This is the final article in my series on Retirement Portfolio’s. In this article I will discuss my retirement portfolio, which is spread across 3 different brokerage firms. The goal for this article is to outline the various ETF and mutual-fund investment vehicles present in my retirement portfolio. In forthcoming articles, I will delve deeper into each of the asset class present in my retirement portfolio.
Feel free to share your thoughts on how you go about handling your own retirement account.
Retirement Accounts
My retirement account is comprised of
- An active 401-K account at Vanguard from my current employer
- Roll-over IRA account with Fidelity and
- Individual Roth-IRA account at Merrill Edge
Before digging into the composition of assets in each of my retirement-portfolio accounts, I want to share a few thoughts on the topic of consolidation.
Consolidation
Any one reading this may obviously be wondering, why have so many retirement accounts and why with different brokerage firms? Why not consolidate, may be into current active 401-K plan?
There is lot to be said about consolidation. For example, see Wall Street Journal article or the Times article on the topic. The thesis for consolidation primarily revolves around the idea of ease of portfolio management. However, for the following two reasons, I beg to differ.
(a) With a single consolidated account, one looses out on the diversity of available investing opportunities as well as many of the perks offered by one brokerage firm but not the other.
For example, Fidelity has excellent tools to compare and evaluate ETF and mutual fund investments and I love what they have done with their mobile app. For Bank of America, Preferred Rewards Platinum Honors members, Merill Edge offers 100 free-trades per-month, which means virtually no-transaction cost for managing retirement-portfolio with Merill Edge.
(b) Nowadays it is quite easy to effectively manage various retirement accounts in one place using online personal finance websites such as PersonalCapital.com and Mint.com.
The way I see it, I can have my cake and eat it too. In other words, diversify institutional risk, as well as benefit from unique offerings of different brokerage firms, while satisfying the desire for consolidation via readily available online personal finance tools.
Active 401-K plan
I currently have an active 401-K plan from my current employer, Amazon.com. Amazon 401-K offerings can be seen at myplaiq.com. The plan offers 23 funds in total. Several of the funds are the so-called target-date funds.
Completely passive strategy for me would involve indexing with the Vanguard-2040, target date fund, in line with the time-period when I expect to retire from work. This fund has significant cost advantage in terms of the net expense ratio, which stands at 0.06 %. However, given the duration for retirement, the fund is heavily biased towards equity assets, in particular US equities.
Given that I am some what vary of current-valuation for US equity assets and have a desire for exposure to non-US equity assets, I decided to construct my own portfolio out of available fund choices.
Motivated by the simplicity of equal distribution portfolio’s such as the Permanent Portfolio and the 7-Eleven Portfolio, I chose the portfolio strategy of equal weighted capital spread across 4 distinct asset classes, S&P index fund, US small-cap stock fund, Fixed Income fund and International stock fund using the available 401-K offerings.
Table 1, below offers a comparison of fund allocation between the completely passive 2040-target date fund vs. my choice for portfolio construction
| Vanguard -2040 Target Fund | My Portfolio | |
|---|---|---|
| US Equity | VTSMX (52.1 %) | VIIIX (23 %) VEXRX (11 %) |
| International Equity | VTPSX (34.6 %) | OANIX (33 %) |
| US Bond | VTBNX (9.3 %) | PTTRX (33 %) |
| International Bond | VTIFX (4 %) |
The downside for my portfolio strategy is the cost, which in aggregate stands at about 0.4075 %, about 6-times greater than the alternative of investing in appropriate target-date fund. In other words, for a $10000 portfolio, I am paying about $41 in management fees as opposed to paying $6 for a 2040-target date fund.
For now, I am willing to pay this fees to have the ability to diversify out of US equity markets into broader ex-US markets. I will revisit my portfolio in a years time and see whether returns on my portfolio are worth the cost of high management fees.
Rollover IRA
I am managing my rollover IRA money at Fidelity.com. The money is pooled from 401-K and 403-B accounts with two of my previous employers, Qualcomm.com and Univ. of Florida, respectively.
For my Rollover account, I chose to design my portfolio using the 7Twelve portfolio strategy using ETF offering by Fidelity that have zero-transaction cost. I was able to identify commission-free ETF for each of the 7 asset classes, except for the commodity asset class. Table 2, provides details on my Rollover-IRA portfolio with Fidelity. The net expense ratio for my portfolio stands at 0.1525 %
| Fund Type | Ticker | Expense-Ratio % | Total Asset | Inception Date |
|---|---|---|---|---|
| Large-Cap US | IVV | 0..04 | 91.2 B | 5/15/2000 |
| Mid-Cap US | IJH | 0.07 | 4.8 B | 5/22/2000 |
| Small-Cap US | IJR | 0.07 | 1.6 B | 5/22/2000 |
| Developed World Equity | IEFA | 0.08 | 23.7 B | 10/18/2012 |
| Emerging Market Equity | IEMG | 0.14 | 20.8 B | 10/18/2012 |
| Real Estate | FREL | 0.08 | 11.9 B | 2/2/2015 |
| Natural Resource | FMAT | 0.08 | 17.8 B | 10/21/2013 |
| Commodity | COMT | 0.48 | 24.6 B | 10/15/2014 |
| US Bond | AGG | 0.05 | 50.36 B | 9/22/2003 |
| Treasury Inflation Bond | TIP | 0.2 | 23.36 B | 12/4/2003 |
| International Bond | EMB | 0.39 | 11.87 B | 12/17/2007 |
| Cash Equivalent | SHY | 0.15 | 11.19 B | 7/22/2002 |
Roth IRA
I am managing a self-managed Roth-IRA account with Merill-Edge. For my Roth-account, I decided to again go with the 7Twelve portfolio strategy. Given that for my account with Merill Edge, I do not have to worry about transaction cost, I chose to construct my portfolio using ETF assets distinct from those held within my Fidelity account. The idea is to further diversity equity assets across the various 7Twelve portfolio asset classes.
Table 3, provides details on my Roth-IRA portfolio with Merrill Edge. The net expense ratio for this portfolio is 0.17 %, slightly higher than the one with Fidelity, primarily due to the high expense-ratio for commodity-ETF.
| Fund Type | Ticker | Expense Ratio % | Total Asset | Inception Date |
|---|---|---|---|---|
| US Large Cap | VTV | 0.06 | 83.9 B | 1/26/2004 |
| US Mid Cap | VO | 0.06 | 13.2 B | 1/26/2004 |
| US Small Cap | VB | 0.06 | 3.6 B | 1/26/2004 |
| Developed World Equity | VEU | 0.11 | 27.9 B | 3/2/2007 |
| Emerging Market Equity | VWO | 0.14 | 16.9 B | 3/4/2005 |
| Real Estate | VNQ | 0.12 | 10.1 B | 9/23/2004 |
| Natural Resource | VAW | 0.10 | 15.2 B | 1/26/2004 |
| Commodity | DBC | 0.85 | 1.95 B | 2/3/2006 |
| US Bond | BIV | 0.07 | 14.58 B | 4/3/2007 |
| Treasury Inflation Protected Bond | SCHP | 0.05 | 2.5 B | 8/5/2010 |
| International Bomd | EMB | 0.39 | 11.87 B | 5/31/2013 |
| Cash Equivalent | SST | 0.1 | 141.68 M | 11/30/2011 |
Synpopsis
In summary, my retirement money is distributed across 28 different funds, covering a wide spectrum of asset classes. It may be argued that I have a case of over-diversification, the downside of which may be below average market returns. On the other hand, I feel quite comfortable knowing that the likelihood of my portfolio being decimated in a black-swan type event is rather low.