Mom Moving from UBS to Fidelity / New Portfolio Allocation

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
WhatWillFutureHold
Posts: 10
Joined: Wed Jan 20, 2021 3:33 pm

Mom Moving from UBS to Fidelity / New Portfolio Allocation

Post by WhatWillFutureHold »

My mother (74) is moving her retirement accounts from UBS to Fidelity. The UBS accounts are with an advisor, but the Fidelity accounts will be self-managed. She really likes the UBS advisor, which she (and my father before his death) has been using for about 10 years. She is moving because of the costs (1.2% AUM and a large portion in a cash account earning 0.05% APY). She asked me to help her with the transfer and to "manage" the accounts for her. I am looking for a second opinion on how to help her with these accounts. Here is the relevant information:

Income in 2023: 105k (approximately 1/2 RMD and 1/2 Social Security)
Emergency funds: Yes, about 6 months in a bank account with local branches
Debt: House mortgage: 240k @ 2.75% (28 years remaining). House could likely sell for $600k. No other debt.
Tax Filing Status: Single
Tax Rate: 22% Federal (at the top of the bracket); 4.4% State
State of Residence: Colorado
Age: 74 (and health is fair to good)
Desired Asset Allocation: 50% Stocks / 40% Bonds / 10% Cash, but open to suggestions
Desired International Allocation: 0%
Approximate Size of Portfolio: 1.57M

Traditional IRA (in process of being transferred from UBS) (1.35M) (86%)
147k (9%) iShares Core S&P 500 (IVV) (ER 0.03)
45k (3%) Spider Utilities Sector (XLU) (ER 0.10)
77k (5%) Vanguard Large Cap Index (VV) (ER 0.04)
21k (1%) Fidelity Advisor Health (FHCIX) (ER 0.71)
239k (15%) iShares 7-10 Year Treasury Bond (IEF) (ER 0.15)
258k (16%) iShares 3-7 Year Treasury Bond (IEI) (ER 0.15)
401k (27%) Spider Bloomberg 1-3 Month (BIL) (ER 0.135)
162k (10%) UBS Bank Deposit earning 0.05% APY

Roth IRA (in process of being transferred from UBS) (121k) (7.5%)
19k (1%) iShares Core S&P 500 (IVV) (ER 0.03)
5k (<1%) Spider Utilities Sector (XLU) (ER 0.10)
2k (<1%) Vanguard Large Cap Index (VV) (ER 0.04)
3k (<1%) Fidelity Advisor Health (FHCIX) (ER 0.71)
26k (1.5%) iShares 7-10 Year Treasury Bond (IEF) (ER 0.15)
23k (1.5%) iShares 3-7 Year Treasury Bond (IEI) (ER 0.15)
33k (2%) Spider Bloomberg 1-3 Month (BIL) (ER 0.135)
10k (<1%) UBS Bank Deposit earning 0.05%

Taxable Brokerage at Fidelity (100k) (6.5%)
100k (6.5%) iShares Core S&P 500 (IVV) (ER 0.03)

New Contributions: Approximately 30k / year, which represents her 2023 income minus her current expenses. This will go into the taxable brokerage account.

My mom is happy to be saving the 1.2% AMU fee and is interested in earning more than 0.05% on the USB bank deposits. She (and my father) liked and trusted the UBS advisor however, so making drastic changes right away might be difficult. Her health is fair to good. The house is about 5-6 years old, in good shape, on one floor, and near several family members, so is something she wants to live in for a while. She has a relatively new car, but rarely drives, so will not likely need to purchase another one.

Proposed New Allocation:

Traditional IRA at Fidelity (1.35M) (86%)
157k (10%) Fidelity Money Market Fund Premium Class (FZDXX)
564k (36%) iShares Core S&P 500 (IVV) (ER 0.03)
629k (40%) Vanguard Total Bond (BND) (ER 0.03)

Roth IRA at Fidelity (121k) (7.5%)
121k (7.5%) iShares Core S&P 500 (IVV) (ER 0.03)

Taxable Brokerage at Fidelity (100k) (6.5%)
100k (6.5%) iShares Core S&P 500 (IVV) (ER 0.03)

Questions:

1. She is currently 28% stocks / 34% bonds / 38% cash and very short term bonds. Does a portfolio that is 50% equity seem more reasonable? UBS did not have her in any international equity, and she has expressed some hesitancy about owning non-US equity or non-US bonds. Does the proposed new allocation (above) seem reasonable?

2. UBS had 38% of her portfolio in short term cash-like holdings (cash deposits and BIL - Spider Bloomberg 1-3 month). Is 10% in a money market such as FZDXX - Fidelity Money Market Fund Premium Class (100k min. investment; 7-day yield 4.47%) a reasonable idea? This would represent more than two years of her current expenses and nearly eight years of her current expenses that are not covered by social security.

3. UBS had nearly identical allocations in her traditional IRA and her Roth IRA. Although the Roth IRA does not represent a substantial portion of her overall portfolio, because there are no tax consequences to doing so, we figured we would hold only equities in the Roth IRA. Is this reasonable?

4. Is is reasonable to use IVV in all three accounts? Given that this is what her UBS advisor used (rather than total market funds or total world market funds), this is the easiest route for my mom's comfort. If there are significant reasons for using a more diversified fund instead, she could be convinced. If there are tax-loss harvesting opportunities in the taxable account in the future, I'm not worried about wash sales, as she should be able to avoid them.

5. She does not have any plans for long term care. Should this portfolio be sufficient, or should she consider other options?
User avatar
retired@50
Posts: 12830
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Mom Moving from UBS to Fidelity / New Portfolio Allocation

Post by retired@50 »

WhatWillFutureHold wrote: Sat Mar 25, 2023 6:11 pm
Traditional IRA at Fidelity (1.35M) (86%)
157k (10%) Fidelity Money Market Fund Premium Class (FZDXX)
564k (36%) iShares Core S&P 500 (IVV) (ER 0.03)
629k (40%) Vanguard Total Bond (BND) (ER 0.03)

Roth IRA at Fidelity (121k) (7.5%)
121k (7.5%) iShares Core S&P 500 (IVV) (ER 0.03)

Taxable Brokerage at Fidelity (100k) (6.5%)
100k (6.5%) iShares Core S&P 500 (IVV) (ER 0.03) <- I'd use a total market fund here, like VTI. This will help you avoid a wash sale if you ever have to sell shares at a loss in the taxable account.

4. Is is reasonable to use IVV in all three accounts? Given that this is what her UBS advisor used (rather than total market funds or total world market funds), this is the easiest route for my mom's comfort. If there are significant reasons for using a more diversified fund instead, she could be convinced. If there are tax-loss harvesting opportunities in the taxable account in the future, I'm not worried about wash sales, as she should be able to avoid them.
Welcome to the forum.

Avoiding wash sales means never selling at a loss in the taxable account.

Since future spending cannot really be determined in advance, especially in the case of an unexpected event of some kind, medical expense, etc. It's so easy to avoid this problem, I'd just use VTI.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
RetiredAL
Posts: 3537
Joined: Tue Jun 06, 2017 12:09 am
Location: SF Bay Area

Re: Mom Moving from UBS to Fidelity / New Portfolio Allocation

Post by RetiredAL »

WhatWillFutureHold wrote: Sat Mar 25, 2023 6:11 pm My mother (74) is moving her retirement accounts from UBS to Fidelity.

Proposed New Allocation:

Traditional IRA at Fidelity (1.35M) (86%)
157k (10%) Fidelity Money Market Fund Premium Class (FZDXX)
564k (36%) iShares Core S&P 500 (IVV) (ER 0.03)
629k (40%) Vanguard Total Bond (BND) (ER 0.03)

Roth IRA at Fidelity (121k) (7.5%)
121k (7.5%) iShares Core S&P 500 (IVV) (ER 0.03)

Taxable Brokerage at Fidelity (100k) (6.5%)
100k (6.5%) iShares Core S&P 500 (IVV) (ER 0.03)

Questions:

1. She is currently 28% stocks / 34% bonds / 38% cash and very short term bonds. Does a portfolio that is 50% equity seem more reasonable? UBS did not have her in any international equity, and she has expressed some hesitancy about owning non-US equity or non-US bonds. Does the proposed new allocation (above) seem reasonable?

2. UBS had 38% of her portfolio in short term cash-like holdings (cash deposits and BIL - Spider Bloomberg 1-3 month). Is 10% in a money market such as FZDXX - Fidelity Money Market Fund Premium Class (100k min. investment; 7-day yield 4.47%) a reasonable idea? This would represent more than two years of her current expenses and nearly eight years of her current expenses that are not covered by social security.

3. UBS had nearly identical allocations in her traditional IRA and her Roth IRA. Although the Roth IRA does not represent a substantial portion of her overall portfolio, because there are no tax consequences to doing so, we figured we would hold only equities in the Roth IRA. Is this reasonable?

4. Is is reasonable to use IVV in all three accounts? Given that this is what her UBS advisor used (rather than total market funds or total world market funds), this is the easiest route for my mom's comfort. If there are significant reasons for using a more diversified fund instead, she could be convinced. If there are tax-loss harvesting opportunities in the taxable account in the future, I'm not worried about wash sales, as she should be able to avoid them.

5. She does not have any plans for long term care. Should this portfolio be sufficient, or should she consider other options?
Personally, I would not buy BND at this point in time. I would buy either more FZDXX or 1yr Treasuries or Brokered 1-2yr CD's.

You will find that Fidelity's FXAIX (SP500) or FSKAX (Total Market) have a slightly lower cost than IVV, but IMO IVV would be fine too. If you will be setting up any automatic distributions, Fidelity will auto-sell any Fidelity Funds, but not ETF's such as IVV or BND.
Topic Author
WhatWillFutureHold
Posts: 10
Joined: Wed Jan 20, 2021 3:33 pm

Re: Mom Moving from UBS to Fidelity / New Portfolio Allocation

Post by WhatWillFutureHold »

retired@50 wrote: Sat Mar 25, 2023 6:58 pm
WhatWillFutureHold wrote: Sat Mar 25, 2023 6:11 pm
Taxable Brokerage at Fidelity (100k) (6.5%)
100k (6.5%) iShares Core S&P 500 (IVV) (ER 0.03) <- I'd use a total market fund here, like VTI. This will help you avoid a wash sale if you ever have to sell shares at a loss in the taxable account.

Welcome to the forum.

Avoiding wash sales means never selling at a loss in the taxable account.

Since future spending cannot really be determined in advance, especially in the case of an unexpected event of some kind, medical expense, etc. It's so easy to avoid this problem, I'd just use VTI.

Regards,
Thank you retired@50. I originally figured that my mom could avoid wash sales in the taxable account by not automatically reinvesting dividends in the IRAs and by not making purchases in the IRAs 30 days before or after the sales in the taxable account. In fact, I originally figured that she would direct dividends from IVV to the money market to help fund her RMDs. Although that all might work, you are probably right that it is just easier to use something else and not have to worry about it. I use a total market fund in my own portfolio and will encourage my mom do so in the taxable account.
User avatar
retired@50
Posts: 12830
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Mom Moving from UBS to Fidelity / New Portfolio Allocation

Post by retired@50 »

WhatWillFutureHold wrote: Sat Mar 25, 2023 8:02 pm
retired@50 wrote: Sat Mar 25, 2023 6:58 pm
WhatWillFutureHold wrote: Sat Mar 25, 2023 6:11 pm
Taxable Brokerage at Fidelity (100k) (6.5%)
100k (6.5%) iShares Core S&P 500 (IVV) (ER 0.03) <- I'd use a total market fund here, like VTI. This will help you avoid a wash sale if you ever have to sell shares at a loss in the taxable account.

Welcome to the forum.

Avoiding wash sales means never selling at a loss in the taxable account.

Since future spending cannot really be determined in advance, especially in the case of an unexpected event of some kind, medical expense, etc. It's so easy to avoid this problem, I'd just use VTI.

Regards,
Thank you retired@50. I originally figured that my mom could avoid wash sales in the taxable account by not automatically reinvesting dividends in the IRAs and by not making purchases in the IRAs 30 days before or after the sales in the taxable account. In fact, I originally figured that she would direct dividends from IVV to the money market to help fund her RMDs. Although that all might work, you are probably right that it is just easier to use something else and not have to worry about it. I use a total market fund in my own portfolio and will encourage my mom do so in the taxable account.
That's all true, but do you really think your 74 year old mom wants to be looking at the calendar to check for 30 day windows before and after the sale of securities. Portfolios for senior citizens need to be SIMPLE. Don't make it hard on her, just because you can easily understand the nuance of the wash sale rule, don't expect her to share your enthusiasm on this topic.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
Topic Author
WhatWillFutureHold
Posts: 10
Joined: Wed Jan 20, 2021 3:33 pm

Re: Mom Moving from UBS to Fidelity / New Portfolio Allocation

Post by WhatWillFutureHold »

RetiredAL wrote: Sat Mar 25, 2023 7:14 pm
Personally, I would not buy BND at this point in time. I would buy either more FZDXX or 1yr Treasuries or Brokered 1-2yr CD's.

You will find that Fidelity's FXAIX (SP500) or FSKAX (Total Market) have a slightly lower cost than IVV, but IMO IVV would be fine too. If you will be setting up any automatic distributions, Fidelity will auto-sell any Fidelity Funds, but not ETF's such as IVV or BND.
Thank you RetiredAL for the response. Is it the current interest rate environment and the accompanying interest rate risk that discourages you from buying BND at this point in time or something else? Would there be a time in the future when we should consider BND again? I hate to guess at what the market is going to do.

You are absolutely correct for pointing out that FXAIX and FSKAX have lower expense ratios than IVV (0.015 v. 0.03). I love 1/2 price! Ultimately for this portfolio the cost savings would be about $115, so other factors may be more important. The benefit you identify related to setting up automatic distributions is also interesting and good to know. We will likely set up her RMDs to be distributed automatically. I assumed that because she will be keeping a significant chunk in a money market (likely FZDXX) that Fidelity would simply auto-sell from the money market for the RMDs. For my personal investments, my wife and I are still in the accumulation phase, so the mechanics of distributing from an IRA or 401(k) is new to me. Are there other automatic distributions from my mon's IRAs (other than RMDs) that we should keep in mind?
RetiredAL
Posts: 3537
Joined: Tue Jun 06, 2017 12:09 am
Location: SF Bay Area

Re: Mom Moving from UBS to Fidelity / New Portfolio Allocation

Post by RetiredAL »

WhatWillFutureHold wrote: Sat Mar 25, 2023 8:21 pm
RetiredAL wrote: Sat Mar 25, 2023 7:14 pm
Personally, I would not buy BND at this point in time. I would buy either more FZDXX or 1yr Treasuries or Brokered 1-2yr CD's.

You will find that Fidelity's FXAIX (SP500) or FSKAX (Total Market) have a slightly lower cost than IVV, but IMO IVV would be fine too. If you will be setting up any automatic distributions, Fidelity will auto-sell any Fidelity Funds, but not ETF's such as IVV or BND.
Thank you RetiredAL for the response. Is it the current interest rate environment and the accompanying interest rate risk that discourages you from buying BND at this point in time or something else? Would there be a time in the future when we should consider BND again? I hate to guess at what the market is going to do.

You are absolutely correct for pointing out that FXAIX and FSKAX have lower expense ratios than IVV (0.015 v. 0.03). I love 1/2 price! Ultimately for this portfolio the cost savings would be about $115, so other factors may be more important. The benefit you identify related to setting up automatic distributions is also interesting and good to know. We will likely set up her RMDs to be distributed automatically. I assumed that because she will be keeping a significant chunk in a money market (likely FZDXX) that Fidelity would simply auto-sell from the money market for the RMDs. For my personal investments, my wife and I are still in the accumulation phase, so the mechanics of distributing from an IRA or 401(k) is new to me. Are there other automatic distributions from my mon's IRAs (other than RMDs) that we should keep in mind?
The NAV of a bond fund/ETF declines with rising interest. BND had a NAV in the high 80's before the interest rate hikes started. Today, BND has a NAV in the mid 70's. IF interest rates were to remain steady or fall, BND would be fine. But since rates are likely to rise, BND will take a further hit.

Thus in today's environment, I would do MMKT, Treasuries, or CD, where the return of capital will be 100%.

That said, if your time horizon for holding BND is 20 years, then on the average BND will do OK.

As to other automatic distributions --

None that I am aware of. As long one someone manages cash available by selling IVV as needed, it does not matter.

I recently dumped the IVV in my taxable account and bought FSKAX. This account is what monthly funds our checking account, and if something happens to me, my 'currently financially clueless wife' will still get the monies delivered to the checking account. This taxable account is fed quarterly from my IRA. When I die, I expect that IRA withdrawal to stop, which is OK, because the taxable account has 5+ years of spending in it is everything is liquidated. If I am incapacitated, between the IRA and taxable, there is 25+ years of money. I have forewarned my local Son that his Mom will be needing lots of help. I've jumped thru many hoops trying to make our finances flow regardless of the events. Having handled my Dad's finances the last 5 years of his life, I got to practice as to what worked and what did not.
delamer
Posts: 17458
Joined: Tue Feb 08, 2011 5:13 pm

Re: Mom Moving from UBS to Fidelity / New Portfolio Allocation

Post by delamer »

Especially given that your mother is saving 30% of her annual income, consider increasing the stock allocation, increasing the cash allocation, and decreasing the bond allocation.

Maybe 60% stock, 20% bonds, and 20% cash?

The increase in volatility in stocks would be reduced by the increase in cash. But there’d be more cash available in the event of an emergency.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
User avatar
anon_investor
Posts: 15122
Joined: Mon Jun 03, 2019 1:43 pm

Re: Mom Moving from UBS to Fidelity / New Portfolio Allocation

Post by anon_investor »

WhatWillFutureHold wrote: Sat Mar 25, 2023 6:11 pm 162k (10%) UBS Bank Deposit earning 0.05% APY
This alone makes me sick. Not only has UBS been charging your mom 1.2% AUM, they put her cash into some self serving UBS 0.05% APY account, when even the default Fidelity core option has paid exponentially more.

If she wants a cash allocation, Fidelity has several excellent government money market options. For over $100k, FZCXX (Fidelity Government Money Market Fund - Premium Class) is a great option ($100k minimum initial investment):
https://institutional.fidelity.com/app/ ... fzcxx.html
Topic Author
WhatWillFutureHold
Posts: 10
Joined: Wed Jan 20, 2021 3:33 pm

Re: Mom Moving from UBS to Fidelity / New Portfolio Allocation

Post by WhatWillFutureHold »

retired@50 wrote: Sat Mar 25, 2023 8:09 pm
WhatWillFutureHold wrote: Sat Mar 25, 2023 8:02 pm
retired@50 wrote: Sat Mar 25, 2023 6:58 pm
WhatWillFutureHold wrote: Sat Mar 25, 2023 6:11 pm
Taxable Brokerage at Fidelity (100k) (6.5%)
100k (6.5%) iShares Core S&P 500 (IVV) (ER 0.03) <- I'd use a total market fund here, like VTI. This will help you avoid a wash sale if you ever have to sell shares at a loss in the taxable account.

Welcome to the forum.

Avoiding wash sales means never selling at a loss in the taxable account.

Since future spending cannot really be determined in advance, especially in the case of an unexpected event of some kind, medical expense, etc. It's so easy to avoid this problem, I'd just use VTI.

Regards,
Thank you retired@50. I originally figured that my mom could avoid wash sales in the taxable account by not automatically reinvesting dividends in the IRAs and by not making purchases in the IRAs 30 days before or after the sales in the taxable account. In fact, I originally figured that she would direct dividends from IVV to the money market to help fund her RMDs. Although that all might work, you are probably right that it is just easier to use something else and not have to worry about it. I use a total market fund in my own portfolio and will encourage my mom do so in the taxable account.
That's all true, but do you really think your 74 year old mom wants to be looking at the calendar to check for 30 day windows before and after the sale of securities. Portfolios for senior citizens need to be SIMPLE. Don't make it hard on her, just because you can easily understand the nuance of the wash sale rule, don't expect her to share your enthusiasm on this topic.

Regards,
Agreed. I see no downside to having a different holding in the taxable account to avoid wash sales, and it will mean one less thing to think about for her or anyone else who ends up helping with her accounts in the future.
Topic Author
WhatWillFutureHold
Posts: 10
Joined: Wed Jan 20, 2021 3:33 pm

Re: Mom Moving from UBS to Fidelity / New Portfolio Allocation

Post by WhatWillFutureHold »

RetiredAL wrote: Sat Mar 25, 2023 9:03 pm
WhatWillFutureHold wrote: Sat Mar 25, 2023 8:21 pm
RetiredAL wrote: Sat Mar 25, 2023 7:14 pm
Personally, I would not buy BND at this point in time. I would buy either more FZDXX or 1yr Treasuries or Brokered 1-2yr CD's.

You will find that Fidelity's FXAIX (SP500) or FSKAX (Total Market) have a slightly lower cost than IVV, but IMO IVV would be fine too. If you will be setting up any automatic distributions, Fidelity will auto-sell any Fidelity Funds, but not ETF's such as IVV or BND.
Thank you RetiredAL for the response. Is it the current interest rate environment and the accompanying interest rate risk that discourages you from buying BND at this point in time or something else? Would there be a time in the future when we should consider BND again? I hate to guess at what the market is going to do.

You are absolutely correct for pointing out that FXAIX and FSKAX have lower expense ratios than IVV (0.015 v. 0.03). I love 1/2 price! Ultimately for this portfolio the cost savings would be about $115, so other factors may be more important. The benefit you identify related to setting up automatic distributions is also interesting and good to know. We will likely set up her RMDs to be distributed automatically. I assumed that because she will be keeping a significant chunk in a money market (likely FZDXX) that Fidelity would simply auto-sell from the money market for the RMDs. For my personal investments, my wife and I are still in the accumulation phase, so the mechanics of distributing from an IRA or 401(k) is new to me. Are there other automatic distributions from my mon's IRAs (other than RMDs) that we should keep in mind?
The NAV of a bond fund/ETF declines with rising interest. BND had a NAV in the high 80's before the interest rate hikes started. Today, BND has a NAV in the mid 70's. IF interest rates were to remain steady or fall, BND would be fine. But since rates are likely to rise, BND will take a further hit.

Thus in today's environment, I would do MMKT, Treasuries, or CD, where the return of capital will be 100%.

That said, if your time horizon for holding BND is 20 years, then on the average BND will do OK.

As to other automatic distributions --

None that I am aware of. As long one someone manages cash available by selling IVV as needed, it does not matter.

I recently dumped the IVV in my taxable account and bought FSKAX. This account is what monthly funds our checking account, and if something happens to me, my 'currently financially clueless wife' will still get the monies delivered to the checking account. This taxable account is fed quarterly from my IRA. When I die, I expect that IRA withdrawal to stop, which is OK, because the taxable account has 5+ years of spending in it is everything is liquidated. If I am incapacitated, between the IRA and taxable, there is 25+ years of money. I have forewarned my local Son that his Mom will be needing lots of help. I've jumped thru many hoops trying to make our finances flow regardless of the events. Having handled my Dad's finances the last 5 years of his life, I got to practice as to what worked and what did not.
It would be great if she lives another 20 years. That seems like a long time to have to wait for BND to do ok, particularly given the fund's average maturity. Even so, the required distributions from the account will likely require sales of the fixed income portion of the account in less than 20 years, so maybe something with a shorter duration is appropriate here.
Topic Author
WhatWillFutureHold
Posts: 10
Joined: Wed Jan 20, 2021 3:33 pm

Re: Mom Moving from UBS to Fidelity / New Portfolio Allocation

Post by WhatWillFutureHold »

anon_investor wrote: Sat Mar 25, 2023 10:03 pm
WhatWillFutureHold wrote: Sat Mar 25, 2023 6:11 pm 162k (10%) UBS Bank Deposit earning 0.05% APY
This alone makes me sick. Not only has UBS been charging your mom 1.2% AUM, they put her cash into some self serving UBS 0.05% APY account, when even the default Fidelity core option has paid exponentially more.
You and me both! About 10 years ago when my parents first started using this advisor, my father was still working and contributing to a 401(k). They had about $100k total in traditional and Roth IRAs with UBS at that time, and the UBS fees and cash allocation were not as significant. It was only after he retired and rolled over his 401(k) to UBS did the 1.2% AUM fee and cash drag become noticeable.

I am sure my situation is not unique, but my parents did want my advice about their retirement accounts. They would periodically ask what my wife and I were doing with our accounts and would offer to put us in touch with their advisor. It was not until several years after my father passed away that my mom would even consider an alternative other than the advisor they had used to transition into retirement. Oddly, it was the low rate she was getting on her cash rather than the 1.2% fee that encouraged her to be open to discussing costs and alternatives.
Topic Author
WhatWillFutureHold
Posts: 10
Joined: Wed Jan 20, 2021 3:33 pm

Re: Mom Moving from UBS to Fidelity / New Portfolio Allocation

Post by WhatWillFutureHold »

delamer wrote: Sat Mar 25, 2023 9:53 pm Especially given that your mother is saving 30% of her annual income, consider increasing the stock allocation, increasing the cash allocation, and decreasing the bond allocation.

Maybe 60% stock, 20% bonds, and 20% cash?

The increase in volatility in stocks would be reduced by the increase in cash. But there’d be more cash available in the event of an emergency.
I like the idea of 60/20/20, at least at current money market rates. At her current expenses, and with social security, she only needs about a 1.25% withdrawal rate, and much of her RMDs get "recycled" back into her portfolio. There will likey come a time when she has medical or other expenses that necessitate extra withdrawals, and she would be comfortable knowing that she could afford those expenses without selling at an inopportune time.

On the other hand, 20% cash would represent a large fraction that is not expected to keep up with inflation.
User avatar
anon_investor
Posts: 15122
Joined: Mon Jun 03, 2019 1:43 pm

Re: Mom Moving from UBS to Fidelity / New Portfolio Allocation

Post by anon_investor »

WhatWillFutureHold wrote: Sun Mar 26, 2023 12:02 am
delamer wrote: Sat Mar 25, 2023 9:53 pm Especially given that your mother is saving 30% of her annual income, consider increasing the stock allocation, increasing the cash allocation, and decreasing the bond allocation.

Maybe 60% stock, 20% bonds, and 20% cash?

The increase in volatility in stocks would be reduced by the increase in cash. But there’d be more cash available in the event of an emergency.
I like the idea of 60/20/20, at least at current money market rates. At her current expenses, and with social security, she only needs about a 1.25% withdrawal rate, and much of her RMDs get "recycled" back into her portfolio. There will likey come a time when she has medical or other expenses that necessitate extra withdrawals, and she would be comfortable knowing that she could afford those expenses without selling at an inopportune time.

On the other hand, 20% cash would represent a large fraction that is not expected to keep up with inflation.
Instead of 20% cash, you can do 10% cash and 10% short term TIPS.
User avatar
dogagility
Posts: 3237
Joined: Fri Feb 24, 2017 5:41 am

Re: Mom Moving from UBS to Fidelity / New Portfolio Allocation

Post by dogagility »

Some thoughts...
WhatWillFutureHold wrote: Sat Mar 25, 2023 6:11 pm Emergency funds: Yes, about 6 months in a bank account with local branches
I don't understand the reason of having an EF in retirement. It seems to me that the entire portfolio becomes the EF. Just withdraw from the portfolio as any expense materializes, while maintaining the desired asset allocation.

A person should have an account for spending that make it easy to cover expenses (like a CMA at Fidelity) and is invested in a stable value vehicle like a money market fund, but I wouldn't consider this an EF.
Desired Asset Allocation: 50% Stocks / 40% Bonds / 10% Cash, but open to suggestions
A 50:50 allocation is reasonable to me.

For the fixed income portion and to account for potential higher than expected future inflation, I'd split this 50:50 between a nominal bond fund like FXNAX or BND and an inflation-protected bond fund like FIPDX. I'd even be tempted to invest it all in FIPDX to hedge against higher than expected inflation. The duration for these funds is about 7 years... seems appropriate for a 74 year old in OK health.

If she wants to reduce portfolio volatility at the expense of potential future portfolio growth, she could decrease her stock allocation to say 40% and/or allocate money to a money market account (i.e. cash) like FZDXX or FZCXX. If she has angst about volatility, this would be appropriate. If she doesn't, then I would allocate as I suggested above.
Proposed New Allocation:
Traditional IRA at Fidelity (1.35M) (86%)
157k (10%) Fidelity Money Market Fund Premium Class (FZDXX)
564k (36%) iShares Core S&P 500 (IVV) (ER 0.03)
629k (40%) Vanguard Total Bond (BND) (ER 0.03)
I'd use FZROX for a total US stock market fund, since I like the idea of no fee.

As I mentioned above, I suggest FXNAX or BND and FIPDX for the fixed income.
Roth IRA at Fidelity (121k) (7.5%)
121k (7.5%) iShares Core S&P 500 (IVV) (ER 0.03)
I'd also use FZROX here.
Taxable Brokerage at Fidelity (100k) (6.5%)
100k (6.5%) iShares Core S&P 500 (IVV) (ER 0.03)
Looks good to me.
2. UBS had 38% of her portfolio in short term cash-like holdings (cash deposits and BIL - Spider Bloomberg 1-3 month). Is 10% in a money market such as FZDXX - Fidelity Money Market Fund Premium Class (100k min. investment; 7-day yield 4.47%) a reasonable idea? This would represent more than two years of her current expenses and nearly eight years of her current expenses that are not covered by social security.
I don't subscribe to the bucket approach. Just invest the portfolio at the desired asset allocation and withdraw as needed while maintaining the asset allocation.
3. UBS had nearly identical allocations in her traditional IRA and her Roth IRA. Although the Roth IRA does not represent a substantial portion of her overall portfolio, because there are no tax consequences to doing so, we figured we would hold only equities in the Roth IRA. Is this reasonable?
Your approach is fine.
4. Is is reasonable to use IVV in all three accounts? Given that this is what her UBS advisor used (rather than total market funds or total world market funds), this is the easiest route for my mom's comfort.

You should keep wash sales in mind... I didn't account for this in my suggestions above.

IVV is a fine fund choice. It will track very closely to a total stock market fund.
Make sure you check out my list of certifications. The list is short, and there aren't any. - Eric 0. from SMA
delamer
Posts: 17458
Joined: Tue Feb 08, 2011 5:13 pm

Re: Mom Moving from UBS to Fidelity / New Portfolio Allocation

Post by delamer »

anon_investor wrote: Sun Mar 26, 2023 6:18 am
WhatWillFutureHold wrote: Sun Mar 26, 2023 12:02 am
delamer wrote: Sat Mar 25, 2023 9:53 pm Especially given that your mother is saving 30% of her annual income, consider increasing the stock allocation, increasing the cash allocation, and decreasing the bond allocation.

Maybe 60% stock, 20% bonds, and 20% cash?

The increase in volatility in stocks would be reduced by the increase in cash. But there’d be more cash available in the event of an emergency.
I like the idea of 60/20/20, at least at current money market rates. At her current expenses, and with social security, she only needs about a 1.25% withdrawal rate, and much of her RMDs get "recycled" back into her portfolio. There will likey come a time when she has medical or other expenses that necessitate extra withdrawals, and she would be comfortable knowing that she could afford those expenses without selling at an inopportune time.

On the other hand, 20% cash would represent a large fraction that is not expected to keep up with inflation.
Instead of 20% cash, you can do 10% cash and 10% short term TIPS.
I think of short-term TIPS (and other short-term Treasury bills) as cash, but I should have made that explicit.

Also, for someone who is saving 30% of their retirement income, having some cash that falls behind inflation really isn’t a big concern.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Topic Author
WhatWillFutureHold
Posts: 10
Joined: Wed Jan 20, 2021 3:33 pm

Re: Mom Moving from UBS to Fidelity / New Portfolio Allocation

Post by WhatWillFutureHold »

anon_investor wrote: Sun Mar 26, 2023 6:18 am
Instead of 20% cash, you can do 10% cash and 10% short term TIPS.
Thank you, anon_investor, for the suggestion about using short term TIPS for some of the cash portion of the portfolio. I suppose that would help with inflation eroding the cash portion.
User avatar
anon_investor
Posts: 15122
Joined: Mon Jun 03, 2019 1:43 pm

Re: Mom Moving from UBS to Fidelity / New Portfolio Allocation

Post by anon_investor »

WhatWillFutureHold wrote: Sun Mar 26, 2023 11:06 am
anon_investor wrote: Sun Mar 26, 2023 6:18 am
Instead of 20% cash, you can do 10% cash and 10% short term TIPS.
Thank you, anon_investor, for the suggestion about using short term TIPS for some of the cash portion of the portfolio. I suppose that would help with inflation eroding the cash portion.
VTIP is a good ETF for short term TIPS.
Topic Author
WhatWillFutureHold
Posts: 10
Joined: Wed Jan 20, 2021 3:33 pm

Re: Mom Moving from UBS to Fidelity / New Portfolio Allocation

Post by WhatWillFutureHold »

Thank you dogagility for the suggestions and for challenging me to think harder about some of this. I'll add some responses inline.
dogagility wrote: Sun Mar 26, 2023 7:06 am Some thoughts...
WhatWillFutureHold wrote: Sat Mar 25, 2023 6:11 pm Emergency funds: Yes, about 6 months in a bank account with local branches
I don't understand the reason of having an EF in retirement. It seems to me that the entire portfolio becomes the EF. Just withdraw from the portfolio as any expense materializes, while maintaining the desired asset allocation.

A person should have an account for spending that make it easy to cover expenses (like a CMA at Fidelity) and is invested in a stable value vehicle like a money market fund, but I wouldn't consider this an EF.

You are right, "emergency fund" is not the right term here. It is part of a cash allocation that happens to be the most extremely liquid portion. This is tied to her checking account and it makes my mom comfortable to be able to transfer from her savings to her checking instantaneously and/or to be able to walk into a branch and leave with a stack of $20 or $100 bills. She has not done this, but the fact that she can is valuable to her. She may agree to reduce the amount held in a savings account at this bank.

I also see that this could become a problem if my mom were to be subjected to a scam or fraud. Although I may be able to encourage her to reduce the amount in this savings account, I do not think she will allow me to manage all of her savings.

Desired Asset Allocation: 50% Stocks / 40% Bonds / 10% Cash, but open to suggestions
A 50:50 allocation is reasonable to me.

For the fixed income portion and to account for potential higher than expected future inflation, I'd split this 50:50 between a nominal bond fund like FXNAX or BND and an inflation-protected bond fund like FIPDX. I'd even be tempted to invest it all in FIPDX to hedge against higher than expected inflation. The duration for these funds is about 7 years... seems appropriate for a 74 year old in OK health.

If she wants to reduce portfolio volatility at the expense of potential future portfolio growth, she could decrease her stock allocation to say 40% and/or allocate money to a money market account (i.e. cash) like FZDXX or FZCXX. If she has angst about volatility, this would be appropriate. If she doesn't, then I would allocate as I suggested above.

I also received at least one suggestion to use inflation protected fixed income on the cash side. Your suggestion seems focused on the longer term bond portion of her portfolio. I'll give it some thought and talk with her. Once she has her expenses met, and given the low withdrawal needed to meet her needs, she could be willing to ignore reasonable volatility.
Proposed New Allocation:
Traditional IRA at Fidelity (1.35M) (86%)
157k (10%) Fidelity Money Market Fund Premium Class (FZDXX)
564k (36%) iShares Core S&P 500 (IVV) (ER 0.03)
629k (40%) Vanguard Total Bond (BND) (ER 0.03)
I'd use FZROX for a total US stock market fund, since I like the idea of no fee.

As I mentioned above, I suggest FXNAX or BND and FIPDX for the fixed income.
Roth IRA at Fidelity (121k) (7.5%)
121k (7.5%) iShares Core S&P 500 (IVV) (ER 0.03)
I'd also use FZROX here.
Taxable Brokerage at Fidelity (100k) (6.5%)
100k (6.5%) iShares Core S&P 500 (IVV) (ER 0.03)
Looks good to me.
2. UBS had 38% of her portfolio in short term cash-like holdings (cash deposits and BIL - Spider Bloomberg 1-3 month). Is 10% in a money market such as FZDXX - Fidelity Money Market Fund Premium Class (100k min. investment; 7-day yield 4.47%) a reasonable idea? This would represent more than two years of her current expenses and nearly eight years of her current expenses that are not covered by social security.
I don't subscribe to the bucket approach. Just invest the portfolio at the desired asset allocation and withdraw as needed while maintaining the asset allocation.

I hear you and tend to agree. I was trying to make the point that given the relatively low amount she needs to withdraw from her portfolio to meet her expenses after social security, that this seemed like a large cash portion, particularly given that much if it was earning near zero. Her expenses could change quickly, so having 10%-20% in cash and available without worrying about selling at a bad time, might be worth it to her.
3. UBS had nearly identical allocations in her traditional IRA and her Roth IRA. Although the Roth IRA does not represent a substantial portion of her overall portfolio, because there are no tax consequences to doing so, we figured we would hold only equities in the Roth IRA. Is this reasonable?
Your approach is fine.
4. Is is reasonable to use IVV in all three accounts? Given that this is what her UBS advisor used (rather than total market funds or total world market funds), this is the easiest route for my mom's comfort.

You should keep wash sales in mind... I didn't account for this in my suggestions above.

IVV is a fine fund choice. It will track very closely to a total stock market fund.

You are not the first person to recommend using a total stock market fund because of potential wash sales issues. I had originally thought we could avoid any potential wash sales by being deliberate with purchases in the IRA accounts, but there do not seem to be any downsides to avoiding the possibility altogether, which should make the portfolio easier to manage.
User avatar
ruralavalon
Posts: 26353
Joined: Sat Feb 02, 2008 9:29 am
Location: Illinois

Re: Mom Moving from UBS to Fidelity / New Portfolio Allocation

Post by ruralavalon »

WhatWillFutureHold wrote: Sat Mar 25, 2023 6:11 pm My mother (74) is moving her retirement accounts from UBS to Fidelity. The UBS accounts are with an advisor, but the Fidelity accounts will be self-managed. She really likes the UBS advisor, which she (and my father before his death) has been using for about 10 years. She is moving because of the costs (1.2% AUM and a large portion in a cash account earning 0.05% APY). She asked me to help her with the transfer and to "manage" the accounts for her. I am looking for a second opinion on how to help her with these accounts. Here is the relevant information:

Income in 2023: 105k (approximately 1/2 RMD and 1/2 Social Security)
Emergency funds: Yes, about 6 months in a bank account with local branches
Debt: House mortgage: 240k @ 2.75% (28 years remaining). House could likely sell for $600k. No other debt.
Tax Filing Status: Single
Tax Rate: 22% Federal (at the top of the bracket); 4.4% State
State of Residence: Colorado
Age: 74 (and health is fair to good)
Desired Asset Allocation: 50% Stocks / 40% Bonds / 10% Cash, but open to suggestions
Desired International Allocation: 0%
In my opinion her desired asset allocation is within the range of what is reasonable, although I usually suggest around 20-30% of stocks in international stocks.

WhatWillFutureHold wrote: Sat Mar 25, 2023 6:11 pmApproximate Size of Portfolio: 1.57M

Traditional IRA (in process of being transferred from UBS) (1.35M) (86%)
147k (9%) iShares Core S&P 500 (IVV) (ER 0.03)
45k (3%) Spider Utilities Sector (XLU) (ER 0.10)
77k (5%) Vanguard Large Cap Index (VV) (ER 0.04)
21k (1%) Fidelity Advisor Health (FHCIX) (ER 0.71)
239k (15%) iShares 7-10 Year Treasury Bond (IEF) (ER 0.15)
258k (16%) iShares 3-7 Year Treasury Bond (IEI) (ER 0.15)
401k (27%) Spider Bloomberg 1-3 Month (BIL) (ER 0.135)
162k (10%) UBS Bank Deposit earning 0.05% APY

Roth IRA (in process of being transferred from UBS) (121k) (7.5%)
19k (1%) iShares Core S&P 500 (IVV) (ER 0.03)
5k (<1%) Spider Utilities Sector (XLU) (ER 0.10)
2k (<1%) Vanguard Large Cap Index (VV) (ER 0.04)
3k (<1%) Fidelity Advisor Health (FHCIX) (ER 0.71)
26k (1.5%) iShares 7-10 Year Treasury Bond (IEF) (ER 0.15)
23k (1.5%) iShares 3-7 Year Treasury Bond (IEI) (ER 0.15)
33k (2%) Spider Bloomberg 1-3 Month (BIL) (ER 0.135)
10k (<1%) UBS Bank Deposit earning 0.05%

Taxable Brokerage at Fidelity (100k) (6.5%)
100k (6.5%) iShares Core S&P 500 (IVV) (ER 0.03)

New Contributions: Approximately 30k / year, which represents her 2023 income minus her current expenses. This will go into the taxable brokerage account.

My mom is happy to be saving the 1.2% AMU fee and is interested in earning more than 0.05% on the USB bank deposits. She (and my father) liked and trusted the UBS advisor however, so making drastic changes right away might be difficult. Her health is fair to good. The house is about 5-6 years old, in good shape, on one floor, and near several family members, so is something she wants to live in for a while. She has a relatively new car, but rarely drives, so will not likely need to purchase another one.

Proposed New Allocation:

Traditional IRA at Fidelity (1.35M) (86%)
157k (10%) Fidelity Money Market Fund Premium Class (FZDXX)
564k (36%) iShares Core S&P 500 (IVV) (ER 0.03)
629k (40%) Vanguard Total Bond (BND) (ER 0.03)

Roth IRA at Fidelity (121k) (7.5%)
121k (7.5%) iShares Core S&P 500 (IVV) (ER 0.03)

Taxable Brokerage at Fidelity (100k) (6.5%)
100k (6.5%) iShares Core S&P 500 (IVV) (ER 0.03)

WhatWillFutureHold wrote: Sat Mar 25, 2023 6:11 pmQuestions:

1. She is currently 28% stocks / 34% bonds / 38% cash and very short term bonds. Does a portfolio that is 50% equity seem more reasonable? UBS did not have her in any international equity, and she has expressed some hesitancy about owning non-US equity or non-US bonds. Does the proposed new allocation (above) seem reasonable?
In my opinion an asset allocation of 50% stocks is more reasonable.

I usually suggest around 20-30% of stocks in international stocks. But go with what she is more comfortable with. Don't incur income tax liability to exchange from U.S. to international stocks.


WhatWillFutureHold wrote: Sat Mar 25, 2023 6:11 pm2. UBS had 38% of her portfolio in short term cash-like holdings (cash deposits and BIL - Spider Bloomberg 1-3 month). Is 10% in a money market such as FZDXX - Fidelity Money Market Fund Premium Class (100k min. investment; 7-day yield 4.47%) a reasonable idea? This would represent more than two years of her current expenses and nearly eight years of her current expenses that are not covered by social security.
In my opinion that's far too much in cash-like holdings.

My personal preference for fixed income investments is intermediate-term bond funds.


WhatWillFutureHold wrote: Sat Mar 25, 2023 6:11 pm3. UBS had nearly identical allocations in her traditional IRA and her Roth IRA. Although the Roth IRA does not represent a substantial portion of her overall portfolio, because there are no tax consequences to doing so, we figured we would hold only equities in the Roth IRA. Is this reasonable?
Yes.


WhatWillFutureHold wrote: Sat Mar 25, 2023 6:11 pm4. Is is reasonable to use IVV in all three accounts? Given that this is what her UBS advisor used (rather than total market funds or total world market funds), this is the easiest route for my mom's comfort. If there are significant reasons for using a more diversified fund instead, she could be convinced. If there are tax-loss harvesting opportunities in the taxable account in the future, I'm not worried about wash sales, as she should be able to avoid them.
In my opinion it is reasonable to hold iShares Core S&P 500 (IVV) (ER 0.03) in all three accounts.

An S&P 500 index fund covers about 80% of the U.S.stock market investing in stocks of selected large-cap and mid-cap U.S. companies. Over the 30 years since the creation of the first total stock market index fund the two types of funds have had almost identical performance. Portfolio Visualizer, 1993-2023.

WhatWillFutureHold wrote: Sat Mar 25, 2023 6:11 pm5. She does not have any plans for long term care. Should this portfolio be sufficient, or should she consider other options?
Has she considered a Lifecare Retirement home or Continuing Care Retirement Community(CCRC) for sometime in the future? Are any available in her locality?

That would require a substantial initial buy-in, but her portfolio is large enough to sustain that.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
WhatWillFutureHold
Posts: 10
Joined: Wed Jan 20, 2021 3:33 pm

Re: Mom Moving from UBS to Fidelity / New Portfolio Allocation

Post by WhatWillFutureHold »

Thank you ruralavalon for your comments. They generally confirm that my mom is on the right track. Getting away from the UBS 1.2% fee, putting cash to work, increasing the equity allocation, and simplifying the portfolio will be a huge improvement.
ruralavalon wrote: Sun Mar 26, 2023 11:42 am
WhatWillFutureHold wrote: Sat Mar 25, 2023 6:11 pm5. She does not have any plans for long term care. Should this portfolio be sufficient, or should she consider other options?
Has she considered a Lifecare Retirement home or Continuing Care Retirement Community(CCRC) for sometime in the future? Are any available in her locality?

That would require a substantial initial buy-in, but her portfolio is large enough to sustain that.
My mom has not discussed with me either a Lifecare Retirement home or a Continuing Care Retirement Community (CCRC). We will have to look into that. I believe one of her siblings went with a CCRC, so she may have some ideas about whether that is something she wants to consider.
User avatar
dogagility
Posts: 3237
Joined: Fri Feb 24, 2017 5:41 am

Re: Mom Moving from UBS to Fidelity / New Portfolio Allocation

Post by dogagility »

I also received at least one suggestion to use inflation protected fixed income on the cash side. Your suggestion seems focused on the longer term bond portion of her portfolio. I'll give it some thought and talk with her. Once she has her expenses met, and given the low withdrawal needed to meet her needs, she could be willing to ignore reasonable volatility.
For short-term withdrawal needs, I'd use a Money Market Fund. For longer-term fixed income, a combination of TIPS and nominal bonds are appropriate, in my opinion. As I said before, I'd go heavier on the TIPS than nominal bonds. Inflation protection during retirement seems like a good idea.
Make sure you check out my list of certifications. The list is short, and there aren't any. - Eric 0. from SMA
Post Reply