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Friendly Advice

I need to avoid “tax efficient” funds, since what they are trying to avoid does not apply to me.

QQQI is not a good idea, not because it uses call options, and not because of tax repercussions which do not apply to me, and not because of its 0.86% fee, but because it is too concentrated and thus not “safe”.

Cash and Bonds

When stocks go down, income has to come from something else, to avoid selling the stocks low.

Diversification

I need examples of high-quality funds in each category…

My allocation (work in progress):

  • 18 months of money in safe liquid instruments (money markets)
    • do I need to allocate a part of my bonds bucket to Certificates of Deposit or just increase the cash amount?
  • Corporate Bonds 20%
    • some portion - high-yield (junk bonds)
    • Question: what portion should be junk bonds?
    • Question: how is this better than a bond index fund that combines treasury and investment grade corporate funds?
  • Stocks 80%
    • 3/8 US grows stock fund
    • 4/8 income (dividend) stock fund
    • Question: why is this better than a whole-market US stock index fund?
    • 1/8 international growth stock fund

Malkiel asset classes:

  • Cash
    • money-market fund or short-term bond fund (average maturity 1 to 1.5 years)
  • Stocks
    • 1/2 US stocks with good representation of smaller growth companies
    • 1/2 international stocks, including emerging markets
  • Bonds and bond substitutes:
    • no-load high-grade corporate bond fund
    • some Treasury inflation-protected securities (TIPS)
    • foreign bonds
    • dividend growth stocks
  • Real Estate:
    • portfolio of REITs

Malkiel allocation:

age cash bonds stocks real
mid-twenties 5% 15% 70% 10%
late thirties to early forties 5% 20% 65% 10%
mid-fifties 5% 27.5% 55% 12.5%
late sixties and beyond 10% 55% 40% 15%

Funds

I can buy Vanguard ETF s at Fidelity with no additional fees, but for mutual funds there are fees.

Assets Company Fund Index Expense Notes
US Stocks
Vanguard VTSAX CRSP 0.04%
Vanguard VTI (ETF) CRSP 0.03%
Fidelity FSKAX Dow Jones 0.02%
Fidelity FZROX Fidelity U.S. Total Investable Market Index 0.00%
Fidelity FSTVX Dow Jones 0.04% emulated
Int. Stocks
Vanguard VTIAX FTSE Global All Cap ex US 0.09%
Vanguard VXUS (ETF) FTSE Global All Cap ex US 0.05%
Fidelity FTIHX Morgan Stanley Capital International All Country World Index ex US 0.06%
Fidelity FSPSX Morgan Stanley Capital International Europe, Australasia, Far East 0.035%
Fidelity FZILX Fidelity Global ex US 0.00% emulated
Bonds
Vanguard VBTLX Bloomberg U.S. Aggregate Float Adjusted Index, taxable investment-grade corporate, U.S. Treasury, mortgage-backed, and asset-backed 0.04%
Vanguard BND (ETF) Bloomberg U.S. Aggregate Float Adjusted Index, taxable investment-grade corporate, U.S. Treasury, mortgage-backed, and asset-backed 0.03%
Fidelity FXNAX Bloomberg U.S. Aggregate 0.025% emulated?
Fidelity FCBFX 0.45% corporate only
Money Market Days
non tax-exempt
Fidelity SPAXX 37 0.15%
Vanguard VMFXX 44 0.11%
TFDXX 0.17% from Dima B.
tax-exempt
Vanguard VMSXX 11 0.15%
Fidelity FTEXX 35 0.16%

Dividends

Vanguard VYM 0.06% Vanguard VDAIX 0.08% Vanguard VDIGX 0.26% Vanguard VEIRX 0.19%

HELOC

Why wouldn't I pay it off using my taxable savings? There is an opportunity cost, but it is not great: I pay around 6% per year in interest, the market has to grow more than that plus inflation, which is possible but far from guaranteed. There is an income tax cost, but it is zero: if pay-off amounts do not push me into the higher tax bracket, I end up paying the same amount in taxes, just later.