Sorting Out Investment Strategy

[RockYourSocksOff]

I'm trying to sort out my investment strategy and would like some feedback.  These are the accounts we currently have:

• Fidelity: This is my wife's 401a, 53.8%
• Morgan Stanley: This is my SEP IRA, 23.4%
• Betterment: Safety net at 60% stocks 40% bonds, 10.5%
• Betterment: My Roth IRA at 100% stocks, 6.8%
• Betterment: Her Roth IRA at 100% stocks, 2.3%
• Capital One Investing: Mostly Apple, little bit of BRK-B, 3.2%
• Motif: Just opened, no money in here yet, 0%

*Percentages at the end of each line item above are the percentage of our total amount invested in that line item.

The only investment we've really been diligent about in the past is my wife's 401a.  This is because she gets an 8% match on a 5.5% contribution so we've always taken advantage of that.  I'm self employed so our income can swing wildly.  We had a good year last year and I expect to have a similarly good year this year.  So, I'm trying to use this time to get serious about debt reduction and also investing.  We have no control over Fidelity's fees and we obviously don't want to lose the match so I don't think there is much to discuss there.  I am concerned that Morgan Stanley charges me 1.5% annually to manage my account.  This seems really really high to me.  But, I like having a guy who answers the phone when I call and is willing to discuss things with me.  I'm very interested in being involved in my investments but I don't know a lot.

One specific question I have; does it really make sense in the long run to contribute to a Roth?  I have no idea if I will be in a higher tax bracket or not when I retire.  Shouldn't I take the guaranteed more money working for me now that I get with a traditional IRA?  Also, should I be maxing out my SEP IRA before I contribute to a Roth or traditional IRA?

Further info; I've undertaken the journey of becoming debt free in 5 years (63 months actually) but will still be investing 15% our gross income in retirement accounts.  I'd like to use any remaining money to invest in non-qualified accounts but I'm not opposed to putting that money in retirement or adding to the debt snowball.  So many options!

I'm not even sure I'm asking all the right questions.  I'm really trying to learn and I'm open to any and all feedback.  Please let me know what other info I can provide.  Thanks!

[RockYourSocksOff]

Forgot to mention; here's how we currently allocate funds from each months paychecks:

• Fidelity: This is my wife's 401a, 13.5% of her salary
• Morgan Stanley: This is my SEP IRA, 15% of my salary
• Betterment: Safety net at 60% stocks 40% bonds, 4% of my salary
• Betterment: My Roth IRA at 100% stocks, not contributing
• Betterment: Her Roth IRA at 100% stocks, 9.5% of her salary
• Capital One Investing: Mostly Apple, little bit of BRK-B, not contributing
• Motif: Just opened, no money in here yet, not contributing

We also put about 3% of my income total into our 3 childrens' 529 accounts.  This is not a lot of money.

[FrugalSpendthrift]

One specific question I have; does it really make sense in the long run to contribute to a Roth?  I have no idea if I will be in a higher tax bracket or not when I retire.  Shouldn't I take the guaranteed more money working for me now that I get with a traditional IRA?  Also, should I be maxing out my SEP IRA before I contribute to a Roth or traditional IRA?

Check to make sure a Traditional IRA is still deductible.  The deduction is phased out based on income and whether you are covered by a retirement plan.  If you are in that zone where it is phased out, then a ROTH is better than a non deductible traditional ira.

[Retired To Win]

I'm trying to sort out my investment strategy and would like some feedback.  These are the accounts we currently have:

• Fidelity: This is my wife's 401a, 53.8%
• Morgan Stanley: This is my SEP IRA, 23.4%
• Betterment: Safety net at 60% stocks 40% bonds, 10.5%
• Betterment: My Roth IRA at 100% stocks, 6.8%
• Betterment: Her Roth IRA at 100% stocks, 2.3%
• Capital One Investing: Mostly Apple, little bit of BRK-B, 3.2%
• Motif: Just opened, no money in here yet, 0%

...

It's not clear whether you are investing in stocks through ETFs, mutual funds, or individual stocks.  Ditto regarding the bonds.
So what's the answer?

Between my wife and I we've got 6 separate investment accounts.  BUT when I look at our allocations and distribution of contributions, I look at it as a whole on a single spreadsheet.  You might want to do the same and then provide yourself (and the forum) with bottom line combined allocations.  For example, just how much of your combined portfolio is actually in bonds?  That kind of thing...

[MDM]

It's not clear whether you are investing in stocks through ETFs, mutual funds, or individual stocks.  Ditto regarding the bonds.
So what's the answer?

Between my wife and I we've got 6 separate investment accounts.  BUT when I look at our allocations and distribution of contributions, I look at it as a whole on a single spreadsheet.  You might want to do the same and then provide yourself (and the forum) with bottom line combined allocations.  For example, just how much of your combined portfolio is actually in bonds?  That kind of thing...

+1

The percentage of your investments held by different brokers is largely irrelevant.

The percentage of your investments listed by the funds, stocks, bonds, etc. that you hold is the relevant data.

[innerscorecard]

You should be able to explain WHY you are doing what you are doing in a paragraph or so. I saw you write what you are doing, but why are you doing it? If you understand why you are doing what you are doing, you will be much less likely to panic, and thus you will be a far better investor.

It can be something as simple as "I don't want to learn more about investing, so I am willing to pay Betterment hundreds of dollars a year to do it all for me. I believe that markets are efficient, so I have decided to invest a steady amount each month and stay the course no matter what."

[RockYourSocksOff]

It's not clear whether you are investing in stocks through ETFs, mutual funds, or individual stocks.  Ditto regarding the bonds.
So what's the answer?

Between my wife and I we've got 6 separate investment accounts.  BUT when I look at our allocations and distribution of contributions, I look at it as a whole on a single spreadsheet.  You might want to do the same and then provide yourself (and the forum) with bottom line combined allocations.  For example, just how much of your combined portfolio is actually in bonds?  That kind of thing...

+1

The percentage of your investments held by different brokers is largely irrelevant.

The percentage of your investments listed by the funds, stocks, bonds, etc. that you hold is the relevant data.

Current asset allocation:

• US Stocks: 53%
• US Bonds: 3%
• International Stocks: 33%
• International Bonds: 2%
• Alternatives: 4%
• Cash: 1%

I'm having some trouble explaining the why of all of this.  My goal is to be financially independent in 14 years.  At that point I expect I will keep working but want to choose to do so not have to.  I think my financial adviser at Morgan Stanley thinks my goals are silly and isn't really aligning my portfolio with those goals.  We have more or less set my wife's accounts at Fidelity to mirror the asset allocation of the Morgan Stanley account.

Since I originally posted all of this in June I've decided to start a Simple IRA with Vanguard for my business that will be effective after the first of 2016.  I think my investments are more complicated than they need to be but I don't know where to start cleaning them up and developing a plan.  Today I reached out to some fee only financial planners in my area and the conversation seems to start at around $2500 - $4000.  I know my finances aren't that complicated.

My goals are to simplify my investments, develop a reasonable asset allocation target, and understand the why behind all of those choices.  I would sure appreciate any feedback or suggested reading.  Thanks!

[MDM]

My goals are to simplify my investments, develop a reasonable asset allocation target, and understand the why behind all of those choices.  I would sure appreciate any feedback or suggested reading.  Thanks!

Some shorter "getting started" reading material (note that these may not give identical advice, but if you follow any of it you will likely do well):
www.etf.com/docs/IfYouCan.pdf
http://jlcollinsnh.com/stock-series/
http://www.bogleheads.org/wiki/Category:Getting_started

For longer works, http://www.mrmoneymustache.com/the-mmm-reading-list/ - Haven't read them all, but A Random Walk Down Wall Street by Burton Malkiel and The Four Pillars of Investing by William Bernstein were good.

Some reasonable specific choices (among many possibilities):
- 100% VTTSX
- A 3-fund portfolio at Vanguard or Fidelity as described here: https://www.bogleheads.org/wiki/Three-fund_portfolio

[RockYourSocksOff]

My goals are to simplify my investments, develop a reasonable asset allocation target, and understand the why behind all of those choices.  I would sure appreciate any feedback or suggested reading.  Thanks!

Some shorter "getting started" reading material (note that these may not give identical advice, but if you follow any of it you will likely do well):
www.etf.com/docs/IfYouCan.pdf
http://jlcollinsnh.com/stock-series/
http://www.bogleheads.org/wiki/Category:Getting_started

For longer works, http://www.mrmoneymustache.com/the-mmm-reading-list/ - Haven't read them all, but A Random Walk Down Wall Street by Burton Malkiel and The Four Pillars of Investing by William Bernstein were good.

Some reasonable specific choices (among many possibilities):
- 100% VTTSX
- A 3-fund portfolio at Vanguard or Fidelity as described here: https://www.bogleheads.org/wiki/Three-fund_portfolio

Out of curiosity, why VTTSX?  That's a target date 2060 fund.  Since I want to reach FI by 2029 does that make sense?

[MDM]

Out of curiosity, why VTTSX?  That's a target date 2060 fund.  Since I want to reach FI by 2029 does that make sense?

The listed year in a target date fund is not important in itself.  What is important is the stock/bond percentage the target date fund holds in any given year.  Currently VTTSX is 90% stocks and 10% bonds, not all that dissimilar to your current holdings.

Whole books could be (and have been) written on "best" asset allocations.  Because you have a long time ahead of you, having a relatively high fraction in stocks is reasonable.

[dmn]

I'm having some trouble explaining the why of all of this.  My goal is to be financially independent in 14 years.  At that point I expect I will keep working but want to choose to do so not have to.

I have trouble aligning this goal to the savings rates of 20% you mention above. Do you already have a lot of money saved? Because with a mere 20% savings rate, FI usually takes about 40 years to achieve, see this article. Or do you plan to be FI at a much lower level of spending than you currently have?

[RockYourSocksOff]

I'm having some trouble explaining the why of all of this.  My goal is to be financially independent in 14 years.  At that point I expect I will keep working but want to choose to do so not have to.

I have trouble aligning this goal to the savings rates of 20% you mention above. Do you already have a lot of money saved? Because with a mere 20% savings rate, FI usually takes about 40 years to achieve, see this article. Or do you plan to be FI at a much lower level of spending than you currently have?

Nice catch!  My strategy has evolved quite a bit since that post in June.  In 2015 we have put closer to 30% of our income in retirement but we also completely paid off a significant amount of business debt.  In 2016 the plan is to put closer to 50% of our income in retirement (hopefully more) and start paying down our mortgages.

[RockYourSocksOff]

So I just discovered Spartan funds at Fidelity.  My wife's retirement account is there and we currently have an asset allocation recommended by my financial adviser at Morgan Stanley which is:

23%	FBCVX	Fidelity Blue Chip Value Fund	0.83%
27%	FCNKX	Fidelity Contrafund - Class K	0.54%
7%	FKMCX	Fidelity Mid-Cap Stock Fund - Class K	0.64%
5%	FSMVX	Fidelity Mid-Cap Value Fund	0.83%
5%	FSCRX	Fidelity Small Cap Discovery Fund	1.06%
5%	FCPVX	Fidelity Small Cap Value Fund	1.19%
6%	FKEMX	Fidelity Emerging Markets Fund - Class K	0.86%
22%	FIEUX	Fidelity Europe Fund	0.97%

The expense ratios are the right column.  That works out to an average expense ratio of 0.80% for what seems to me like an overly complicated portfolio.  The majority of our investments are currently in this account.

It seems to me like it makes way more sense to simplify this portfolio into Spartan funds.  Here's what I have in mind.  I'd sure appreciate any feedback.

45%	FSKTX	Fidelity Spartan Total Market Index - Institutional Class	0.04%
35%	FSIVX	Fidelity Spartan International Index Fund - Fidelity Advantage Class	0.12%
10%	FXSTX	Fidelity Spartan US Bond Index - Institutional Class	0.07%
10%	FSRVX	Fidelity Spartan Real Estate Index - Fidelity Advantage Class	0.09%

This is basically a three fund portfolio (thanks for the link MDM!) that I added real estate to.  The average expense ratio would be 0.08% which is an order of magnitude less than I'm paying now.

This portfolio will make up approximately 2/3 of the retirement contributions we plan to make in 2016.  Another 20% will go to a plan I am currently putting together at Vanguard and the rest will go to traditional IRA's at Betterment with a 90/10 asset allocation.

All feedback appreciated!

[MDM]

It seems to me like it makes way more sense to simplify this portfolio into Spartan funds.  Here's what I have in mind.  I'd sure appreciate any feedback.

Looks great.  Thinking of firing the adviser and investing what you save on those fees also?

[RockYourSocksOff]

It seems to me like it makes way more sense to simplify this portfolio into Spartan funds.  Here's what I have in mind.  I'd sure appreciate any feedback.

Looks great.  Thinking of firing the adviser and investing what you save on those fees also?

Actually yes!  However, he is part owner in a business that I am trying to establish a relationship with.  If that works out his fees may be worth it.  If it doesn't work out I won't have any regrets.

[Tyler]

My goal is to be financially independent in 14 years. 

...

My goals are to simplify my investments, develop a reasonable asset allocation target, and understand the why behind all of those choices.  I would sure appreciate any feedback or suggested reading.  Thanks!

Your goals are reasonably simple, but the options are diverse!  Rather than ramble, I'll just point out that I created the site in my signature specifically to help with these kinds of things. You won't necessarily find the "why" directly in the charts, but maybe some of the source materials can help with that.  MDM's list is also quite good.

BTW, I think your new simple portfolio idea looks just fine.