1

I am new to investing, and also late to the game (34 yrs old), so I'm trying to make the most financially intelligent decisions I can.

I'm starting a Roth IRA at the moment, and funding it with this current breakdown:

  • 50% - Large Cap (FNILX Index Fund - 0% expense ratio)
  • 30% - Mid/Small Cap (FZIPX Extended Market Index Fund - 0% expense ratio)
  • 10% - International (FZILX International Index Fund - 0% expense ratio)
  • 05% - Bonds ( FNBGX Long-Term Treasury Bond Index Fund .03% expense ratio)
  • 05% - REIT ( MSCI Real Estate Index ETF .08% expense ratio)

I'm trying to avoid as much fund overlap as possible. I thought having 30% Mid/Small Cap instead of something like 15-20% would give my portfolio a more aggressive approach to help (hopefully) achieve a slightly higher overall return.

Any advice would be greatly appreciated!

I plan on investing roughly 25% percent of my 6k cap this week, and make similar sizes investments in the following 3 months.

1

Large cap, mid cap, small cap, US stock, international stock, junk bond, reit.....their performance correlation are so high that you cannot reduce risk by much diversifying/allocating among them.

Decide how much you want to stay in cash/investment grade bond and allocate the remaining in any way you like.

| improve this answer | |
  • Thanks! Do you mind elaborating on the cash/investment grade bond? – peterchic Apr 6 at 13:52
0

If you are starting your Roth IRA now, your initial investment is limited and so it will not be possible to create the diversified investment that you propose. Most mutual funds have minimum initial investments of a few thousand dollars for general investments but lower amounts (typically $1000) for IRA accounts provided that you agree to make additional monthly investments via their automated investment service. 5% of $12,000 (assuming you contribute the total amount for 2019 and 2020 in one swell foop) is still less than $1000. So, your strategy may not work as you want it to right off the bat though you could achieve it in a few years' time.

Now I will wait for the brickbats and downvotes to start as people start pointing out various mutual funds that have far lower minimums for IRA accounts, totally ignoring the fact that I said "Most mutual funds".....

| improve this answer | |
  • 1
    I don't think the Fidelity funds he picked out have any minimums. e.g, fundresearch.fidelity.com/mutual-funds/summary/315911628 – Ian Dunn Apr 6 at 14:22
  • Thanks! As @IanDunn suggested, the funds I listed do not have minimums.Sound advice otherwise! – peterchic Apr 7 at 1:50
  • @peterchic Fair enough. But do check if the IRA custodian (which may have a name like Fidelity Fiduciary Investment Co) charges an Account Maintenance Fee to accounts with small balances. A very long time ago when IRAs had just been invented, I remember having to pay an annual $25 Account Maintenance Fee on IRA accounts that had a total of less than $25K balance at any time during the year. This fee could be paid directly to the IRA custodian in lieu of the IRA custodian taking the money out the IRA as a fee (and no, one didn't need to declare that as a taxable distribution from the IRA). – Dilip Sarwate Apr 7 at 15:05
  • @DilipSarwate Good tip! Will do! – peterchic Apr 7 at 18:02
0

Welcome to the site :)

Take all this with a grain of salt, since none of us know the details of your situation, but I think that's a reasonable start. It's good that you're focusing on low-cost index funds, and looking for diversification.

Here's the things I'd personally recommend looking into as potential changes. I'll link to a lot of Ben Felix's videos, because I think he's a really solid resource to start learning the ins and outs. The Bogleheads forum is also a good resource too.

I wouldn't recommend REITs at all.

I don't think the Mid/Small blend funds are going to be as aggressive as you might think; focusing on small-value and large-value funds specifically might be more what you're looking for. Although, make sure you understand that it will have long periods of lower returns (like the past 10 years), and make sure you're prepared to commit to that for the long haul. The worst thing you can do is get scared, break from your plan, and start chasing performance. Of course, the overall market will have those periods as well.

I personally don't like the "Zero" funds, because they feel like a marketing gimmick. They pay dividends annually instead of quarterly, which will eat away some of the savings from lower expense ratios. The ratios for Fidelity's older funds like FXAIX already have very low ERs, as does similar offerings from Vanguard. Fidelity is good, but I personally trust Vanguard much, much more. They have a long history of promoting sensible investments for the average person, and the company is owned by its clients, so they're more incentivized to protect your interests.

I think 30-50% in international funds is a better long-term outlook, but lots of people will disagree with that.

If you're comfortable with the risk, then 100% equity might be a allocation than 95%. If you don't trust yourself to stick to that plan when stocks drop 25-50% during global crises, recessions, etc, though, then keeping 10%+ in bonds can help protect you against making behavioral errors in the future.

Don't let any of that discourage you, though; the most important thing to just get started, especially with automatic monthly deposits. You can always made improvements to your asset allocation over time, as you learn more.

| improve this answer | |
  • Thanks Ian! A few questions as I read through this... I've actually been leery about REITs but decided to invest a small percentage. I did not take into consideration the other index funds already have real estate allocations.(no0b). I will change my diversity to remove REITS and search for more aggresive growth funds. I'm OK with risk, this is a 30 year plan, and I'll transition to less volatile securities down the road. Can you explain why annual dividends eat away some of the savings from lower ER? So go full equity and save bonds for later you're suggesting? Thank you! – peterchic Apr 7 at 2:44
  • This thread discusses the benefits; they're relatively minor, but so are the ER differences. Yes on full equity, I'm in a similar situation and that's what I do. – Ian Dunn Apr 7 at 16:11

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.