Fidelity Target fund vs DIY vangard ETFs

[jakubdudek]

I have a simple 401k question.  Which of these would be a overall better move:

easy:
Fidelity TIP fund.  Asset allocation seems reasonable, 0.24 exp ratio. setup and forget.

hard(er):
DIY with vanguard ETFs... use an allocation like the above TIP or like what wealthfront comes up with when you do their questionnaires.  Basically modern portfolio theory allocation.

I'm not a fan of the fixed 0.24% fee and the somewhat obscurity of what's going on behind the scenes with the fund.

I'm also not a fan of extra work that doesn't pay off.  DYI requires re balancing, which generates costs (my own expense ratio), more discipline needed, a bit more thinking and tracking. 

Is the harder solution worth it?

any other suggestions?

thanks!

[ImCheap]

What is the composite of the DIY AA?

I'm not a huge fan either with some of those target date funds for some of the reasons you mention, but....

[NoStacheOhio]

Depending on how your account is set up, rebalancing a two- three- or four-fund portfolio shouldn't be much work. Or you could just contribute in fixed ratios and not worry about rebalancing. That's OK too.

[jakubdudek]

The AA could look something like this:

US Stocks (VTI) 21%
Foreign Stocks (VEA) 18%
Emerging Markets (VWO) 22%
Dividend Stocks (VIG) 13%
Real Estate (VNQ) 16 %
Corp Bonds (LQD) 5%
Emerging Market Bonds (EMB) 5%

It's what suggested by Wealthfront, could probably be simplified to a few less ETFs

[NoStacheOhio]

I'm 80/20-ish US/International.

My 403b has three funds because I have to separate SP500 (VIIIX) and the completion index (VIEIX), plus international (VTSNX).

Our IRAs are just all ITOT.

The dividend and real estate stocks are already present in VTI, so sure, you're giving them a slight tilt, but I'm not sure it's worth the complication.

[Car Jack]

This can be made much, much simpler.  If you are really scared of rebalancing, choose one of Vanguard's target date retirement funds.  They're low ER for this type of fund.

If instead, expenses are your focus, so  traditional 3 fund portfolio and rebalance on your birthday.  This is 15 minutes of work per year.  You know what?  If you instead don't want to rebalance that often, don't.  Do it once every 5 years!  That's 3 minutes a year.

What I do is hold all 3 funds in a rollover IRA, because I'm old and have rolled lots of 401k's into there.  Having this account, I can do the "sell to buy" in that account on my birthday without generating any taxable events.  I keep track of my asset allocation on a simple excel spreadsheet.

There ya go.  If you have other accounts (roth, taxable, iBonds, spouse's accounts), each one can be in a single fund or ETF (what I do).  You NEVER have to sell from any of those accounts before retirement.

Every *good* brokerage house has some number of *good* low cost funds.  Fidelity and Vanguard have great, low cost mutual funds.  Schwab and TDAmeritrade have great, low cost ETFs.

I have accounts at Fidelity, Vanguard and Schwab plus a bunch of iBonds.  I manage it as a 3 fund portfolio and it is very easy to manage.  It's in the 2 comma range and I see no reason to make it more complicated at even bigger values.

[ImCheap]

The AA could look something like this:

US Stocks (VTI) 21%
Foreign Stocks (VEA) 18%
Emerging Markets (VWO) 22%
Dividend Stocks (VIG) 13%
Real Estate (VNQ) 16 %
Corp Bonds (LQD) 5%
Emerging Market Bonds (EMB) 5%

It's what suggested by Wealthfront, could probably be simplified to a few less ETFs

I would consider to make this simpler myself, are you happy with your US/foreign equity split?

[jakubdudek]

So there's still something i must be missing.  It seems to me that the transactions fees for handling a portfolio of 3 etfs will generate a much larger expense than the WF fee. 

Say you contribute to a roth monthly, then if you're purchasing 3 etfs every month, that's 12$ in fee (with capital one investing, 3.95/transation)... that's 144$ year.  For the first year, that's 144/5500 = 2.6% of portfolio value (ignore appreciation)... second year it goes to 1.3% (144/11000), 0.65%(144/16500) and so on and so forth.  From what i gathered, after 20 years you've paid roughly 0.5%/year on average if you contribute monthly.  Compare that to WF 0.25% fee.

??

[NoStacheOhio]

So there's still something i must be missing.  It seems to me that the transactions fees for handling a portfolio of 3 etfs will generate a much larger expense than the WF fee. 

Say you contribute to a roth monthly, then if you're purchasing 3 etfs every month, that's 12$ in fee (with capital one investing, 3.95/transation)... that's 144$ year.  For the first year, that's 144/5500 = 2.6% of portfolio value (ignore appreciation)... second year it goes to 1.3% (144/11000), 0.65%(144/16500) and so on and so forth.  From what i gathered, after 20 years you've paid roughly 0.5%/year on average if you contribute monthly.  Compare that to WF 0.25% fee.

??

Why are you paying transaction fees?

Buying Vanguard funds at Vanguard doesn't have any additional cost beyond the fund expense ratio. Buying core iShares ETFs at Fidelity ditto, Schwab has their own ETFs without fees.

[jakubdudek]

Thanks, that was the missing bit.  I have a capital one investment account because i keep my checking and savings in capital one 360.  So I didn't realize that vanguard ETFs in a VANGUARD Account actually did not generate any fees.  they do in a cap 1 account.

time to open a vanguard account then i guess :)

[NoStacheOhio]

Thanks, that was the missing bit.  I have a capital one investment account because i keep my checking and savings in capital one 360.  So I didn't realize that vanguard ETFs in a VANGUARD Account actually did not generate any fees.  they do in a cap 1 account.

time to open a vanguard account then i guess :)

Yeah, I had an account with them for a while, but transferred over to Fidelity when I started my current job (employer plan is Fidelity, one stop shopping).

AFAIK, CapitalOne doesn't offer anything fee-free.