Fledgling Investor in Search of Guidance

[akoval23]

Hello all,

I've been a long-time lurker, now a first-time poster. I've always been impressed by the helpfulness and knowledge of the MMM community, and so I come here hoping that you all might be able to offer me some advice and guidance on my current Fidelity 403b investments.

Some relevant background:

• I am 30 years old
• Salary is about 53k per year
• I contribute the 5% max to my 403b; employer matches 8%
• 403b account is currently at $13,585

I realized just recently that my account had been switched over to a managed fund a few years ago, specifically Fidelity Freedom K 2050. I've done some research and am now aware that these managed funds have fairly high operational fees (.67%) and, from most of what I've read, people say to stay away from them.

I've consulted with a personal contact, who offered some suggestions on how I could rearrange my portfolio to a personally-managed one, and here is what my current portfolio looks like, based off of their suggestions. The fees associated with the new investments come in at about .66%, after account for the weighted distribution.

LARGE CAP            FID 500 INDEX PR    25%
LARGE CAP            INVESCO DIVRS DIV R6    20%
MID-CAP                    GS GROWTH OPPS INST    35%
INTERNATIONAL    HARBOR INTL INST    10%
INTERNATIONAL    HRDG LVNR IS EMG MKT    10%

I have tried to set a solid foundation with the FID Index and the INVESCO DIV. I put a fair amount in the Goldman Sachs Growth, as I'm still young and thought it would be good to take some risks in my portfolio. The international market investments are meant to diversify my portfolio a bit.

If you're wondering, here are all of the different options we have to invest in through our Fidelity plan, excluding the Freedom managed funds.

Name                                                        Asset Class                    Category          1-year      3-year      5-year     10-year/LOF

FID 500 INDEX PR (FUSVX)                       Stock Investments           Large Cap    4.46%    8.80%    13.52%    6.67%    
FID CONTRAFUND K (FCNKX)                     Stock Investments           Large Cap    1.57%    8.02%    12.93%    8.16%    
INVESCO DIVRS DIV R6 (LCEFX)            Stock Investments           Large Cap    6.63%    9.07%    13.95%    7.35%    
NB SOCIALLY RESP R6 (NRSRX)             Stock Investments           Large Cap    3.08%    6.63%    12.29%    6.55%    
FID EXT MKT IDX PR (FSEVX)                    Stock Investments           Mid-Cap            3.23%    5.10%    12.28%    7.42%    
GS GROWTH OPPS INST (GGOIX)             Stock Investments           Mid-Cap            -2.13%    3.54%    10.83%    8.51%
VANG SELECTED VALUE (VASVX)             Stock Investments           Mid-Cap            2.20%    4.61%    12.16%    6.95%
CONESTOGA SM CAP INV (CCASX)           Stock Investments           Small Cap            4.45%    2.54%    10.79%    8.17%     
WF SPL SM CAP VAL R6 (ESPRX)            Stock Investments           Small Cap            10.51%    7.68%    13.29%    6.51%     
HARBOR INTL INST (HAINX)                    Stock Investments           International    -3.74%    -2.30%    4.23%    3.01%
HRDG LVNR IS EMG MKT (HLMEX)             Stock Investments           International    10.74%    -0.05%    4.05%    4.15%    
OAKMARK INTL I (OAKIX)                         Stock Investments           International    -1.25%    -1.54%    8.47%    4.37%    
PIF REAL EST SEC IS (PIREX)                    Stock Investments            Specialty            5.42%    11.18%    11.89%    5.78%    
FIDELITY GOVT INCOME (FGOVX)             Bond/Stable Value Inv    Income            3.04%    2.80%    2.14%    4.26%
INVS HIGH YLD R5 (AHIYX)                       Bond/Stable Value Inv    Income            6.15%    3.47%    6.60%    6.97%    
METWEST TOT RTN BD I (MWTIX)            Bond/Stable Value Inv    Income            4.06%    3.39%    4.63%    6.33%    
PIM REAL RETURN INST (PRRIX) 

If anyone would be willing to review my investments and offer an input, it would be VERY much appreciated. As I mentioned, I'm relatively new to the investment game, but am trying to learn how to make some better decisions. While I become more informed, I thought it would be a smart idea to have some folks who are more savvy than myself review my portfolio. Time's a tickin', as they say, and I don't want to lose any more time on bad investments.

Thanks for any help!

[hobbes1]

If I were in your shoes, I'd be investing solely in the FUSVX fund. Personally, I would at the moment, be parking money in a money market acct in the 403b if that option is available as SP500 is at an all time high and I personally, don't like to invest at the top of the market.

Others may and will disagree and say that one should just automate contributions to the cheapest, broadest exposure fund and forget about it until you've accumulated "enough" to retire. There is merit there. I just have personally tended to avoid buying in until the market dips and then I move with larger amounts. Do I risk missing out on further highs? Yes. Is that "market timing" which some frown upon heavily? Maybe. I don't care.

Once the market retreats some, IIWY, I'd automate getting into FUSVX, and at present, I'd strongly consider selling your other holdings (assuming you've been buying in for awhile and will lock in a profit) and then begin putting that money into FUSVX when it's off it's highs. I am a big fan of selling at the top, or as close to it as I'm willing to tolerate and let the money (and profit!) sit until a later time when the market is down some.

Easiest is just automate investments and forget about it. It's up to you what method works best. Good Luck!

[Mother Fussbudget]

You should take some time, and carefully read through ALL of  JLCollins NH's Stock-Series.  That may answer many of your concerns and questions.

[Rubyvroom]

Agree on reading through JL Collins series. Also, take a spin through the Bogleheads Investment Philosophy. That site provides a ton of great info on investing, including information on determining your investment policy statement (IPS), which ideally would be a person's first step before really diving in to investing.

FYI if you want a bit more feedback on your allocation, it's great that you listed your available funds, but if you could list the expense ratios too that would be helpful.

[Frankies Girl]

+100 on the Collins site recommendation, and since you're in Fidelity, you might need this: https://www.bogleheads.org/wiki/Fidelity

It is fine to use Fidelity instead of Vanguard. Vanguard invented index funds (or rather Bogle did, who founded Vanguard), but you can still do index investing quite easily and just as cheaply at Fido. Just steer clear of the higher fee funds and avoid any sales pitches (In my experience, their reps are very helpful and not at all pushy).

Agree that you should probably just be aiming at 100% in FUSVX as that is the closest to a broad based index fund in your selections. I'd ignore (sell off) the other junk. But that's me and I'm quite comfortable with the idea of 100% stock index funds (if I was still a decade or two away from retirement), so do review Collins' stock series, get your asset allocation and an investment policy statement, and then go from there.

[pbkmaine]

Are you maxing your 403(b) or simply maxing the match? You should be able to contribute $18,000,

[akoval23]

Thank you, everyone, for your help! It's very much appreciated. Per the advice, I have started reading through the Stock Series (SO interesting), and have added the Bogleheads site to my bookmarks to tackle after I finish the stock series. To answer your questions:

Rubyvroom: (I cant believe I didn't post the expense ratios! Here they are:

FID 500 INDEX PR (FUSVX)                   .045%             
FID CONTRAFUND K (FCNKX)                 .61%           
INVESCO DIVRS DIV R6 (LCEFX)            .45%
NB SOCIALLY RESP R6 (NRSRX)             .6%
FID EXT MKT IDX PR (FSEVX)                 .07%       
GS GROWTH OPPS INST (GGOIX)            1% 
VANG SELECTED VALUE (VASVX)             .39%
CONESTOGA SM CAP INV (CCASX)           1.5%     
WF SPL SM CAP VAL R6 (ESPRX)               .93%
HARBOR INTL INST (HAINX)                    .78%
HRDG LVNR IS EMG MKT (HLMEX)            1.31%
OAKMARK INTL I (OAKIX)                         .95%             
FIDELITY GOVT INCOME (FGOVX)             .45%
INVS HIGH YLD R5 (AHIYX)                       .69%
METWEST TOT RTN BD I (MWTIX)             .44%

pbkmaine: I contribute 5% and my employer matches 8%, so I could put in more. At the current moment, it would strap me financially a bit. But I am taking some large steps to correct my current financial restrictions (I made a horrible decision to rent an apartment that was well out of my price range and will be moving into a cheaper place with a roomate come April).

Frankies Girl: Thank you for the clear explanation. It seems like many people are comfortable with the 100% index fund portfolio. Another question I have (anyone can answer) - if I switch my investments over to the (FUSVX) will my account take a significant hit due to how well the market is doing at the current moment?

Thanks again!

[MustacheAndaHalf]

I'd suggest you abandon the 1.31% expense ratio emerging markets fund, and probably the 0.76% international fund.  Instead, open an IRA (Traditional or Roth) and contribute $5,500 there.  Then buy international and emerging markets in your IRA, instead of the 403b.  That won't let you rebalance, but you will at least have international exposure that you control.  Fidelity and Vanguard are good choices for opening the IRA.

You should definitely do additional reading to gain a better appreciation of expense ratios.  Your first post listed 1/3/5/10 year performance, but not expense ratios.  That's backwards - expense ratios always cost you money.  They are significant, and predict how much you pay each year.  The recent performance of funds does not predict their future performance - it's not very useful.

[Rubyvroom]

Agree with the previous poster that if you want to diversify with international or with bond funds, I would not accept these cruddy expense ratios and would instead open a separate Roth IRA account to give yourself more options.

However, as you said you can't afford to put in enough to get the 8% match (which should be under $130 a month), you may want to consider posting a case study so folks can help you come up with enough in expense reductions to at least get your full match. You're leaving free money on the table.

If this were me, as a first step I'd simplify life and put everything into FUSVX and focus on reducing my expenses enough to get up to the 8% match. Without knowing your debt situation it's tough to say what your best option is from there. A max 403b investment should be a goal, but not at the expense of high interest rate debt. Diversifying your funds in an IRA would be a good option as well, but again, that's where a full case study might come in handy so people can point you in the right direction once they know more information.

[akoval23]

MustacheAndaHalf:

Thank you for your input. I am wondering: is the difference between investing in international markets through the Roth the fact that they aren't subject to operational fees? I'm not 100% clear on the benefit of switching my international investments from 403b to Roth. Btw, I did mean to post the fees as I know they are important, that's what actually caused me to forego the managed fund that was set as a default on my account. Even though the international investment fees are high, after calculating my weighted distributions, my fees still come in at .01% lower than the managed fund even WITH those international investments, if you can believe it.

Rubyvroom: I just want to clarify: my employer is strange in that if we as employees contribute 5%, then they match it with 8% (the max). This is what I am currently doing. So I am getting all that delicious free money. What I meant was that we are technically allowed to put more than 5% of our base salary in, but I've only been contributing 5%.

With that said, here is a case study if it would help:

Monthly Expenditures
Monthly Net Income: around $2500
Rent: $991
Electric: $30-$50
Internet: $40
Car lease (2015 Hyundai Sonata): $235
Car insurance: $112
Groceries: $150-$200 (high, I know. I buy a lot of fresh fruits/veggies/organic. It adds up)
Student Loans: $80
Gas: Around $70
Contribution to Short-Term savings: $300 (saving for down payment on house)
Eating out: (I'm ashamed to admit this, and I'm taking actions to amend it)...around $200/month

The rest of the money (around $250-$300 I keep floating around in my spending account for emergency buys)

Debt
Student loans: around $8k
Credit Card: $0

My two main goals at the current moment are to reduce spending by getting a MUCH cheaper apartment (I was sort of bullied/cornered into my current place) and a roomate, saving me around $500/month. I also plan on curbing my eating out by allotting a flat $50/month (in cash) to it. I figure this will give me a nice visual representation of the amount I have to spend, thereby forcing me to really make it count (i.e. use it for a night out with the gf).

With the saved money I'm looking into contributing heavily into a Roth through Fidelity. Per the suggestions here, moving my international investments into that.

Please let me know if there's anything I missed.

[Rubyvroom]

Rubyvroom: I just want to clarify: my employer is strange in that if we as employees contribute 5%, then they match it with 8% (the max). This is what I am currently doing. So I am getting all that delicious free money. What I meant was that we are technically allowed to put more than 5% of our base salary in, but I've only been contributing 5%.

Got it, thanks for clarifying. I misunderstood.

A couple more questions: 1) Do you have an emergency fund and 2) What is the interest rate on your student loan?

Also, great job on no credit card debt. That's a good place to be.

People here will probably suggest you rethink that car lease, if possible. And I don't see a cell phone expense on the list - do you have one, and if so, what do you pay for it? There are some great low cost phone options as well that you've probably read about here.

FYI the point of suggesting that you put international into an Roth IRA is that you have a much better variety of low cost funds to choose from. When you look at your total investing portfolio, do not just look at the 403b funds alone and think that you need to diversify all funds within the 403b. Take your 403b plus your personal investments (which you might not have any yet) and create a diversified set of funds by looking at the total investment portfolio. This allows you to take advantage of the "best" funds in your 403b and not have to settle for high cost international funds because they are your only option. If you want some international, go buy some, but buy funds you actually want, not just the ones your employer plan offers. Vanguard or Fidelity both have a great suite of low cost index funds, including international funds and bond funds.

So for example, if you have $13.5K in 403b all invested in the S&P 500 index, and you are able to put $5,500 into an Roth IRA into a Total International Stock fund with Vanguard (VGTSX, or whatever you choose), you'd be 70% S&P index and 30% international stock, with minimal expenses (0.045% S&P index and 0.19% VGTSX - as opposed to accepting 0.78% and 1.31% from your employer plan international funds). This is where your IPS would come in handy though to determine your risk tolerance and your desired asset allocation so that you can properly diversify your funds across all investments. Make sense?

Keep in mind a Roth is after tax however, so I think it would be good to try as much as possible to max out your pre-tax investments (tIRA or 403b) to lower your tax burden (assuming your student loan is at a low interest rate and you have an emergency fund). You might want to consider bumping your 5% up gradually as you make expense cuts, maybe to 6% at the start of the new year, then 7% after Q1, etc. If you increase this rate slowly over time it won't feel like such a swift or drastic lifestyle change and will give you time to make changes in the areas you noted you are working on.

[With This Herring]

Seconding the request for your student loan interest rate.

If you get rid of the leased car and purchase outright a used, older car in the $5-7K range, your car insurance costs should drop substantially.

You probably know this, but only buy a house if you're going to be in it for a long time.  Also, consider whether in your area it makes more sense to rent or buy.  This varies from city to city.
NY Times Rent/Buy Calculator

[letired]

Butting in to make a quick point. I might be misunderstanding, but it seems like some of the comments are merging some definitions of account types. IRAs come in both Roth (post-tax) and Traditional (pre-tax) flavors. If you want to increase your pre-tax retirement contributions, you can open a Traditional IRA in addition or instead of increasing your 403B contribution at work!

[Radagast]

Bullet points :)
- Your insurance is 3x mine and my car is probably worth similar. A call here can provide immediate benefits.
- Your car is too expensive, switch to a $2-$5k car ASAP.
- I second the comment about unknown cell phone expense. Keep below $20/mo. with b.y.o.p.
- I second the comment about student loan interest rate. Repay ASAP if over 5%.
- Good job on trying to reduce rent expenses.
- Any split between FUSVX and FSEVX is good. I would use both, there's nothing special about the S&P500. Ignore the other funds, too expensive.
- At your income an ordinary IRA will be more useful in keeping you in a lower tax bracket. Not Roth.
- Max out IRA before increasing contributions to 403b
- I agree to invest internationally in IRA, not less than 30% or more than 50% of total stock investment.

[Rubyvroom]

Thanks for the reminders on the tIRA. I do not receive the tax deduction so I often forget about it... oversight on my part. Edited my posts to avoid confusion.

[akoval23]

Rubyvroom: : Thank you sooooo much for the clarification on broadening the portfolio by opening a Trad. IRA (And for all the great advice you've taken the time to provide!). Investing in international markets through the Trad IRA in order to dodge the fees makes perfect sense - you get the best of both worlds.

To answer your questions:

• My emergency fund is about $3.3k right now. Not much but enough to float on. I have VERY good job security.
• Interest rate is low, luckily - 3%
• I'm lucky enough to be on a family plan with my father and sister (through Sprint). I pay him 1/3 of the bill at the beginning of every year, so I don't factor that into my monthly expenses.

Radagast: Thanks for your input! Let me see if I can answer your bullet points.

• Do you have any good insurance recommendations? From what I thought, mine was (fairly) low
• I admit the car is fairly pricey, but I do like the piece of mind of having bumper to bumper warranty for repairs and not having to worry about any unexpected maintenance ($$$)
• Cell phone is under $20/month
• Loan interest is 3%
• Thanks!
• I ended up splitting 80/20
• Noted on all your final points regarding Trad. IRA. Looking into now.

PizzaSteve: Thank you for your input on everything!

[MustacheAndaHalf]

I'm not 100% clear on the benefit of switching my international investments from 403b to Roth.

The problem is expense ratios.  Your 403(b) doesn't let you pick funds - it gives you a very limited menu of choices.  You have to take 0.71% expenses or not invest international.  I don't know of a way to transfer money out of a 403(b) while you're still working at the same company/institution.  So that money is stuck, and has expensive options for international investing.

What I'm suggesting is to take control and switch to another place to get cost effective funds.  Fidelity and Vanguard are both good choices.  Since you have a 403(b) at work, pre-tax contributions to a Traditional IRA will stop once you hit certain income limits ($61k single, $98k married).  There are also income limits for Roth IRA contributions, but those are higher ($118k single, $186k married).  Roth IRA is more flexible and offers "what you see is what you get", but tax wise it helps people who end up in a lower income bracket.  So knowing all that, maybe you've picked a Roth IRA.

What that means is you can take up to $5,500 and create a Roth IRA at Vanguard.  Vanguard has many low expense ratio international funds and ETFs.  If your 403(b) had only Vanguard funds you wouldn't need to take this step.  But opening a Roth IRA at Vanguard gives you better fund choices than your retirement plan at work.  You could buy Vanguard Total International (0.19% expense ratio) with your $5,500.  If you're comfortable with the idea of ETFs, Vanguard Total International ETF (VXUS) is less expensive (0.13%) per year.  With $5,500 invested the mutual fund costs $10.45/year and the ETF costs $7.15/year.  Your 403(b) would charge you $39.05/year to invest $5500 internationally.

Your 403(b) plan probably has managed funds, where Vanguard has index funds.  So you're avoiding manager risks, while also saving money every single year.  That's why I'd suggest using a Roth IRA to gain new choices.

[Radagast]

MMM seems pretty big on Geico and subsidaries. I use State Farm because the rate seems low enough that I don't care, plus I like that they have a responsive rep within walking distance. At State Farm I am paying a little under 700/year on a 2014 Subaru. So actually about half what you pay. I have a double standard having a nice vehicle myself ( I had not yet learned the theory of compound interest but no point selling since I was already past the depreciation hit), but... a car like yours would be a great deal for someone like you as soon as it came off lease.... hint...newish, low mileage, factory warranty...

[Car Jack]

FID 500 INDEX PR (FUSVX)                   .045%             
FID CONTRAFUND K (FCNKX)                 .61%           
INVESCO DIVRS DIV R6 (LCEFX)            .45%
NB SOCIALLY RESP R6 (NRSRX)             .6%
FID EXT MKT IDX PR (FSEVX)                 .07%        
GS GROWTH OPPS INST (GGOIX)            1% 
VANG SELECTED VALUE (VASVX)             .39%
CONESTOGA SM CAP INV (CCASX)           1.5%     
WF SPL SM CAP VAL R6 (ESPRX)               .93%
HARBOR INTL INST (HAINX)                    .78%
HRDG LVNR IS EMG MKT (HLMEX)            1.31%
OAKMARK INTL I (OAKIX)                         .95%             
FIDELITY GOVT INCOME (FGOVX)             .45%
INVS HIGH YLD R5 (AHIYX)                       .69%
METWEST TOT RTN BD I (MWTIX)             .44%

There's what you should be looking at.  My (made up) general rule of thumb is that these days, anything more than 0.2% expense ratio is a rip off.  You have 2 good, low cost funds.  Buy them.  Personally, I would only buy the 500 fund, but I tend to like large cap funds the best so certainly wouldn't fault you for wanting to add some extended market.

[DavidAnnArbor]

FID 500 INDEX PR (FUSVX)                   .045%             
FID CONTRAFUND K (FCNKX)                 .61%           
INVESCO DIVRS DIV R6 (LCEFX)            .45%
NB SOCIALLY RESP R6 (NRSRX)             .6%
FID EXT MKT IDX PR (FSEVX)                 .07%        
GS GROWTH OPPS INST (GGOIX)            1% 
VANG SELECTED VALUE (VASVX)             .39%
CONESTOGA SM CAP INV (CCASX)           1.5%     
WF SPL SM CAP VAL R6 (ESPRX)               .93%
HARBOR INTL INST (HAINX)                    .78%
HRDG LVNR IS EMG MKT (HLMEX)            1.31%
OAKMARK INTL I (OAKIX)                         .95%             
FIDELITY GOVT INCOME (FGOVX)             .45%
INVS HIGH YLD R5 (AHIYX)                       .69%
METWEST TOT RTN BD I (MWTIX)             .44%

There's what you should be looking at.  My (made up) general rule of thumb is that these days, anything more than 0.2% expense ratio is a rip off.  You have 2 good, low cost funds.  Buy them.  Personally, I would only buy the 500 fund, but I tend to like large cap funds the best so certainly wouldn't fault you for wanting to add some extended market.

+1

[bassman2003]

FID 500 INDEX PR (FUSVX)                   .045%             
FID CONTRAFUND K (FCNKX)                 .61%           
INVESCO DIVRS DIV R6 (LCEFX)            .45%
NB SOCIALLY RESP R6 (NRSRX)             .6%
FID EXT MKT IDX PR (FSEVX)                 .07%        
GS GROWTH OPPS INST (GGOIX)            1% 
VANG SELECTED VALUE (VASVX)             .39%
CONESTOGA SM CAP INV (CCASX)           1.5%     
WF SPL SM CAP VAL R6 (ESPRX)               .93%
HARBOR INTL INST (HAINX)                    .78%
HRDG LVNR IS EMG MKT (HLMEX)            1.31%
OAKMARK INTL I (OAKIX)                         .95%             
FIDELITY GOVT INCOME (FGOVX)             .45%
INVS HIGH YLD R5 (AHIYX)                       .69%
METWEST TOT RTN BD I (MWTIX)             .44%

There's what you should be looking at.  My (made up) general rule of thumb is that these days, anything more than 0.2% expense ratio is a rip off.  You have 2 good, low cost funds.  Buy them.  Personally, I would only buy the 500 fund, but I tend to like large cap funds the best so certainly wouldn't fault you for wanting to add some extended market.

+2.  The extended market fund is the 3200+ish small and mid cap companies that aren't in the SP 500 fund.  If you combine the two (80% SP 500 and 20% extended market), that is an extremely close approximation of the US Total Stock Market Index at an extremely low expense ratio.  Add some international in a tIRA (or Roth depending on your circumstances), say into a Vanguard Total Internationalindex fund (6000ish international companies) and you're set from the equity side of things and own nearly every major US and international public company.