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Posted by on September 4, 2008, 2:02 pm
Thanks to all the fantastic replies , I went ahead and opened a SEP
with Fidelity. Based on my business income I calculated I can invest
8k per year. I would like to put in something aggressive as my 401k is
conservatively invested and I want to diversity. The problem is
fidelity has hundreds of mutual funds, CD's, bonds etc to choose from!
How do I go about finding a simple index fund that is aggressive?
Seems like with so much choice I just feel overwhelmed and do not do
anything.
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Posted by John A. Weeks III on September 4, 2008, 2:25 pm
In article
nonsense@mynonsense.net wrote:
> Thanks to all the fantastic replies , I went ahead and opened a SEP
> with Fidelity. Based on my business income I calculated I can invest
> 8k per year. I would like to put in something aggressive as my 401k is
> conservatively invested and I want to diversity. The problem is
> fidelity has hundreds of mutual funds, CD's, bonds etc to choose from!
> How do I go about finding a simple index fund that is aggressive?
> Seems like with so much choice I just feel overwhelmed and do not do
> anything.
I'd consider putting the bulk of it into low fee funds. Index
funds would be a good choice. The task then is which index to
follow.
Beyond that, pick a few sectors that you want to be in, like
big cap, mid-cap, small-cap, international, etc. Look for
funds with low loads, low fees, but have good long term
track records.
You are never going to be able to predict the future, so
spread it around a bit, and spread individual sectors across
2 or more funds in the event that one fund messes up.
-john-
--
======================================================================
John A. Weeks III 612-720-2854 john@johnweeks.com
Newave Communications http://www.johnweeks.com
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Posted by on September 4, 2008, 3:46 pm
> In article
> nonsense@mynonsense.net wrote:
>
> > Thanks to all the fantastic replies , I went ahead and opened a SEP
> > with Fidelity. Based on my business income I calculated I can invest
...
> > How do I go about finding a simple index fund that is aggressive?
Fidelity gives you access to *lots* of stuff. You can ignore
the vast majority of it.
> I'd consider putting the bulk of it into low fee funds. Index
> funds would be a good choice. The task then is which index to
> follow.
Fidelity has some excellent *very* low-fee index funds.
Unfortnately, their "Spartan" line - which includes some
excellent index funds with fees as low as 0.10% - have
$10,000 minimums, so they may not be immediately accessible
to you if you've just opened the account.
> Beyond that, pick a few sectors that you want to be in, like
> big cap, mid-cap, small-cap, international, etc. Look for
Just to help keep terminology clear, I'd refer to those
as "asset classes" rather than "sectors". "Sectors" seems
to be more commonly used to refer to specific industries
rather than wider asset classes and I'd steer most folks,
especially with smaller portfolios and/or less experience,
away from sector funds (ie. "telecommunications" "health care"
etc).
Until you have enough to easily satisfy minimums on
several funds, it may be easiest to just stick to one
or two very broadly diversified ones. In a retirement
account, there are no tax consequences for rebalancing
and/or splitting into more funds later on if you stick
with no-transaction-fee funds. (A taxable account may
be a bit tricker to manage that transition).
> You are never going to be able to predict the future, so
"It's hard to make predictions, especially about the future"
-- Yogi Berra (or was it Mark Twain or Neils Bohr?)
> spread it around a bit, and spread individual sectors across
> 2 or more funds in the event that one fund messes up.
Until you have enough to pass the minimums in several
funds, that can be tricky. You can start with something
very highly diversified, like the Fidelity Four-In-One
Index fund, which has 0.08% expenses and invests in
a larg-cap index, a small cap index, an international
index, and (15% in) a bond index. After you've built
up enough to get into low-cost single-asset-class indices
like, just for example, the Fidelity Spartan Total Market
index, you can then move and split the investment up
in your own way easily enough.
Otherwise, one can buy multiple asset classes via several
ETFs, and with very very low expense ratios - but there
are transaction fees, so it's best to built up a bunch of
cash and make fewer, larger buys than to buy a little bit
at a time.
Vanguard's indices have $3,000 minimums, but if you buy
them from inside a Fidelity account, you'll pay horrible
transaction costs. To get them without those costs, you
have to buy them directly from Vanguard which may be a
bit of a hassle. (Vanguard's ETFs, of course, are as
easily accessible from a Fidelity account as from anywhere
else).
--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
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Posted by Mark Freeland on September 6, 2008, 3:14 pm
> Until you have enough to pass the minimums in several
> funds, that can be tricky. You can start with something
> very highly diversified, like the Fidelity Four-In-One
> Index fund, which has 0.08% expenses and invests in
> a larg-cap index, a small cap index, an international
> index, and (15% in) a bond index.
An excellent suggestion, and I like the fund. However, do keep in mind the
costs. They're not huge, but are several times the 0.08% you suggest.
0.08% is the fee that Fidelity layers _on top of_ the underlying index
funds. (It also represents a voluntary waiver of expenses; without that
waiver, the fee would be slightly higher, at 0.10%.) The average expense of
the underlying funds is 0.13%, so the total expense ratio for this fund is
0.23% (or 0.21% if one considers the voluntary waiver).
Just as important is that until you get over $10K, you've got an annual fee
of $10, which on the $8K SEP account amounts to an additional 0.125%, for a
total expense ratio of around 0.33%.
> [ ...]
> Vanguard's indices have $3,000 minimums, but if you buy
> them from inside a Fidelity account, you'll pay horrible
> transaction costs. To get them without those costs, you
> have to buy them directly from Vanguard which may be a
> bit of a hassle. (Vanguard's ETFs, of course, are as
> easily accessible from a Fidelity account as from anywhere
> else).
Just as Vanguard Admiral shares are just another, albeit cheaper, share
class of the same fund as Vanguard Investor shares, Vanguard ETFs are a
cheaper still share class of the same fund. If you hold the ETFs long enough
(could be decades), the small improvement in expense fees could more than
make up for the commission of buying them.
FWIW, once you own a transaction fee fund at Fidelity (i.e. pay $75! for the
first purchase) , you can buy more shares for a $5 fee (which is less than
the ETF commission fee). You do this by setting up an "automatic periodic
purchase" of the shares, and then cancel after a single purchase. If you're
interested in actively managed funds, this approach can come out cheaper in
the long run than buying a no-transaction fee (NTF) fund, since the lower
cost funds usually have transaction fees at Fidelity.
In the international arena, the typical open end international index fund
(including Fidelity's) invests in developed markets only (tracking the EAFE
index). That excludes Canada and emerging markets. You can add these to
your mix once you have enough money in the pot (e.g. Fidelity Canada,
Vanguard Emerging Markets VWO), or you can buy an all world or all world
ex-US index from the start (e.g. Vanguard's VT and VEU ETFs respectively).
Mark Freeland
nNeEwTs@nyc.rr.com
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Posted by on September 6, 2008, 4:21 pm
> > Until you have enough to pass the minimums in several
> > funds, that can be tricky. You can start with something
> > very highly diversified, like the Fidelity Four-In-One
> > Index fund, which has 0.08% expenses and invests in
> > a larg-cap index, a small cap index, an international
> > index, and (15% in) a bond index.
>
> An excellent suggestion, and I like the fund. However, do keep in mind the
> costs. They're not huge, but are several times the 0.08% you suggest.
>
> 0.08% is the fee that Fidelity layers _on top of_ the underlying index
Of course, you're right. My mistake. (And Morningstar's,
for what it's worth - they show it as 0.08 and a footnote
claims that it *includes* underlying fund expenses, which
surprised me, but not enough to make me double check it).
But Fidelity themselves shows the composite ER at 0.23%.
And now that I think of it, the minimum in FFNOX is
$10,000 also. It's Vanguard's fund of index funds,
their STAR fund, which has the very low minimum of $1000
(and a similar expense ratio, but more conservative
asset allocation)
> Just as important is that until you get over $10K, you've got an
> annual fee of $10, which on the $8K SEP account amounts to an
> additional 0.125%, for a total expense ratio of around 0.33%.
Again, more good details and thanks for adding them. Of course,
if he goes this route rather than, say, ETFs, he'll pass that $10k
mark pretty quickly and after that have no $10 or per-transaction
costs at all. FFNOX looks better and better, at least as a
core holding which can be supplemented with some smaller
additional ones later on if he wants to modify his asset
allocation weights or add other asset classes unrepresented by it.
> FWIW, once you own a transaction fee fund at Fidelity (i.e. pay $75!
> for the first purchase) , you can buy more shares for a $5 fee
> (which is less than the ETF commission fee). You do this by setting
> up an "automatic periodic purchase" of the shares, and then cancel
> after a single purchase. If you're interested in actively managed
Tricky, a little messy, but smart. I got hit twice with that
$75 fee a while back.
[snip excellent observations about international funds, etc]
--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting
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to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
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