Opinions on my ROTH IRA holding and investing

[_MEOW_]

Hi All,

So I am completely new to investing, I had worked a relatively low-wage job for years and didn't have any extra money to invest. Although looking back I wish I had been smarter and opened a Roth IRA even a few thousand here and there would've been better than nothing.

Anyway, I just started a new job in early April/May of 2019. At the time I had 10-11k in savings. Almost a 1yr and 1/2 later I now have 65k in savings and would have 70k, but maxed out my Roth IRA with the 6k limit for 2020 At times it's been difficult I have been tempted to impulse purchase needless items, but ultimately convince myself the $75-100 spent on clothes/shoes/ect... could be invested (I have shoes that are perfectly fine or clothes I never wear). The 65k I have in savings I realize is doing nothing and could be invested, but I am saving for a house in the 275-325k range. So I have 20% saved as a down-payment basically but my aim is to save 40-45% which I should have within the next year and change. The working plan is to put 30% down and have 10-15% as my emergency mortgage fund. Ideally planning to pay off the house within 5yrs so not sure having a emergency fund matters but just for peace of mind. I could put 10k I into some short-term investment, which brings me to my questions below:

If I open a brokerage account what should I invest in? And are my Roth IRA holdings a good long-term investment or should I change these up a bit? My Roth IRA holdings are as follows but I feel they're a bit redundant. Of the $6000 I have invested it's broken down as follows:

FXAIX - Fidelity 500 Index Fund ($3,000)
FNILX - Fidelity Zero Large Cap Index Fund ($2,500)
FZROX - Fidelity Zero Total Market Index ($500)

For 2021 I plan to put more into these three funds or perhaps consolidate keeping FXAIX and consolidating FNILX/FZROX then add something else into the mix? Thoughts?

 

[Gotadimple]

You are right, your investments are redundant.

FZROX is the entire market which also includes investments in Large Cap and in the 500 largest US companies. You don't need all three. The zero funds have no expense ratio which means all of your money is invested with nothing going to Fidelity for management.

For long-term growth FZROX should cover all the bases on the growth side. If you have a long time until you would draw on your Roth, you can also add a bond index (US Treasury), and if you have excess cash to invest consider an international index fund for your taxable brokerage account.

In what percentages should you divide your investments? See the book All About Asset Allocation by Rick Ferri. Available at your local library.

-Rita

 

[_MEOW_]

So likely consolidated the FNILX holdings into FZROX? They're roughly the same price 8-10 cents difference with FZROX being the cheaper of the two.

I've got a long time to go until drawing from my Roth, 20yrs roughly so mainly want long-term stuff. Also I have been looking into bonds specifically FNBGX (Fidelity Long-Term Treasury Bond Index Fund) as something I wanted to add next year.

 

[Time2]

This is philosophical and financial decision.
If you get a mortgage under 4%, is it wise to put more than 20% down or pay it off a mortgage early?
Over the next 15 years, the stock market will probably do much better than 4%.
Is there more comfort in having a paid off house, or investments that you can draw on to pay any expenses you have if you lose your job?
More than one way to look at this.

 

[_MEOW_]

Agreed, the stock market on average would be better likely 6-7% growth but conservatively 4% is completely reasonable. And interest rates are, last I checked, below 3% (Zillows shows 2.72% 15 year and 2.87% 30yr).

However, if I lose my job hypothetically speaking the comfort of having a paid off house is worth it. Considering, hypothetically of course, that if I lose my job the economy has also tanked so drawing on those investments would not be ideal. Not at the present at least.

 

[OldShooter]

@_MEOW_, congratulations. You're started off well, you're thinking about the right things, and you're asking the right questions. Welcome.

I like Ferri's book, but I don't think it's a good place to start.

"If You Can" by William Bernstein https://www.etf.com/docs/IfYouCan.pdf (free 16 page download you can get today) I don't agree with everything Bernstein says, but this paper is well worth the reading time. He recommends some good books, too.

"The Coffee House Investor" by Bill Schultheis https://www.coffeehouseinvestor.com/ is a low-key, easy read that will give you a good philosophical start. (and a timely recipe for pumpkin pie )

"The Bogleheads Guide to Investing" by Taylor Larimore et al https://www.amazon.com/Bogleheads-Guide-Investing-Taylor-Larimore/dp/0470067365 will answer your questions fairly directly without taking you as far into the weeds as Ferri does.

To be clear, Ferri is fine too, but just not IMO a good place to start.

 

[Gotadimple]

So likely consolidated the FNILX holdings into FZROX? They're roughly the same price 8-10 cents difference with FZROX being the cheaper of the two.

I've got a long time to go until drawing from my Roth, 20yrs roughly so mainly want long-term stuff. Also I have been looking into bonds specifically FNBGX (Fidelity Long-Term Treasury Bond Index Fund) as something I wanted to add next year.

Yes, consolidate ALL into FZROX, the 500 fund is a subset of the same holdings in FZROX. All three funds are Large Blend US holdings. FZROX is cheaper because the schedule of investments is different - it covers small, medium, and large companies (2,452 of them) - many with international exposure. FNILX covers 514, according to Morningstar. Ultimately one fund for equity and one fund for bonds just to smooth out any volatility.

You can check out most details of these funds at Morningstar, there is no cost and you can register if you like. I like reading columns by Christine Benz who writes about personal investing at Morningstar. Just a thought.

- Rita