Now, let’s see if we can take the slice and dice portfolio option and make it a bit simpler, and hopefully avoid all extra fees.
20% S&P 500 (VFINX or VTGIX)
20% Large Cap Value Index (VIVAX)
20% Small Cap Value Index (VISVX)
10% REIT (VGSIX)
20% Total International Index (VGTSX)
10% Intermediate-Term Bond (VFICX)
Again, I must fit everything into the available funds in my separate accounts:
Wife Roth IRA – $11,000
Roth IRA – $14,000
Trad IRA – $24,000
Joint Taxable Account – $12,000
Real-Life Allocation ($60,000 Portfolio)
Wife Roth IRA
Large Cap Value – $11,000 (18%)
Total International – $14,000 (23%)
Int. Term Bonds – $6,000 (10%)
REIT – $6,000 (10%)
Small Cap Value – $12,000 (20%)
Joint Taxable Account
S&P 500 Tax-Managed (VGTIX) – $12,000 (20%)
With this set of funds, I will avoid both the low-balance fees from IRA accounts under $5,000 and that of Index funds accounts under $10,000. My overall annual expense ratio for this portfolio is a nice and low $22 per $10,000, or 0.22%.
Well, this portfolio has a 0.09% expense ratio edge over the slice-and-dice portfolio, but the question is how much potential performance am I giving up? I’m not really sure. I don’t really think I lose much by sticking with only one Small Cap fund. By using the Total International Fund, I am only about 3% Emerging Markets instead of 10%, and I end with more developed markets like Europe and Japan. Not sure if I like that.
I also consolidated into only one bond fund, the Vanguard Intermediate Term Bond Fund. I chose this over the Total Bond Market Index fund because after looking at them side-by-side, they are pretty similar, but as it’s not an Index fund there is no extra $10 fee.
Finally, next I’ll consider doing the simplest thing of all… nothing.
What are the other options?
By Jonathan Ping | Retirement | 3/19/06, 8:02pm