Category Archives: Investing

Updating our Asset Allocation

As we move nearer to early retirement, we’re making steps to change our asset allocation.  Previously, we were pretty aggressive in stocks, and we’re slowly starting to reduce that exposure.  We were 15% bonds, 5% real estate, 20% international (15% developed), 10% small/micro cap and the rest (50%) in total stock market.  Over the last 5 years, I consolidated the international to only developed (20%), and 55% in total market, 5% in small/micro cap.  This year, I’m moving to 17% bonds, 53% total market (the rest the same).  It’s been nice to capture some of our gains over the last year – and our allocation was way out of whack at the end of the year thanks to the markets. Next year, I’ll move to 20/50, and slowly move to a 40/40 (bonds, total market, but reduce international to 10) over the next 5 years.  I will probably rebalance once per quarter this year as I tweak our 40k/403b contribution percentages to get them on autopilot for the next year or so.

I use a spreadsheet I created to monitor our asset allocation across multiple accounts – especially since I don’t want to be selling/buying in our taxable account.  It has worked well, and lets me know when we’re more than 1% out of our desired allocation.

New Milestone: 750k invested

Since the number has stayed above 750k for the last few weeks, it’s time to say that we have more than 750k invested.  15k of that is a 529plan for college, so it’s not all retirement focused, but it’s still a significant chunk of money.  It doesn’t seem that long ago when we had half a million in our accounts (just over a year and a half).  It’s true, once you have money, it grows quickly.  We’re approaching the 1 million networth mark as well – Personal Capital claims it’s 867k right now, but I know that’s off since it hasn’t synced certain accounts in over a month.  When it comes to deciding if we have “enough” to retire, it will be purely based on our non-529 investment accounts and not our net worth.

The gap in the graph is when Dad’s 401k moved from Mass Mutual (cheapest S&P500 index was .83%) to Fidelity (.05%).  I’m much happier about the move, since we have real choices for investments in that account now – and significantly lower fees.  We didn’t have access to log into either account for just over a month, so neither did Personal Capital.

Are you basing your retirement off of invested assets or net worth?

Over Half a Million in our Investment Accounts

In the past month, we’ve reached a milestone: we have more than half of a million dollars in our portfolio – the majority of which is earmarked for retirement – about $10k is for Daughter Person’s 529.  Our net worth is more because we have a house (mostly) and some cash accounts, but this is the bulk of what we’re saving for retirement.  Our goal is about $2 million before we retire – 25% of the way there.

Of course, the markets could go south again, and our balances would go with it, but we have time to ride out some of the market swings.

Most of our contributions have happened in the last 3-4 years.  We’re continuing to try to increase our annual contributions, and if the markets do their thing, we’re looking at working another 9-10 years at the most, and we’ll have a nice cushion for unexpected expenses, and not have to work.

From - our portfolio balance

From – our portfolio balances

2014 Roth Contribution – $500

For the first time since I’ve been married (2008), I’ve contributed to a Roth account. I didn’t have much set aside, so I limited myself to $500 into my Roth for 2014. We just barely scooted in under the contribution income limits for 2014, and I wouldn’t have been able to put in the full amount anyway. $500 was enough that I could scrounge up from “extra” money laying around, and we’ll be getting about that much back from our taxes, so I can “float” the $500 in our budget until we get the money from the state of VA.

$500 is also just over the magic number I need to add to the account to qualify for Fidelity’s Advantage class (vs Investor class), which saves me 0.03% in fees (0.10% for investor vs 0.07% for advantage). This is why I really did it 🙂  I have $200 leeway for the markets to decline and still remain above the 10k minimum needed. I now only have investor class funds in my taxable account, where I just managed to get the $2500 minimum to buy into FSTMX; so it’ll be a while before I qualify for the advantage class fund there.

We should qualify for contributing 2015 funds as well (hopefully the full amount) since I’m finally maxing out my 401(k) contributions and lowering our MAGI. I’m budgeting to put about 75% of the maximum 11k in for 2015. I’m hoping to start a specific budget line item for our Roths in June/July with $950 each month – then doing the actual contributions the following February (once we can confirm that our MAGI is under the contribution limits). The exact timing depends on how closing goes down, how much we have left from what we’ve saved, and what our monthly cash flow looks like.

Did you max out your Roth contributions for 2014?

Year End Dividends – Happy Holidays!

Fidelity paid out their end of year distributions on 12/19 this year.  We received just over 5k in the December payouts, bringing us to a total of just over 9k of payouts for the year (vs just over 5k last year).  Unfortunately, all but $60 of that is in tax-advantaged accounts and not available to us yet.  It’s nice to know what our yearly “income” is from our investments though.

Once those payments cover our basic living expenses, we can definitely retire and never need to withdraw our principal.  Of course 9k, covers one month of expenses at the moment, but we’ll be adding more money into the account over the next ten years, and will hopefully pump that up.  In our ideal situation, the dividends/capital gains from our mutual funds completely cover our expenses, but I’m prepared to withdraw principal at a 3% rate as well.

Maybe next year we’ll get almost 20k!  I’ll be happy at 15k, but at the new rate we’re putting in money, we should see a significant increase this year.

Have a Happy and Safe Holiday Season!

To rollover or not – the importance of choice and fees

When you leave a job, you generally have the option to rollover your 401(k)/403(b) to an IRA or to your new 401(k)/403(b) plan.  In our history, I’ve always rolled over our accounts to a Fidelity Rollover IRA.  Dad and I each have one – collecting all of our previous employer plans into one.  They’re at Fidelity because that’s where my first 401(k) was and it’s been convenient.  And currently, Dad’s 403(b) and 401(a) are through Fidelity.

For the majority of my working career, I had a SIMPLE IRA through Fidelity – I was able to buy/sell *anything* Fidelity offered for a $25/year fee (plus commissions, mutual fund fees, etc).  I learned early on to just buy NTF (no transaction fee) funds and save myself that fee, but I didn’t understand mutual fund expense ratios.  I just picked what looked good and was recommended – yeah, I was naive.  Over the years though, I’ve learned better.

When my company moved from a SIMPLE IRA to a “real” 401(k), we had some pretty pathetic choices, I had already learned about mutual fund expense ratios by then, and the lowest possible fee was 0.23% for a Russell 3000 Index private fund (seriously, there was no public ticker symbol for it).  I put 100% of my money into that fund, and made up the rest of our allocation in our Rollover IRAs and in Dad’s 403(b).  What if I didn’t have another option?  I would have had to try to make up my desired allocation from high fee funds ( > 1%) and would have spent dearly for it.

Most recently, up until yesterday, we had had a 5% allocation in REITs – and Dad’s 403(b) offered a REIT fund with what I thought was a halfway decent fee: 0.77% (CSRIX).   With all of our other expense ratios being less than 0.25% (most in the 0.05-0.07% range), I was seriously considering eliminating our real estate allocation.  I did some more research on whether I wanted to keep the real estate in my allocation enough to continue paying the fee.  I also looked through Fidelity’s offerings, and found FSRVX at a 0.09% net and 0.19% gross ER – I pay .09% until Fidelity decides to not discount it anymore.  It gave us exposure to real estate for a lot less.  I sold the CSRIX shares in dad’s 403(b) account and bought FSRVX in my Rollover IRA. We have an agreement that my account maintains higher risk than his does, so I get things like REITS, small cap, emerging markets, etc and his focuses more on bonds and total market.  Since we balance our allocation across multiple accounts, it really doesn’t make any difference.

How do fees play into this?

Most people would agree that a fee of 0.19% is better than a fee of 0.77%, but by how much?  If the fund’s performance was 6% annually, then the fund with .19% fees would actually return 5.81% and the fund with .77% fees would return 5.23% – which would you rather have?  Over 10 years, that’s a huge difference.  The charts below assume a starting contribution of 10k, and no continuing contributions (meaning “the real world” has an even larger difference).

Hypothetical Growth of 10k


Interest Rate: 5.81 5.23
After Year: 10000 10000
1 10581 10523
2 11195.7561 11073.3529
3 11846.22953 11652.48926
4 12534.49547 12261.91444
5 13262.74965 12903.21257
6 14033.31541 13578.05059
7 14848.65103 14288.18263
8 15711.35766 15035.45459
9 16624.18754 15821.80886
10 17590.05283 16649.28946

As you can see, there’s a $940 difference at the end of ten years.  It grows to a difference of $4441 if you contribute 10k each year.  And that’s the difference of 0.58% in fees – imagine what you’re paying if you have fees over 1%!

If you have the opportunity to roll over an old workplace plan – unless you’ve got stellar choices already – it sometimes pays to do so.  Most brokerages offer rollover IRAs – pick your favorite low-fee broker and put everything together.  You’ll have access to their full range of funds, and there are very few online brokerages which don’t offer NTF funds of some sort, although Vanguard is well known for their low cost index funds (in my opinion, Fidelity’s Spartan funds are pretty darn close and not worth moving everything).  You’ll still have to pick the best options in your employer plan, but you’ll have the flexibility to buy cheaper funds elsewhere (but still tax advantaged).

And I would be remiss in not mentioning this, but if you have a rollover IRA hanging around – I really don’t recommend trying a backdoor Roth, you’ll get royally screwed on taxes.  This disadvantage can be overcome by rolling any IRA you have into a current employer’s plan.

Milestone in my Taxable Account

I finally hit a milestone in my taxable account: enough money to buy into a mutual fund.

I had previously been buying ETFs 1-2 shares at a time, leaving anywhere from $20-$80 in cash, and not really working for me.  Today, I deposited enough to bring me above the magic $2,500 for FSTMX.  I left my two “raw” stocks (MCD, ADM) invested because they would cost me ($7.95 each trade) to get rid of them, and they’re throwing off (small) dividends.

At the end of the day, Fidelity will have me owning just over $2600 in FSTMX.  I’ve changed my auto-transfer from my bank account to an auto-purchase of the fund as well, so that’ll continue to keep growing. The auto-investment ability into the mutual fund is what decided me.  I can “set it and forget it” to a certain extent.

I had a devil of a time picking between FSTMX and FUSEX. Similar expense ratios (0.10% gross, .10% and .095% net), FUSEX throws off more dividends, but it’ll mean the difference of $10/year for me at my level).  What really made the decision for me was that FSTMX is total market rather than just S&P500, and FSTMX only has 1% turnover vs the 3% of FUSEX.  In a taxable account, that can be a big difference.

This money is nominally earmarked for retirement, but could be used for other goals as they come up.  The goal is to build this account up enough to survive from when we retire at about 50 to 59.5 when we can start withdrawing from our tax-advantaged accounts without penalty – we have a long way to go!

Next milestone?  $10,000 to get into the advantage class of shares (FSTVX)!

Do you tend to invest in mutual funds or ETFs?  Why?