Q. I can't complain. I have investments, retirement funds, a pension, etc. I'm comfortable with how they are all being managed. My wife, however, would be more comfortable with a person to consult with if I die before she does. For that reason I'm thinking about gradually moving more of our investments over to Fidelity, since they have physical offices near us.
I'm more inclined to use index funds rather than ETFs, despite the additional cost, but I'm having some difficulty finding reasonably low-priced and appropriate funds at Fidelity for all of your Couch Potato Five Fold portfolio. You've said in the past this could be done at Fidelity as well as Vanguard. Could you provide a list of the Fidelity funds that would best make up the Five Fold? ---M.M., by email
A. Here is the web address of a list of the Spartan index funds offered by Fidelity: https://www.fidelity.com/mutual-funds/fidelity-funds/why-index-funds
Assuming you would invest a minimum of $10,000 in each fund and be eligible for their Advantage share class, here are the funds you could use:
- Spartan Total Market Index Fund (ticker FSTVX, net expense ratio 0.05 percent)
- Spartan Inflation-Protected Bond Index Fund (ticker FSYIX, net expense ratio 0.10 percent)
- Spartan International Index Fund (ticker FSIVX, net expense ratio 0.12 percent)
- Spartan Real Estate Index Fund (ticker FSRVX, net expense ratio 0.09 percent)
One piece is missing, an international bond fund. To fill that position you’d need to use one of the iShares commission-free exchange-traded funds that Fidelity offers. That fund is iShares International Treasury Bond (ticker IGOV, net expense ratio 0.35 percent.)
The average expense ratio for an equal-amounts-invested portfolio would be 0.142 percent. You could reduce it further by eliminating the iShares International Treasury Bond fund and doubling up on the Spartan Inflation Protected Bond Index fund or using Spartan U.S. Bond Index Fund. Either choice would reduce average portfolio expenses below 0.10 percent. And, either way, your total allocation to fixed income would be 40 percent.
Q. My wife and I are near the end of our lives. We have about $2.1 million
invested with Morgan Stanley. Of that amount, about $300,000 is held for investment in a possible market sell-off. Our annual income from interest in bonds, dividends from stocks and Texas school bonds is $60,000. Also, we have
$500,000 in local banks earning $1,000 per year. Our worry is the market turning south disrupting our income substantially. Any ideas on protection? —W.G., by email
A. Your income won’t be disrupted if you start thinking about your principal as a source of spendable cash. Most people need to do this at some time during their lives because their spending exceeds the interest and dividend income from their portfolio. Only the wealthiest people get to their last days on investment income alone.
Most people suffer their worst losses when they are forced to sell an asset, or multiple assets, at depressed prices. You can avoid this by having a significant “bumper” on your portfolio— a liquid cash reserve that will cover your anticipated spending for a good period of time. A year is OK, two years is good, three years is better, and five years would get you through all but the most severe market decline. Your $500,000 in local banks makes a pretty big bumper.
After that, it would be good to go through your stocks and weed out the shares that are considered very vulnerable, particularly if you can do so without realizing a large capital gain. If you are truly at the end of your lives— which I hope is well over 90— you should be judicious about realizing capital gains lest you lose the last great tax break available to all— the revaluation of appreciated assets upon death. It eliminates all unrealized capital gains liability.
Some joke that this is our last incentive to die. I like to think that capital gains are the only investment good we can take with us.