Roth IRA Investment Question

[dsp0725]

I currently have $10,927 in my Roth IRA which is invested in the Vanguard Russel 3000 and Vanguard S&P 500.

I have a firm managing my solo401k ($69,764) right now but no one helping with my Roth.

Would you guys recommend finding someone else to manage the Roth or let current 401k firm manage it? Or figure it out myself (would prefer not to do this)?

I'll be getting married this summer too, I'm 32 soon to be wife is 28. Need her to be maxing out a Roth too. Any help or advice would be greatly appreciated! Thanks

 

[Senator]

Just invest the Roth in the same proportional way as your 401K. Easy peasy.

Please message me where I can send my invoice for 1% of your account balance.

 

[fourwaystreet]

Just invest the Roth in the same proportional way as your 401K. Easy peasy.

Please message me where I can send my invoice for 1% of your account balance.

Stick with Vanguard and you will be paying way less than 1%. I agree with the advise given.

 

[DrRoy]

Just invest the Roth in the same proportional way as your 401K. Easy peasy.

Please message me where I can send my invoice for 1% of your account balance.

+1 I'll split the fee with Senator.

 

[Slow But Steady]

+1 I'll split the fee with Senator.

I'd be willing to take over the management of the solo 401k for half of whatever you're paying now.

Edit: As you can see, this group doesn't have anything good to say about paying management fees, especially to invest in index funds.

 

[dsp0725]

I know you guys are heavy investment DIY'ers, but I question whether that strategy will work for me. I would rather trust in someone that my investments are being handled by a seasoned professional. Plus there would be a learning curve for me vs someone with decades of experience.

My goal is to hit 1mil+ by 45 years old. In order to get there I have to get at least 6% growth.

 

[RE2Boys]

I know you guys are heavy investment DIY'ers, but I question whether that strategy will work for me. I would rather trust in someone that my investments are being handled by a seasoned professional. Plus there would be a learning curve for me vs someone with decades of experience.

My goal is to hit 1mil+ by 45 years old. In order to get there I have to get at least 6% growth.

Just be very careful. My experience with "financial advisors" has been that they are generally not "seasoned professionals" but more a "salesman"

To protect yourself from predators, you should find out if your advisor is required to meet a fiduciary standard rather than the more common appropriate standard. Better yet, they get compensation that is not based upon the financial products they represent but are paid on a "fee only" basis.

 

[pb4uski]

You sort of have it backwards asking what to invest in in your Roth.

Your first step is to decide on an asset allocation. This link is what Vanguard uses for their target date retirement funds... for someone your age they would typically recommend 90% equities and 10% fixed income. I actually would recommend 100% equities for someone your age with your ambitious goals but 90/10 wouldn't be the end of the world. I personally didn't have any bonds until I was in my mid to late 40s. So first... decide on your overall target AA.

What is your solo 401k invested in? If it is more than 3 funds or more than 10% fixed income then the first thing you should do is fire your advisor.

Then, after considering the AA in your solo 401k and your overall AA, what do you need to have the AA of the Roth be? Let's say it is 100% equities for discussion purposes. If that were the case, then 70% Total Stock and 30% Total International Stock would be sufficient if you want simple.

While there are not guarantees, Total Stock (VTSAX) returned 11.11%, 10.99% and 7.04% for the last 3, 5 and 10 years, respectively and Total International Stock (VTIAX) returned 0.38%, 0.09% and 1.67% for the last 3, 5 and 10 years so it is likely that the combination will more than meet your 6% minimum target return.

The other thing to consider is expenses. If your solo adviser is charging you 1% AUM fee and the funds he has you in are charging 0.50% ER then 1.5% goes to expenses each year. With the two funds mentioned above the ERs are 0.05% and 0.12% respectively, so a 70/30 blend is a 0.07% so you have a 1.43% head start over your solo 401k funds. That's almost a quarter of your 6% minimum return target.

 

[dsp0725]

Attached is my current solo401k AA.

 

[pb4uski]

Try running it through Morningstar's Instant X-Ray tool. The ERs of the first 2 are pretty good... but the ERs of the others are high. Also, IMO (and I suspect others) way too many funds for a $70k account and way too much in bonds for a 32 yo.

If you're interested, calculate a 3, 5 and 10 year weighted average return for that mix of tickers and then for the two tickers I suggested... to be fair it is only indicative because it is different asset mixes but it would be interesting none the less.

 

[Whisper66]

I have a firm managing my solo401k ($69,764) right now but no one helping with my Roth. Would you guys recommend finding someone else to manage the Roth or let current 401k firm manage it? Or figure it out myself (would prefer not to do this)?

I know you guys are heavy investment DIY'ers, but I question whether that strategy will work for me.....

You are young, lots of time to learn. Use this opportunity as a test for a very simple investment scheme that you set up yourself which doesn't require anything but very minimal "management". Compare the results over the next 5 years verses your managed 401k. If you don't like the results, move it under someone to manage.

I felt like you did at your age but decided to save some FA fees and give it a test. I've been doing simple style investing now for over 30 yrs. There are many of us that invest very simply in things such as "Couch Potato Portfolios" (returns) or "Lazy Portfolios" or similar. This requires minimal effort and knowledge and you can easily check the returns vs whatever portfolio you currently have for whatever time period you would like to study. May surprise you.

These simple investment portfolios incur almost no fees to decrease the overall investment return. For example, typically no Advisor fees, front end load fees, 12-1b fees, back end load fees and very low fund expenses (0.10% of assets would be pretty typical). Compare this to the fees you are paying that directly decrease your goal of 6% return. FA fees range widely but typically are 1-1.5% of your assets under management charged yearly. Two funds you mentioned in another post that you use are OSMAX which charges 1.18% of assets yearly plus a high load fee and THOPX which charges 0.71% of assets yearly. So to get a 6% return, your FA has to get more than 6% (maybe 8% plus) to cover all the high fees they have you paying. It would be worth your time to periodically compare the return you are getting with your FA (be sure to ensure that total return includes all fees) to a simple investment portfolio such as one of those mentioned above.

There really is nothing wrong with using a FA (.......ducking the flames coming my way after that comment....) but it really pays to be sure you understand the full scope of fees you are being charged by FA + investments you are in so you can verify the value is what you are looking for.

 

[Whisper66]

Just read Pb4uski's responses... +1. FYI - I kept my investments very simple but at your age I was 85%+ equities and didn't move into any bonds until I was 50ish. I was comfortable with that plan as long as I had good income and job security.

 

[target2019]

I know you guys are heavy investment DIY'ers, but I question whether that strategy will work for me. I would rather trust in someone that my investments are being handled by a seasoned professional. Plus there would be a learning curve for me vs someone with decades of experience.

My goal is to hit 1mil+ by 45 years old. In order to get there I have to get at least 6% growth.

Read one book and you will save a boatload. The FA already has a boat lol.

Serious question! Why is your Roth the way it is?

Second question!! Why so many funds in solo 401k?

Many, many people on this forum are seasoned professionals. Feel me?

 

[Sunset]

Just invest the Roth in the same proportional way as your 401K. Easy peasy.

Please message me where I can send my invoice for 1% of your account balance.

I agree with Senator, so please send me 1.5% as now you must feel more comfortable.

 

[Sunset]

I know you guys are heavy investment DIY'ers, but I question whether that strategy will work for me. I would rather trust in someone that my investments are being handled by a seasoned professional. Plus there would be a learning curve for me vs someone with decades of experience.

My goal is to hit 1mil+ by 45 years old. In order to get there I have to get at least 6% growth.

You will pay a ton of money to basically index the market using your FA.
You want 6% growth, but your FA will take in fees + the fund costs about 2%,
Put another way your costs will be 33% of your earnings target (2 divided by 6) which in the end will be approx $200,000 up to $300,000 in fees since you will never learn and need to keep your FA until death.

 

[target2019]

I agree with Senator, so please send me 1.5% as now you must feel more comfortable.

I will do it for. 015

 

[Gotadimple]

DSP0725,
Too many funds in your solo 401k. You are 25%+ in bonds, and could probably do with only 10%. Bonds don't do much except temper volatility. International is good.

Your asset allocation should be fairly aggressive for your age (including the choice of investments). See Rick Ferri, All About Asset Allocation - borrow it from the library. You don't need to know alot, think of the reading of Rick Ferri, as being a good partner to your FA. That way both of you agree on the mix and where to invest. As noted you are paying the FA for assets under management plus the cost of the funds. $70,000 is not a lot of money and you shouldn't have this many funds for $70K, you're diluting your opportunity to earn on your investments.

The Schwab Total Stock Market index fund is a good one providing growth and income (see reason not to own bonds). Owning the S&P 500 is a duplication, as all of this stocks in the S&P500 are in the Total Stock Market. Same for the Wells Fargo Disciplined US - it's an S&P500 with a little more risk. This grouping accounts for 48% of your asset allocation. It could all be in Schwab Total Stock Market, because the risk is the same.

You take on risk with the investments in Janus Enterprise (mid size growth stocks), and biotech. Most of your equity investments except these two are mid to large stocks with stable growth. There is no small growth in any of this. This group accounts for 8% US Stocks. Total US Stocks: 54%, mostly large company. The Total Stock Market fund gets you small growth.

International is Oppenheimer and Lazard General accounting for 15% of the portfolio. Most of it higher risk as they are specialty (infrastructure) and small stocks. Grand Total all stocks: 69-70%. Could be more aggressive with 90% stocks - 75% US, 15% International (international should also include some large company stocks).

The other 30% is Bonds, and including High Yield. I'd keep the High Yield (Lord Abbott) and reduce it to 5% in another High Yield bond fund at a lower expense ratio (Schwab has them!). Then collapse the rest of the bond funds to 5% to a total return bond fund (like Doubline but something that Schwab sells at a lower ER).

Total 75% US Stocks, 15% International Stocks, 5% High Yield Bonds (which move like stocks), 5% Total Return Bonds.

I know this is overwhelming (read Rick Ferri). You work hard for your money, it and your adviser need to work hard for you. He/She should suggest a portfolio more appropriate to the amount of $$ available to invest. For now it should be a simpler portfolio, you can branch out to other funds in a more nuanced portfolio, as you add to the 401k. It won't be long before your investment is 6 figures, that's the time to add complexity.

Rita

 

[pb4uski]

....The other thing to consider is expenses. If your solo adviser is charging you 1% AUM fee and the funds he has you in are charging 0.50% ER then 1.5% goes to expenses each year. With the two funds mentioned above the ERs are 0.05% and 0.12% respectively, so a 70/30 blend is a 0.07% so you have a 1.43% head start over your solo 401k funds. That's almost a quarter of your 6% minimum return target.

Your solo has a weighted average ER of 1.12% plus whatever you pay for advisor fee, so probably 2% or more in total vs 0.07% for two Vanguard equity funds if you DIY. Ouch! If the "market" earned 6.07% the geniuses at those funds would need to earn over 8% for you to be even. Very unlikely.

Remember Warren Buffett's advice.

My advice to the trustee couldn't be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard's.) I believe the trust's long-term results from this policy will be superior to those attained by most investors — whether pension funds, institutions or individuals — who employ high-fee managers.

 

[dsp0725]

Attached is my 401k AA mix from the morning star instant xray tool. Also attached is the current Roth mix.

Feel free to drop additional opinions. I appreciate all your help, I'm compiling a list of questions to present to my FA.

 

[gayl]

If you are on Schwab, here's my 2c:
1. Stop with their automated suggestions
2. Only utilize their Portfolio Performance tool found by going to:
- Accounts
- Portfolio Performance
- Schwab Portfolio Checkup
3. Set target as aggressive
4. Stop looking at what they define asset allocation as and look at what REALLY makes up the ETF
5. Dump what you've got and go 80-90% SCHB = total market ETF with 2500+ holdings and 0.03% fees

SCHB
Giant Cap 40.92%
Large Cap 31.00%
Mid Cap 19.46%
Small Cap 6.63%
Micro Cap 1.99%

6. Tinker with only 10% if so inclined
7. Jump back into bonds at 40+

 

[gayl]

Questions for FA:

1. what do you charge me
2. what is it based on
3. what do the underlying investments charge me
4. are you fee based or hourly based

 

[pb4uski]

From OP's analysis we know the underlying ER is 1.11% vs according to M* 0.59% average vs less than 0.1% for broad based domestic and international equity index funds.

That is a 1% difference plus any AUM fee to start with.

 

[gayl]

Wow. Just wow. So that's where the 1.08% 'loss to FA' is

 

[dsp0725]

Good catch guys, I appreciate this help!

 

[gayl]

Good catch guys, I appreciate this help!

Just to shed light on why I posted as I did, I run 4 accounts:

1. IRA set in 50% SPY, 25% SCHA, 25% SCHD
2. ROTH: 90% SCHD, 10% SCHA
3. Brokerage : 66% SCHB, 23% Tax free Bond ETF, 10% trading & options
4. Grandkids : SCHB (They are very young)

I guess I should follow my own advice & simplify but then it really just breaks down to:

• SCHA
• SCHB
• SCHD
• SPY
• CXA / PWZ
• 5% trading / options

break yours down to just 2 ETFs (lowest cost / broadest exposure) until you have time / inclination to do more (if ever)