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I need some quick advice. My husband is going to backdoor a roth ira at either Vanguard or fidelity. I need help deciding between the two and also need advice on what to invest in if I choose one or the other.
Some things to consider.. We already have fidelity for both company stock options and 401k. We also have a tax managed account with Raymond James. I've heard great things about Vanguard. I tend to believe that less is more and would be happy with a simple portfolio (wishing I didn't have that RJ.. but that was before I found boglehead.org ). I am leaning towards fidelity just because we're already using them and I've already tried to open an account with Vanguard and it was a headache (couldn't get a transaction to go through despite making it all the way through the process.. annoying!).
Since you already have an account with Fidelity, I'd just stick with them. Why make things complicated? Fidelity has plenty of low-cost options.
As to what to put into your Roth, that depends on what your asset allocation goals are and what you've already got invested in other accounts. But in general retirement accounts are great places to put things that tend to generate an income (like REITs, bonds, and dividend-paying stocks), since you won't be taxed on those gains in a retirement account.
Since you already have an account with Fidelity, I'd just stick with them. Why make things complicated? Fidelity has plenty of low-cost options.
As to what to put into your Roth, that depends on what your asset allocation goals are and what you've already got invested in other accounts. But in general retirement accounts are great places to put things that tend to generate an income (like REITs, bonds, and dividend-paying stocks), since you won't be taxed on those gains in a retirement account.
Thanks Aredhel!
Yes, that's what I'm thinking. We have mostly balanced and blended investments. Most of our RJ is "tax managed" (not sure what that means), but we also have a few funds that are aggressive for growth. I don't know what my husband is doing in his 401k.
I'm happy with taking the general advice for retirement accounts (REITs, bonds and dividend-paying stocks)... do I simply divide the amount invested between those asset classes? This will be the first time I didn't have a financial advisor buy the vehicles for me.
Most of our RJ is "tax managed" (not sure what that means)
"Tax-managed" means that the fund is being run in a way that minimizes the amount of taxable income generated by the fund. For instance, it minimizes the selling of stock shares (which could generate a capital gain), or it invests in tax-exempt state or municipal bonds.
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I'm happy with taking the general advice for retirement accounts (REITs, bonds and dividend-paying stocks)... do I simply divide the amount invested between those asset classes? This will be the first time I didn't have a financial advisor buy the vehicles for me.
I can't tell you what you should do, but I can tell you what I do. I manage my retirement accounts and my personal investment accounts as if they are one big pool, and my desired asset allocation is around 50% stocks, 50% bonds. Since my personal investments and retirement accounts are about equal in value right now, I tilt my retirement accounts heavily toward bonds and my personal investments heavily toward stocks so the overall balance works out about right.
(I also figure it's best to be more conservative with retirement accounts and more aggressive with personal investments for another reason: the government limits how much money you can invest in your retirment accounts each year, and with a 401k and traditional IRA, how long you can leave the money untouched. No such limits exist with personal investments: if I wish to increase my savings/investment rate to 99% of my total income and leave the money untouched in those accounts until I am 100 years old, I am free to do so. So there's more room to make up for a loss with personal investments than with retirement accounts.)
Like you, I've only just started with the backdoor Roth IRA; since I have minimal exposure to real estate in my work 403b and 457b offerings, I decided to use the Roth IRA to hold a Vanguard REIT fund. Eventually I may also add an international bond fund as well (assuming Congress doesn't eventually close the backdoor loophole). I don't plan to put anything in that Roth IRA that isn't income-generating, since the Roth is a pretty small part of my overall investment portfolio.
im very happy with fidelity, especially its web site. if I was to want to go with vanguard, it would probably be specifically for the purpose of buying very low cost index funds or maybe admiral shares of some of its top funds. im not familiar with its web site though, the information I get on fidelity is very valuable to me.
Yes, that's what I'm thinking. We have mostly balanced and blended investments. Most of our RJ is "tax managed" (not sure what that means), but we also have a few funds that are aggressive for growth. I don't know what my husband is doing in his 401k.
I'm happy with taking the general advice for retirement accounts (REITs, bonds and dividend-paying stocks)... do I simply divide the amount invested between those asset classes? This will be the first time I didn't have a financial advisor buy the vehicles for me.
You can get a target date fund that does the allocation for you. Taget date funds will adjust the allocation to become more conservative over time (i.e. more bonds & cash, less in stocks). You can also invest in a good balanced fund. Balanced funds will keep the allocation within a range and will not make it more conservative for you as you age. That may or may not be ok with you. It could be argued that a 65% stock and 35% bond/cash allocation is one you can hold for all or most of your lifetime.
If you lean toward target date funds, I would go with Vanguard's as theirs are lower cost and have a good reputation. If you like balanced funds, both Fidelity and Vanguard have some good balanced funds. Fidelity's Target Date funds are a little more iffy as far as performance goes. The other fund family noted for good Target Date funds is T. Rowe Price. Theirs are considered top notch, but of course, are more expensive than Vanguard's (but still reasonable).
Vanguard's flagship balanced fund is Vanguard Wellington. Been around forever. Cheap. 65% dividend paying stocks & 35% investment grade bonds. The low expense ratio means it doesn't have to do anything super complicated to get better than average returns.
Fidelity's two flagship balanced funds are Fidelity Balanced and Fidelity Puritan. Both funds are also low cost (but more expensive than Vanguard...but everyone else is more expensive than Vanguard). Fidelity Balanced has the better long term track record of the two...but over the last 7-8 years, Puritan was taken over by a new manager and over that shorter time Puritan has done the same or better than Balanced. I would say that both of these funds are more aggressive/volatile than Vanguard Wellington and Wellington edges both of them out in terms of returns, but not by a big margin. If I was to pick Fidelity, I'd go with Fidelity Balanced because it's managed by a team, so it shouldn't be a big deal if one of the managers leaves.
Both fund companies have their pros and cons. Both can be good choices. Personally, I prefer Vanguard because they are a more value leaning shop than Fidelity. Fidelity doesn't do value stocks well. They like more aggressive stocks (think Google, Apple, biotech companies), which tends to be more volatile. Both companies have good, cheap, index funds if that's the route you want to take. Fidelity also has a larger number of fund offerings in general with more specialty type funds in niche asset classes.
Personally, it doesn't sound to me like you would want or need all of the complexity offered by Fidelity. That said, since you already have an account with them, it may be easier to continue with them for the sake of convenience. You could just put your money in one of Fidelity's funds (such as Fidelity Balanced or one of their Target Date funds) and do just fine.
actually reasearch by dr pfau and michael kitce show target funds have it backwards once they reach retirement stage.
while they have the glide path ride reducing equities going in , research is showing once you start spending down you need to dollar cost average up raising equities through retirement up to your desired level.
an increase of about 2% a year over the first 15 years has been found to be optimum.
you can google rising glide path and get lets of info on the new thinking.. retirees usually need more equities through retirement for survivability not less.
actually reasearch by dr pfau and michael kitce show target funds have it backwards once they reach retirement stage.
while they have the glide path ride reducing equities going in , research is showing once you start spending down you need to dollar cost average up raising equities through retirement up to your desired level.
an increase of about 2% a year over the first 15 years has been found to be optimum.
you can google rising glide path and get lets of info on the new thinking.. retirees usually need more equities through retirement for survivability not less.
Never thought about this before. But don't you think raising the equity allocation also makes the portfolio riskier which, combined with the withdrawals, may deplete the fund faster?
actually reasearch by dr pfau and michael kitce show target funds have it backwards once they reach retirement stage.
while they have the glide path ride reducing equities going in , research is showing once you start spending down you need to dollar cost average up raising equities through retirement up to your desired level.
an increase of about 2% a year over the first 15 years has been found to be optimum.
you can google rising glide path and get lets of info on the new thinking.. retirees usually need more equities through retirement for survivability not less.
I agree with what you're saying. But since most people are bad at asset allocation, target date funds are better than what most folks would do on their own. Most people want a simple process where they don't have to think about it.
target funds basically end at retirement and drop the ball going forward. . that is where they leave most retirees to low .
you have to think about the logic here.
the reason target funds reduce equities is because of the risk at the gate that a multi year down turn will force excessive spending from your portfolio to pay bills.
the goose laying those golden eggs would be killed off before developing a cushion.
but if you kept that 60/40 mix and the first years were up cycles before the downturn that cushion makes spending down in a down market a non event.
research by kitces and pfau , two of the smartest researchers in the world found the answer is easier than we thought and right under our noses.
reduce down to 35-40% equities entering retirement then dollar cost average in raising equities about 2% a year over the first 15 years solved the age old problem. .
the downside protection from getting hammered out of the gate improved alot and success rates through retirement were much higher with increased equities once the crucial 1st 5 year period was cleared.
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). I am leaning towards fidelity just because we're already using them and I've already tried to open an account with Vanguard and it was a headache (couldn't get a transaction to go through despite making it all the way through the process.. annoying!).
