Author Topic: How to pick investments? Overwhelmed  (Read 2558 times)

prdycool

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How to pick investments? Overwhelmed
« on: March 01, 2017, 01:16:51 AM »
So I have retirement accounts through work invested in VANG INST TR 2050, this I am happy with.

Outside of that I have:
- A Roth IRA invested in AMERICAN GROWTH FUND OF AMERICA CLASS A
- A Traditional IRA invested in FDIC-INSURED DEPOSIT SWEEP, I guess this is just cash?
- An Individual or Brokerage account, invested in MFS MODERATE ALLOCATION CL C

I know that these are not good things to be invested in - the cash one particularly but the expense ratios are also bad on the other two (66% per year in American Growth Funds of America A, 1.74% in the MFS fund, I was told to get this below 0.20%). I talked with a retirement adviser who recommended traditional index funds/mutual funds for the brokerage account and iShares for the IRAs, but was not allowed to get specific because he's just provided by my job for the work accounts which I am happy with. How on earth do I pick which ones? I know I want to avoid fees and that I'd like them to auto-invest (i.e. I deposit money from my paycheck and it gets invested). I'm really hands off, I just want to set it up and let it go, but I'm stuck on the setting it up part. All of my accounts are at Fidelity and I've tried looking at their list of mutual funds but it is super overwhelming. Does the money mustache community have a list of their favorite picks? Do I just call Fidelity and scream HELP!? Thanks in advance.

Mezzie

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Re: How to pick investments? Overwhelmed
« Reply #1 on: March 01, 2017, 01:39:43 AM »
If you want to be totally hands off, maybe a target-date retirement fund would be best for you. Fidelity has them.

Fidelity also has their own version of the ever-popular VTSAX; I forget the letters, but it's easily Google-able.

And a 66% expense ratio? Am I reading that right? Not .66? Because that sounds criminal. Decimal point or no, you can do better.

Note: I'm fairly new to this myself, so you may want to weigh my advice a little less than the more experienced folk who are bound to come along soon.

Frankies Girl

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Re: How to pick investments? Overwhelmed
« Reply #2 on: March 01, 2017, 03:23:30 AM »
I just did a similar post about this thing a few days ago, so I'm going to cut and paste my previous info here and clean it up a bit for you:

TL/DR: Do your homework, figure out your AA, ask questions here, and once you're ready, invest with Vanguard (or Fido if you're already in with them) and SELF MANAGE a simple 2-4 fund portfolio. Don't over-complicate things.



Long version:

You do not say who exactly you have the Roth IRA, traditional IRA and brokerage accounts with? I'm going to assume Fidelity since you go on to mention calling them for help...

If you are looking for the best place to house your investment/retirement accounts/portfolio, then Vanguard is a no-brainer, but if you are already with Fidelity then it's fine to stay put as they have comparable funds to Vanguard. You do not need to have them manage it for you. You should first do your homework - in other words, learn about how to invest, and figure out what your goals are and your comfort levels with general volatility, and then decide your asset allocation and THEN sell off the crappy funds you currently have and invest in the ones that fit your plans.

Vanguard is the gold standard. They literally wrote the book on low cost investing. Vanguard was founded by John C. Bogle, the guy that came up with index funds and the company is founded on the principles of low cost, market tracking funds... you really can't do better than them insofar as a trust-worthy, solid investment group that isn't out to make themselves huge profits off of your money. Vanguard is owned by the funds themselves and, as a result, is owned by the investors in the funds.

Totally my own opinion and full disclosure, I use Fidelity for my investments, and I am very happy with them.

Fidelity is great as long as you self manage and stay away from their high fee funds or pay someone to manage your portfolio. In order to stay a leader in the investment field, they have a whole series of index funds that are as good as Vanguard's and their customer service/perks are arguably better than Vanguard. If you feel the need for a bit more handholding (I did), then Fidelity might be more in line, but do your homework and stick with their low cost Boglehead style funds outlined here.

Start here: http://jlcollinsnh.com/stock-series/ with either Mr. Collins' book or read through the series on his website. Then head over to Bogleheads site, and read about how to write an investment policy statement, and figure out your asset allocation. Do some research on lazy portfolios there as well.

For example: I have 3 Fido index funds (refer to the Bogleheads fido link above) in my total portfolio:  FSTVX total stock market, FSITX U.S. bond index and FSRVX, a REIT index. I technically am overcomplicating things holding the REIT, but I like the extra real estate exposure and it fits with my AA and IPS. ;)

Anything American Funds is a big NO. All of their funds to my recollection are loaded funds - meaning they take a large cut off the top just to give them your money to invest, and then they charge you an additional high expense ratio to stay invested with them and that management fee is awful (and additional to their expense ratios AND the load fees). They're little better than Edward Jones (EJ in my opinion: a terrible, horrible, awful, should be ashamed of themselves type of company). Steer way clear of any company/funds that want to charge you a load fee or offers "class" type of investments because it is all crap designed to put more of your money in their pockets.

Fortunately, once you decide exactly what you want to hold for your AA, selling off things like that American Funds in a traditional/Roth IRA is tax free and easy.

But that horrible nasty no-good MFS MODERATE ALLOCATION CL C in your taxable account... oh man, that is terrible. It has a transaction fee if you hold it in Fidelity just to buy/sell, it is a loaded fund, meaning they skimmed off a percentage when you bought in and do so each time they reinvest (class type funds are ALWAYS shit type funds in my opinion), AND it charges a back-end load of 1%, meaning when you sell that bastard you get hit with an out-the-door fee scalped as well, AAAAAAND the horrible 1.74% expense ratio is just... wow. Whomever advised you to put that piece of shit in your portfolio at all, let alone compounding the mess by buying it in a taxable account... this is someone to not spit on even if they were on fire. Seriously.

You're should stop the reinvesting on this nasty fund ASAP (no more money into it, and call them and tell them to stop reinvesting (or you can change it yourself*) and go to cash on dividends/distributions - not another penny in that dog - and slowly start selling it off once you figure out your AA. But run, screaming as soon as you get your gameplan figured out. The problem is that a taxable account's cap gains, distributions and dividends count towards your income, and if you're already close to or above the 15% taxable bracket, then any selling going on is going to create taxes - potentially lots of taxes - owed. So getting out of that fund won't be easy because you'll want to keep the selling off low to make sure the gains aren't going to push you into owning thousands of dollars come tax time. Knowing whether you have like $3K versus having like $30K in there might make a difference. I'd advise you to dump all of as soon as you figure your AA out if it was the smaller amount, but you'll need to slowly sell off over a multi-year period or wait for a loss/crash to minimize the damage selling off a large amount. 

And while you say you have Vanguard institutional funds 2050 in your retirement account through work, again, if you have a Fidelity account holding a Vanguard fund... this may not be the absolute best. You are getting charged a transaction fee for the non-Fido fund every time you buy/sell most likely. It would be better to get the Fidelity equivalent if it is available, but if it is not then stick with the Vanguard one as it is still likely better fees/broader coverage than most offerings in a workplace plan (but you'll need to do some checking against the Boglehead Fidelity fund site mentioned above).

So do a little bit of reading (the links above), spend some time spent asking questions/reading on this forum, and that will get you all the ability and confidence you need to select a lazy portfolio asset allocation of 2-4 funds, move some things around and dump the dogs, and throw your money in your shiny new AA and be very happy. Most folks don't even have to look at their portfolio but once or twice a year (if that) to check and see if rebalancing is needed, and that generally can be figured out in under an hour.

If you can figure out how to drive a car, hold down a job and keep the bills paid... you can manage your own investment/retirement portfolio - you totally can do this. ;)


*Assuming account is with Fidelity: go to ACCOUNTS & TRADE/ACCOUNT FEATURES/BROKERAGE & TRADING/DIVIDENDS & CAPITAL GAINS/ and then locate your taxable account and select the "Update" action. Change both dividend/cap gains to "deposit to core account" making sure to also select the checkbox below for "All mutual fund positions currently held in this account" and click the update to save changes. Confirm you now have all funds reading as deposit to core account and you're good!



MustacheAndaHalf

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Re: How to pick investments? Overwhelmed
« Reply #3 on: March 01, 2017, 05:29:52 AM »
You're at Fidelity and overwhelmed.  I'd suggest putting 100% into ITOT (iShares Total Stock Market) for now, and start reading.  Maybe delay on the brokerage account, but switch your Roth and Trad IRAs.

It's nice to have international, but you're overwhelmed and the 20% allocation there can wait.  You might wonder how I can suggest just one fund - easy, because it holds everything from the US market.  Diversification isn't about number of funds, it's what is in the funds.  In this case, iShares Total Stock Market holds thousands of companies in proportion to their weight in the stock market.

At Fidelity ITOT should be one of the zero commission options, so you can make the switch for $0.  I say delay the individual account because it has tax implications.  How much has MFS MODERATE ALLOCATION gone up since you bought it?  Can you check for "cost basis" or "unrealized gains"?  If you put $10,000 into it and it's at $12,000 now you have +$2,000 in gain.  If you sell, the IRS taxes that $2000 at your tax rate.. so maybe 25% tax rate you pay $500.  But if you keep it a year, the long-term capital gains rate is 15% for most people, so you'd pay $300 in tax to the IRS.

Switch Trad and Roth IRA to iShares Total Stock Market (ITOT), and research your gains in the taxable account.

prdycool

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Re: How to pick investments? Overwhelmed
« Reply #4 on: March 01, 2017, 12:39:29 PM »
I actually got the 66% number from someone on here who looked at the fund, maybe they meant 0.66%. I personally have no idea! I'll look into the VTSAX thing, thank you!

If you want to be totally hands off, maybe a target-date retirement fund would be best for you. Fidelity has them.

Fidelity also has their own version of the ever-popular VTSAX; I forget the letters, but it's easily Google-able.

And a 66% expense ratio? Am I reading that right? Not .66? Because that sounds criminal. Decimal point or no, you can do better.

Note: I'm fairly new to this myself, so you may want to weigh my advice a little less than the more experienced folk who are bound to come along soon.

prdycool

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Re: How to pick investments? Overwhelmed
« Reply #5 on: March 01, 2017, 12:46:40 PM »
Thank you, the ITOT sounds exactly like what I am looking for. The mutual fund was opened at another company years ago, I think 2011? I stopped contributing to it in probably 2012 or 2014, so it's just been sitting there (does that make it the long term capital gains rate?). I'm not sure how to find the information you are asking about. A google search showed %Unrealized Gain YTD   18.12 for MMACX. If I call Fidelity, will they be able to tell me what the taxes would be to make the switch? Thanks for your help!

You're at Fidelity and overwhelmed.  I'd suggest putting 100% into ITOT (iShares Total Stock Market) for now, and start reading.  Maybe delay on the brokerage account, but switch your Roth and Trad IRAs.

It's nice to have international, but you're overwhelmed and the 20% allocation there can wait.  You might wonder how I can suggest just one fund - easy, because it holds everything from the US market.  Diversification isn't about number of funds, it's what is in the funds.  In this case, iShares Total Stock Market holds thousands of companies in proportion to their weight in the stock market.

At Fidelity ITOT should be one of the zero commission options, so you can make the switch for $0.  I say delay the individual account because it has tax implications.  How much has MFS MODERATE ALLOCATION gone up since you bought it?  Can you check for "cost basis" or "unrealized gains"?  If you put $10,000 into it and it's at $12,000 now you have +$2,000 in gain.  If you sell, the IRS taxes that $2000 at your tax rate.. so maybe 25% tax rate you pay $500.  But if you keep it a year, the long-term capital gains rate is 15% for most people, so you'd pay $300 in tax to the IRS.

Switch Trad and Roth IRA to iShares Total Stock Market (ITOT), and research your gains in the taxable account.

MDM

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Re: How to pick investments? Overwhelmed
« Reply #6 on: March 01, 2017, 12:55:12 PM »
Do some research on lazy portfolios there as well.
+1 to the whole post.

If you want to get even simpler than the line above, skip to one of the links inside the link there: Three-fund portfolio - Bogleheads.

And if you want simplest of all (and are OK with the 85/15 asset allocation) at Fidelity: FFNOX.


redrocker

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Re: How to pick investments? Overwhelmed
« Reply #7 on: March 01, 2017, 01:29:22 PM »
I talked with a retirement adviser who recommended traditional index funds/mutual funds for the brokerage account and iShares for the IRAs, but was not allowed to get specific because he's just provided by my job for the work accounts which I am happy with. How on earth do I pick which ones? ...All of my accounts are at Fidelity and I've tried looking at their list of mutual funds but it is super overwhelming.

Sounds like a relatively good retirement advisor!


If you want to do a simple 3 fund portfolio at Fidelity, covering domestic stock market, international stock market, and bond market, you could buy these three index funds:
FSTVX - total stock market index
FTIPX - international stock market index
FSITX - US bond market index

If you prefer the no commission ETFs, the comparable iShares to the funds above would be ITOT, IXUS, and AGG, respectively.

Here's a quick reference on funds for Fidelity:
https://www.bogleheads.org/wiki/Fidelity
« Last Edit: March 01, 2017, 01:31:46 PM by redrocker »