Cobble together "LifeStrategy" Fund?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
VtDoc
Posts: 9
Joined: Wed Nov 29, 2017 5:52 pm

Cobble together "LifeStrategy" Fund?

Post by VtDoc »

I have my 401k with Fidelity, and as far as I can tell they don't have fixed allocation products with low ER available through BrokerageLink, except FFNOX (Multi-Asset Index Fund, formerly Four-in-One). This fund is 85/15 (World equity/bond). I'm interested in a low maintenance approach to get a 60 (US/ex-US)/40 portfolio, like Vanguard Moderate LifeStrategy. I am 4-5 years from planned start of retirement, and want to get to and probably maintain this allocation permanently.

It occurs to me that with Fidelity I could get basically the same result with a ~60/40 (more like 61/39) mix of FFNOX and the Freedom Index Income Fund (FIKFX). Does this approach do what I think it will? Any downsides that I'm not considering? (I know a 3-Fund portfolio is not much harder, but I keep thinking that the managed bond allocation of Total bond + LT treasuries + TIPS + international in the Income Fund adds something that the a Total Bond Index alone lacks, with someone else handling the balancing. To me the 0.12% ER is worth it for this.)
User avatar
Beensabu
Posts: 5657
Joined: Sun Aug 14, 2016 3:22 pm

Re: Cobble together "LifeStrategy" Fund?

Post by Beensabu »

The main difference is you'll have far less international bonds than you would with VSMGX, because it's only 20% of fixed income in FFNOX and 2.5% of fixed income in FIKFX (which is kind of ridiculous as far as FIKFX is concerned because why bother, but whatever). Additionally, less than 4% of fixed income in FIKFX is LTT. To me, that's more "why bother". The fixed income part of FIKFX is primarily Fidelity® Series Bond Index Fund (55%) and Fidelity® Series Treasury Bill Index Fund (20%). And ~17% of fixed income in that fund is TIPS, which would end up being less than 6% of your fixed income allocation. More "why bother". You might as well go with an agg/total bond fund.

Why not just use FFNOX with FXNAX (Fidelity® US Bond Index Fund)? It would be a 70/30 mix for those two funds to get to 60/40. The rebalancing will be handled by FFNOX.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
sycamore
Posts: 6359
Joined: Tue May 08, 2018 12:06 pm

Re: Cobble together "LifeStrategy" Fund?

Post by sycamore »

It will do what you want.

Only thing worth noting is that FIKFX has a 15% allocation to a rather short-term fund Fidelity Series Treasury Bill Index Fund. That's not bad or good necessarily. It might be worth trying to estimate your proposed portfolio's net bond duration -- there's a good argument to match your fixed income duration to your investing horizon. If you're approaching retirement, you may have decades to live so using a relatively short duration may end up short-changing your portfolio return. But in my opinion I wouldn't lose sleep over it - it's certainly good, and good enough.

Only other thought is to consider the iShares Core Growth Allocation ETF AOR. It keeps a static 60/40 stock/bonds allocations, with US/International stock at roughly market weight (dynamic), and a static US/International bond ratio.
Topic Author
VtDoc
Posts: 9
Joined: Wed Nov 29, 2017 5:52 pm

Re: Cobble together "LifeStrategy" Fund?

Post by VtDoc »

Beensabu wrote: Sun Jan 16, 2022 11:32 am The main difference is you'll have far less international bonds than you would with VSMGX, because it's only 20% of fixed income in FFNOX and 2.5% of fixed income in FIKFX (which is kind of ridiculous as far as FIKFX is concerned because why bother, but whatever). Additionally, less than 4% of fixed income in FIKFX is LTT. To me, that's more "why bother". The fixed income part of FIKFX is primarily Fidelity® Series Bond Index Fund (55%) and Fidelity® Series Treasury Bill Index Fund (20%). And ~17% of fixed income in that fund is TIPS, which would end up being less than 6% of your fixed income allocation. More "why bother". You might as well go with an agg/total bond fund.

Why not just use FFNOX with FXNAX (Fidelity® US Bond Index Fund)? It would be a 70/30 mix for those two funds to get to 60/40. The rebalancing will be handled by FFNOX.
I view bond funds as a little mysterious in comparison to equity funds--and it seems like a blend of different bond funds could be preferable to just a single fund. But perhaps that's just the sort of tinkering that gets lower returns, like active strategies. I see the point about the low fractions of each category of bonds. Definitely would be better to pay 0.025% for FXNAX instead of 0.12% for FIKFX if there's no benefit. I may be overthinking this.
Topic Author
VtDoc
Posts: 9
Joined: Wed Nov 29, 2017 5:52 pm

Re: Cobble together "LifeStrategy" Fund?

Post by VtDoc »

sycamore wrote: Sun Jan 16, 2022 11:46 am It will do what you want.

Only thing worth noting is that FIKFX has a 15% allocation to a rather short-term fund Fidelity Series Treasury Bill Index Fund. That's not bad or good necessarily. It might be worth trying to estimate your proposed portfolio's net bond duration -- there's a good argument to match your fixed income duration to your investing horizon. If you're approaching retirement, you may have decades to live so using a relatively short duration may end up short-changing your portfolio return. But in my opinion I wouldn't lose sleep over it - it's certainly good, and good enough.

Only other thought is to consider the iShares Core Growth Allocation ETF AOR. It keeps a static 60/40 stock/bonds allocations, with US/International stock at roughly market weight (dynamic), and a static US/International bond ratio.
I've considered AOR in my taxable account. For now, in taxable I have US and ex-US SCV funds, and am still building those positions until I get up to 20% of my 401k stock allocation. When I hit that target, I will likely keep adding to something simple, like AOR.
KlangFool
Posts: 31525
Joined: Sat Oct 11, 2008 12:35 pm

Re: Cobble together "LifeStrategy" Fund?

Post by KlangFool »

OP,

Before you go down this route, you may want to consider a simpler approach.

1) Consider all your accounts as one portfolio.

2) For most of your accounts, pick only one fund. Pick one of the your tax-advantaged account like Rollover IRA to have more than one fund for rebalancing.

3) In your case, if the 401K is a small part of your overall portfolio, just pick a bond index fund.

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
User avatar
vineviz
Posts: 14921
Joined: Tue May 15, 2018 1:55 pm
Location: Baltimore, MD

Re: Cobble together "LifeStrategy" Fund?

Post by vineviz »

VtDoc wrote: Sun Jan 16, 2022 11:49 am I view bond funds as a little mysterious in comparison to equity funds--and it seems like a blend of different bond funds could be preferable to just a single fund.
Typically I'd say a "blend of different bond funds" is NOT preferable: the goal with your bond allocation is to match your expected consumption pattern as closely as possible, broadly speaking.

In a 401k, while you are still working, your contributions will have the effect of creating a "passive" rebalancing so I wouldn't stress much about the asset allocation drifting much.

Personally, I'd probably suggest something like 70% Fidelity Multi-Asset Index Fund (FFNOX) and 30% Fidelity Inflation-Protected Bond Index Fund (FIPDX). It gives you a roughly 60/40 mix at low cost and with a healthy dose of inflation protection.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Horton
Posts: 1480
Joined: Mon Jan 21, 2008 2:53 pm
Contact:

Re: Cobble together "LifeStrategy" Fund?

Post by Horton »

VtDoc wrote: Sun Jan 16, 2022 10:45 am I have my 401k with Fidelity, and as far as I can tell they don't have fixed allocation products with low ER available through BrokerageLink, except FFNOX (Multi-Asset Index Fund, formerly Four-in-One). This fund is 85/15 (World equity/bond). I'm interested in a low maintenance approach to get a 60 (US/ex-US)/40 portfolio, like Vanguard Moderate LifeStrategy. I am 4-5 years from planned start of retirement, and want to get to and probably maintain this allocation permanently.
sycamore wrote: Sun Jan 16, 2022 11:46 am Only other thought is to consider the iShares Core Growth Allocation ETF AOR. It keeps a static 60/40 stock/bonds allocations, with US/International stock at roughly market weight (dynamic), and a static US/International bond ratio.
If it were me, I would use AOR or the Fidelity Freedom Index Fund closest to 60/40 (looks like either FXIFX or FQIFX, 2030 or 2025).
80% global equities (faith-based tilt) + 20% TIPS (LDI)
Horton
Posts: 1480
Joined: Mon Jan 21, 2008 2:53 pm
Contact:

Re: Cobble together "LifeStrategy" Fund?

Post by Horton »

I have another thought. Does your 401k offer low cost funds? If so, Fidelity’s NetBenefits site allows you to setup automated rebalancing. IIRC, you can set it up to be quarterly, biannual, or annual. So, you could create your own 60/40 fund that rebalances automatically.
80% global equities (faith-based tilt) + 20% TIPS (LDI)
Post Reply