Author Topic: Replicate VTSMX (Total Stock Index) with Fidelity funds  (Read 5088 times)

RabStache

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Replicate VTSMX (Total Stock Index) with Fidelity funds
« on: March 28, 2014, 10:25:33 AM »
Hey guys.  I was wondering if it would be possible to closely mimic VTSMX with the funds I have available for my 401k.  I've attached a list of funds that I have available and my current allocation.  Do you think my current elections are good or would it be better to try to closely mimic VTSMX?

For reference: I am 24 years old.

*EDIT* If more information is needed, please let me know!

minimalist

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Re: Replicate VTSMX (Total Stock Index) with Fidelity funds
« Reply #1 on: March 28, 2014, 10:56:11 AM »
VTSMX is weighed heavily towards the S&P 500, holds very little international stock, and no bonds. You would approximate VTSMX with something like 75% S&P 500, 15% Mid Cap, and 10% Small Cap. I would reduce your allocation to the Russell 2000 index to more like 10%-20%.

ZiziPB

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Re: Replicate VTSMX (Total Stock Index) with Fidelity funds
« Reply #2 on: March 28, 2014, 11:15:03 AM »
With your allocation, you are probably close to duplicating a target date retirment fund or a lifestyle fund but not a total market stock fund like VTSMX. 

I like your choices for asset allocation.  But make sure also that you are picking the lowest cost options available for what you need.

skyrefuge

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Re: Replicate VTSMX (Total Stock Index) with Fidelity funds
« Reply #3 on: March 28, 2014, 11:17:52 AM »
The Russell 3000 fund most closely matches VTSMX (it presumably holds ~3000 stocks vs. ~3600 stocks in VTSMX). By combining the S&P 500 and Russell 2000 funds, you're essentially leaving out the 500 mid-cap stocks included in the Russell 3000 that sit between the top 500 and bottom 2000 (making things more complex for a lower benefit!)

Whether you allocation looks good is a separate question, since, as minimalist points out, bonds and international stocks are not part of either VTSMX or the 500/2000/3000 funds. But yes, it seems like a decent allocation to me. I might bump the bond allocation up a bit more, to 10-20% (anything lower than that doesn't really improve performance, and you may find that your risk tolerance isn't as high as you think it is), replace the 500/2000 with the 3000, and maybe even bump the international percentage a bit higher. But that's all nitpicking around the edges.

RabStache

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Re: Replicate VTSMX (Total Stock Index) with Fidelity funds
« Reply #4 on: March 28, 2014, 01:51:00 PM »
Nitpicking is ok - that's why I come here!

I'm thinking about something like this after reading through the comments:
  • 70% Russell 3000
  • 10% Bond
  • 20% International

My only hangup is the international index.  Should I be spreading 20% into International or just do 90% Russell 3000?

FYI The expense ratios are as follows:
  • Russell 3000 - 0.086%
  • Bond - 0.0725%
  • Internationa - 0.1%

skyrefuge

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Re: Replicate VTSMX (Total Stock Index) with Fidelity funds
« Reply #5 on: March 28, 2014, 02:18:07 PM »
Your initial post suggests you're on board with the Vanguard/Bogle philosophy, and so owning an international component helps you get closer to owning "the total market".  See http://www.bogleheads.org/wiki/Three-fund_portfolio for an overview of what it looks like you're already headed towards, particularly the "Combining domestic and international stocks" section. Note that the EAFE fund excludes "emerging markets" from your international allocation. You can decide if it's worth the added complexity (and expenses) of adding another fund (LZRD EMRG MKTS) to truly complete your "total market" allocation; I could go either way.

And rejoice, it looks like you're one of the few(?) who actually has a pretty good 401(k) plan!

RabStache

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Re: Replicate VTSMX (Total Stock Index) with Fidelity funds
« Reply #6 on: March 28, 2014, 04:59:38 PM »
I thought of two more questions:
  • How do dividend payments work for index funds?
  • How do I know if my account automatically reinvests dividends?

skyrefuge

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Re: Replicate VTSMX (Total Stock Index) with Fidelity funds
« Reply #7 on: March 28, 2014, 05:55:34 PM »
I thought of two more questions:
  • How do dividend payments work for index funds?
  • How do I know if my account automatically reinvests dividends?

It depends on the fund/provider. For all mutual funds, dividends are generated by the underlying stocks throughout the year. Generally, the fund will then distribute the collected dividends to you and regular intervals, which might be quarterly or yearly. Vanguard posts a "Is your fund making a distribution?" news item every quarter.

For a fund held in a 401(k), the dividends are likely automatically reinvested. If you can't find any place to choose whether to reinvest or not, it's likely that they're being reinvested.

Some (most?) funds in 401(k)s will explicitly show the dividend payout and reinvestment as a transaction. But others (I know because I have one) will "hide" the dividends internally and instead simply show a higher share price. This is only possible for funds that are created specifically for 401(k) plans, because otherwise the dividend has to be explicitly known for tax purposes. I was pretty confused by this for a while, since my S&P500 index fund went for over a year without showing any dividend payments. Huh? Oh, they're baked in. (at one point I calculated it out, and the total return was actually better than my Vanguard S&P 500 fund over the same period, even though the expense ratio was much higher; I guess this was just an artifact of the underlying stock dividends being reinvested on a different schedule.)

RabStache

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Re: Replicate VTSMX (Total Stock Index) with Fidelity funds
« Reply #8 on: April 07, 2014, 08:34:48 AM »
I was looking at the Russell 3000 index provided through my plan and the turnover rate is 16.23%.  Is that too high?

foobar

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Re: Replicate VTSMX (Total Stock Index) with Fidelity funds
« Reply #9 on: April 07, 2014, 09:40:41 AM »
In a tax deferred account, who cares? That increased turnover  (compared to total stock) is a result of a bias towards more midcaps and small cap stocks.


I was looking at the Russell 3000 index provided through my plan and the turnover rate is 16.23%.  Is that too high?

RabStache

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Re: Replicate VTSMX (Total Stock Index) with Fidelity funds
« Reply #10 on: April 07, 2014, 09:50:53 AM »
I wasn't exactly sure exactly how turnover and tax deferred accounts correlated.  Thank you for the peace of mind!