Roth IRA DIY advice

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Topic Author
lightroast
Posts: 2
Joined: Sun Jan 16, 2022 5:17 pm

Roth IRA DIY advice

Post by lightroast »

I have a bad habit of trying to make everything perfect before I do anything. I know things will probably be missing but hopefully this info will be enough to get some advice on investing on my own and not relying as much on a financial advisor.

Emergency fund: 3 months of expenses covered (7k)

Debt: Student debt: 400K, avg interest rate 6.5%
– currently enrolled in Income Based Repayment to participate in the Public Service Loan Forgiveness (PSLF) program, anticipated forgiveness 3/2028 (plan A)
-in the event PSLF does not happen, on track for savings towards the tax hit on forgiveness after 21 years (decidedly worse plan B)
-I can go into more detail on these plans if it will help.

-no CC debt; no car loan
-split monthly mortgage with my partner but am not on the actual mortgage (about $800/month)

Tax Filing Status: Single

Tax Rate: 22% Federal, 5.25% State
Income: $68k

State of Residence: NC

Age: 38

Desired Asset allocation: 65% stocks / 35% bonds
Desired International allocation: 25% of stocks

Approximate size of your total portfolio: 30K in Work 403(b) through Fidelity

Current retirement assets

403b – Company matches 5%
xx% fund name (ticker symbol) (expense ratio)

21.51% Vanguard Short-Term Bond Index Fund Institutional Plus Shares (VBIPX) (0.04%)
17.91% Vanguard Institutional Index Fund Institutional Plus Shares (VIIIX) (0.02%)
17.47% Metropolitan West Total Return Bond Fund Plan Class (MWTSX) (0.37%)
14.35% Vanguard Extended Market Index Fund Institutional Plus Shares (VEMPX) (0.04%)
11.53% Goldman Sachs Small Cap Value Fund Institutional Class (GSSIX) (0.99%)
7.21% Vanguard Total International Stock Index Fund Institutional Plus Shares (VTPSX) (0.07%)
5.67% Cohen & Steers Realty Shares Fund Class L (CSRSX) (0.88%)
4.34% Managed Income Portfolio Class 1 (MIP CL 1) (0.69%)

^this was designed by current financial advisor

Plan to open: Roth IRA at Fidelity or Vanguard (only considering Fidelity since 403(b) is there)

Contributions
New annual Contributions
$4100, employer “match” $4674 403b

$12K Roth IRA (potential)


Available funds
Checking: $9k
Savings: $37k

Options available in 403(b):
Vanguard Total International Stock Index Fund Institutional Plus Shares (VTPSX) (0.07%)
Vanguard Target (2015-2065) (0.045%)
Vanguard Target Income Trust Select (0.045%)
Fidelity® Government Money Market Fund (SPAAX) (0.42%)

Fidelity® Contrafund® - Class K (FCNKX) (0.79%)
John Hancock Funds Disciplined Value Fund Class R6 (JDVWX) (0.66%)
T. Rowe Price Large-Cap Growth Fund I Class (TRLGX) (0.56%)
Vanguard FTSE Social Index Fund Institutional Shares (VFTNX) (0.12%)
Vanguard Institutional Index Fund Institutional Plus Shares (VIIIX) (0.02%)
MFS Mid Cap Value Fund Class R4 (MVCJX) (0.82%)
MassMutual Mid Cap Growth Fund Class I (MEFZX) (0.71%)
Vanguard Extended Market Index Fund Institutional Plus Shares (VEMPX) (0.04%)
Goldman Sachs Small Cap Value Fund Institutional Class (GSSIX) (0.99%)
T. Rowe Price QM U.S. Small-Cap Growth Equity Fund I Class (TQAIX) (0.65%)
American Funds EuroPacific Growth Fund® Class R-4 (REREX) (0.81%)
MFS International Intrinsic Value Fund Class R4 (MINHX) (0.72%)
T. Rowe Price International Discovery Fund (PRIDX) (1.19%)
Cohen & Steers Realty Shares Fund Class L (CSRSX) (0.88%)
Fidelity® Balanced Fund - Class K (FBAKX) (0.43%)
Managed Income Portfolio Class 1 (0.69%)
JPMorgan Core Bond Fund Class R5 (JCBRX) (0.45%)
Metropolitan West Total Return Bond Fund Plan Class (MWTSX) (0.37%)
Vanguard Short-Term Bond Index Fund Institutional Plus Shares (VBIPX) (0.04%)
Vanguard Total Bond Market Index Fund Institutional Plus Shares (VBMPX) (0.03%)

Questions:
1. General advice on the asset allocation of the current 403(b). It seems more complicated than what I would do on my own, but my FA helped me with the allocation.
2. I obviously don't have a ton of assets, so I feel like I could go for a simple (3 or 4 fund) portfolio in my Roth IRA and not pay the 0.25% fee for my financial advisor.
3. Does it really matter to open a Roth IRA at Fidelity just because my 403(b) is there? I feel like Vanguard advice is more readily available and it doesn't bother me to be in two places.
4. Asset allocation for Roth IRA- I was advised to go 60/40 stocks:bonds until my student loans are officially forgiven in 6 years. I have a very stable state job so there is little to no worry on losing employment and I have enough for at least 3-6 months of expenses in worst case scenario. 60/40 still seems pretty conservative for my age, but I'm not sure if it is a good call or not to wait until my student loans are forgiven.
5. My FA recommended setting up a Betterment account for the Roth IRA, but his company has a deal with them. FA has never done me wrong, but again, for as little assets as I have, I would like to go more DIY and avoid the 0.25% fees. Does roboadvising really offer me that much advantage for my current state? I feel comfortable rebalancing 1x/year but have not learned ins/outs of tax loss harvesting yet.
6. I never thought I would be able to retire until I made a career change 4 years ago. My hope would be to retire by around 68 (30 years from now). I'm halfway through an MBA so hoping to jump start my salary even more in the coming years. For now, I'm favoring a buy and hold approach with a mostly hands off, simplified portfolio of 3 to 4 index funds. I feel the pull to make up for lost time by going more aggressive on the stock allocation, but I don't want that bias to negatively color my view of getting started with my investment plan.
7. I plan on dumping $12k into the Roth with whatever I plan to do.

Sorry for the long questions, but I appreciate the thoughtful feedback I've read on many posts on this forum already. I'm happy to clarify anything as needed and really do want to become independent with investing and my financial plan in general.
User avatar
Duckie
Posts: 9777
Joined: Thu Mar 08, 2007 1:55 pm

Re: Roth IRA DIY advice

Post by Duckie »

lightroast, welcome to the forum.
lightroast wrote: Tue Jan 18, 2022 9:42 am Debt: Student debt: 400K, avg interest rate 6.5%
Jeez, unless you're a doctor how did it get this high?
-in the event PSLF does not happen, on track for savings towards the tax hit on forgiveness after 21 years (decidedly worse plan B)
Where are you putting these savings?
-split monthly mortgage with my partner but am not on the actual mortgage (about $800/month)
Are you on the deed?
Age: 38

Desired Asset allocation: 65% stocks / 35% bonds
35% bonds at your age is reasonable, but conservative.
Desired International allocation: 25% of stocks
That is reasonable.
403b – Company matches 5%

21.51% Vanguard Short-Term Bond Index Fund Institutional Plus Shares (VBIPX) (0.04%)
17.91% Vanguard Institutional Index Fund Institutional Plus Shares (VIIIX) (0.02%)
17.47% Metropolitan West Total Return Bond Fund Plan Class (MWTSX) (0.37%)
14.35% Vanguard Extended Market Index Fund Institutional Plus Shares (VEMPX) (0.04%)
11.53% Goldman Sachs Small Cap Value Fund Institutional Class (GSSIX) (0.99%)
7.21% Vanguard Total International Stock Index Fund Institutional Plus Shares (VTPSX) (0.07%)
5.67% Cohen & Steers Realty Shares Fund Class L (CSRSX) (0.88%)
4.34% Managed Income Portfolio Class 1 (MIP CL 1) (0.69%)

^this was designed by current financial advisor
It was designed by someone who doesn't care about your costs. 0.99%, 0.88%, 0.69%? Yuck.
Plan to open: Roth IRA at Fidelity or Vanguard (only considering Fidelity since 403(b) is there)
Fidelity is fine for a Roth IRA.
$12K Roth IRA (potential)
Don't wait too long for the 2021 contribution.
Options available in 403(b):
The best options are:
  • Vanguard Institutional Index (VIIIX) (0.02%) -- Large caps, 80% of US stocks
  • Vanguard Extended Market Index (VEMPX) (0.04%) -- Mid/small caps, 20% of US stocks
  • Vanguard Total International Stock Index (VTPSX) (0.07%) -- Complete international stocks
  • Vanguard Total Bond Market Index (VBMPX) (0.03%) -- US bonds
  • Or the target-date fund that comes closest to your 65/35 AA
General advice on the asset allocation of the current 403(b). It seems more complicated than what I would do on my own, but my FA helped me with the allocation.
It is more complicated than necessary. See above.
I obviously don't have a ton of assets, so I feel like I could go for a simple (3 or 4 fund) portfolio in my Roth IRA and not pay the 0.25% fee for my financial advisor.
Your Roth IRA will be small so you only need one fund there for a while. Use a stock index fund. If you open the Roth IRA at Fidelity pick (FSKAX) Fidelity Total Market Index Fund (0.015%).
Does it really matter to open a Roth IRA at Fidelity just because my 403(b) is there? I feel like Vanguard advice is more readily available and it doesn't bother me to be in two places.
You don't need to but having the accounts in one place can make things easier. We can provide advice about Fidelity just as well as about Vanguard.
Asset allocation for Roth IRA- I was advised to go 60/40 stocks:bonds until my student loans are officially forgiven in 6 years.
In general it's better to put assets with higher expected growth (stocks) in Roth accounts and assets with lower expected growth (bonds) in pre-tax accounts. That's because you've already paid the taxes in the Roth accounts so future growth is tax-free. So pick a stock index fund for the Roth IRA.

There is a difference between have 60/40 in your portfolio as a whole and having 60/40 in each account. Look at your portfolio as a whole.
My FA recommended setting up a Betterment account for the Roth IRA, but his company has a deal with them. FA has never done me wrong, but again, for as little assets as I have, I would like to go more DIY and avoid the 0.25% fees.
You don't have enough assets to make paying a FA worthwhile to you. I recommend you open the Roth IRA, and any future taxable account or HSA, at Fidelity. If you can, drop the FA.
Does roboadvising really offer me that much advantage for my current state? I feel comfortable rebalancing 1x/year but have not learned ins/outs of tax loss harvesting yet.
I am not a fan of robo-advising platforms for anyone. And since you don't have a taxable investment account you don't need to worry about tax-loss harvesting yet.
______________________________

The following portfolio example has an AA of 65% stocks, 35% bonds, with 25% of stocks in international. That breaks down to 49% US stocks, 16% international stocks, and 35% bonds. By the end of the year after the new contributions you could have something like this:

403b at Fidelity -- $39K -- 76%
25% (VIIIX) Vanguard Institutional Index Fund Institutional Plus Shares (0.02%)
16% (VTPSX) Vanguard Total International Stock Index Fund Institutional Plus Shares (0.07%)
35% (VBMPX) Vanguard Total Bond Market Index Fund Institutional Plus Shares (0.03%)

Roth IRA at Fidelity -- $12K -- 24%
24% (FSKAX) Fidelity Total Market Index Fund (0.015%)

Just some possibilities.
Topic Author
lightroast
Posts: 2
Joined: Sun Jan 16, 2022 5:17 pm

Re: Roth IRA DIY advice

Post by lightroast »

Duckie wrote: Tue Jan 18, 2022 5:42 pm Jeez, unless you're a doctor how did it get this high?
Long story and probably outside of the scope of this forum. Short version is I got a masters and doctorate in music performance but sustained a career ending injury. Then I got a doctorate in physical therapy. So, 2 doctorates but not a "doctor's" salary. My MBA is 90% paid by my employer, and I'm done with school after this.
Duckie wrote: Tue Jan 18, 2022 5:42 pm Where are you putting these savings?
Right now in just a regular BoA savings account. It's all just sitting there so I figured with the likelihood of loan forgiveness through this federal program, it would be smarter to invest some it for retirement (the main subject of this thread).
Duckie wrote: Tue Jan 18, 2022 5:42 pm Are you on the deed?
I'm not on the deed. Better rates without my debt. When we get married that's a decision we'll have to make.
Duckie wrote: Tue Jan 18, 2022 5:42 pm 35% bonds at your age is reasonable, but conservative.
I figured as such. Maybe I should tolerate more risk given how late I'm starting.
Duckie wrote: Tue Jan 18, 2022 5:42 pm It was designed by someone who doesn't care about your costs. 0.99%, 0.88%, 0.69%? Yuck.
Kind of how I felt when I looked them up.
Duckie wrote: Tue Jan 18, 2022 5:42 pm Don't wait too long for the 2021 contribution.
It'll get done before April. I wanted to make an informed decision!
Duckie wrote: Tue Jan 18, 2022 5:42 pm In general it's better to put assets with higher expected growth (stocks) in Roth accounts and assets with lower expected growth (bonds) in pre-tax accounts. That's because you've already paid the taxes in the Roth accounts so future growth is tax-free. So pick a stock index fund for the Roth IRA.

There is a difference between have 60/40 in your portfolio as a whole and having 60/40 in each account. Look at your portfolio as a whole.
I understand, this makes perfect sense and I appreciate it.
Duckie wrote: Tue Jan 18, 2022 5:42 pm By the end of the year after the new contributions you could have something like this:
I really appreciate the example. Agree, the FA helped me get started but I want to go on my own way until I feel like I can't manage on my own.

I will think about going a bit more aggressive on the stocks allocation. Thanks so much, Duckie.
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