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Moving to Fidelity and going with a simple portfolio.
Old 01-30-2024, 10:39 AM   #1
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Moving to Fidelity and going with a simple portfolio.

I've been with my FA since retirement (5 years) but I decided to go it on my own and move everything to Fidelity. I'm planning on going with a simple portfolio, but of course nothing is totally simple. I have two questions that I'm hoping you can help with.

First, which funds and how many. I'm thinking total stock market for my equity position and I'm on the fence about including any International exposure. For bonds, the question is whether or not to pick a duration or just go with BND.

Second, what should the makeup be at the account level. I'm thinking I should make my ROTH 100% equity and then fill in the IRA's to complete the desired AA. My Joint/After tax account has some individual stocks with $20K in gains so I'll have to manage that, but I think that account should be mostly cash/CD's (short term/liquid) to cover 2-3 years expenses.

Thoughts?
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Old 01-30-2024, 11:07 AM   #2
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I think your plan sounds good.

Here is what we do:

1. All stocks in Roth (S&P 500 index only, Total US fine too but return similar)
2. No international (fine if you go with 5-20%)
3. Treasury ladder for the fixed part in Trad IRAs. If you buy 1,3,5,7 treasuries at auction you get all your money back. BND would be fine when rates fall. If they fall.
4. Right now the Fed Money Market is still around 5.27, so you could just stay in that and have time. The first rate cut is signaled.
5. Stock part of Trad. IRAs and active 401k is S&P 500 index.
6. Taxable we have all in the Fed MM right now or S&P 500 index.

The reason I lean to the S&P 500 is the index will stay current. Dropping losers and adding winners. Total US is also a good choice. ~3,500 stocks compared to the ~500.

It doesn't have to be complicated. We are 53/54 so maybe on the conservative side, but the end zone is in sight.

Just one opinion. I'm sure others will chime in.
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Old 01-30-2024, 11:24 AM   #3
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Agree Roth should be 100% stocks (as long as your TIRA is big enough for the desired fixed income allocation). I have 50% international, so I naturally think that's the right approach. Seriously though, investigate and think about that issue. Wide variety of opinions and I can't swear that I'm right. What swayed me was putting myself in the shoes of a Japanese citizen in summer of 1989--why would s/he want to invest in any other market than the home market?

How big is the taxable account? If more than 2-3 years living expenses, you may be better off with equities there than in the TIRA (if hold for Long term capital gains)--depends upon your tax rates, both Fed and State.

Our taxable consists of only a checking account and a small CMA to fund international ATM withdrawals, so we ended up with more equity in our TIRAs than I'd otherwise like.

Agree with Bloom2708 on the fixed income approach--putting a treasury ladder together at fidelity is very easy. BND is subject to principal fluctuation--as are even short term bond funds.
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Old 01-30-2024, 12:44 PM   #4
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After the bond blow out, I've stopped using traditional funds/ETFs for bonds. The longer duration will probably be a good thing in a falling rate envioronment but I decided I wanted more certainty in my fixed investments. @pb4uski suggested ishares ibonds which only buy bonds of a specific maturity and then liquidate the ETF that year. So it performs much more like a traditional bond but you stil get diversification.

Agree with putting interest bearing assets in the IRAs and equity in the Roths. Fill up your full fixed income allocation in the IRAs. If you need more fixed income for you AA, consider using munis in a taxable account (depends on you tax bracket).

I keeep some in international equities ... but as everyone knows I'm sort a glutton for punishment on that topic.
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Old 01-30-2024, 01:03 PM   #5
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... I'm thinking total stock market for my equity position and I'm on the fence about including any International exposure. ...
FWIW we went for simplicity two or three years ago, culling a number of essentially identical funds that had accreted in different accounts. On the equity side we are now about95% VTWAX, Vanguard Total World Stock Index Fund. We just hold the world on a cap-weighted basis.

Here is Vanguard on International: https://investor.vanguard.com/invest...onal-investing
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Old 01-30-2024, 01:14 PM   #6
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On the equity side we are now about95% VTWAX, Vanguard Total World Stock Index Fund. We just hold the world on a cap-weighted basis.
Seems like that would be a good alternative. Then you're getting exposure to some of the larger international companies.
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Old 01-30-2024, 01:30 PM   #7
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Seems like that would be a good alternative. Then you're getting exposure to some of the larger international companies.
Yes. In the last 10 years VTWAX has underperformed the US market but prior to that the international market outperformed the US. The academics like Fama and French tell us that we should "hold the market portfolio." Everything. So that's what we do. I see it as a data-driven decision.

There is an argument that by holding the US market an investor is getting international exposure via companies that sell overseas. But there are many household name companies you don't get, like Toyota, Nestle, BP, InBev, ArcelorMittal, ... etc. just to name a few off the top of my head. So IMO the international exposure of US companies is not a good argument for staying home.

Finally, there are many who predict the demise of the USD as the world's reserve currency. That may or may not happen but if it does, investing outside the US will seem genius.
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Old 01-30-2024, 05:55 PM   #8
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I gave up on international equities a long time ago after many years of mediocre performance, but if you do have them they belong in taxable accounts so you can utilize the foreign tax credit for foreign taxes paid. That benefit gets wasted if international equities are held in tax-deferred or tax-free accounts.

So other than desired liquidity I would fill taxable accounts with domestic equities to take advantage of preferential tax rates for qualified dividends and LTCG.

Put fixed income in tax-deferred accounts and then the remainder in tax-free. Rather than BND you could consider a 10-year, 10 or 20 rung ladder of UST for most and supplement that with an investment grade intermediate term corporate bonds ETF for a little spice.

If you go with a total stock fund for domestic equity exposure, I would suggest the ETF version rather than the mutual fund version.
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Old 01-30-2024, 06:13 PM   #9
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Originally Posted by Jerry1 View Post
I've been with my FA since retirement (5 years) but I decided to go it on my own and move everything to Fidelity. I'm planning on going with a simple portfolio, but of course nothing is totally simple. I have two questions that I'm hoping you can help with.

First, which funds and how many. I'm thinking total stock market for my equity position and I'm on the fence about including any International exposure. For bonds, the question is whether or not to pick a duration or just go with BND.

Second, what should the makeup be at the account level. I'm thinking I should make my ROTH 100% equity and then fill in the IRA's to complete the desired AA. My Joint/After tax account has some individual stocks with $20K in gains so I'll have to manage that, but I think that account should be mostly cash/CD's (short term/liquid) to cover 2-3 years expenses.

Thoughts?
Sounds pretty good, but can't provide detailed feedback without more info, such as size of taxable account.

Use whatever index funds you want. The Fidelity funds you'd be interested in are FSKAX, FTIHX and FXNAX.

https://www.bogleheads.org/wiki/Tax-...fund_placement
https://www.bogleheads.org/wiki/Bogl...g_start-up_kit
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Old 01-30-2024, 06:27 PM   #10
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Sounds pretty good, but can't provide detailed feedback without more info, such as size of taxable account.

Use whatever index funds you want. The Fidelity funds you'd be interested in are FSKAX, FTIHX and FXNAX.

https://www.bogleheads.org/wiki/Tax-...fund_placement
https://www.bogleheads.org/wiki/Bogl...g_start-up_kit
The taxable account is about 15% of the total.
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Old 01-31-2024, 08:34 AM   #11
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FWIW we went for simplicity two or three years ago, culling a number of essentially identical funds that had accreted in different accounts. On the equity side we are now about95% VTWAX, Vanguard Total World Stock Index Fund. We just hold the world on a cap-weighted basis.

Here is Vanguard on International: https://investor.vanguard.com/invest...onal-investing
When I rolled over my 401k into Vanguard, I bought the component parts of VTWAX, i.e. VTSAX and VTIAX at an 80/20 split.

Quote:
Originally Posted by OldShooter View Post
Yes. In the last 10 years VTWAX has underperformed the US market but prior to that the international market outperformed the US. The academics like Fama and French tell us that we should "hold the market portfolio." Everything. So that's what we do. I see it as a data-driven decision.

There is an argument that by holding the US market an investor is getting international exposure via companies that sell overseas. But there are many household name companies you don't get, like Toyota, Nestle, BP, InBev, ArcelorMittal, ... etc. just to name a few off the top of my head. So IMO the international exposure of US companies is not a good argument for staying home.

Finally, there are many who predict the demise of the USD as the world's reserve currency. That may or may not happen but if it does, investing outside the US will seem genius.
That's why I haven't given international the boot.

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Originally Posted by pb4uski View Post
I gave up on international equities a long time ago after many years of mediocre performance, but if you do have them they belong in taxable accounts so you can utilize the foreign tax credit for foreign taxes paid. That benefit gets wasted if international equities are held in tax-deferred or tax-free accounts.

So other than desired liquidity I would fill taxable accounts with domestic equities to take advantage of preferential tax rates for qualified dividends and LTCG.

Put fixed income in tax-deferred accounts and then the remainder in tax-free. Rather than BND you could consider a 10-year, 10 or 20 rung ladder of UST for most and supplement that with an investment grade intermediate term corporate bonds ETF for a little spice.

If you go with a total stock fund for domestic equity exposure, I would suggest the ETF version rather than the mutual fund version.
With regard to ETFs in lieu of mutual funds, once you leave "home base" i.e. buy a Vanguard mutual fund at Fidelity, you need to look out for commissions, which is not the case for the ETFs. Vanguard does have corresponding ETFs for VTWAX / VTSAX / VTIAX - IIRC - VT, VTI, VXUS.

Fidelity also has broad based domestic and internation zero cost funds. (I'll have to pop over to Fidelity to get their symbols in the event you would like to look at them.)

Update on Fidelity Funds

-FNILX (US Large Cap)
FZILX (International)
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Old 01-31-2024, 10:39 AM   #12
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Fidelity also has broad based domestic and internation zero cost funds. (I'll have to pop over to Fidelity to get their symbols in the event you would like to look at them.)

Update on Fidelity Funds

-FNILX (US Large Cap)
FZILX (International)
FZROX is their 0% ER total US equity fund.

OP - be aware that the zero cost funds can't be held/purchased at other brokerages. So, if you ever decided to leave Fidelity, you'd have to sell them before transferring.

That's only a potential problem in a taxable account.
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Old 01-31-2024, 11:27 AM   #13
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Fidelity zero funds make the most sense. Your initial plan is very good, IMO.

You could bypass international since there is substantial international exposure in large US companies already. Bogle mentioned that. The world scares me more than my country.

How far you are from RMD will help you set bond fund duration, if that's where you're going.
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Old 01-31-2024, 12:03 PM   #14
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It may be more tax efficient to put your 2-3 years of cash in your IRA and Total Stock Market fund in your taxable.

When you need spending money, sell shares of TSM from taxable and exchange cash for TSM in your IRA. This has the same affect as holding cash in taxable and TSM in IRA, but it is more tax efficient.

TSM is almost totally qualified dividends which receives preferential tax treatment over income from cash/CDs/MMFs. When you sell TSM, the LTCG will receive preferential tax treatment.
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Old 01-31-2024, 12:22 PM   #15
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It may be more tax efficient to put your 2-3 years of cash in your IRA and Total Stock Market fund in your taxable.

When you need spending money, sell shares of TSM from taxable and exchange cash for TSM in your IRA. This has the same affect as holding cash in taxable and TSM in IRA, but it is more tax efficient.

TSM is almost totally qualified dividends which receives preferential tax treatment over income from cash/CDs/MMFs. When you sell TSM, the LTCG will receive preferential tax treatment.
This is a good idea for me to think through. I can't get to my desired equity allocation by filling up my ROTH's so where I put the rest will be something I need to contemplate.
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Old 01-31-2024, 05:40 PM   #16
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... I'm thinking I should make my ROTH 100% equity ...Thoughts?
My ROTH is almost all equity because I'd always heard that it should be "aggressive". But then I watched a YouTube that was supposedly backtesting and showing that a 60/40 with rebalancing would beat 100% equity. So, if that is true then I'd think it would apply to a Roth too.

The Fidelity advisor told me that mutual funds have to disburse capital gains and ETFs do not, so he felt I would want ETFs in the taxable account and mutual funds in the IRA. I might have misunderstood him, but I think that is what he said.

The Fidelity person also told me that when they manage peoples bonds they generally aim for 40% Treasury, 35% Corporate, and 25% Agency bonds. He felt some expertise is advisable to diversify like that, but said if I stick to Treasuries I wouldn't really need help.

I'm diversifying my bond types anyway, hoping that the expertise from this forum will be good enough to keep me from disaster.
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Old 01-31-2024, 07:51 PM   #17
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This is a good idea for me to think through. I can't get to my desired equity allocation by filling up my ROTH's so where I put the rest will be something I need to contemplate.
So if your equity allocation exceed your Roths, would the best place for the excess be taxable to take best advantage of the preferential tax rates for qualified dividends and LTCG?
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Old 01-31-2024, 07:53 PM   #18
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My ROTH is almost all equity because I'd always heard that it should be "aggressive". But then I watched a YouTube that was supposedly backtesting and showing that a 60/40 with rebalancing would beat 100% equity. So, if that is true then I'd think it would apply to a Roth too.
In the long run, if the future is similar to the past, 100% equities will do better than 60/40.

Also, when discussing 100/0 vs 60/40, that is referring to one's entire portfolio, not each account. For tax purposes, you want Roth holdings to be very aggressive.
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Old 02-01-2024, 02:48 PM   #19
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So if your equity allocation exceed your Roths, would the best place for the excess be taxable to take best advantage of the preferential tax rates for qualified dividends and LTCG?
In general it goes like this:

pre-tax accounts: put all bonds here first

post-tax (Roth): all equity (tax inefficient funds go here before taxable)

taxable: all equity (most tax efficient funds here first)

This is a rule of thumb. The idea is to minimize the tax drag on your portfolio.
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Old 02-01-2024, 03:14 PM   #20
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Up thread, it was said to buy an ETF versus a fund. Fidelity doesn't seem to have a total market ETF of their own. Their fund is FSKAX. Would it be better to get VTI through Fidelity (if I can), or is there a Fidelity branded ETF that I'm not seeing. I'm guessing VTI through Fidelity would have higher fees than their FSKAX fund.
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