Author Topic: Question about an IRA I inherited...  (Read 988 times)

gardenstash

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Question about an IRA I inherited...
« on: April 17, 2020, 09:14:12 AM »
I posted a little over a month ago about some questions I had about an inheritance I was receiving. That process is going to be long and drawn out, but I did receive half of an IRA today that is in FDETX.

I'd like to switch it to a different fund and I would like some advice on options/recommendations. I was thinking about splitting it between FSKAX and FXAIX. I'm comparing the 5 year returns of these three funds to get to that idea. The person I inherited this from was retired, I'm 35 years old. My portion of this account has lost about $12,000 since the market tumbled this year.

MustacheAndaHalf

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Re: Question about an IRA I inherited...
« Reply #1 on: April 17, 2020, 09:21:22 AM »
If you quote both the fund name, and the amount you list this year, people can put those together and figure out how much was in that IRA (in case you care about privacy, and didn't realize that).

Fidelity Total Market Index Fund (FSKAX) and Fidelity 500 Index Fund (FXAIX) have about 80% overlap.  Right now many stocks are ready to drop out of the S&P 500, and it's so bad that Standard & Poors has suspended rebalancing.  If you just buy a total market fund, you avoid all that: you own them all.

I'd recommend "total international" for diversification.  Although 5 year performance won't show an advantage, in some decades the U.S. beats international and other decades international beats U.S. on performance.  If you look with a 10 year or 40 year horizon, international makes more sense.

gardenstash

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Re: Question about an IRA I inherited...
« Reply #2 on: April 17, 2020, 09:36:16 AM »
If you quote both the fund name, and the amount you list this year, people can put those together and figure out how much was in that IRA (in case you care about privacy, and didn't realize that).

Fidelity Total Market Index Fund (FSKAX) and Fidelity 500 Index Fund (FXAIX) have about 80% overlap.  Right now many stocks are ready to drop out of the S&P 500, and it's so bad that Standard & Poors has suspended rebalancing.  If you just buy a total market fund, you avoid all that: you own them all.

I'd recommend "total international" for diversification.  Although 5 year performance won't show an advantage, in some decades the U.S. beats international and other decades international beats U.S. on performance.  If you look with a 10 year or 40 year horizon, international makes more sense.

Thanks for the head's up, I don't mind if people can figure out how much is the IRA. I didn't realize there was overlap between FSKAX and FXAIX. So would just moving it to FSKAX make sense?

Why are so many stocks dropping out of the S&P? I'm not currently invested in the S&P at all and thought I maybe should be.

terran

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Re: Question about an IRA I inherited...
« Reply #3 on: April 17, 2020, 10:05:47 AM »
FSKAX seeks to follow the entire US stock market but holding stock in (just about) all publicly traded US companies. FXAIX seeks to follow the 500 most valuable US companies by holding their stock. The 500 most valuable US companies make up about 80% of the value of all US companies. Hence the overlap.

Companies move in and out of the S&P 500 all the time. The current market turmoil has sped that up by making some companies lose lots of value and others gain lots of value, so many companies that were among the least value of the 500 most valuable are now less valuable than other companies and many companies that were among the most valuable companies excluding the 500 most valuable have now moved up to be among the 500 most valuable. Nothing sinister, just the normal thing that happens to an index that defines itself by a certain set of companies.

If you own any total market index funds (like FSKAX or similar) then you do own lots of stock in the S&P 500 as those companies make up the majority of the value of US companies. But you also own all the companies that are almost (but not quite) in the S&P 500 along with many smaller companies. This is why owning a total US market index avoids the rebalancing mess with an S&P 500 index -- you already own all the companies that will move in and out of the S&P 500 index.

Long story short, yes, owning FSKAX would make sense. I would agree that owning an international index like FTIHX would make sense.

MustacheAndaHalf

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Re: Question about an IRA I inherited...
« Reply #4 on: April 17, 2020, 12:53:21 PM »
gardenstash - I mentioned the difference between a total stock market fund, and the S&P 500, because those are the two choices you presented.  Once you bought the total stock market, that includes the largest 500 companies - it has the S&P 500.


For others who might be curious, here's the S&P 500 not being rebalanced (adding/dropping stocks):
https://www.nasdaq.com/articles/sp-dow-jones-indices-delay-quarterly-index-rebalance-after-market-tumult-2020-03-13

gardenstash

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Re: Question about an IRA I inherited...
« Reply #5 on: April 17, 2020, 01:34:37 PM »
I'm going through the Investment Advisor my family member had this IRA in to get the funds moved over. I told them I wanted to move to FSKAX and this is the gist of the response I got:

"Our investment philosophy is about using mutual funds that have an investment objective and are managed by an investment team.  Also, once our clients reach the required minimum for investing, we may when appropriate recommend, that a client invest with our Asset Management Program.  This program is an actively managed account with quarterly rebalancing. We do not recommend index investments.  With management, the idea is to miss the “low of the lows”, as it takes an investment longer to recover from a low position."

This is gobblity-gook to me, I'm not sure what this means. I need to maintain a nice relationship with this advisor until the estate is closed out for specific reasons I'd rather not get into. However I don't see why I should not do an index investment?

terran

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Re: Question about an IRA I inherited...
« Reply #6 on: April 17, 2020, 02:06:38 PM »
This is gobblity-gook to me, I'm not sure what this means.

Good, that's the point. It's supposed to make this all sound ever so complicated and something that little old gardenstash couldn't possibly handle, so you should just be glad that you have a team of professionals to take care of it all for you. I would get out of their grasp as soon as you can, but until then just keep pushing for what you want. "Thank you for sharing this with me. I'd still like to get this moved over to FSKAX, is that something we can do?"

gardenstash

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Re: Question about an IRA I inherited...
« Reply #7 on: April 17, 2020, 02:19:12 PM »
This is gobblity-gook to me, I'm not sure what this means.

Good, that's the point. It's supposed to make this all sound ever so complicated and something that little old gardenstash couldn't possibly handle, so you should just be glad that you have a team of professionals to take care of it all for you. I would get out of their grasp as soon as you can, but until then just keep pushing for what you want. "Thank you for sharing this with me. I'd still like to get this moved over to FSKAX, is that something we can do?"

Thanks, that's kind of what I figured. I looked at the performance of the IRA historically from the paperwork I was given and while the family member was pretty conservative and was retired, I'm much younger. My Vanguard investment in a index fund that I setup myself handily outperformed the IRA over the last 5 years. Since I already got hornswoggled into a bad life insurance "investment" by a Northwestern Mutual "financial advisor" that I going to close at the end of the year I'm skeptical about using a financial advisor. But this advisor has been very nice and helpful with something that's a bit complicated so I do appreciate that. I just sent a kindly worded message in the vein of your suggestion. Thanks so much!

MDM

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Re: Question about an IRA I inherited...
« Reply #8 on: September 06, 2020, 06:02:21 PM »
I'm going through the Investment Advisor my family member had this IRA in....
Have you been able to disentangle yourself from the Investment Advisor salesperson?

Reynold

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Re: Question about an IRA I inherited...
« Reply #9 on: September 18, 2020, 07:41:12 AM »
Reminds me of a work colleague of mine, the admin assistant, who used to work for AT&T.  When she got laid off there, she got a pretax payout of lump sum pension or something like that (similar to an IRA or 401k, I believe, in that it had to be rolled into something else) and her advisor convinced her to put it all in annuities.  More recently, he has been bugging her to take her existing 401k and give it to him to put it in MORE annuities.  Of course he makes money on that, not on her keeping a 401k with our company. 

She showed me her existing annuities, and since they are from 15+ years ago before interest rates went so low, they have a guaranteed minimum payout of 5%.  I told her that's not bad for these days, but if her advisor bugged her again, tell him she would only consider it if he can get annuities identical to those. :)  He won't be able to, of course, annuities today tends to be "floating", where you lose less than the market but upwards returns are capped, as far as I know there are none that have 5% minimum payouts. 

gardenstash

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Re: Question about an IRA I inherited...
« Reply #10 on: September 18, 2020, 02:41:06 PM »
I'm going through the Investment Advisor my family member had this IRA in....
Have you been able to disentangle yourself from the Investment Advisor salesperson?

Haha, yes thanks for following up with me. They were very nice and very helpful actually in the narrow window of helping me with the estate. I am making a real estate investment so I sold the majority of the IRA towards the purchase of the property.

gardenstash

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Re: Question about an IRA I inherited...
« Reply #11 on: September 18, 2020, 02:44:08 PM »
Reminds me of a work colleague of mine, the admin assistant, who used to work for AT&T.  When she got laid off there, she got a pretax payout of lump sum pension or something like that (similar to an IRA or 401k, I believe, in that it had to be rolled into something else) and her advisor convinced her to put it all in annuities.  More recently, he has been bugging her to take her existing 401k and give it to him to put it in MORE annuities.  Of course he makes money on that, not on her keeping a 401k with our company. 

She showed me her existing annuities, and since they are from 15+ years ago before interest rates went so low, they have a guaranteed minimum payout of 5%.  I told her that's not bad for these days, but if her advisor bugged her again, tell him she would only consider it if he can get annuities identical to those. :)  He won't be able to, of course, annuities today tends to be "floating", where you lose less than the market but upwards returns are capped, as far as I know there are none that have 5% minimum payouts.

I think an annuity would be perfect for my brother who is terrible with money and very afraid of the stock market. I'm convinced he's going to blow through this inheritance but I keep reminding myself "not my monkey, not my circus" since he doesn't like me very much and won't listen to any advice I try to share with him. I left the my share of the IRA in the stock market until recently when I cashed it out to put towards the purchase of a real estate investment. I ended up with $10,000 more than my brother because he cashed his out the moment he got his portion and I waited and the value was mostly recovered.