Adventures in Retirement Saving: Part 4

Previously: Part 1, Part 2, Part 3

After a bunch more comparisons, I decided that Fidelity had the best options with its Spartan Index Funds available for fees of 0.10% and 0.20%, compared to TIAA-CREF at 0.34. I did two more things to make sure. First, I called up Fidelity and made sure that there aren’t any additional fees like there are with Ing and second that the full line of Spartan Index funds would be available (unlike Ing). A nice lady on the other end assured me on both those counts. The second thing I did was flip through the Bogleheads forums to see what people advised other people in my position. It looked like the majority thought Fidelity a good second choice if you can’t get Vanguard and TIAA-Cref a distant third.

Next up I decided to do some asset allocation. Sadly our library does not carry the Bogleheads Guide to Investing/Retirement and friends and family have declined to get it off my wish list for me for the past two years. I may have to buy a copy myself. In the absence of the book I scoured Google, the Bogleheads forums, and finance sites I like such as CNNMoney or the motley fool.

I’m somewhere in my late 20s early 30s, as is DH. I have a fairly high risk tolerance over the long term (but pretty low-short term). Some of the calculators I looked at suggested 90% stocks, 10% bonds, and the 120-your age rules suggests the same. Because of our IRA savings is 100% stocks, I figured 80% stocks, 20% bonds would be good for our 403(b) portfolios. I’m not currently counting either cash or our house in the asset allocations (or the 529), the former because that’s short-term stuff and I get all risk averse about it, the latter because I am viewing it as a place to live rather than an asset– if we have to sell we will be readjusting everything at that time anyway.

Within stocks and bonds, there are many different calculators and random peoples suggesting many somewhat different allocations. Here are a few examples:

(random bogglehead for someone my age):
55% domestic large cap
25% domestic mid-small cap
20% intermediate term bonds
This is equivalent to the US Total Market Fund and has no international exposure

(another random bogglehead for someone my age):
25% large cap
15% midcap
15% smallcap
25% international
10% emerging market
10% bonds

(a random bogglehead for a college prof my age):
25% S&P (large cap)
25% Extended (I don’t know what these are)
30% international
20% intermed treasury bonds

CNN Money’s Calculator
10% Bonds
50% Large Cap
20% foreign
20% smallcap

Bankrate and a bunch of other places with the same calculator
25% large cap
23% midcap
18% smallcap
17% foreign
8% bonds
9% cash

Some other folks recommended FFNOX which is a mixed index with a 0.22% fee
It is something like just under 50% S&P, just under 25% international, 15% bonds, 13% extended market, give or take a few % (and adding up to 100).

As you can see there’s a lot of variation, but in the end it probably won’t make a whole lot of difference. I did see some allocations that I did not care for– 50% stocks, 50% bonds, or 25% of 4 different random asset classes (or 1/N of some other set of asset classes). If you are overwhelmed though, doing 1/4 for four different index funds is not going to hurt you too badly, especially if 3 of them are stock funds and one of them is a bond fund. Satisficing will always beat paralysis in investing for the long-term.

I do notice that there’s a lot more pre-made portfolios for Vanguard Funds, so it took a bunch more searching to figure out what exactly the different Fidelity funds are. I like Yahoo’s paragraph long descriptions best, but the bogleheads forum was also full of interesting information. From this I found out that Fidelity does not do emerging market funds in index form– if you want them you have to pay a lot for them. Secondly, they’re not so big on small-caps, their mid-cap FSEMX does have small-cap but they call it a midcap. Also their total market fund FSTMX is listed under largecap, but actually contains you know, the total market, or 80% of it anyway.

So what am I going to do? (expense ratios in paren)

20% Bonds FIBIX (0.20)
40% Largish Cap FSTMX (0.10) I’m choosing this total market index over the S&P 500 FUSEX because my IRAs are almost but not quite 100% in domestic large cap Indexes and ETFs, so this tilts a little more towards small/midcap.
20% Foreign FSIIX (0.20)
20% Small-Mid Cap FSEMX (0.10)

If you have any idea on any of this stuff, I’m still a newbie… am I messing up? I’m wondering if I should just go 10% bonds. It’s a long time before retirement, or at least before I’ll be drawing down, and the expense ratio is 2x as big, even though it’s still less than 1/7 of what I was paying before. I guess to know the answer to that you’d have to know how much was in my IRAs and I’m not entirely sure on that myself– I tend to ignore the retirement accounts. Last I knew it was about the same size of my current 403(b) but the 403(b) will be growing a lot more starting this year now that I know we’re not limited in contributions.

Unlike Ing, Fidelity doesn’t want to send people around so they’re just sending us the paperwork, though I do have a number for a person in case we get overwhelmed by how to switch our mandatory retirement plan from ING and start the new elective 403(b).

What do you do for your work plan? Do you have access to Vanguard and their wonderful Target date funds? Were you as overwhelmed as I am? I think I’ve got a better handle on it now though.

12 Responses to “Adventures in Retirement Saving: Part 4”

  1. Everyday Tips Says:

    I don’t think 20 percent bonds is unreasonable at all, especially since your IRA is 100 percent stock.

    Actually, what you chose is very close to what I selected for my latest 401 k account…

  2. Rumpus Says:

    I’m confused about why it seems so difficult to just have my retirement accounts track the market without paying high fees for the privilege. My employer didn’t assist me in selecting a company, and the company I ended up with didn’t bring their fees to my attention. So I had to determine that such things are important on my own, and find out which company I want based on their fee structure and available funds, then figure out which funds I want…all without much explanation/guidance. Thank goodness for online forums and the meager amount of online information at the corporate websites. It’s the paradox of choice, combined with a mysterious lack of funds I would consider “basic”, plus something of a car salesman attitude of “this is a beaut’ of a fund, just sign here!” Does/shouldn’t the government reform this area of personal finance (ala, the relatively recent increase of information on credit card bills)?

  3. nicoleandmaggie Says:

    If only we all had Vanguard.

    I do know that this is an area that the government is working on, following some excellent research by Bridgette Madrian, James Choi, and others. Look forward to quietly changed rules on retirement planning in the next couple of years. Things should be easier for people like us.

  4. debbie M Says:

    I got to where you are much, much more slowly!

    Even when I did start investing, I started off ignoring bonds because I figured my pension was very bond-like. But then I realized that bonds help me maximize returns by being able to have less-correlated things to rebalance with. I now feel the same way about having a REIT even though I also own a house.

    I want all equal parts of some large number of things for more ease and fun with the rebalancing.

    This year I decided I wanted 10% each of:
    * large-cap growth
    * large-cap value
    * small-cap growth
    * small-cap value
    * European
    * Pacific
    * Emerging
    * REIT
    * bond fund
    * TIPS/I-bonds (in taxable account)

    That gives me 70% US, 30% foreign and 80% stocks, 20% bonds, not too crazy sounding.

    I don’t feel any more knowledgeable about this stuff than you appear to be, though.

    Plus, things keep changing, so there’s always going to be more room for optimization. Not too long ago, having more than 10% foreign stocks was considered idiotic, and even 10% was considered risky!

  5. nicoleandmaggie Says:

    A problem (or maybe not a problem!) with Fidelity is that if you want to keep in their low-fee Spartan funds you can’t do too much strategy– there just aren’t that many choices if you want to keep with their .10 and .20% fees. It’s a complaint that kept coming up in the bogleheads forums… but when I’m really just starting out it just makes the decisions a little easier for me.

    I don’t think we have enough money for an REIT yet… one day! I definitely keep learning and optimizing a little more as I go on. I think that’s ok. And you’re right, things do keep changing.

    • Debbie M Says:

      That might be okay. I don’t have much money in there compared to my IRA.

      Have you noticed Fidelity’s Four-in-One Index Fund? It doesn’t actually say “Spartan” in the title, but it’s made up of Spartan funds (at surprisingly close to your current asset allocation) and has a fee of only 0.08%. (Or maybe 0.23%–different sources have different numbers. Weird.)

      All the funds that make it up have their own 0.10% fee, so I’m wondering if that makes it more expensive to own (even it if only has an expense ratio of 0.08%) than to own the other things separately–do you get double-taxed sort of or not?

      I’m going to wait until I have a Fidelity representative on my campus to make any moves!

      • nicoleandmaggie Says:

        In my 403(b) plan it says 0.23%, which makes it a little bit higher than putting something together myself. The Boggleheads forum mentions that as a good option for a single fund solution.

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  7. Moneyman Says:

    I’m just incredulous at the amount of detail there is in this allocation of funds (as if there were some accurate formula) – yet all the time ignoring that managed funds eat up a fair share of any profits that they might make. In my view, you should try to Do It Yourself, invest at home and focus on generating investment income. The only exception – for new investors – would be ETFs (for high yield shares, corporate bonds and government bonds).

    • nicoleandmaggie Says:

      Yes, fees (along with diversification) are most important. That’s why I went with Spartan funds, which are Fidelity’s lowest cost indexes. They’re the lowest fee of what is offered in my 403(b) options. See the previous adventures in retirement saving for a detailed discussion of fees.

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