I'm taking over my IRA management

[skipro33]

I've been disappointed in my IRA performance over the past year, allowing Fidelity to manage my portfolio. Not including their fee of 1% of the fund's total value annually, I'm down -1.1% for the past year and down a whopping -3.3% YTD.
During the same time periods, a 60/40 blend of S&P 500 Index/ Bloomberg Barclays Municipal Bond Index has a value of +3.5% for the past year and +1% YTD. (near as I can estimate off my head)
To me, that is a pretty significant difference of 5.6% for the past year and 5.3% YTD.

Maybe I'm not giving them enough time to prove their worth, but the whole purpose of allowing them to manage my account was to alleviate my fear of making investment choices that yielded significantly less than the market without some sort of protections. I pretty much lost confidence that they are doing anything more than padding their own exclusive funds based on a some generic computer model selected because of how I answered a few questions they asked me.

So here's the thing; I do not need to touch my IRA until RMD time. I do fine on my pension and SS. I have about $30,000 in my checking account; an amount that has steadily grown to that amount since I retired 6 years ago and simply do not spend all I rake in each year.

I'd like to just roll my IRA to a 60/40 split of S&P 500 index and a bond fund. I can not find any Fidelity funds that can top the S&P index over any real length of time, so I figure why bother, just put it in the index fund for my equity allocation. I know nothing about bond funds though and simply chose the Bloomberg Barclays Municipal Bond Index for it's long term stability.

First; does it sound to you all that I am making a relatively intelligent decision to take the management of my IRA away from Fidelity and put it into the allocations and funds I mentioned?
Second; can anyone inform me of any better options for a 60/40 split for funds?
Third; should I be considering anything other than a 60/40 split?

When I start drawing RMD's, I'll probably start spending down this IRA, enjoying trips, helping grand kids with college, wedding gifts, donations to charities I am involved with, etc. I also plan on the bulk of this account to fund any long term health needs me or DW may need for the future. Right now, my father has Alzheimers and was bilked out of his life savings before my brother and I could step in and take over his finances and living arrangements. I do not want my kids to be burdened this way, financially.

I also have about $800,000 in my paid-off home equity. I figure that would be inheritance for my children, so growing the IRA for that is not necessary in my opinion. It's for my and DW's amusement and health care if needed.

 

[RunningBum]

The bond fund looks like it's tax exempt. That's a poor choice for an IRA, because you don't pay taxes on the dividends in that account anyway, so you're getting the lower tax-exempt return for no benefit. But you will pay taxes when you withdraw the funds from the IRA later, even the money that was earned tax-exempt.

 

[davebarnes]

I think you should be 80/20

 

[travelover]

I think it is entirely reasonable. I just use a lazy portfolio of 60/40 with stocks split evenly between US, International and Small/ Midcap and a bond fund. They are in a spread sheet, so all I need to do is type in the current values and it calculates what to buy and sell to re-balance. Takes less than an hour a year even with fooling around manually typing.

 

[Red Badger]

I think managing your IRA is the best thing one can do. Fido's FA has the same job as every FA; make your money their money. I am a proud member of the couch potato investors club. 2 equity index funds - 2 bond funds. Yup, it's complicated.

 

[RunningBum]

Re: your 60/40 split. You don't say how old you are, how far you are from withdrawing the funds, and most importantly, what you have outside of the IRA. Or is it just the $30K checking account, along with pension + SS which is meeting your needs? Your AA should be based on your whole portfolio, not just within a single account. I'd never give an opinion without full info.

 

[Dtail]

Fidelity has many low cost index funds for equities and bonds. Did you check them out?

How much time do you wish to put in to manage your investments? i.e. do you wish to chase yields on the bond side ex CD Ladders/various one off online savings deals etc?

How much risk do you wish to have i.e. this could help decide your AA.

As an aside, as your checking account is building, perhaps consider using an online bank where the yields are ~2% and FDIC protected for your balance.

 

[ERD50]

For a 60/40 at Fidelity in an IRA, you can simply go FSKAX (was FSTMX) and FTBFX. I can see no reason to pay Fidelity 1% for this.

But regarding any under-performance, the market as been volatile lately, you would need to match exact dates and exact AA balance to compare. Regardless, there is no evidence they will outperform your simple 60/40 pick, especially after that 1% fee.

Maybe I'm not giving them enough time to prove their worth, but the whole purpose of allowing them to manage my account was to alleviate my fear of making investment choices that yielded significantly less than the market without some sort of protections.

To be fair, it may not be enough time, but I don;t think it matters (see above). But I really don't think they manage your account to avoid drops. They do not have a crystal ball. Well, OK, their crystal ball says they will collect 1% of your funds every year. That's the only thing that is certain.

And as RunningBum mentioned, no reason for a muni bond fund in an IRA. Munis will pay power divs apples-to-apples due to their tax advantage. They may make sense for those in a high tax bracket, never in an IRA.

-ERD50

 

[Bamaman]

You know, 1% of $1,000,000 is a lot of money for very little returns. .75% mutual fund charges also mount up over the years

 

[HI Bill]

So here's the thing; I do not need to touch my IRA until RMD time. I do fine on my pension and SS. I have about $30,000 in my checking account; an amount that has steadily grown to that amount since I retired 6 years ago and simply do not spend all I rake in each year.

I'd like to just roll my IRA to a 60/40 split of S&P 500 index and a bond fund.

First; does it sound to you all that I am making a relatively intelligent decision to take the management of my IRA away from Fidelity and put it into the allocations and funds I mentioned?
Second; can anyone inform me of any better options for a 60/40 split for funds?
Third; should I be considering anything other than a 60/40 split?

Since you're 62, and have roughly 8 years until your RMDs (~9 until your wife's), AND you don't need to touch your investments for your annual spend, I think it's entirely reasonable to do what you're suggesting! Why pay the extra percent for likely no gain? With your investment horizon, emergency fund, and lack of need to tap the funds anytime within the next 8 years, I'd go a bit less conservative (70/30, 80/20, or even 90/10), as long as you don't mind the bumpy ride! Good luck!

 

[pb4uski]

I'd move it to FPURX (~65/35, 3.23% YTD) and declare victory.

 

[RobbieB]

I've fired guys that did better than your guy.

 

[skipro33]

Wow! Thanks to everyone for the input. Any suggestions on bond funds that would be a better fit for my situation?
Answering questions to me; I am 62 as NHL Bill discovered, I won't need, nor plan to draw on this IRA until RMD age, I have a couple other smaller IRA's as does my wife that total maybe $40,000 total. My pension covers all my expenses since I retired 6 years ago and has a 5% COLA, I started SS this month that gives me another $2,000 a month that I plan to spend on fun 'stuff' and continue to grow my checking account that stands at $30,000. I stand to inherit $50,000 in the next 2 or 3 years. My home market valuation (not a formal appraisal) from a real estate agent is right at $800,000 and fully paid for. (Paid off my mortgage by age 45). My medical expenses are covered under my pension as well.

I tend to make big expenses on improving my home. Added solar, a guest studio, adding a barn this fall, replaced asphalt driveway with paver stones, etc. When I tire of caring for this place, plan to sell and move to Maui before coming back to California and living in an independent senior community. (20 years out or more)

I agree that I probably could and should be a little more aggressive than 60/40 on this IRA when I consider all my assets. I do realize I don't really need to, but hey! if there's money to be made, why not? Because I don't rely on this money, I suppose I am more comfortable taking risk on it than I was when I was earning and saving it. And when looking at my total financial picture, maybe an 80/20 split would be right.

 

[Oz investor]

one caution

doing it yourself , can lead to greater temptations ( and worries about getting it wrong )

good luck

 

[aja8888]

one caution

doing it yourself , can lead to greater temptations ( and worries about getting it wrong )

good luck

I'd rather pay myself to make bad decisions rather than a FA.

 

[38Chevy454]

I'd move it to FPURX (~65/35, 3.23% YTD) and declare victory.

Agree, or you can also use FBALX which is very close to FPURX. Both are blended funds with approx 60/40 allocation ratios.

 

[DrRoy]

60/40 stock/bonds at Fido is very close to where I am. Only exception is that I have the bonds in an individual ladder instead of a fund.

 

[alaska55]

Wow 5% cola,now that wouldn't be a state govt or local govt type pension, of course it's cali, and no I'm not blaming you but who in the hell gives 5% cola's. If they want to give I wouldn't turn it down.

 

[Golden sunsets]

I would not pay a fee to anyone to manage my funds, however I'd be willing to bet that some of the reason for the poorer performance of your portfolio this year is that your equity portion is likely invested in more than just the S&P, e.g. foreign, small cap, emerging markets, real estate and/or commodities. All of these categories have underperformed the S&P this year, so you are comparing apples to oranges.


Sent from my iPad using Early Retirement Forum

 

[Dtail]

I would not pay a fee to anyone to manage my funds, however I'd be willing to bet that some of the reason for the poorer performance of your portfolio this year is that your equity portion is likely invested in more than just the S&P, e.g. foreign, small cap, emerging markets, real estate and/or commodities. All of these categories have underperformed the S&P this year, so you are comparing apples to oranges.


Sent from my iPad using Early Retirement Forum

+1 - that is what is happening to me too.

 

[audreyh1]

Wow! Thanks to everyone for the input. Any suggestions on bond funds that would be a better fit for my situation?

You could just use a bond index fund.

Some folks like the Fidelity Total Bond fund as an alternative to the more conservative Fidelity US Bond Index fund.

I prefer the Bond Index fund as it has a higher credit quality which provides a little more protection when equities stumble. It also has a much lower expense ratio.

 

[DEC-1982]

During the same time periods, a 60/40 blend of S&P 500 Index/Bloomberg Barclays Municipal Bond Index has a value of +3.5% for the past year and +1% YTD. (near as I can estimate off my head)

I don't know the Municipal Bond Index but the benchmark often used is Total Stock Market/Total Bond market (60/40).

Vanguard has the Balanced Index Fund, if you don't want to have 2 funds. For comparison, today it shows 2.21% YTD and 3.29% 1-year. I expect Fidelity has an equivalent fund so you don't have to calculate/estimate the return.

 

[kgtest]

Yep, you are in your right mind. I pay .065% in expense rations on my DIY portfolio.

Only about 13% of my portfolio is straight equities. If you had 1mil invested the difference is about $3500. So in about ten years you save yourself $7-10k over maybe a 15year period assuming it took 10years to accumulate 1mil and another 5 to double it.

But THEN look at the opportunity cost, you said it's about a 6-7% difference in the benchmark compared to the managed return. That opportunity cost makes it a no brainer. I am like 7.3% ytd, on pace with the Nasdaq at 100% equities, so yeah you should be up at least 2-3% with that A/A.

 

[RonBoyd]

FWIW: https://www.thestreet.com/story/14384738/1/why-the-60-40-asset-allocation-rule-is-dead.html

The premise of a 60/40 stock/bond mix dates back from a strategy devised by pension funds and the mix was intended to produce stable growth with bonds "cushioning" the risks of the volatility in the stock market, said Robert Johnson, president of The American College of Financial Services in Bryn Mawr, Pa.

"Some people mistakenly want to translate the 60/40 mix from the pooling of risks setting in the defined benefit world to the defined contribution plan world in which there is no pooling of risks," he said.

The mainstay strategy of investing 60% of your portfolio into stocks and another 40% into bonds is not only outmoded, but also does not generate enough income for many people as lifespans have increased. … "The obvious current problem is that while bonds provide crash protection, they are pretty much dead weight in terms of portfolio performance," he said.

 

[skipro33]

Wow 5% cola,now that wouldn't be a state govt or local govt type pension, of course it's cali, and no I'm not blaming you but who in the hell gives 5% cola's. If they want to give I wouldn't turn it down.

This is through a municipal utility district; local electric company in Sacramento, CA. The funny thing is; the electric rates are less than half what the majority of the rest of California pays through the private utility company PG&E. Proof that a government run ANYTHING is more economical than a privately run anything.

Anyways, I was on the contract negotiating team way back then. We negotiated 5% COLA w/ 2%@55 with retirement as early as 50 with reduced benefits. The union represented linemen and other outdoor labor, not office clerical or management. By age 50, you are pretty stoved up to be climbing poles in inclement weather or heat, so they want to either promote or retire you out. They can't force you out, so they buy you out with a retirement benefit such as that COLA. I tried to get 2%@50 and 2.5%@55 but never could. Did get good medical retirement benefits though; fully vested in pension and medical after 5 years and age 50.

Not that way for new hires, but back in the 80's, that was the package. Hourly wage was less than private wage and that was a tough one for hiring young men into the field; they don't think about retirement benefits. And as a governmental entity, all the rate payers and voters looked at was wages.