Need 60/40 Four Fund Portfolio

[Bir48die]

Without taking a public flogging I'm going to move about 20% of my portfolio that is managed by a friend. This was done at the request of my wife who wanted a local contact that could handle things when I kicked off (not looking to die in the near future). It's been about three years with him and fees were decent for a MM and returns were in line with the market. However this year he has been a disaster and missed January completely. I just did a spreadsheet of returns in all my accounts and showed it to my wife while we're having coffee. Needless to say he cost me a ton of money (overall a great year for me like most of you). It will be painful to do this to say the least but putting it on paper makes it much easier.

Just over a year ago I changed my AA to 60/40. I'd like to continue with that for the foreseeable future. The two accounts (one IRA and one Taxable) are in Fidelity. Should be an easy transition. After I take a mandatory RMD I'll make the switch mid-January. I would like to throw it out to the gang for advice and I did search for past strings as not to bug you. Thanks in advance for your suggestions.

If it really means anything I have approximately $275k in tax deferred and $170k in taxable.

 

[SumDay]

I was going to send you the Vanguard 4 fund portfolio article I use, but just saw that you're a Fidelity investor.

Good on you for taking your $$ back. We figure we can take a NICE trip each year on what we save by being DIY investors.

Here you go: https://obliviousinvestor.com/8-simple-portfolios-with-fidelity-funds-and-ishares-etfs/

I'm sure other Fidelity folks will chime in.

 

[OldShooter]

We don't do bond funds, but here are some simple equity options:

1 Fund: VTWAX, total world stocks. This one is about 55% invested outside the US, which concerns some people. This is what DW and I hold.

2 Fund: One total US market fund and one total international market fund, held in proportions that you are comfortable with. 70/30 seems to be popular. There is a Vanguard paper that says 30-40% international is the sweet spot for minimum volatility.

3 or 4 Fund: The two total market funds as your foundation but with 5-10% "tilts" to small stocks and/or value stocks. The argument for this is the Fama/French "Three Factor Model" which you can Google.

Avoid anything that looks like a sector fund except the aforementioned tilts. No one knows which sectors will be winners in the future, whether they be geographically-defined, defined by lines of business, or defined by size of companies. NB, an S&P 500 fund is a sector fund: large cap US.

 

[rhurhurun]

I was going to send you the Vanguard 4 fund portfolio article I use, but just saw that you're a Fidelity investor.

Good on you for taking your $$ back. We figure we can take a NICE trip each year on what we save by being DIY investors.

Here you go: https://obliviousinvestor.com/8-simple-portfolios-with-fidelity-funds-and-ishares-etfs/

I'm sure other Fidelity folks will chime in.

Hello Sumday your link above was very useful. Can you please also send the link for the vanguard four fund portfolio article that you refer above. Much appreciated. I am considering vanguard funds. Much appreciated. Happy holidays.

 

[VanWinkle]

Hello Sumday your link above was very useful. Can you please also send the link for the vanguard four fund portfolio article that you refer above. Much appreciated. I am considering vanguard funds. Much appreciated. Happy holidays.

I can send it to you



https://obliviousinvestor.com/8-sample-and-simple-portfolios/

 

[Animorph]

This is my four fund portfolio. Three funds would be my baseline. I added extra small cap with a fourth fund.

25% FXAIX - Fidelity S&P 500 Index
25% FSMAX - Fidelity Total U.S. - S&P 500 Index
25% FSGGX - Fidelity Global - U.S. Index
25% FXNAX - Fidelity Bond Index

You can substitute FZROX (Fidelity Total U.S.) in place of FXAIX and FSMAX, and of course adjust the percentages to reach 60/40 and your desired international exposure.

Fidelity may have some additional zero expense funds. I started this portfolio before they were introduced. But they are still really cheap.

 

[SumDay]

Hello Sumday your link above was very useful. Can you please also send the link for the vanguard four fund portfolio article that you refer above. Much appreciated. I am considering vanguard funds. Much appreciated. Happy holidays.

https://www.morningstar.com/articles/762379/retirement-bucket-portfolios-for-vanguard-investors

I also follow The Retirement Manifesto and have referred to this article often:

https://www.theretirementmanifesto.com/a-simple-guide-to-targeted-asset-allocation/

I'm pretty new at this stuff too, so I like the articles without all the jargon.

 

[Gumby]

Hello Sumday your link above was very useful. Can you please also send the link for the vanguard four fund portfolio article that you refer above. Much appreciated. I am considering vanguard funds. Much appreciated. Happy holidays.

You might want to google "Rick Ferri Core Four".

 

[HFWR]

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[Fleur58]

Fidelity charges a $75 transaction fee when you buy a Vanguard Fund. I own 3 good Vanguard funds--VTSAX (Total Stock Market Index), VWINX (Wellesley Income), VGWLX (Global Wellington). I've only been reallocating money to VWINX and VGWLX and to me the transaction fee is not a concern as I don't trade frequently.

 

[2177V]

Fidelity charges a $75 transaction fee when you buy a Vanguard Fund. I own 3 good Vanguard funds--VTSAX (Total Stock Market Index), VWINX (Wellesley Income), VGWLX (Global Wellington). I've only been reallocating money to VWINX and VGWLX and to me the transaction fee is not a concern as I don't trade frequently.

My suggestions: 2 stock funds, 1 balanced fund, 1 bond fund

VFINX (S&P500 stock fund) which is one of the 4 top S&P 500 fund according to Investopedia. I invested in VFINX for 30 plus years and this funds has been good to me.

VEXAX (Extended Market Index fund of small cap and mid cap companies) This fund complements VFINX since together the two funds represent a total market fund.

VWENX (Wellington balance fund) which is a 5 star balanced fund by Morningstar. VWENX is mostly stock while VWINX Wellseley is mostly bond. Either VWENX or VWINX should be OK depending how much corporate bonds you want in your portfolio.

VFIUX (Vanguard Mid Term Treasury fund) or VFIRX (Vanguard short term Treasury fund) which you need for liquidity....in case the market crashes. Treasury funds are lower risk than corporate bonds which can also decline. During a crash, the value of Treasuries actually rises while stock and corporate funds decline. There are already have corporate bonds in VWENX so you should diversified into treasury bonds.

Click: https://obliviousinvestor.com/what-happens-to-bonds-in-a-stock-market-crash/

I like Vanguard because of the low fees and you can exchange money from one fund to another fund in your IRA within only one or two working days. Vanguard also provide a summary of your performance which I need to assess my investments. Vanguard stated my IRA returned 10% annual for the last 10 years because I was mostly in VFINX.

 

[mountainsoft]

I've never used Fidelity, but I have a 60/40 mix at Vanguard using a single fund - VBIAX Vanguards Balanced Index Fund.

Alternatively you could do a two fund solution, 60% of VTSAX Vanguard Total Stock fund and 40% of VBTLX Vanguard Total Bond Fund.

 

[Fleur58]

My suggestions: 2 stock funds, 1 balanced fund, 1 bond fund



VWENX (Wellington balance fund) which is a 5 star balanced fund by Morningstar. VWENX is mostly stock while VWINX Wellseley is mostly bond. Either VWENX or VWINX should be OK depending how much corporate bonds you want in your portfolio.

I would have loved to buy into Wellington (VWENX) except you can't unless you buy it directly from Vanguard. So I bought Global Wellington which is available through Fidelity.
I am happy with the performance of VWINX as a large part of my bond mix.

 

[jollystomper]

Would not an appropriate retirement fund from either Fidelity or Vanguard or somewhere else that has the desired allocation do the trick and be a lot simpler?

 

[2177V]

Would not an appropriate retirement fund from either Fidelity or Vanguard or somewhere else that has the desired allocation do the trick and be a lot simpler?

IMO....Simplicity is OK but in retirement, "liquidity" is an important factor to me, as a retiree.

During a bear market or crash, most stock funds and even corporate bond funds decline in value. This means most of your assets is no longer liquid and withdrawing at that time means you are locking in your losses and not giving those assets time to recover. The smart investor keep some assets in cash, CD or treasury bonds which I like to do.

Here is an important link people can read about bears markets and the historical recovery time since WW2:

https://www.cnbc.com/2018/12/24/whats-a-bear-market-and-how-long-do-they-usually-last-.html

The worst bear market was in 1972 which took 69 months to recover. Investors who do not have a rainy day fund such as cash, CD or treasuries have a higher risk of getting hurt. IMO, Having a rainy day fund is called "risk management".

Once you have a rainy day fund or a parachute for a soft landing, then you can use your other assets for higher risk and higher return investments. I made a previous comment on my recommended four fund portfolio: 2 stock funds (high risk, high return), 1 balance fund (medium risk medium return), 1 treasury fund (low risk, low return...which is a parachute fund).

The question is: Do you have a good parachute? Or is your parachute full of holes? Or do you feel that you do not need a parachute and you can take a hard landing?

 

[capjak]

this may help:
https://www.bogleheads.org/wiki/Fidelity
see core 4 funds:
https://www.bogleheads.org/wiki/Lazy_portfolios

 

[novaman]

Here is the current recommendation that comes close to fitting the bill from the Fidelity Monitor and Insight. Great newsletter with a great track record. Has 6 funds instead of 4.

 

[2177V]

Here is the current recommendation that comes close to fitting the bill from the Fidelity Monitor and Insight. Great newsletter with a great track record. Has 6 funds instead of 4.

View attachment 33581

I concur with this portfolio because there is a rainy day fund consisting of FCONX and 4 of the top 10 holdings of FCONX are US treasury bonds. IMO... I do not agree with any portfolio that does not have a rainy day fund set aside for hard times such as a recession.

People do not realize that when you are working, you have a lesser need for a rainy day fund because your paycheck can hold you over during a bear market. However, in retirement and you do not have a regular paycheck. Therefore a rainy day fund becomes critical. Also, if you have job insecurity where you work, then you should think twice about going all in in a portfolio without a rainy day fund.

Moms would tell their children to save for a rainy day because they have experienced hard times. Moms are generally are better FA than most people realize.

 

[ERD50]

I...

The worst bear market was in 1972 which took 69 months to recover. ...

I don't see that at your link. Have a source, it doesn't seem right?

This source:
https://www.cnbc.com/2018/12/24/whats-a-bear-market-and-how-long-do-they-usually-last-.html

shows the longest at 21 months, and it wasn't clear if that was just NAV, or total return.

-ERD50

 

[Qs Laptop]

The OP says he's at Fidelity and several people give him Vanguard funds. What's up with that?

Bir48Die, are you an index investor or not? I'm guessing you're not but need to hear from you before I make a recommendation.

 

[MRG]

The OP says he's at Fidelity and several people give him Vanguard funds. What's up with that?

Bir48Die, are you an index investor or not? I'm guessing you're not but need to hear from you before I make a recommendation.

You can buy and sell most funds providers funds at any fund company. Seems like you have been able to do that since Blockbuster was a thing.

 

[Qs Laptop]

You can buy and sell most funds providers funds at any fund company. Seems like you have been able to do that since Blockbuster was a thing.

As was mentioned, there is a $75 fee at Fidelity to purchase Vanguard funds. Since many people on ER are hypersensitive to fund expenses I would assume they would want to avoid these transaction fees. It seems odd that people who rabidly seek to avoid .1% extra in an index fund's expense ratio would advocate absorbing an upfront fee on a transaction.

Index funds from competing firms return virtually the same amount over time so why throw $300 away? ($75 X 4 funds?)

 

[OldShooter]

... It seems odd that people who rabidly seek to avoid .1% extra in an index fund's expense ratio would advocate absorbing an upfront fee on a transaction.

Index funds from competing firms return virtually the same amount over time so why throw $300 away? ($75 X 4 funds?)

Well, speaking for myself, a $75 fee is less than one basis point on my typical trades and a big year for me is two trades. The fee is also not assessed on all of my trades though I have never paid much attention to what has fees and what does not.

It's the same reason I pay no attention to the very popular CD/MM rates thread here: convenience of keeping everything at one place (Schwab) is worth a few dollars to me and I don't keep much in cash anyway.

I have mostly VG funds (two or three) and dodging the fees by going to VG would also mean losing access to my dedicated rep. He's very handy for dealing with admnistrivia and answering various questions. The tradeoff was a little harder when I couldn't get Admiral class shares through Schwab, but now that little speed bump is gone as well.

YMMV

 

[Qs Laptop]

All of what you say makes sense for you, but OP is at Fidelity. We don't know if the OP consults with a Fidelity rep, and besides, how much advice is needed to invest in four index funds?

Index funds have virtually the exact same returns no matter who you buy them from.

So, why recommend a Fidelity investor waste $300?

 

[OldShooter]

... So, why recommend a Fidelity investor waste $300?

I didn't recommend anything. I commented on your general question, also implicitly pointing out that a $75 fee is probably nowhere near the 10 basis point expense ratio in your example.

Also, the fees are one-time not annual. It's a very different situation.

For the OP: When you are adding assets from outside, it won't hurt to ask Fido to waive the transaction fees for your initial purchases. You might get lucky.