Asking for Mutual Fund Advice for IRAs

[Dan4495]

Hello FIRE members,

I am a 62 yr old married male and retired last December. I’ve just now rolled my 401K over to a Fidelity IRA ($2.0M) and Roth IRA ($70K). I’ll manage my own investments and need to make my fund selections. I’ve had good performance in the past on my employer’s 401k with primarily Vanguard and T Rowe Price funds. At least some of those funds are closed to new investors and others require a minimum investment higher than I have.

I’m asking for recommendations from this group on what funds I should consider including in these two IRAs which represent about 60% of my total retirement accounts. The rest are in my wife’s 401k ($750K) and in inherited IRAs ($500K).

My investment goals are growth and income. My planned mix is roughly as follows (and I’m receptive to differing opinions):

Large cap growth. 20%
Mid cap growth. 15%
Small cap value. 10%
International growth. 15%
Emerging Mkts. 10%
Bonds. 20%
Cash. 10%

I’d appreciate any specific fund recommendations in any of these classes or
others. Please let me know if you have any questions. Thanks in advance for any advice, as I value the vast collective knowledge of the members of this forum.

Dan

 

[Happyras]

You will get the typical Boogle head spread, or Paul Merriman allocation from most I would assume. Some allocation of the 4 fund VXUS, VTI, BND and BNDX or similar at FIDO.

My 2 cents, take a look at FBCG, FBCV and FMIL Fidelity ETF's active and use MINT, VCSH, NEAR, and or ICSH for bonds for now. You might add some PFF or PGX preferreds as an alternative for yield with some risk. I am not a fan of international, but there are simple options for both or just get VXUS.

The preferreds give you that "income" you noted. Not really necessary to take dividends for income, but it pays consistently without liquidation at market risk.

Lot of the funds you had in the 401K were likely active with moderate fees, you now can get active funds with low fees or passive funds with 0 fees at Fidelity. The web site is pretty good. PaulMerriman.com has Fidelity fund and ETF picks for similar allocations you may want to look there.

 

[mrfeh]

https://www.bogleheads.org/wiki/Fidelity

 

[OldShooter]

1) You really should look at your portfolio in total, not at just at one account. No one here can give you useful advice unless your allocation in this one account almost exactly matches your overall allocation.

2) It's pretty much settled science that broadly invested, low cost index funds are the winning strategy for equities and that actively managed funds are losers over time. Brief videos here:
https://famafrench.dimensional.com/videos/is-this-a-good-time-for-active-investing.aspx
https://famafrench.dimensional.com/videos/identifying-superior-managers.aspx

That's why the majority of the market is held by index investors. I am not a bond guy and don't buy bond funds, but I think the argument for bond index funds is not as clear as it is for equities. Someone with more bond expertise will undoubtedly be along soon.

3) Your AA is 70/30. Nothing wrong with that IMO, given your age and assets but 60/40 seems to be more popular here. AA is highly dependent on your assets, your needed income from assets, your desire to leave an estate, etc. There are no simple rules that are helpful, including those "subtract your age from xx" ones.

 

[Happyras]

This may be of help to play with many funds. To OldShooters point, in general index funds perform as an overall winning strategy. But I got to say some active funds have done very well for a very long time.
https://stockcharts.com/freecharts/perf.php?VWIAX,VWENX,SPY,VFIAX,FBGRX,VTI,VTSAX

 

[Animorph]

I'm pretty similar. Here's my default Fidelity retirement account funds:

25% FXAIX - S&P 500 index
25% FSMAX - Total U.S. minus S&P 500 Index (boosts the medium and small cap exposure)
25% FSGGX - Global minus U.S. Index, including emerging markets
25% FXNAX - U.S. Bond Index

The Fidelity Zero funds would also be good. I use FZROX in my taxable account to avoid wash sale problems with the retirement accounts. Along the same lines, FSPSX is the international fund I use in the taxable account since it is a little different than FSGGX.

With all Fidelity funds it is super easy to rebalance using the exchange trade option.
With broad index funds I don't have to spend any time researching market sectors or fund performance.
With just a few funds they are easy to track, easy at tax time, and easy to maintain.
I don't feel like my performance has been any different than when I was in individual stocks or >30 mostly active mutual funds at different stages in my investing life. But what I have now is much much easier to work with.

 

[OldShooter]

This may be of help to play with many funds. To OldShooters point, in general index funds perform as an overall winning strategy. But I got to say some active funds have done very well for a very long time.
https://stockcharts.com/freecharts/perf.php?VWIAX,VWENX,SPY,VFIAX,FBGRX,VTI,VTSAX

Yup, all true. Over 10 years, accounting for survivorship bias and depending on sector, something like 5% +/- of acive funds outperform their indexes. Here is a chart I use in my Adult-Ed classes:

​

This chart is based on data from an S&P SPIVA report. These have been published seminannually for almost 20 years and the conclusion is always the same: very few actively managed funds outperform. Using the rear-view mirror they are very easy to spot, though, as your link illustrates.

So then the question becomes "How do we pick these outperformers ahead of time?" Unfortunately, the answer is "Nobody knows." The hucksters selling actively managed funds will tout their track records over some cherry-picked time period. Here is another class chart that tells the real story:

​

What this shows is an analysis of five years' results, identifying the top fifth of funds, then how those funds performed in the subsequent five years. Again, S&P publishes a semiannual ""Manager Persistence" report. This data is from one of the reports but like the SPIVA reports the manager persistence reports all reach the same conclusion: There is no persistence. When they say "Past performance does not predict future results" they are stating settled science. Good video here: https://famafrench.dimensional.com/videos/identifying-superior-managers.aspx

One interesting thing on this chart is that only 16% of the five year top performers ended up in the top fifth during the second five years. Pure random chance would predict 20%. Theories on the reasons for this abound. One credible one is the "winners curse" where too much money came flooding in and the manager couldn't handle it. Edit: Another is simple reversion to the mean.

 

[davebarnes]

Simplify
https://www.bogleheads.org/forum/viewtopic.php?f=10&t=88005

 

[Dan4495]

You will get the typical Boogle head spread, or Paul Merriman allocation from most I would assume. Some allocation of the 4 fund VXUS, VTI, BND and BNDX or similar at FIDO.

My 2 cents, take a look at FBCG, FBCV and FMIL Fidelity ETF's active and use MINT, VCSH, NEAR, and or ICSH for bonds for now. You might add some PFF or PGX preferreds as an alternative for yield with some risk. I am not a fan of international, but there are simple options for both or just get VXUS.

The preferreds give you that "income" you noted. Not really necessary to take dividends for income, but it pays consistently without liquidation at market risk.

Lot of the funds you had in the 401K were likely active with moderate fees, you now can get active funds with low fees or passive funds with 0 fees at Fidelity. The web site is pretty good. PaulMerriman.com has Fidelity fund and ETF picks for similar allocations you may want to look there.

Thanks! After a little research I’m leaning toward going with VTI, VXUS, BND, and VOO, or might sub FIDO FSKAX for VTI as it has a lower expense ratio (0.015% vs. 0.03%).

 

[Dan4495]

1) You really should look at your portfolio in total, not at just at one account. No one here can give you useful advice unless your allocation in this one account almost exactly matches your overall allocation.

2) It's pretty much settled science that broadly invested, low cost index funds are the winning strategy for equities and that actively managed funds are losers over time. Brief videos here:
https://famafrench.dimensional.com/videos/is-this-a-good-time-for-active-investing.aspx
https://famafrench.dimensional.com/videos/identifying-superior-managers.aspx

That's why the majority of the market is held by index investors. I am not a bond guy and don't buy bond funds, but I think the argument for bond index funds is not as clear as it is for equities. Someone with more bond expertise will undoubtedly be along soon.

3) Your AA is 70/30. Nothing wrong with that IMO, given your age and assets but 60/40 seems to be more popular here. AA is highly dependent on your assets, your needed income from assets, your desire to leave an estate, etc. There are no simple rules that are helpful, including those "subtract your age from xx" ones.

Thanks!
1). Yes I have considered my full portfolio at arriving at the planned mix. The other accounts are more conservative, with about 45% equities, and the rest bond funds, cash and alternatives. We’re taking required MRD on $500K in inherited IRAs, thus the reduced risk and volatility. That’s why I am dialing up the equities in these IRAs.
2). Yes, after minimal research I’m learning that broad index funds are the best option for me. Great diversification, less need for active management with only annual rebalancing.
3). Both my wife and I have pensions (combined $80K/yr) and together will draw about $50K/yr. from social security at 67, so combined with our inherited IRA distributions of $22K/yr, we will have a safe low withdrawal rate from these IRAs. The Monte Carlo simulations show our nest egg will grow in the vast majority of the simulations, but of course I know past results are not a guarantee of future performance.

 

[Dan4495]

I'm pretty similar. Here's my default Fidelity retirement account funds:

25% FXAIX - S&P 500 index
25% FSMAX - Total U.S. minus S&P 500 Index (boosts the medium and small cap exposure)
25% FSGGX - Global minus U.S. Index, including emerging markets
25% FXNAX - U.S. Bond Index

The Fidelity Zero funds would also be good. I use FZROX in my taxable account to avoid wash sale problems with the retirement accounts. Along the same lines, FSPSX is the international fund I use in the taxable account since it is a little different than FSGGX.

With all Fidelity funds it is super easy to rebalance using the exchange trade option.
With broad index funds I don't have to spend any time researching market sectors or fund performance.
With just a few funds they are easy to track, easy at tax time, and easy to maintain.
I don't feel like my performance has been any different than when I was in individual stocks or >30 mostly active mutual funds at different stages in my investing life. But what I have now is much much easier to work with.

Thanks so much for sharing your funds and allocation. Your portfolio looks very similar to what I plan to do, so it’s great to hear it has performed well for you. I’m considering the FIDO Zero funds as well. It looks like a set it and forget it portfolio, aside from annual rebalancing.