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Tricia C.

How to Adjust Investment Choices/Mix with Age

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On 5/30/2020 at 4:19 PM, EdLaFave said:

If you have money left over, put it in a taxable account.

I have so far maxed out my 403b and Roth IRA contributions. Currently deciding on which company to open my taxable account with--Vanguard or Fidelity. I was wondering if any of you may have strong opinions on one over the other. I recently found out that both have dropped all online trading fees for their funds as of January this year!  Reading further on Fidelity products--back in 2018, they have come up with a line of Zero Expense Ratio index funds (link here: https://www.fidelity.com/why-fidelity/pricing-fees?imm_pid=700000001008518&immid=100766&imm_eid=ep18929948113&gclid=CjwKCAjwgdX4BRB_EiwAg8O8HQrkwej9MM0cv-64YRkqKJ_u0xnoe-V6q1E23hahf5VNlHogUmPrFxoCIVcQAvD_BwE&gclsrc=aw.ds
No minimum $ to invest and all with a 0% expense ratio fee. Would you know if Vanguard would have similar products? Would also appreciate any thoughts you may have on these funds. 

 

On 5/28/2020 at 11:42 AM, MNGopher said:

Personally I'm at about 70/30 (65/35 if you count emergency and new vehicle fund as part of portfolio), 

After accounting for my CDs and HYS, I found out that I was actually a 66/34, and without Cash & CDs, I'm actually closer to a 80/20 with stocks & bonds!!  For investment purposes, should I account for emergency fund, CDs, HYS when re-balancing my portfolio? Thanks!
 

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17 minutes ago, Tricia C. said:

Currently deciding on which company to open my taxable account with--Vanguard or Fidelity. I was wondering if any of you may have strong opinions on one over the other.

No strong opinions, but I definitely have opinions.

Fidelity is the best in the game in terms of expense ratios:

  • FZROX (domestic stock): 0%
  • FZILX (international stock): 0%
  • FXNAX (us bonds): 0.025%

Compare that to Vanguard:

  • VTSAX (domestic stock): 0.04%
  • VTIAX (international stock): 0.11%
  • VBTLX (us bonds): 0.05%

Fidelity announced the Zero funds in August of 2018, so almost two years ago. One of the ways they save money is by creating their own index instead of paying to use the CRSP US Total Market Index for instance. That means their funds are likely to have slightly different performance than a comparable Vanguard fund:

  • Since 8/2/2018 FZROX returned 16.38% vs VTSAX at 16.32%
  • Since 8/2/2018 FZILX returned 0.40% vs VTIAX at -0.49% (I've never been very happy with the performance from Vanguard's international fund)

I'm not pointing out this data to predict that Fidelity will continue to outperform. I'm trying to highlight the fact that you should expect slightly different performance in small (and possibly large) time windows because the indices differ slightly. On the international side that over-performance can't be attributed to just 0% fees, but on the domestic side you can essentially attribute that over-performance to 0% fees.

One thing to consider, if Fidelity somehow decides the ZERO funds (or even the low cost index funds) are a failed experiment, they can close the fund or raise the expense ratios. If they close the fund and you own shares in a Taxable account, then you're going to owe some tax. If they raise the expense ratio, well now you get to choose between selling out and paying taxes or paying higher expenses. I don't know how to assess the probability of something like that happening, but I can see why some people take comfort in Vanguard since they were born out of helping the investor and Vanguard is essentially owned by the people who buy the fund...Fidelity on the other hand is in it for profit.

Another thing people have pointed out is that Vanguard has some kind of patented/proprietary scheme that make their fund more tax efficient. I'm not sure when that patent runs out and I'm not sure how much more tax efficient Vanguard funds are relative to Fidelity (or even if they are). You should look that up...how big are the distributions from each fund and what is the split between qualified/unqualified.

If I were starting from scratch I'd probably use Fidelity. I was already heavily invested in Vanguard and I move slowly in terms of investments so I wanted to let them build up a few years of data before I decide to switch or not.

Even though I've typed a novel, I don't think this is a terribly important decision.

44 minutes ago, Tricia C. said:

For investment purposes, should I account for emergency fund, CDs, HYS when re-balancing my portfolio?

Yes! Your portfolio represents everything you own. As a human being you have some "ideal" asset allocation that best fits your personality. Therefore, I account for all of my assets when determining if I meet my asset allocation.

As a general rule of thumb, you should never think of your assets in "buckets" that have to each meet their own individual asset allocation. I won't get into the details, but "buckets" leads to poor decision making, higher fees, higher taxes, and all kinds of silly problems.

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7 minutes ago, EdLaFave said:

If I were starting from scratch I'd probably use Fidelity. I was already heavily invested in Vanguard and I move slowly in terms of investments so I wanted to let them build up a few years of data before I decide to switch or not.

Thanks for the helpful advice, Ed.  I currently have my Roth IRA with Fidelity and use it to invest 100% in stocks using the Dogs of the Dow approach for some years now. I do the Pups of the Dow and not all 10 of the dogs.  I'm sure you've read about this approach to equity investing,  
https://www.dogsofthedow.com/. Would love to hear your thoughts about it if any!

Having my Roth with Fidelity and after reading your response, I am leaning toward opening a taxable investment account with them to keep things in one place. 

 

 

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3 hours ago, Tricia C. said:

using the Dogs of the Dow approach for some years now. I do the Pups of the Dow and not all 10 of the dogs.  I'm sure you've read about this approach to equity investing,  
https://www.dogsofthedow.com/. Would love to hear your thoughts about it if any!

I may not know all of the details of this approach, but I'm against it, somewhere between strongly against it and moderately against it. I hold this view for many reasons.

1. I believe in diversification. This approach asks that people make concentrated bets on a handful of companies. We could get into technical and academic discussions about how many companies you need to own in order to capture most/all of the diversification benefit? Is there a point of diminishing returns in terms of diversification? We could go on and on. I believe that number is much higher than 10, but I also believe it is a moot point because it is essentially free to diversify across thousands of companies.

2. Lots of people think dividends are "free" money. That isn't at all how it works, your total return from owning stocks is Company Growth + Dividends. If a company is issuing dividends it's because they don't see a way to efficiently use those funds to grow the business, so they just give it to shareholders instead. When a company issues a dividend, the stock price immediately drops to reflect the fact that the company is literally less valuable than the day before. When a company issues a dividend, they aren't reinvesting in the business, which obviously limits growth. From an investor's point of view, dividends in a taxable account generate uncontrollable tax bills for you every single year!

If theoretical Company A had a 10% return based entirely on growth and 0 dividends and Company B had a 10% return based entirely on dividends and no growth, I'd prefer to own Company A because I'd have the same return, but no tax bill.

As a corollary, my biggest pet peeve about people specifically wanting high paying dividend stocks is this weird belief that using the dividends to pay bills is somehow different than owning stocks that don't pay dividends and selling off a few shares to pay bills. They're virtually identical, but depending on your tax situation, the latter may actually be superior because you can sell shares in a way that guarantees it is taxed at 15%, but some of your dividends will likely be unqualified and taxed as ordinary income.

3. I fundamentally reject the notion that anybody can consistently beat the market. This approach is claiming to do just that.

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Hi Tricia

Agree with Ed about Dogs. I love Dogs the pets, but not investments! I didn't know they were still around. 

Diversify, keep costs low, and have a fixed account to balance out equities. 

Just suggestions as that's what most of us do around here. 

KIS

Steve

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Thanks for all the sound advice, Ed & Steve.  You all are my financial "guardian angels" 😊👼 keeping me on the straight and narrow!

As I decide on where to invest my Roth and extra $$, I came across ETFs. My husband loves them and invests in them on his Acorns app. I read about them but would like to know what you guys think of ETFs vs. Mutual Funds. Are there more advantages in investing in one over the other? Does your investment strategy include ETFs as well? If so, how do they factor into an effective investment strategy?  

PS. Steve: I'm about half way through your book 🙂 . I read through the parts most helpful to my current situation, and went straight into "doing" mode with my own financial affairs to put in order. 

 

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9 hours ago, Tricia C. said:

I read about them but would like to know what you guys think of ETFs vs. Mutual Funds.

ETFs are so similar to mutual funds that the differences are irrelevant for the long term investor:

  • ETFs can sometimes be a little cheaper. For example the Vanguard Total Market ETF (VTI) costs 0.03% which is slightly less than the equivalent mutual fund (VTSAX) at 0.04%. I don't use the word equivalent lightly, they literally hold the same investments.
  • ETFs don't allow you to buy fractional shares like mutual funds do. So if the ETF costs $100 a share and you've got $199 then you'll be buying one share and sitting on the $99.
  • When shares of an ETF are sold you have to deal with what is called the bid/ask spread. I won't explain it because I've never had to deal with this personally, but it is a slight complication relative to mutual funds.
  • You can sell shares of an ETF in the middle of a trading session and get the current price whereas mutual fund sales always get the end of day price. This feature is meant to appeal to speculators/day-traders. If you're excited by this feature then you're probably doing things that are bad for your financial health.

As long as you invest disposable money every time you get it and you don't sell until you need spending money in retirement, then it really doesn't matter whether you use ETFs or Mutual Funds. I'm personally 100% mutual funds because there are so many things I need to learn in life and I didn't feel like throwing the bid/ask spread onto that pile.

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On 5/15/2020 at 8:54 AM, EdLaFave said:

If you’d like to take the “easy way” without paying the higher fees you could copy what they do and manually shift your three fund portfolio towards bonds in the same way they do.

I looked into both Fidelity and Vanguard's 2035 Target Date funds, and found it interesting that Fidelity's Freedom Fund 2035 actually invests more aggressively in equities (85%) compared to it's Vanguard counterpart (75%). Which does go back to what we all have been saying that AA is largely a personal thing! 
 

Ed, thanks for the helpful info on ETFs! 

9 hours ago, EdLaFave said:

ETFs don't allow you to buy fractional shares like mutual funds do. So if the ETF costs $100 a share and you've got $199 then you'll be buying one share and sitting on the $99.

I think that may not all be the case now..  My husband (inspired by my own financial legwork) went looking into his Robinhood account and said that the company has begun rolling out fractional share purchases (which includes its ETF offerings). 
 

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On 7/20/2020 at 10:28 AM, EdLaFave said:

If I were starting from scratch I'd probably use Fidelity. I was already heavily invested in Vanguard and I move slowly in terms of investments so I wanted to let them build up a few years of data before I decide to switch or not.

I appreciate Bogle's work too much to jump ship(I'm such a Vanguard supporter that I'm using nautical references.)

Taxable 100% VTSAX
Roth IRA 60/40 VTSAX/VTIAX
403b 54/36/7/3 VTSAX/VTIAX/VBTLX/VTABX
457b 10/90 VSMPX/SDBA(54/36/7/3 VTSAX/VTIAX/VBTLX/VTABX)

19 hours ago, EdLaFave said:

I love the positivity of omitting the second 'S'

and "KI" is the key to FI 

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1 hour ago, Tricia C. said:

I think that may not all be the case now..  My husband (inspired by my own financial legwork) went looking into his Robinhood account and said that the company has begun rolling out fractional share purchases (which includes its ETF offerings). 

You’re right. It looks like some companies have begun to allow it and others haven’t. Here is a fairly recent article about Fidelity moving in the right direction:

https://www.cnbc.com/2020/01/31/fidelity-now-offers-fractional-investing-to-all-investors.html

1 hour ago, ScottO said:

I appreciate Bogle's work too much to jump ship(I'm such a Vanguard supporter that I'm using nautical references.)

😆 I suspect Vanguard would look a bit different today if somehow Bogle never left the helm.

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On 7/20/2020 at 11:40 AM, Tricia C. said:

 

 

After accounting for my CDs and HYS, I found out that I was actually a 66/34, and without Cash & CDs, I'm actually closer to a 80/20 with stocks & bonds!!  For investment purposes, should I account for emergency fund, CDs, HYS when re-balancing my portfolio? Thanks!
 

I guess if you want to be completely accurate you should count your emergency fund as part of your asset allocation.  Some people do and some don't...personal preference.  I've heard people say they are 100% equities, with no bonds, yet they have 3 years of expenses in cash, so actually they aren't even close to 100% stock.  As long as you're aware of what you actually have, either way is fine.

 

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