 4 mutual funds and a small MM. The 4 ROTH mutual funds (in order of performance) are:

Fidelity Balanced-FBALX .52% ER
Fidelity Puritan-FPURX .52% ER
Fidelity 4-in-1 Index-FFNOX .11% ER
American Balance Fund Class F1-BALFX .63% ER

I am happy with the performance of FBALX and FPURX (even with a .52% ER). However, I can’t say the same for BALFX. The performance of BALFX is lagging when compared to the other 3 funds and BALFX has the highest fees.

QUESTIONS:
1. Is there any reason to hold onto BALFX?
2. If I sell BALFX, is there a comparable fund I can buy in place of BALFX or should I just buy more of the other 3 funds in my ROTH?

NOTE: My current retirement portfolio AA is 50/50 but I’m OK with a 60/40 AA since I have a pension with COLA which covers all expenses and then some and I also have a $100K+ taxable savings account.

Thank you!
1. I don't think there's anything special about BALFX or its holdings that make the fund so much better than other less-expensive options. But to be honest I also think that's the case with FBALX and FPURX. The main reasoning behind my opinion is that actively managed funds are unlikely to overcome their high ER or work out in my favor over the long-term.

2. I'd ask why you want a comparable fund? What was it about BALFX that made you want it to begin with? Do you think the fund doesn't provide that anymore? Do you think it might provide it in the future? What happens if the fund is doing well now, but not in a few years? Same questions apply to FBALX and FPURX.

For an investor who uses actively managed funds, I think it's important to have clear answers to those questions; basically to have a plan about when to buy or sell. I say this as someone who used to own a good amount of actively managed funds, even individual stocks!

It's important to remember that no one here can say whether one fund manager will outperform other fund managers.

All that aside, if you're committed to actively managed funds, I'd just buy more of the other 3 funds such that you stay within your desired AA range.

Finally, it seems that many Bogleheads who use actively managed funds like the Vanguard funds managed by the Wellington team, e.g., the Wellington fund itself (about 65/35 stocks/bonds), or Wellesley (around 35/65 stocks/bonds). You will incur a transaction fee on those fees at Fidelity. However, even with those fees Wellington and Wellesley may be cheaper due to their lower expense ratios (0.24% and 0.23%).
robphoto
Posts: 585
Joined: Tue Sep 25, 2018 12:42 pm

Re: What to do? BALFX

Post by robphoto »

TIRA: 280,000 all fixed income

Roth: 720,000 60/40: 428,000 stock, 288,000 fixed income

So your current allocation is 43/57 (not counting the 100K in cash)

If you wanted to have 60/40 overall, you'd have 600,000 in stocks and 120,000 in fixed income in your TIRA.

The four funds you have now are similar varieties of balanced fund.

It might work better to use Fidelity's Zero Total Market Index (0%) and their US Bond Index Fund (FXNAX) (.025%) in the ratios you need.

If you compare Puritan or BALFX to Vanguard Balanced Index over the long term, the active management does not seem to be adding value.
wetgear
Posts: 859
Joined: Thu Apr 06, 2017 10:14 am

Re: What to do? BALFX

Post by wetgear »

mmoneytalks wrote: Sun Jul 25, 2021 1:53 pm
QUESTIONS:
1. Is there any reason to hold onto BALFX?
2. If I sell BALFX, is there a comparable fund I can buy in place of BALFX or should I just buy more of the other 3 funds in my ROTH?
1) No, it's expensive and not worth it.
2) Either of the first 2 in your list are similar with slightly lower fees (still too high).

You basically have 3 of the same fund all at too high of expenses. You'd be better served with a traditional 3 fund portfolio which would be considerably more diversified and about 1/10th the cost.
User avatar
ruralavalon
Posts: 26297
Joined: Sat Feb 02, 2008 9:29 am
Location: Illinois

Re: What to do? BALFX

Post by ruralavalon »

Why do you prefer actively managed funds with higher expense ratios?

In your Roth IRA at Fidelity I suggest instead using a combination of:
1) Fidelity Total Market Index Fund (FSKAX) ER 0.015; and
2) Fidelity US Bond Index Fund (FXNAX) ER 0.035%.

Low expense ratios are critical to long-term investing performance. Seemingly small annual fees can have a large cumulative impact over time. Here is a "Mutual fund fees calculator" you could use to estimate the impact of investing expenses.

Also, low expense ratios are the best predictor of future performance. Morningstar, 8/9/10 . “If there's anything in the whole world of mutual funds that you can take to the bank, it's that expense ratios help you make a better decision. In every single time period and data point tested, low-cost funds beat high-cost funds.” “Investors should make expense ratios a primary test in fund selection. They are still the most dependable predictor of performance.”

"The expense ratio is the most proven predictor of future fund returns." "There are many other things to consider, but investors should make expense ratios their first or second screen." Morningstar, 5/5/18.

In general index funds have usually done better than actively managed funds. Please see:
Index Fund Advisors (10/7/2020), “SPIVA: 2020 Mid-Year Active vs. Passive Scorecard“, link.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
mmoneytalks
Posts: 82
Joined: Sun Jan 18, 2015 10:00 am

Re: What to do? BALFX

Post by mmoneytalks »

Thank you all for your feedback! The reason why I have actively managed mutual funds is because I didn’t know any better when I initially bought them.😬

Although I understand that higher expense fees impact the overall performance of a mutual fund, I’m still going to have to think some more about things before I sell FPURX .52% ER and FBALX .52% ER since I am happy with the performance of those two funds.🙂

However, based on the feedback given, I WILL sell my most expensive mutual fund BALFX .62 ER whose performance I am NOT happy with and in its place I will buy FSKAX Fidelity Total Market index which has lower fees .015% ER and will increase my portfolio stock AA.👍

As for buying a bond index fund, I think I need more information on which one of these bond index funds to go with:

Fidelity Bond Index-FXNAX
.025% ER 6.37 YR Duration
Fidelity Intermediate Treasury Bond-FUAMX
.03% ER 6.77 YR Duration
Fidelity Short-Term Treasury Bond-FUMBX
.03% ER 2.72 YR Duration

ADDITIONAL QUESTIONS:
—Any thoughts on these bond index funds?
—And does it matter if I buy the bond index fund in my tIRA vs my ROTH account?
NOTE: In case it matters, I do plan on converting a good portion (at least half) of my tIRA to ROTH over the next several years so if I buy a bond index fund in my tIRA account, I would want something that’s not going to grow too quickly.

Thanks again!
sycamore
Posts: 6309
Joined: Tue May 08, 2018 12:06 pm

Re: What to do? BALFX

Post by sycamore »

mmoneytalks wrote: Mon Jul 26, 2021 11:59 am ...
As for buying a bond index fund, I think I need more information on which one of these bond index funds to go with:

Fidelity Bond Index-FXNAX
.025% ER 6.37 YR Duration
Fidelity Intermediate Treasury Bond-FUAMX
.03% ER 6.77 YR Duration
Fidelity Short-Term Treasury Bond-FUMBX
.03% ER 2.72 YR Duration

ADDITIONAL QUESTIONS:
—Any thoughts on these bond index funds?
You've got some low-cost bond index funds to choose from, which is a great start.

One factor to consider is why do you want to hold bonds? For some people it's primarily to generate income. For others it's to provide stability to the overall portfolio (to balance out the volatility of stocks). And for some people, it's both.

If you just want bonds to provide stability, either intermediate-term bond fund is fine.

But if you are looking for more income, the FXNAX will provide a bit more because it also holds corporate bonds, which yield a bit more than Treasury bonds. But it does come with a bit more risk so it's not a free lunch.

Another criterion is how long you'll be spending from your portfolio. If it's for only a short period of time, then a short-term bond fund is better. If it's for a long period of time (decades), then a long-term bond fund is better. Note that long-term bond funds do have greater volatility (price swings) so you should be prepared for that. Many people just go with an intermediate term bond fund. Note that the Total Bond fund actually holds bonds of all maturities that average out to "intermediate."

mmoneytalks wrote: Mon Jul 26, 2021 11:59 am —And does it matter if I buy the bond index fund in my tIRA vs my ROTH account?
NOTE: In case it matters, I do plan on converting a good portion (at least half) of my tIRA to ROTH over the next several years so if I buy a bond index fund in my tIRA account, I would want something that’s not going to grow too quickly.
It's pretty common for people to prefer having only stocks in Roth. I would just add "but not at the cost of missing your targeted Asset Allocation." So build your portfolio by first placing your desired bond allocation in tax-deferred accounts (tIRA). If you still want to hold more bonds, they may need to go into a Roth account (not necessarily bad). Then fill up other accounts as needed. See https://www.bogleheads.org/wiki/Tax-eff ... _placement.
User avatar
ruralavalon
Posts: 26297
Joined: Sat Feb 02, 2008 9:29 am
Location: Illinois

Re: What to do? BALFX

Post by ruralavalon »

mmoneytalks wrote: Mon Jul 26, 2021 11:59 amAs for buying a bond index fund, I think I need more information on which one of these bond index funds to go with:

Fidelity Bond Index-FXNAX
.025% ER 6.37 YR Duration
Fidelity Intermediate Treasury Bond-FUAMX
.03% ER 6.77 YR Duration
Fidelity Short-Term Treasury Bond-FUMBX
.03% ER 2.72 YR Duration

ADDITIONAL QUESTIONS:
—Any thoughts on these bond index funds?
—And does it matter if I buy the bond index fund in my tIRA vs my ROTH account?
NOTE: In case it matters, I do plan on converting a good portion (at least half) of my tIRA to ROTH over the next several years so if I buy a bond index fund in my tIRA account, I would want something that’s not going to grow too quickly.
In my old any one of the three is a good choice. My own personal preference would be Fidelity U.S. Bond Index Fund (FXNAX) ER 0.025%. My general preference is for intermediate-term bond funds, and for broad diversification.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
mmoneytalks
Posts: 82
Joined: Sun Jan 18, 2015 10:00 am

Re: What to do? BALFX

Post by mmoneytalks »

sycamore wrote: Mon Jul 26, 2021 12:57 pm
mmoneytalks wrote: Mon Jul 26, 2021 11:59 am ...
As for buying a bond index fund, I think I need more information on which one of these bond index funds to go with:

Fidelity Bond Index-FXNAX
.025% ER 6.37 YR Duration
Fidelity Intermediate Treasury Bond-FUAMX
.03% ER 6.77 YR Duration
Fidelity Short-Term Treasury Bond-FUMBX
.03% ER 2.72 YR Duration

ADDITIONAL QUESTIONS:
—Any thoughts on these bond index funds?
You've got some low-cost bond index funds to choose from, which is a great start.

One factor to consider is why do you want to hold bonds? For some people it's primarily to generate income. For others it's to provide stability to the overall portfolio (to balance out the volatility of stocks). And for some people, it's both.

If you just want bonds to provide stability, either intermediate-term bond fund is fine.

But if you are looking for more income, the FXNAX will provide a bit more because it also holds corporate bonds, which yield a bit more than Treasury bonds. But it does come with a bit more risk so it's not a free lunch.

Another criterion is how long you'll be spending from your portfolio. If it's for only a short period of time, then a short-term bond fund is better. If it's for a long period of time (decades), then a long-term bond fund is better. Note that long-term bond funds do have greater volatility (price swings) so you should be prepared for that. Many people just go with an intermediate term bond fund. Note that the Total Bond fund actually holds bonds of all maturities that average out to "intermediate."

mmoneytalks wrote: Mon Jul 26, 2021 11:59 am —And does it matter if I buy the bond index fund in my tIRA vs my ROTH account?
NOTE: In case it matters, I do plan on converting a good portion (at least half) of my tIRA to ROTH over the next several years so if I buy a bond index fund in my tIRA account, I would want something that’s not going to grow too quickly.
It's pretty common for people to prefer having only stocks in Roth. I would just add "but not at the cost of missing your targeted Asset Allocation." So build your portfolio by first placing your desired bond allocation in tax-deferred accounts (tIRA). If you still want to hold more bonds, they may need to go into a Roth account (not necessarily bad). Then fill up other accounts as needed. See https://www.bogleheads.org/wiki/Tax-eff ... _placement.
sycamore- Thanks for highlighting criteria that should be considered when deciding on a bond index. Good information.👍

The only reason I would hold a bond fund would be to provide stability (not necessarily income) and I would anticipate not needing to withdraw any money from the fund for at least 10 years or longer.

BUT...would I even need to have a bond fund as part of my retirement portfolio if I use/have MM account(s), CDs and/or Deferred Fixed Annuities for the bond portion of my asset allocation? (TBH I wasn’t even considering purchasing a bond index fund for my retirement portfolio until others on this thread suggested including one in my portfolio). Thanks again!
Sahara
Posts: 603
Joined: Tue Dec 04, 2018 5:21 pm

Re: What to do? BALFX

Post by Sahara »

It might be helpful to look at the combination of your Traditional IRA and your Roth IRA.
You state that you prefer an AA of around 50/50.

Say you have $1,000,000 in your portfolio.
And you have $500,000 in each account.
Then you could place your fixed income (cash, mm and bonds for example) in the Traditional IRA.
And you would have room for all equities (for example total market index funds and etfs) in your Roth IRA.
Topic Author
mmoneytalks
Posts: 82
Joined: Sun Jan 18, 2015 10:00 am

Re: What to do? BALFX

Post by mmoneytalks »

Sahara wrote: Mon Jul 26, 2021 5:45 pm It might be helpful to look at the combination of your Traditional IRA and your Roth IRA.
You state that you prefer an AA of around 50/50.

Say you have $1,000,000 in your portfolio.
And you have $500,000 in each account.
Then you could place your fixed income (cash, mm and bonds for example) in the Traditional IRA.
And you would have room for all equities (for example total market index funds and etfs) in your Roth IRA.
Agree! After selling my BALFX this morning and buying FSKAX, my AA is now 50/50 (I was a little short on the Stock allocation portion of my Retirement portfolio). My 50/50 AA is now broken out as follows:

50% “Bond”:
☀️100% tIRA (MM accounts, CDs, and/or Deferred Fixed Annuities) makes up 28% of my total portfolio
☀️30% ROTH (MM accounts) makes up 22% of total portfolio

50% Stock:
☀️70% ROTH (FPURX, FBALX, FFNOX and FSKAX) makes up 50% of portfolio

If I want to increase my Stock allocation I can use funds in my ROTH MM account or if I decide to purchase a bond fund, I can do so with funds in my tIRA. I just need to decide if I want to buy a bond index fund vs just using MM, CDs and/or deferred fixed annuities.
User avatar
ruralavalon
Posts: 26297
Joined: Sat Feb 02, 2008 9:29 am
Location: Illinois

Re: What to do? BALFX

Post by ruralavalon »

mmoneytalks wrote: Mon Jul 26, 2021 7:12 pm
Sahara wrote: Mon Jul 26, 2021 5:45 pm It might be helpful to look at the combination of your Traditional IRA and your Roth IRA.
You state that you prefer an AA of around 50/50.

Say you have $1,000,000 in your portfolio.
And you have $500,000 in each account.
Then you could place your fixed income (cash, mm and bonds for example) in the Traditional IRA.
And you would have room for all equities (for example total market index funds and etfs) in your Roth IRA.
Agree! After selling my BALFX this morning and buying FSKAX, my AA is now 50/50 (I was a little short on the Stock allocation portion of my Retirement portfolio). My 50/50 AA is now broken out as follows:

50% “Bond”:
☀️100% tIRA (MM accounts, CDs, and/or Deferred Fixed Annuities) makes up 28% of my total portfolio
☀️30% ROTH (MM accounts) makes up 22% of total portfolio

50% Stock:
☀️70% ROTH (FPURX, FBALX, FFNOX and FSKAX) makes up 50% of portfolio

If I want to increase my Stock allocation I can use funds in my ROTH MM account or if I decide to purchase a bond fund, I can do so with funds in my tIRA. I just need to decide if I want to buy a bond index fund vs just using MM, CDs and/or deferred fixed annuities.
You might find this helpful: Morningstar (4/13/2021), "Which Bonds Provide the Biggest Diversification Benefits?", link.

In 2020 the best diversifiers were Treasury bonds (any duration) and cash T-bills.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
User avatar
Wiggums
Posts: 7027
Joined: Thu Jan 31, 2019 7:02 am

Re: What to do? BALFX

Post by Wiggums »

mmoneytalks wrote: Mon Jul 26, 2021 11:59 am Thank you all for your feedback! The reason why I have actively managed mutual funds is because I didn’t know any better when I initially bought them.😬

Although I understand that higher expense fees impact the overall performance of a mutual fund, I’m still going to have to think some more about things before I sell FPURX .52% ER and FBALX .52% ER since I am happy with the performance of those two funds.🙂

However, based on the feedback given, I WILL sell my most expensive mutual fund BALFX .62 ER whose performance I am NOT happy with and in its place I will buy FSKAX Fidelity Total Market index which has lower fees .015% ER and will increase my portfolio stock AA.👍

As for buying a bond index fund, I think I need more information on which one of these bond index funds to go with:

Fidelity Bond Index-FXNAX
.025% ER 6.37 YR Duration
Fidelity Intermediate Treasury Bond-FUAMX
.03% ER 6.77 YR Duration
Fidelity Short-Term Treasury Bond-FUMBX
.03% ER 2.72 YR Duration

ADDITIONAL QUESTIONS:
—Any thoughts on these bond index funds?
—And does it matter if I buy the bond index fund in my tIRA vs my ROTH account?
NOTE: In case it matters, I do plan on converting a good portion (at least half) of my tIRA to ROTH over the next several years so if I buy a bond index fund in my tIRA account, I would want something that’s not going to grow too quickly.

Thanks again!
Our kids are using the FBALX (Fidelity balanced) for over 18 years. I purchased it based on a financial show discussion (lol). They pay their own bills, and they know how to buy and sell. There are cheaper and more tax efficient funds, but I’m not going to discourage out kids from investing while they are in college.

The Vanguard balanced index fund is cheaper and more tax efficient.
"I started with nothing and I still have most of it left."
Topic Author
mmoneytalks
Posts: 82
Joined: Sun Jan 18, 2015 10:00 am

Re: What to do? BALFX

Post by mmoneytalks »

ruralavalon wrote: Tue Jul 27, 2021 9:23 am You might find this helpful: Morningstar (4/13/2021), "Which Bonds Provide the Biggest Diversification Benefits?", link.

In 2020 the best diversifiers were Treasury bonds (any duration) and cash T-bills.
ruralavalon - Thanks for the link. IF I was to purchase a bond fund (still a TBD), this article does support my thinking that a Treasury bond fund would be the way to go. I think something like Fidelity Intermediate Treasury Bond-FUAMX (.03% ER 6.77 YR Duration) would fit the bill for me since my focus would be on stability (more so than income) and I would hold onto the fund for at least 10 years.
Post Reply