Managing multiple funds for IRA or have just one?

[wilkens21]

Currently I have 2 funds (both equity) for my IRA and am thinking about adding more, but the overhead of managing them in the long term is a concern to me.

I have one Vanguard one and one from Wells Fargo (they bought out Strong investments which I opened up this fund with a few years back and their expense ratio is quite high which I can't stand). Performance is not bad, but am feeling a tug to just do one target fund.

At the same time, I could probably just do the asset allocation better myself by adding more funds in (for bonds, etc). But I could end up with like 5-7 funds and then one day I will need to probably roll them over one by one anyway just to consolidate.

Any thoughts about this?

 

[W2R]

Investing in one target fund is a perfectly valid investment strategy, especially if you have a long time between now and retirement.

It sounds to me like you would really prefer the "set and forget" aspects of a target fund.

 

[WM]

DH and I each have multiple funds in our IRAs (some Vanguard, some T Rowe) and I haven't found it to be that big a deal as far as management. But I admit I naturally tend to be very organized and I also prefer the control that comes with being able to independently buy and sell different asset classes. Also we are still in the accumulation phase, so maybe I'll feel differently when I have to figure out how to do the withdrawals. But right now I'm not necessarily expecting to consolidate later, as you mention.

If multiple funds aren't appealing to you right now, I agree with W2R that there's nothing wrong with target funds. I suggested them to my mother-in-law who didn't want to deal with details and it's worked out well. Plus, you can always start with the targets and add other pieces later if you want.

 

[donheff]

Several Vanguard (DW self directed IRA), Several Fidelity (DW work 401K), TSP, plus several Vanguard taxable. It isn't that big a deal to juggle several. I track them all on a Google Docs spreadsheet that downloads current prices whenever I open it. We will need to be careful when RMDs come along but still no big deal.

 

[WM]

I track them all on a Google Docs spreadsheet that downloads current prices whenever I open it.

How do you do this? Even for the TSP? I would like to do this but didn't want to set up something with Yahoo finance or other trackers.

 

[donheff]

How do you do this? (track in Google spreadsheets) Even for the TSP? I would like to do this but didn't want to set up something with Yahoo finance or other trackers.

For each fund you enter the ticker symbol and in an adjacent cell you enter the close yesterday function referring back to the ticker cell. For example, if the ticker is in C7 you could track price in C8 as "=GoogleFinance(C7;"closeYest"). In C9 you could track the total for the fund by multiplying C8 * whatever cell you have the #shares in. I learned this from someone here.

This doesn't work directly for the TSP since they don't have a public ticker to follow (at least I can't find it). I use tickers for similar Vanguard funds as a proxy and correct the #shares every quarter or so to ensure that the fund total matches the actual TSP value. Between corrections it tracks pretty well -- close enough for Government work

 

[WM]

For each fund you enter the ticker symbol and in an adjacent cell you enter the close yesterday function referring back to the ticker cell. For example, if the ticker is in C7 you could track price in C8 as "=GoogleFinance(C7;"closeYest"). In C9 you could track the total for the fund by multiplying C8 * whatever cell you have the #shares in. I learned this from someone here.

This doesn't work directly for the TSP since they don't have a public ticker to follow (at least I can't find it). I use tickers for similar Vanguard funds as a proxy and correct the #shares every quarter or so to ensure that the fund total matches the actual TSP value. Between corrections it tracks pretty well -- close enough for Government work

Interesting! I see how I'm going to be spending some time this weekend... thanks!

 

[wilkens21]

thanks for the responses. I'm actually not a big fan of the target funds since they are pretty opaque to me in terms of their investments (at least to me), but the Vanguard/T Rowe Price ones might be a choice one day for me.

How is dealing with the IRS when it comes time to withdraw from multiple funds? Since I only have traditional (non-roth/non-deductible) IRAs, is it a nightmare to keep track of what the earnings were compared to what you put into the fund? Or does the mutual fund company keep track of that in terms of what you're actually taxed on during withdrawal time.

I guess what I want to ask is if you have a bunch of funds and you roll over some to others over the course of time, then how do you keep track of what you will ultimately get taxed on when a distribution does happen? What you put in vs. what the fund has actually appreciated. Seems like a nightmare to me. Thanks!

 

[jIMOh]

You should first state your risk tolerance and define the risk tolerance... then once you define risks and understand the risks, set up an asset allocation to handle those risks.

Once you choose an asset allocation, then start picking funds (whether a target fund or other funds) to meet the asset allocation.

The number of funds should not be the concern... the asset allocation should.
If you pick a target date fund, but do not knows its allocation, you might be taking more or less risks that you realize.

Focus on asset allocation...
the fund choices take care of themself after that...

for example in my 401k I own 6 funds and company stock...
in wife's 401k she owns 5 funds and company stock
in my Rollover IRA I own 6 funds...
in my Roth IRA I own 5 funds
in wife's rollover she owns 1 fund, and in her Roth she owns about 9 more.

To some people having 32 funds would be overwhelming... but for us we have the same basic allocation in each account, and it takes 5 funds to set that allocation up on even most basic terms...

In general 95% equity and 5% bonds or 100% equity in all accounts.
75% domestic, 25% foreign in all accounts
45% large cap domestic stocks (40% if bonds are held)
15% domestic mid cap
15% domestic small cap
15% foreign large cap
10% foreign small cap or emerging markets
no more than 5% diversified bonds (foreign/domestic/corporate/government/high yield)

Its possible you could build an allocation on maybe 3 funds, probably takes 4 to do this most of the time, and picking 5 makes it easier.

In wife's Roth (9 funds) we build it by sector, not asset class- meaning we buy tech, health care, natural resources, value, growth, emerging markets, africa and middle east and similar to get same 75-25 and 45-15-15-15-10 allocation as the other accounts. This is about 1% of our total investments, so we are aggressive with sectors (for example we were buying banks in 2008 and real estate in 2008, we are still buying real estate now, and are also loading up on health care too). We own all sectors all the time, but we weight what we buy based on current market performance (we buy what everyone else is selling or what is not performing well over last 6-18 months).

Its not the number of funds which you should focus on...
its the allocation of the funds across asset classes which needs most of your attention.

 

[jIMOh]

thanks for the responses. I'm actually not a big fan of the target funds since they are pretty opaque to me in terms of their investments (at least to me), but the Vanguard/T Rowe Price ones might be a choice one day for me.

How is dealing with the IRS when it comes time to withdraw from multiple funds? Since I only have traditional (non-roth/non-deductible) IRAs, is it a nightmare to keep track of what the earnings were compared to what you put into the fund? Or does the mutual fund company keep track of that in terms of what you're actually taxed on during withdrawal time.

I guess what I want to ask is if you have a bunch of funds and you roll over some to others over the course of time, then how do you keep track of what you will ultimately get taxed on when a distribution does happen? What you put in vs. what the fund has actually appreciated. Seems like a nightmare to me. Thanks!

If some of the traditional IRA deposits are deductible and some are non deductible, you may want to keep the different types in different funds or keep at different custodians- at minimum you need to keep good records for life if you are mixing deductible and non deductible within traditional IRAs.

Its not a nightmare to keep track of money. For most here its a hobby.

 

[wilkens21]

yeah sorry to be vague...my risk tolerance right now is that i'm trying to get to 65/35 mix of stocks/bonds. i'm aggressive for my retirement, though not for my non-retirement savings. probably a bit too conservative for the latter to be honest (ie: a bit too much money in savings, that should probably not be there but in some bonds, etc).

currently for my 401k at work, i have a lot of funds and i'm at 93/7 which is a bit too risky and i'm planning to re-allocate pretty soon to at least get to 70/30 at a minimum.

for my IRA's i want to also get to that 65/35 breakdown, but am at 100% stock right now with those 2 funds. i don't mind owning 4-5 funds to get where i need to be, but also don't want to stomach another major downturn like we just had in 2008.