Q. Does Fidelity have a fund that compares to the Vanguard Balanced Index (ticker: VBINX)? I like the performance and the low expense fees the Vanguard fund has. I also like the ratio of 60 percent stocks, 40 percent bonds. I currently have things set up with Fidelity and would like to stay with them, if possible. ---E. S., by email from Austin, TX
A. There are three ways to get that fund--- or a reasonable facsimile--- and stay at Fidelity. One is to open a Fidelity brokerage account and buy Vanguard Balanced Index fund through the brokerage account. It will involve paying a commission, but you’ll still have an account at Fidelity.
The second option is to create a virtually identical balanced index fund using two of the few index funds that Fidelity offers.
That means your minimum portfolio size would be $25,000--- $15,000 in Total Market and $10,000 in U.S. Bond Market. If you did this, the average expense ratio for the portfolio would be 0.19 percent, exactly the same as the expense ratio for Vanguard Balanced Index fund.
If $25,000 is more than you can invest, you have a third option.
You can build the fund using Vanguard exchange traded funds and buy them through a Fidelity brokerage account. You would invest 60 percent of your money in the Vanguard Total Stock Market ETF (ticker, VTI) and 40 percent in the Vanguard Total Bond Market ETF (ticker, BND). These ETFs have expense ratios of 0.07 and 0.11 percent, respectively, so the average cost for your portfolio would be lower than the Vanguard fund, about 0.086 percent. Assuming a commission cost of $12, your expenses will be lower using this path if your portfolio is $23,000 or more.
Q. My financial adviser proposes a 2, 3, 4, 5, 6 year ladder of annuities from the attached sheet to achieve an average 5 percent return annually. I want no risk in my investments. I am 78 years old and retired. In the event of my death, the annuity pays my heirs as it would if I were alive. Your comments, please, about using this vehicle. ---G.E., by email
A. I think that’s a good suggestion. Your financial adviser is using data collected and compiled by Danny Fisher in Dallas. You can see some of his data on his website, www.mrannuity.com. Mr. Fisher has kept a database on fixed income annuity products for more than two decades. He regularly produces statistics on the range of interest rates available from insurance companies.
Quite often the “spread”--- the yield difference between an insurance company-based, CD-like annuity and a comparable yield Treasury note--- has been very small. But in the current angst-driven market, carefully selected CD-like annuity contracts offer a major yield advantage.
For instance, while your advisor will have little difficulty putting together a ladder of CD-like annuities with an average yield of 5 percent, a quick trip to www.bloomberg.com will tell you that a 2-year Treasury was recently yielding only 0.75 percent, while a 5-year Treasury was yielding only 1.49 percent. For retirees, that’s like the difference between opening a can of Chef Boyardee at home and dinner out. Basically, your interest income will triple.
Please note, however, that this is NOT “no risk.”
The only “no-risk” investment you can make is with our irresponsible and fundamentally bankrupt government because it has a license to print money when tax collections lag. There is some amount of risk to ANY other investment. That means your adviser can earn his keep by paying attention to the financial strength of the insurance company offering the annuity contracts.
Scott Burns is the retired Chief Investment Officer of AssetBuilder, the creator of Couch Potato investing, and a personal finance columnist with decades of experience.