Portfolio Advice

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Topic Author
spinzard
Posts: 11
Joined: Thu Jun 01, 2023 2:25 pm

Portfolio Advice

Post by spinzard »

Hello,

My portfolio is shown below. I am 38. I just moved the entire portfolio to fidelity in order to stop having so many accounts in so many places. I was thinking i should rebalance and target a nice simple couple of lazy funds. However, when i went to do so, it seemed harder to decided what to do than i expected.

My main questions are: do i really need bonds at 38? I am okay with being aggressive and if volatility is the only concern. My expected retirement date is normal? who knows, 65?
Any suggestions for an asset allocation and which funds to choose? too many choices, it all seems arbitrary. Other thoughts welcome.

Total portfolio: $569,085.69 (targeted for retirement use)
Account Name Symbol Description Quantity Last Price Current Value
Rollover IRA SPAXX** FIDELITY GOVERNMENT MONEY MARKET 598.92 $1.00 $598.92
Rollover IRA FNILX FIDELITY ZERO LARGE CAP INDEX FUND 2086.375 $14.76 $30,794.89
Rollover IRA FZILX FIDELITY ZERO INTERNATIONAL INDEX 4787.671 $10.34 $49,504.51
Rollover IRA FZIPX FIDELITY ZERO EXTND MARKET INDEX FUND 2783.46 $10.55 $29,365.50
Rollover IRA FZROX FIDELITY ZERO TOTAL MARKET INDEX 10671.534 $14.53 $155,057.38
Rollover IRA VTI VANGUARD INDEX FDS VANGUARD TOTAL STK MKT ETF 437 $209.71 $91,643.27
Total: $356,964.47 IRA
ROTH IRA SPAXX** FIDELITY GOVERNMENT MONEY MARKET 463.01 $1.00 $463.01
ROTH IRA FNILX FIDELITY ZERO LARGE CAP INDEX FUND 59.564 $14.76 $879.16
ROTH IRA FZILX FIDELITY ZERO INTERNATIONAL INDEX 82.04 $10.34 $848.29
ROTH IRA VTI VANGUARD INDEX FDS VANGUARD TOTAL STK MKT ETF 583 $209.71 $122,260.93
Total Roth IRA: $124,451.39
workplace SAVINGS PLAN 278276100 VANG INST 500 IDX TR 198.87 $151.70 $30,168.57
workplace SAVINGS PLAN VGSNX VAN REAL EST IDX IS 645.399 $17.55 $11,326.75
Total current workplace 401k/Roth 401k: $41,495.32
Health Savings Account FDRXX** FIDELITY GOVERNMENT CASH RESERVES 68.67 $1.00 $68.67
Health Savings Account FSPSX FIDELITY INTERNATL INDEX FUND 44.059 $44.16 $1,945.64
Health Savings Account FXAIX FIDELITY 500 INDEX FUND 38.945 $145.41 $5,662.99
Health Savings Account SPDW SPDR PORTFOLIO DEVELOPED WORLD EX-US ETF 360 $32.20 $11,592.25
Health Savings Account SPTM SPDR PORTFOLIO S&P 1500 COMPOSITE STOCK MARKET ETF 519 $51.84 $26,904.96
Total current HSA: $46,174.51
narrowroadcapital
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Re: Portfolio Advice

Post by narrowroadcapital »

Some helpful considerations & questions to your questions:
- Bonds serve to reduce risk by adding an uncorrelated asset to your portfolio & reducing vol. It's arguable they don't serve that purpose very well anymore as they've become more and more correlated with equities over the past decade. Is volatility truly not a concern for you? Do you have experience with drawdowns? How did you handle them?
- What are your goals?

https://www.etf.com/sections/index-inve ... -investing

Here's an article that breaks it down pretty simply & does a decent job explaining and leading you down the path of portfolio constructing.
- Would it be appealing to choose a super lazy target date fund?
BitTooAggressive
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Re: Portfolio Advice

Post by BitTooAggressive »

No you don’t need bonds yet.

You don’t have much diversification and a lot of overlap. You are holding large cap and total market funds in the same account. Just hold the total market.

If you want to diversify a bit from total market add small cap value or other value funds. It’s just fine to sit in total market too.
BitTooAggressive
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Re: Portfolio Advice

Post by BitTooAggressive »

No you don’t need bonds yet.

You don’t have much diversification and a lot of overlap. You are holding large cap and total market funds in the same account. Just hold the total market.

If you want to diversify a bit from total market add small cap value or other value funds. It’s just fine to sit in total market too.
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dogagility
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Re: Portfolio Advice

Post by dogagility »

Welcome to the forum.
spinzard wrote: Thu Jun 01, 2023 3:01 pm My main questions are: do i really need bonds at 38? I am okay with being aggressive and if volatility is the only concern. My expected retirement date is normal? who knows, 65?
No you don't need bonds in your retirement portfolio with your timeline and the psychological ability to avoid panic selling.
Any suggestions for an asset allocation and which funds to choose? too many choices, it all seems arbitrary. Other thoughts welcome.
If you are going to have a 100% stock asset allocation, selecting funds should be simple. The only real choice you need to consider is the allocation between US and International. A common allocation is between 20-40% International.

Consider all of your retirement accounts as a single entity; there is no need to have the same asset allocation in each account. It's the overall allocation among all of your accounts combined that matters.

For US, select a total US or a S&P 500 index fund. For international, select a total international index fund.

For your IRAs (both rollover and Roth), use a combination of FXROX and FZILX.
workplace SAVINGS PLAN 278276100 VANG INST 500 IDX TR 198.87 $151.70 $30,168.57
This SP500 fund is a good choice. It will closely track a total US stock market index fund.
Health Savings Account FSPSX FIDELITY INTERNATL INDEX FUND 44.059 $44.16 $1,945.64
Health Savings Account FXAIX FIDELITY 500 INDEX FUND 38.945 $145.41 $5,662.99
These two are good choices.
Make sure you check out my list of certifications. The list is short, and there aren't any. - Eric 0. from SMA
Topic Author
spinzard
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Joined: Thu Jun 01, 2023 2:25 pm

Re: Portfolio Advice

Post by spinzard »

Hi, thanks for your response.
-Not sure how much experience i have with drawdowns but i've been investing since my early 20s. All i can say is that no matter how the market does, i understand the principle of long-term investments and not changing the allocation regardless of what happens in the short term.
-My goal is to generate as much money as i can with reasonable risk/diversification for retirement factoring in all that is important (taxes, etc.)
-i read the article and though early on it said a simple portfolio is okay, then it discussed some more complex things you can do and specific funds that cover those complexities. I am not sure of the fees on those funds, if i can do them in fidelity and what a portfolio might look like.
-considering everything is in fidelity, if you can suggest a few funds/rough percentages (what you would do in my case) that would be super helpful.

Thanks again
Topic Author
spinzard
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Joined: Thu Jun 01, 2023 2:25 pm

Re: Portfolio Advice

Post by spinzard »

First, thank you for your feedback! I met with my "financial advisor" and got nowhere so i'm really thankful to use this forum.

ok based on your suggestions, here is what i'm thinking:

Rollover IRA: $360,500, 62.8% of portfolio: change to FZROX (zero total market)
Roth IRA: $125,306, 21.8% of portfolio: change to FZILX (zero international index)
Workplace savings: $41,806, $7.3% of portfolio: keep in VANG INST 500 IDX TR (good choice for what's available)
There's also some REITs in there by accident, whatever, they can stay
HSA: $46,598, 8.11% of portfolio: change to FZILX (zero international index)

Total asset allocation:
Stock: zero total market/Vang 500: 70% with 401k contributions to grow (Rollover IRA and workplace plan)
International stock: 30% FZILX (Roth and HSA)

Question:
-Are there any consequences i might not understand for doing this rebalance? time limit based fees i need to look for? That being said, everything that would move has been in the current account for 1+ years.
-is there any reason that using mostly the same 2 funds for the whole portfolio is a risk?
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ruralavalon
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Re: Portfolio Advice

Post by ruralavalon »

Welcome to the forum :) .

About how much (in dollars) do you contribute annually to each account? Establishing a high rate of contributions is the most important investing decision you can make, forum discussion.

The maximum annual employee deferral to a 401k is $22.5k. Any employer match or contribution does not count toward that employee maximum, it's extra. The maximum annual contribution to an IRA is $6.5k.

Are there target date funds offered in your employer's 401k plan? What other funds are offered in your employer's plan? Please give fund names, tickers and expense ratios.

spinzard wrote: Thu Jun 01, 2023 3:01 pmMy main questions are: do i really need bonds at 38? I am okay with being aggressive and if volatility is the only concern. My expected retirement date is normal? who knows, 65?
spinzard wrote: Fri Jun 02, 2023 9:18 am Hi, thanks for your response.
-Not sure how much experience i have with drawdowns but i've been investing since my early 20s. All i can say is that no matter how the market does, i understand the principle of long-term investments and not changing the allocation regardless of what happens in the short term.
-My goal is to generate as much money as i can with reasonable risk/diversification for retirement factoring in all that is important (taxes, etc.)

. . . . .
Asset allocation is a very personal decision which must be based on your own individual ability, willingness and need to take risk.

At age 38 I often suggest around 20-25% of portfolio in bonds/fixed income.

The real test of the desirability of holding fixed income/bonds for diversification and to reduce portfolio volatility is how you acted in your actual experience with market crashes. You said "Not sure how much experience i have with drawdowns . . .".

In previous market downturns, 2008-09 and 2020, did you continue your regular contributions every pay period? Did you increase contributions to investing? Did you sell any stock funds you had held? How much did you have invested at the start of each of those downturns?

Please consider this graph: "An Efficient Frontier: the power of diversification". Please also see:
1) Wiki article Bogleheads® investment philosophy, part 3 "Never bear too much or too little risk";
2) Wiki article, "Asset allocation";
3) Morningstar (8/20/2019),"The Best Diversifiers for Your Equity Portfolio", link;
4) Morningstar (4/8/2020), "What's the Best Diversifier for Stocks?", link;
5) White Coat Investor (9/23/2016), "In Defense of Bonds", link;
6) Ben Carlson (8/2/2020), "Why Would Anyone Own Bonds Right Now?", link;
7) Morningstar (4/13/2021), "Which Bonds Provide the Biggest Diversification Benefits?", link; and
8) Age versus stocks graph, and Bogleheads' stock allocations bar graph and table.



I suggest around 20 - 30% of stocks in international stocks. Vanguard paper (March 2012), "Considerations for investing in non-U.S. equities", available as an archived pdf. Historically, allocating 20% of an equity portfolio to non-U.S. stocks would have captured about 84% of the maximum possible diversification benefit, and allocating 30% of an equity portfolio to non-U.S. stocks would have captured about 99% of the maximum possible diversification benefit (p. 6). The diversification benefit has varied over time. (You can find lots of debate here on international allocation, opinions ranging all the way from 00% to 50% of stocks in international stocks. If you want more viewpoints on international stocks please try the Google search box, upper right, this page).



spinzard wrote: Fri Jun 02, 2023 9:18 am . . . . .

-considering everything is in fidelity, if you can suggest a few funds/rough percentages (what you would do in my case) that would be super helpful.
You have a lot of unnecessary duplication and overlap. For investing in U.S. stocks simply use one of the total stock market index funds. For investing in international stocks simply use one of the total international stock index funds.

In the IRAs consider:
Fidelity® ZERO International Index (FZILX);
Fidelity® ZERO Total Market Index (FZROX); and
Fidelity® US Bond Index (FXNAX).

In your employer's 401k plan consider:
Fidelity® 500 Index (80% of the U.S. stock market); and (FXAIX)
Fidelity® International Index (developed markets only) (FSPSX).
I can't really say which funds might be best in the 401k account, not knowing what other funds are offered in your employer's plan.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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Taylor Larimore
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Re: Portfolio Advice

Post by Taylor Larimore »

spinzard:

Congratulations for moving all your investments to one good fund company. That simplification will pay-off many times over in the years ahead.

My favorite portfolio is The Three-Fund Portfolio which can be achieved with Fidelity funds. You can read its many benefits here:

viewtopic.php?t=88005

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "The Three-Fund Portfolio will help you to develop a sound asset allocation strategy, make smart investment selections, and guide the implementation of your plan." -- "There may be better investment strategies than owning just three broad-based index funds but the number of strategies that are worse is infinite."
"Simplicity is the master key to financial success." -- Jack Bogle
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dogagility
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Re: Portfolio Advice

Post by dogagility »

spinzard wrote: Fri Jun 02, 2023 9:18 am -Not sure how much experience i have with drawdowns but i've been investing since my early 20s. All i can say is that no matter how the market does, i understand the principle of long-term investments and not changing the allocation regardless of what happens in the short term.
-My goal is to generate as much money as i can with reasonable risk/diversification for retirement factoring in all that is important (taxes, etc.)
While what you wrote is consistent with having an all equity portfolio, you will need to "go spock" when your portfolio value decreases by 50% (or more). It will happen more than once in your investing career. If you were to panic sell during even one of these events, much (all) of your prior returns would be flushed down the drain... never to be seen again.

On the other hand, a large (>30% or more) allocation to bonds is likely to significantly reduce your portfolio size at retirement.

FYI - my wife and I were 100% index funds for most of the accumulation phase of our lives. It was a good decision. We didn't panic sell in 2000 or 2008.
Make sure you check out my list of certifications. The list is short, and there aren't any. - Eric 0. from SMA
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dogagility
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Re: Portfolio Advice

Post by dogagility »

spinzard wrote: Fri Jun 02, 2023 9:43 am
Question:
-Are there any consequences i might not understand for doing this rebalance? time limit based fees i need to look for? That being said, everything that would move has been in the current account for 1+ years.
-is there any reason that using mostly the same 2 funds for the whole portfolio is a risk?
Since this money is all in tax deferred accounts, there are no tax consequences for buying and selling.

In my opinion, there is no reason to use more than total US or total international stock funds for your equity allocation. These are highly diversified funds.

Some people like to slice and dice their equity portfolio by betting on sectors like small value. I don't like to bet on sectors since I don't trust that the backtesting models will predict the future.
Make sure you check out my list of certifications. The list is short, and there aren't any. - Eric 0. from SMA
Topic Author
spinzard
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Re: Portfolio Advice

Post by spinzard »

I typically contribute the max to retirement accounts, it looks like my 401k this year is $19,5 and my Roth is always max at $6500.

Here are the funds available in my workplace plan:
Eaton Shares Fund 0.01%
Victory Sycamore Established Value Fund Class R6 (VEVRX) 0.54%
Vanguard Windsor™ Fund Admiral™ Shares (VWNEX) 0.28%
Ariel Fund Institutional Class (ARAIX) 0.67%
Mid Capitalization Equity Index Fund J 0.02%
Vanguard Value Index Fund Institutional Shares (VIVIX) 0.04%
Fidelity® Low-Priced Stock Commingled Pool 0.48%
Fidelity® Growth Company Commingled Pool 0.43%
Vanguard Institutional 500 Index Trust 0.02%
Fidelity® Canada Fund (FICDX) 0.89%
Fidelity® Mid-Cap Stock Commingled Pool 0.43%
Vanguard Small-Cap Index Fund Institutional Plus Shares (VSCPX) 0.03%
Fidelity® Equity-Income Commingled Pool 0.32%
Oakmark Equity and Income Fund Class Institutional (OANBX) 0.58%
Vanguard Growth Index Fund Institutional Shares (VIGIX) 0.04%
BNYM Mellon NSL International Stock Index Fund Institutional Class 0.05%
Neuberger Berman Genesis Fund Class R6 (NRGSX) 0.74%
BlackRock LifePath® Index 2055 Fund N 0.06%
BlackRock LifePath® Index 2060 Fund N 0.06%
BlackRock LifePath® Index 2065 Fund N 0.06%
BlackRock LifePath® Index 2050 Fund N 0.06%
BlackRock LifePath® Index 2045 Fund N 0.06%
BlackRock LifePath® Index 2040 Fund N 0.06%
Fidelity® Contrafund® Commingled Pool 0.43%
Fidelity® Balanced Fund Class K (FBAKX) 0.43%
BlackRock LifePath® Index 2035 Fund N 0.06%
Vanguard Balanced Index Fund Institutional Shares (VBAIX) 0.06%
Fidelity® Capital & Income Fund (FAGIX) 0.67%
Vanguard Real Estate Index Fund Institutional Shares (VGSNX) 0.10%
BlackRock LifePath® Index 2030 Fund N 0.06%
Fidelity® Diversified International Commingled Pool 0.58%
Fidelity® International Discovery Commingled Pool 0.58%
Fidelity® Real Estate Investment Portfolio (FRESX) 0.71%
BlackRock LifePath® Index 2025 Fund N 0.06%
Emerging Markets Index Fund M 0.16%
Fidelity® Emerging Markets Fund Class K (FKEMX) 0.77%
Vanguard Wellesley® Income Fund Admiral™ Shares (VWIAX) 0.16%
BlackRock LifePath® Index Retirement Fund N 0.06%
Eaton Stable Value Fund 0.14%
EB Short Term Investment Fund 0.08%
TIPS (Treasury Inflation-Protected Securities) Index Fund 0.09%
Eaton Fixed Income Fund 0.06%
PIMCO Total Return Fund Institutional Class (PTTRX) 0.46%
U.S. Debt Index Fund M 0.03%

I like the graph you showed for allocation versus age.
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dogagility
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Re: Portfolio Advice

Post by dogagility »

spinzard wrote: Fri Jun 02, 2023 12:50 pm I typically contribute the max to retirement accounts, it looks like my 401k this year is $19,5 and my Roth is always max at $6500.

Vanguard Institutional 500 Index Trust 0.02%
FYI. The maximum 401k contribution in 2023 for your age is 22,500, not 19,500. HSA is $3850. IRA is $6500.

Of the funds you listed, I think the one I kept above is the most appropriate for your equity holdings. Broad enough and low cost.
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ruralavalon
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Re: Portfolio Advice

Post by ruralavalon »

In your employer's plan BlackRock LifePath® Index 2055 Fund N 0.06% would be a good choice in my opinion. (1) Use of an allocation fund, like a target date fund, seems to insulate the investor against behavioral errors and so produce higher investor returns. Morningstar, Mind the Gap 2019. (2) Also using a target date fund eliminates the need select your own asset alloction. (3) Finally the fund automatically changes to a more conservative allocation as you near your retirement date.

BlackRock LifePath® Index funds are highly rated. Morningstar, The Best Target-Date Funds for 2023 and Beyond. BlackRock is the largest asset manager in the entire world.

You could then use a similar target date fund in your IRAs, at Fidelity that would be Fidelity Freedom® Index 2055 Investor (FDEWX) ER 0.12%. This gives you a simple hands-off portfolio.

If instead you wish to use a combination of index funds in your 401k account, selecting your own desired asset allocation, then I suggest this combination:
1) Vanguard Institutional 500 Index Trust 0.02% (covers 80% of the U.S. stock market);
2) BNYM Mellon NSL International Stock Index Fund Institutional Class 0.05% (tracks the MSCI EAFE Index, developed markets only); and
3) U.S. Debt Index Fund M 0.03% (tracks the Bloomberg U.S. Aggregate Bond Index, a total bond market index fund.).

Are you permitted to use different funds in the Roth sub-account of your 401k than you use in the traditional sub-account?

I hope that this helps.

If you have any questions just ask.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
spinzard
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Re: Portfolio Advice

Post by spinzard »

I have a few questions:

1. I just realized my financial advisor encouraged me to change a portion of my 401k contributions to Roth 401k and that now I’m not going to reach the max pre-tax contribution allowed for the year. I think the best course is to change my pre-tax contributions back to max out for the year and only do Roth 401k for any additional money I can afford to save beyond the pre-tax contributions. Am I missing anything here?
This is my first time messing with Roth 401k

2. In regards to my entire portfolio, I was thinking simplification would mean investing all of my Rollover IRA and workplace plan in a 500 index (the fidelity free one for the rollover and the vanguard one for the workplace plan) and covering the foreign stock with my roth and hsa (also fidelity free fund). Having a target date fund in the workplace plan alone seems to make things more complex for overall asset allocation and also very slightly more expensive. I realize this approach would probably require a yearly revisit as I would build more 500 index than foreign (maybe that’s why you’re saying to do the target fund in the workplace plan). Thoughts on this?

3. You are recommending funds that are not the fidelity free funds (with no expense ratio). I am very open to what fund to choose. Do you think the free funds are bogus or won’t perform as well? Can you help me understand your background reason? I want to make the right choice long term.

4. I will ask if I can do different funds in the Roth 401k, good question, it is hard for me to separate pretax and Roth 401k balances and investments in the fidelity account which is annoying me, so the answer might be no but I will find out.
backpacker61
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Re: Portfolio Advice

Post by backpacker61 »

spinzard wrote: Fri Jun 02, 2023 9:43 am Rollover IRA: $360,500, 62.8% of portfolio: change to FZROX (zero total market)
Workplace savings: $41,806, $7.3% of portfolio: keep in VANG INST 500 IDX TR (good choice for what's available)
spinzard wrote: Fri Jun 02, 2023 9:43 am Roth IRA: $125,306, 21.8% of portfolio: change to FZILX (zero international index)
HSA: $46,598, 8.11% of portfolio: change to FZILX (zero international index)
You have 100% of your tax-deferred investments (Rollover+Workplace plan) in US equities, and 100% of your tax-free investments (Roth IRA+HSA) in ex-US equities.

Not sure if that's intentional, and it's not a huge deal, but given that the US equity market has generally had higher returns than ex-US equities, I would want at least part of my tax-free holdings to be US equities. You can compensate by adding ex-US equities into one of the tax-deferred workplace accounts (Rollover or pre-tax Workplace plan).

This would be a great ex-US choice within your workplace plan.
spinzard wrote: Fri Jun 02, 2023 9:43 am BNYM Mellon NSL International Stock Index Fund Institutional Class 0.05%
Last edited by backpacker61 on Sun Jun 04, 2023 5:54 am, edited 1 time in total.
“Now shall I walk or shall I ride? | 'Ride,' Pleasure said; | 'Walk,' Joy replied.” | | ― W.H. Davies
backpacker61
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Re: Portfolio Advice

Post by backpacker61 »

spinzard wrote: Sun Jun 04, 2023 4:51 am 1. I just realized my financial advisor encouraged me to change a portion of my 401k contributions to Roth 401k and that now I’m not going to reach the max pre-tax contribution allowed for the year. I think the best course is to change my pre-tax contributions back to max out for the year and only do Roth 401k for any additional money I can afford to save beyond the pre-tax contributions. Am I missing anything here?
This is my first time messing with Roth 401k
The 401(K) contribution limit ($22,500) includes both your pre-tax and Roth contributions.

The sum of those two added together must be less than $22,500.
spinzard wrote: Sun Jun 04, 2023 4:51 am 3. You are recommending funds that are not the fidelity free funds (with no expense ratio). I am very open to what fund to choose. Do you think the free funds are bogus or won’t perform as well? Can you help me understand your background reason? I want to make the right choice long term.
While I don't own any myself, I think the Zero funds are fine for holding in a tax-advantaged account. I own FSKAX which is similar but not a Zero fund.
“Now shall I walk or shall I ride? | 'Ride,' Pleasure said; | 'Walk,' Joy replied.” | | ― W.H. Davies
HomeStretch
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Re: Portfolio Advice

Post by HomeStretch »

What are your marginal tax rates for Federal and, if any, state?

Are you making maximum annual contributions to a Roth IRA, either directly or via a backdoor Roth?

Does your 401k Plan offer a mega backdoor Roth (MBR)?
spinzard wrote: Sun Jun 04, 2023 4:51 am … 1. I just realized my financial advisor encouraged me to change a portion of my 401k contributions to Roth 401k and that now I’m not going to reach the max pre-tax contribution allowed for the year. I think the best course is to change my pre-tax contributions back to max out for the year and only do Roth 401k for any additional money I can afford to save beyond the pre-tax contributions. Am I missing anything here?
This is my first time messing with Roth 401k …
The decision whether to make Traditional or Roth 401k employee elective deferrals starts with comparing your marginal tax rate now at contribution to your projected marginal tax rate at withdrawal in retirement. If your marginal tax rate now is lower, Roth 401k contributions likely make sense. If higher, Traditional 401k contributions likely make sense. This ‘Traditional v Roth’ BH wiki page may be helpful:
https://www.bogleheads.org/wiki/Traditional_versus_Roth

If you have additional money after making the maximum 401k elective deferrals to contribute to retirement savings, first do a Roth IRA contribution, if feasible. You can then contribute additional funds to your 401k via after-tax contributions converted/rolled over to Roth 401k/Roth IRA if your Plan offers a MBR. If your Plan only allows after-tax contributions without the ability to convert/rollover to Roth, skip it and contribute to a Taxable account instead. Your equity dividends/growth in a 401k after-tax account will be taxed as ordinary income while the same in a Taxable account is subject to the lower capital gains tax rate and receives a step-up on basis at death for your heirs.
… 2. In regards to my entire portfolio, I was thinking simplification would mean investing all of my Rollover IRA and workplace plan in a 500 index (the fidelity free one for the rollover and the vanguard one for the workplace plan) and covering the foreign stock with my roth and hsa (also fidelity free fund). …
For simplification, consider rolling your Rollover IRA into your 401k, if it accepts rollovers in. If you ever need to use a backdoor Roth for annual Roth IRA contributions, this will allow you to do so without being subject to pro-rated taxes.
backpacker61
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Re: Portfolio Advice

Post by backpacker61 »

HomeStretch wrote: Sun Jun 04, 2023 5:53 am For simplification, consider rolling your Rollover IRA into your 401k, if it accepts rollovers in. If you ever need to use a backdoor Roth for annual Roth IRA contributions, this will allow you to do so without being subject to pro-rated taxes.
+1
I was going to suggest the same thing. You have excellent choices in your employer plan, so it would simplify your accounts and enable you to do backdoor Roth conversions at some point if you have all your pre-tax retirement accounts transferred into your current employer's plan.

I did that myself; I have employer-sponsored retirement plan balances from 3 different prior employers rolled into my current employer's retirement savings plan, so I can do backdoor traditional IRA -> Roth IRA conversions without the complication of pro-rata taxes on conversions.
“Now shall I walk or shall I ride? | 'Ride,' Pleasure said; | 'Walk,' Joy replied.” | | ― W.H. Davies
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ruralavalon
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Re: Portfolio Advice

Post by ruralavalon »

spinzard wrote: Sun Jun 04, 2023 4:51 am I have a few questions:

1. I just realized my financial advisor encouraged me to change a portion of my 401k contributions to Roth 401k and that now I’m not going to reach the max pre-tax contribution allowed for the year. I think the best course is to change my pre-tax contributions back to max out for the year and only do Roth 401k for any additional money I can afford to save beyond the pre-tax contributions. Am I missing anything here?
This is my first time messing with Roth 401k
In my opinion it's wise to try to make the maximum annual employee deferrals each year ($22.5k) (the employer match, which is also pre-tax, does not count toward the employee maximum, it's extra).

This is because you are in the 32% tax bracket. I think it's a good idea to stop Roth 401k contributions in favor of traditional tax-deferred for the rest of the year.

The total employee contributions to the 401k (that is, traditional tax-deferred plus Roth) cannot total more than $22.5k.

To be clear your non-Roth, after-tax contributions (for the Mega Backdoor Roth) are not subject to that $22.5k limit.

Planning for the allocation of next year's contributions to the 401k plan should be easier.


spinzard wrote: Sun Jun 04, 2023 4:51 am2. In regards to my entire portfolio, I was thinking simplification would mean investing all of my Rollover IRA and workplace plan in a 500 index (the fidelity free one for the rollover and the vanguard one for the workplace plan) and covering the foreign stock with my roth and hsa (also fidelity free fund). Having a target date fund in the workplace plan alone seems to make things more complex for overall asset allocation and also very slightly more expensive. I realize this approach would probably require a yearly revisit as I would build more 500 index than foreign (maybe that’s why you’re saying to do the target fund in the workplace plan). Thoughts on this?
If you decide use the target date fund in your employer plan, then I suggest target date funds in all accounts for simplicity and ease of portfolio management.

You are right that a target date fund in just the employer plan, and a collection of index funds in the other accounts, makes maintaining the desired asset allocation more difficult.


spinzard wrote: Sun Jun 04, 2023 4:51 am3. You are recommending funds that are not the fidelity free funds (with no expense ratio). I am very open to what fund to choose. Do you think the free funds are bogus or won’t perform as well? Can you help me understand your background reason? I want to make the right choice long term.

In their short history the Fidelity® ZERO index funds have had almost identical performance as regular index funds, the tiny difference in expense ratios having had no discernable impact.

Portfolio Visualizer, Total (U.S.) stock market index funds

Portfolio Visualizer, Total international stock index funds

White Coat Investor, Does Expense Ratio Really Matter?. "Yes, they matter, but not very much. And in fact, once you've gotten down to differences of less than 10-20 basis points, they matter a whole lot less than some other things."

In the tax-advantaged accounts you can switch between the fund types without any tax consequences. I don't see any problem with using Fidelity® ZERO funds in your IRAs with Fidelity, I just don't see any benefit.

You did not list the Fidelity ® ZERO funds as being offered in your employer's plan, but they couldo be used in Fidelity IRAs
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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spinzard
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Re: Portfolio Advice

Post by spinzard »

First, for clarity, my wages will be about $135k gross this year and my AGI last year was about $90k. I am still well in the bounds of doing a Roth anyway, at least for now. I wonder if this affects any of the recommendations?

Even so, i am leaning toward changing my 401k back to all pre-tax contributions and make sure it maxes at $22,500.

Next, i am also leaning toward moving the Rollover IRA into the 401k as recommended. This would make the balance ~$408k in my workplace plan which is 70% of my portfolio so i think it would be best kept in the BlackRock LifePath® Index 2050 Fund N 0.06% since i'm 38 assuming retirement at 65.

The remaining accounts are:
Roth IRA: $126k/22% of portfolio
HSA: $47k/8% of portfolio

Maybe for these two, i could use this suggested option: Fidelity Freedom® Index 2055 Investor (FDEWX) ER 0.12%? Any other suggested options?

Thanks!!!
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Re: Portfolio Advice

Post by ruralavalon »

spinzard wrote: Mon Jun 05, 2023 8:42 am . . . . .


Next, i am also leaning toward moving the Rollover IRA into the 401k as recommended. This would make the balance ~$408k in my workplace plan which is 70% of my portfolio so i think it would be best kept in the BlackRock LifePath® Index 2050 Fund N 0.06% since i'm 38 assuming retirement at 65.

The remaining accounts are:
Roth IRA: $126k/22% of portfolio
HSA: $47k/8% of portfolio

Maybe for these two, i could use this suggested option: Fidelity Freedom® Index 2055 Investor (FDEWX) ER 0.12%? Any other suggested options?

Thanks!!!
I think that is a good plan.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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Portfolio Advice Round 2

Post by spinzard »

[Thread merged into here --admin LadyGeek]

I am back with a follow up question, as my financial advisor has made me question my plan:

I currently have:
$43k BTC LPATH IDX 2050 N (ER .06%) in my workplace 401k which is maxed yearly

I also have:
$129k Roth IRA
$372k Rollover IRA
$48k HSA

I am looking to clean up my portfolio and choose new funds for the Roth, Rollover and HSA, all low-cost target date funds.

My initial plan was to rollover the Rollover IRA into my 401k and use the same blackrock target date fund mentioned above, however:

-my financial advisor says not to do this and suggested these funds for the IRA focusing on their performance net expense ratios:
Fidelity Freedom 2050 Fund FFFHX (ER .75%), T. Rowe Price Retirement 2050 Fund TRRMX (ER .63%), Fidelity Asset Manager 85% FAMRX (ER .69%) or MFS Aggressive Growth Allocation Fund Class MAAGX (1.01%)
-I will not be doing a backdoor roth very soon, my AGI is <$100k
-I am concerned about hidden costs in the 401k

Another option would be to keep the Rollover IRA and invest that and the Roth and HSA into Fidelity Freedom® Index 2055 Investor (FDEWX) ER 0.12% or another fund?

What would you do?
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Wiggums
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Re: Portfolio Advice Round 2

Post by Wiggums »

Your advisor is wrong. Why do you need more than one fund if you currently have a single target date fund? Furthermore, the recommended funds have much higher costs. Say goodbye to the advisor.
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Re: Portfolio Advice Round 2

Post by MrBobcat »

spinzard wrote: Tue Jun 13, 2023 11:27 am
My initial plan was to rollover the Rollover IRA into my 401k and use the same blackrock target date fund mentioned above, however:

-my financial advisor says not to do this...
I'm assuming if you roll over the IRA into your 401k your advisor will no longer get his fee on the IRA account? If so you can probably figure out why he says not to do this.
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Re: Portfolio Advice Round 2

Post by spinzard »

Wiggums wrote: Tue Jun 13, 2023 11:34 am Your advisor is wrong. Why do you need more than one fund if you currently have a single target date fund? Furthermore, the recommended funds have much higher costs. Say goodbye to the advisor.
the advisor was providing those 4 funds as choices intending that i choose one of them.

Would you still rollover the IRA into the 401k? Or just invest leave it and choose a different target date fund?
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Re: Portfolio Advice Round 2

Post by spinzard »

MrBobcat wrote: Tue Jun 13, 2023 11:39 am
spinzard wrote: Tue Jun 13, 2023 11:27 am
My initial plan was to rollover the Rollover IRA into my 401k and use the same blackrock target date fund mentioned above, however:

-my financial advisor says not to do this...
I'm assuming if you roll over the IRA into your 401k your advisor will no longer get his fee on the IRA account? If so you can probably figure out why he says not to do this.
He told me that his commission is based on survey results alone and that his clients are approved based on the size of their overall portfolio. i don't know anything about fees.... i wonder if there is a place in my account i can check for that? i didn't think there were any.
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Re: Portfolio Advice Round 2

Post by Hacksawdave »

I am guessing your advisor gets paid for Assets Under Management (AUM fee) and having the IRA roll into the 401k amounts to a pay cut for him by reducing your account balance under his wing. If you are concerned about the 401k fees, they should be detailed in the Summary Plan Description (SPD) document that is required by law to be available to you through your employer.
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Re: Portfolio Advice

Post by LadyGeek »

spinzard - In order to provide appropriate advice, it's best to keep all the information in one spot. I merged your update back into the original thread. If you have any questions, ask them here.

(Thanks to the member who reported the post and provided a link to this thread.)
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Re: Portfolio Advice

Post by HomeStretch »

Your advisor is not impartial. It’s more financially lucrative for the advisor if you keep the IRA and are charged an advisor fee and high ERs. Investment costs matter. Ignore the advisor-noise, rollover the IRA into your 401k and use one or two low-cost funds. Doing so gives you the added benefits of (1) one less account to manage, (2) lower investment costs and (3) won’t interfere with a backdoor Roth should you need to use it in the future.
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Re: Portfolio Advice Round 2

Post by ruralavalon »

spinzard wrote: Tue Jun 13, 2023 11:27 am
My initial plan was to rollover the Rollover IRA into my 401k and use the same blackrock target date fund mentioned above, however:

-my financial advisor says not to do this...
Your employer's plan offers excellent very diversified index funds with very low expense ratios, you are fortunate. So your original plan to rollover the IRA into your 401k account is a very good idea.

Your advisor is wrong.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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Re: Portfolio Advice

Post by spinzard »

Thank you for the confirmation! i called today to confirm there are two annual fees for recordkeeping and admistration of $33 and $10 each on my 401k that do not change based on the balance and no other costs i should incur from moving the funds into the 401k. I cashed everything in and was told to call on Friday to execute the rollover.

Thanks again for your help, i didn't want to miss anything.
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Re: Portfolio Advice Round 2

Post by dogagility »

spinzard wrote: Tue Jun 13, 2023 11:27 am What would you do?
I wouldn't listen to your advisor.

The best predictor of fund performance within a class is the expense ratio - lower ER predicts a higher rate of return.
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Re: Portfolio Advice

Post by ruralavalon »

spinzard wrote: Wed Jun 14, 2023 12:00 pm Thank you for the confirmation! i called today to confirm there are two annual fees for recordkeeping and admistration of $33 and $10 each on my 401k that do not change based on the balance and no other costs i should incur from moving the funds into the 401k. I cashed everything in and was told to call on Friday to execute the rollover.

Thanks again for your help, i didn't want to miss anything.
In my opinion those fees are inconsequential.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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