Should I diversify my portfolio?

[Ava]

Until recently, all my retirement accounts were in a Target Date fund.
I moved the money from my old job's 401k plan to my IRA with Fidelity.
I had to call and talk to a rep.
He pointed out that the Target Date fund I was using has very high expenses.
Of course, he set me up for an appointment with an advisor.
A couple of days later I went online and cancelled the appointment. I don't want any professional help managing my accounts.

But that opened my eyes, and I was really paying a lot in expenses. When my balance was low, it wasn't that bad, but now my balance is $445,000 and an expense ratio of 0.75, meaning a lot of money going on fees.

I asked in Women in Red for advice. minnesotapaintlady suggested another Target Date fund at Fidelity with lower expenses. And I moved my money there.

But then I tried to inform myself more. I found out about the S&P 500 index. Now all my money is in FXAIX.

I understand having ETFs is the way to go. But I'm confused with how many there are, and how to invest my money wisely.

I browsed in the Bogleheads website. They recommend a 3-fund portfolio. They mostly talk about Vanguard, but I've been a Fidelity customer for years and I like it. 
Fortunately, they also have recommendations for Fidelity investors.

This is what they suggest for a 3-fund portfolio.
FZROX or FSKAX
FZILX or FTIHX
FXNAX

There are other websites that suggest other funds. Morningstar suggests 
FXAIX
FSMDX
FSKAX
FTIHX
FXNAX

Honestly, I'm confused.
I thought investing in FXAIX was a good idea. I also thought my investment was diversified since there are so many companies included.
But apparently you need to diversify in sectors too, like for instance medium cap, foreign, etc.

I don't want to put all my eggs in the same basket.
At the same time, I don't want to make this difficult or complicated.

Any ideas or suggestions welcome.

[MN-Investor]

No, you're doing fine.

The Boglehead's 3-Fund Portfolio exists because it is sufficient. You do not need to expand further into other funds. I know some Bogleheads like to tweak their investments and so put some into other sectors, but I don't see the point. In fact, my husband and I basically agreed on only using a 2-Fund Portfolio. We excluded International because we felt that the majority of U.S. corporations have international exposure and that was sufficient.

So choose a broad based low expense ratio total stock fund and a broad based low expense ratio bond fund. I own FSKAX, the Fidelity Total Market Index Fund, but owning an S&P 500 is really similar enough to a total stock market fund that either one is fine. Keep the fund you have. As far as a bond fund, we bought that when my husband rolled his 401(k) into a Scottrade IRA. At that time we couldn't buy Vanguard's Total Bond Market Index Fund at Scottrade, but we could buy its equivalent ETF of BND. Close enough.

After deciding on the funds you want to own, then you have to figure out your asset allocation. During our working years, we were extremely aggressive and the vast majority of our investments were in stocks. When my sweetie retired, we switched to 60% cash, money market funds, and bonds, and 40% stocks. Over time, it's shifted to about 50%/50%, and I'm fine with that. But only you know your risk tolerance.

Right now BND is down from what I paid for it, but I do get regular dividends and I'm not in a position where I have to sell it, so that's fine with me.

[Ava]

Nov 23, 2024 3:37:38 GMT -5 MN-Investor said:

No, you're doing fine.

The Boglehead's 3-Fund Portfolio exists because it is sufficient. You do not need to expand further into other funds. I know some Bogleheads like to tweak their investments and so put some into other sectors, but I don't see the point. In fact, my husband and I basically agreed on only using a 2-Fund Portfolio. We excluded International because we felt that the majority of U.S. corporations have international exposure and that was sufficient.

So choose a broad based low expense ratio total stock fund and a broad based low expense ratio bond fund. I own FSKAX, the Fidelity Total Market Index Fund, but owning an S&P 500 is really similar enough to a total stock market fund that either one is fine. Keep the fund you have. As far as a bond fund, we bought that when my husband rolled his 401(k) into a Scottrade IRA. At that time we couldn't buy Vanguard's Total Bond Market Index Fund at Scottrade, but we could buy its equivalent ETF of BND. Close enough.

After deciding on the funds you want to own, then you have to figure out your asset allocation. During our working years, we were extremely aggressive and the vast majority of our investments were in stocks. When my sweetie retired, we switched to 60% cash, money market funds, and bonds, and 40% stocks. Over time, it's shifted to about 50%/50%, and I'm fine with that. But only you know your risk tolerance.

Right now BND is down from what I paid for it, but I do get regular dividends and I'm not in a position where I have to sell it, so that's fine with me.

Thanks for your answer and your very detailed explanation.

I would say my risk tolerance is high as long as I'm still working and generating income.
After reading your post I looked for more information about the SP 500 and it is diversified. It's mostly technology but also Healthcare, real estate, etc. And as you said, the companies are big enough that they have international exposure.

Now I need to find out more about bonds.

[teen persuasion]

I like bogleheads' 3 fund portfolio concept. Like MN-Investor, I'm currently not using international, so my plan is basically Total stock market + total bond, with some in a money market fund while rates are nice.

ETFs aren't inherently better or worse than mutual funds. Essentially they are mutual funds that happen to trade like stocks. I know Vanguard has ETF versions of some of their MFs. I think the advantage is that you could buy those at another broker w/o an extra fee that you'd pay to buy the MF version. But the broad total stock market, total bond, S&P 500 index, etc., mutual funds you would want for a 3 fund portfolio all exist at the major brokerages: Fidelity, Schwab, Vanguard. Its just as easy to buy their versions in-house.

K.I.S.S.

[tallguy]

The biggest hurdle anyone ever faces is to make the decision TO invest, and to make saving and investing a priority.  You have done that.  Good.  The next decision is what to invest in.  As you go through the learning process you will hear many different things.  The part that may be a bit difficult to wrap your head around is that despite how varied the different bits of advice may be, ANY of it could be perfectly appropriate for the person giving it.  NONE of it is necessarily appropriate for you. 

You will hear a lot about asset allocation, or how much you should invest in stocks, or bonds, or other asset classes.  Some people will say 80/20 is great, with 80% in stocks and 20% in bonds.  Some people will say 60/40 is best, while others will give different numbers.  Any of those could be correct for the person telling you that, but that should not matter at all...to you.  Your needs are what matter.  The only person who should decide your asset allocation is you, based mostly on your risk tolerance and future goals.  You say it is high now, but you will fine-tune it as you age and your situation changes.  The thing to keep in mind is that no decision is permanent.  Whatever you do now, you can always adjust it later.

I myself retired early years ago, and do not hold bonds at all. I will never hold bonds.  I will never need to.  That is fine for me.  It would not be fine for most people, so I never advise it.  I do advise to figure out what works for you.  The general wisdom is to increase your bond or fixed income allocation as you age, on the theory that it is safer that way.  That's fine, if safety is your goal.

Honestly, I'm confused.

I thought investing in FXAIX was a good idea. I also thought my investment was diversified since there are so many companies included.

But apparently you need to diversify in sectors too, like for instance medium cap, foreign, etc.

"They" say you should diversify, and diversification IS good, but realistically, anything less than 5% of your portfolio won't really move the needle.  Trying to slice-and-dice too much in order to meet someone else's idea of diversification is just creating noise and introducing unneeded complexity.  For now, putting 100% into a low-cost, broad-based equity index fund is just fine.  You may want to change it later, and that is fine too.  I always say that there are a lot of things that can work, but usually the best one for any individual person is the one that allows them to sleep well at night. 

I have always considered learning to handle money to be one of the most important things one can learn, because nobody will ever care as much about your money as you will.  Even if you want someone else to handle your money for you, you need to know enough to know whether they are cheating you, and at that point you will know enough to not need an advisor anyway.  Keep reading.  Keep asking.  Keep learning.  You have already passed the first and hardest test.   

[Rukh O'Rorke]

Nov 23, 2024 8:40:40 GMT -5 teen persuasion said:

I like bogleheads' 3 fund portfolio concept. Like MN-Investor, I'm currently not using international, so my plan is basically Total stock market + total bond, with some in a money market fund while rates are nice.

ETFs aren't inherently better or worse than mutual funds. Essentially they are mutual funds that happen to trade like stocks. I know Vanguard has ETF versions of some of their MFs. I think the advantage is that you could buy those at another broker w/o an extra fee that you'd pay to buy the MF version. But the broad total stock market, total bond, S&P 500 index, etc., mutual funds you would want for a 3 fund portfolio all exist at the major brokerages: Fidelity, Schwab, Vanguard. Its just as easy to buy their versions in-house.

K.I.S.S.

I'm trying to simplify now. A bit harder than I anticipated to make the moves.

[minnesotapaintlady]

My stock holdings are 80% S&P 500.  I hold one other fund FLPSX that is a mid-cap value fund.  It's holdings are mostly financial companies opposed to the S&P being tech and 40% of the companies are outside of the US where as S&P is all US.  I don't know if that 20% makes a big difference in the grand scheme of things, but there are days when it's up and the rest of my portfolio is down (and vice versa).

For overall AA I have very little in bonds.  Currently 92/8.  The fixed income portion has always been the most difficult for me to figure out what to do with.

[Rukh O'Rorke]

Nov 23, 2024 14:42:53 GMT -5 minnesotapaintlady said:

My stock holdings are 80% S&P 500.  I hold one other fund FLPSX that is a mid-cap value fund.  It's holdings are mostly financial companies opposed to the S&P being tech and 40% of the companies are outside of the US where as S&P is all US.  I don't know if that 20% makes a big difference in the grand scheme of things, but there are days when it's up and the rest of my portfolio is down (and vice versa).

For overall AA I have very little in bonds.  Currently 92/8.  The fixed income portion has always been the most difficult for me to figure out what to do with.

this is what I am grappling with now. If I could get to a 2-3% WR or had some cushiony pension and social security, I would keep all or almost all in stocks. Since I will have at least 5 and possibly up to 8-9 years of using only my saved money to use (depending on when I retire relative to taking soc sec at 70), I've realized I need to be much more conservative than I had ever considered. So i am struglling to figure that out, but I am doing it. I had a bunch of stuff going on, and then had a hellish week of work and couldn't get back to it. So will need to figure out where I'm at and get back to it next week.

[minnesotapaintlady]

Nov 23, 2024 14:55:28 GMT -5 Rukh O'Rorke said:

Nov 23, 2024 14:42:53 GMT -5 minnesotapaintlady said:

My stock holdings are 80% S&P 500.  I hold one other fund FLPSX that is a mid-cap value fund.  It's holdings are mostly financial companies opposed to the S&P being tech and 40% of the companies are outside of the US where as S&P is all US.  I don't know if that 20% makes a big difference in the grand scheme of things, but there are days when it's up and the rest of my portfolio is down (and vice versa).

For overall AA I have very little in bonds.  Currently 92/8.  The fixed income portion has always been the most difficult for me to figure out what to do with.

this is what I am grappling with now. If I could get to a 2-3% WR or had some cushiony pension and social security, I would keep all or almost all in stocks. Since I will have at least 5 and possibly up to 8-9 years of using only my saved money to use (depending on when I retire relative to taking soc sec at 70), I've realized I need to be much more conservative than I had ever considered. So i am struglling to figure that out, but I am doing it. I had a bunch of stuff going on, and then had a hellish week of work and couldn't get back to it. So will need to figure out where I'm at and get back to it next week.

There are days when I strongly consider throwing everything in a balanced fund like FBALX and being done with it. But then I look at the returns and the years the market tanks they do just as much as the straight S&P so what's the point?  The overall return is lower and the bonds are not acting as a buffer if they are dropping just as much. "They" say bonds are just in a funky cycle and things are going to shift back. "They" also point out that the US and International sectors in the past have swapped who dominated about every 8 years or so and now we're on year 15 of the US being ahead, so International is due.  Who knows.

[Rukh O'Rorke]

Nov 23, 2024 15:05:44 GMT -5 minnesotapaintlady said:

Nov 23, 2024 14:55:28 GMT -5 Rukh O'Rorke said:

this is what I am grappling with now. If I could get to a 2-3% WR or had some cushiony pension and social security, I would keep all or almost all in stocks. Since I will have at least 5 and possibly up to 8-9 years of using only my saved money to use (depending on when I retire relative to taking soc sec at 70), I've realized I need to be much more conservative than I had ever considered. So i am struglling to figure that out, but I am doing it. I had a bunch of stuff going on, and then had a hellish week of work and couldn't get back to it. So will need to figure out where I'm at and get back to it next week.

There are days when I strongly consider throwing everything in a balanced fund like FBALX and being done with it. But then I look at the returns and the years the market tanks they do just as much as the straight S&P so what's the point?  The overall return is lower and the bonds are not acting as a buffer if they are dropping just as much. "They" say bonds are just in a funky cycle and things are going to shift back. "They" also point out that the US and International sectors in the past have swapped who dominated about every 8 years or so and now we're on year 15 of the US being ahead, so International is due.  Who knows.

yeah - agree no one knows. This time is different vrs just part of the usual cycle and due to pop back.

I am aiming to start retirement with 60/40 with the 40 being a mix of cash and bonds. I'm trying to get that AA now so in case stocks take a dive it doesn't mean I have to delay retirement - but I do struggle with if that even works. So if I have 40% safe, and 60% is cut in half, would I really risk it and retire anyway - hoping the 60% is restored within 4-6 years? I don't know.

For bonds I am doing mostly treasuries. Cash looking at cds and myga. I want to lock in some interest rate but also have enough in flux in case interest rates go up. doing short term rteasury ETFs and individual treasuries. I've started an excel listing where income would come from up until 70. I guess I'm not keeping it as simple as I would like, but I am a bit paranoid and trying to diversify within my diversification.

[dannylion]

When ordinary mortals ask Warren Buffet for investing information, he always recommends an S&P 500 index fund/ETF.  

[movingforward]

Nov 23, 2024 14:55:28 GMT -5 Rukh O'Rorke said:

Nov 23, 2024 14:42:53 GMT -5 minnesotapaintlady said:

My stock holdings are 80% S&P 500.  I hold one other fund FLPSX that is a mid-cap value fund.  It's holdings are mostly financial companies opposed to the S&P being tech and 40% of the companies are outside of the US where as S&P is all US.  I don't know if that 20% makes a big difference in the grand scheme of things, but there are days when it's up and the rest of my portfolio is down (and vice versa).

For overall AA I have very little in bonds.  Currently 92/8.  The fixed income portion has always been the most difficult for me to figure out what to do with.

this is what I am grappling with now. If I could get to a 2-3% WR or had some cushiony pension and social security, I would keep all or almost all in stocks. Since I will have at least 5 and possibly up to 8-9 years of using only my saved money to use (depending on when I retire relative to taking soc sec at 70), I've realized I need to be much more conservative than I had ever considered. So i am struglling to figure that out, but I am doing it. I had a bunch of stuff going on, and then had a hellish week of work and couldn't get back to it. So will need to figure out where I'm at and get back to it next week.

I am having a hard time with this as well. I hope to have enough to stop working in 5 yrs. I recently transferred some of my S&P index fund to a 2030 target fund. I also sold 50,000 and bought a 5yr CD. Not sure if these are the right moves or not, but I am fearing a downturn in the market and I am trying to secure some funds. Unless the market tanks soon, I am going to move some more money around over the next couple of years. I have no crystal ball and have no idea what will happen, but my feeling is the market might go up a little more over the next year or so and then really tank when the US starts feeling the affects of the Trump administration.

This is definitely harder for me to navigate than the past 2 decades where my strategy was basically save everything you can in diversified mutual funds and ride the waves up and down.

[Ava]

It's very confusing.
But I agree with tallguy that all of us in this thread are saving and investing, and that is the most important thing.

What I've decided to do, after reading this thread and doing some thinking, is that I'm going to stay with FXAIX for now.

I will probably go back to a Target Date fund when I stop working. I will make sure to pick one with lower expenses though. The one I had was 0.75% and that is crazy.

[movingforward]

Nov 23, 2024 15:05:44 GMT -5 minnesotapaintlady said:

Nov 23, 2024 14:55:28 GMT -5 Rukh O'Rorke said:

this is what I am grappling with now. If I could get to a 2-3% WR or had some cushiony pension and social security, I would keep all or almost all in stocks. Since I will have at least 5 and possibly up to 8-9 years of using only my saved money to use (depending on when I retire relative to taking soc sec at 70), I've realized I need to be much more conservative than I had ever considered. So i am struglling to figure that out, but I am doing it. I had a bunch of stuff going on, and then had a hellish week of work and couldn't get back to it. So will need to figure out where I'm at and get back to it next week.

There are days when I strongly consider throwing everything in a balanced fund like FBALX and being done with it. But then I look at the returns and the years the market tanks they do just as much as the straight S&P so what's the point?  The overall return is lower and the bonds are not acting as a buffer if they are dropping just as much. "They" say bonds are just in a funky cycle and things are going to shift back. "They" also point out that the US and International sectors in the past have swapped who dominated about every 8 years or so and now we're on year 15 of the US being ahead, so International is due.  Who knows.

I just researched the target funds and, yep, in the down years they drop close to the same percentage as the straight S&P. This is making me rethink my whole strategy. Glad you mentioned it. I really thought the whole point of a target fund was to help mitigate losses if there are some down years close to your retirement date. So glad I have this board to help me navigate this stuff. Now back to rethinking my plan...

[MN-Investor]

Personally, I would keep away from target funds. All they're doing is assuming an asset allocation and making you pay for their decision. As you get nearer their target date, they shift more from stock to bonds. Well, dang. You can do that on your own and save their expense ratio.