Roth IRA and taxable account advice

Submitted by ninjahackerman t3_11dydxk in personalfinance

I’m 25 and just realized I need to start investing. I contributed $500 for my 2022 year Fidelity account and it’s currently all in FXAIX. I’ve been thinking of doing 60% VTSAX and 40% SCHD as I want to be fairly aggressive but also be balanced. I’m trying to read up about the difference in mutual funds and etfs but there is just so much info and don’t know what I should follow. Does my plan sound good?

I’m also going to start a taxable account for ETFs and individual stocks. Any veteran investors willing to tell me how dumb I sound?

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ahj3939 t1_jabjf29 wrote

Doesn't sound dumb at all.

Only thing is at Fidelity (and many other such as Schwab) they'll charge you a fee around 50-75 to buy 3rd party mutual funds.

Therefore what you should do in the retirement accounts is buy a Fidelity mutual fund such as FSKAX. It's a total market fund just like VTSAX but you won't pay the fees (it's like saying McDonalds vs Burger King, sure you might light the Burger King logo better but at the end of the day it's cheap found with approx. the same nutrition)

In fact I would argue the Fidelity fund is better since the expense ratio on that particular fund is less than half of Vanguard's.

I think the main thing is planning and setting goals. Maybe contribute more to IRA instead of taxable. Does your employer have a 401k match? If so you should take advantage of the free money.

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ninjahackerman OP t1_jabjm06 wrote

Thank you!

Do you think FXAIX is a good contender to VTSAX? Is there a reason to stay with mutual funds or should I venture into ETFs? I want to be as passive and set it and forget it as possible.

I don’t have a 401k unfortunately

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ahj3939 t1_jabl8pb wrote

Personally I like VTSAX or FSKAX better since thy are total market index (3000-4000 stocks)

S&P 500 is only the largest 500.

It's not a huge different to be honest because the indexes are market cap weighted. Meaning for example if all the "total market" is worth $100 billion (I'm making up numbers here) and all of Apple is worth $5.32 billion it will be 5.32% of the stock in your total market index (that percent is what Fidelity is currently showing for FSKAX).

So at the end of the day dollar per dollar S&P 500 makes up about 82% of your total market index, that's why they perform about the same.

However personally rather invest in the total market because you're getting exposure (good or bad) to thousands of other stocks.

Also I think the advice "just invest in S&P 500" is antiquated. it's not terrible advice, but the issue is say 40 years ago all these index funds didn't exist and S&P 500 was more or less the most diverse you could invest in.

ETF and mutual fund is the same thing. Use mutual fund in your retirement account and ETF in taxable. It's more tax efficient and also will avoid any possibility of wash sales (as long as you avoid Vanguard funds since they are technically the same fund)

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ninjahackerman OP t1_jabm6re wrote

You’ve confirmed my plan so thank you for that. Now should you be more aggressive in a taxable account or the retirement account?

I was thinking AI, Tech and Bioscience ETFs/Stocks for my taxable and simple yet promising Mutual funds for my IRA. Or would you be willing to risk more in the Roth? Looks like all tech stocks are on sale

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StarFoxMalone t1_jabkokq wrote

Yes it is, also consider FNILX or any of the zero fee products

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silversurfie t1_jabm4ah wrote

Personally I view mutual funds as broker's exclusive product which is why someone would use Fidelity for FXAIX vs Vanguard for VTSAX. Purchase them if you're using that broker but generally these mutual funds also have a ETF equivalent and in VTSAX case that would be VTI. If you really want VTSAX you can buy VTI with your Fidelity account.

I don't see much difference between VTSAX and FXAIX and comparing their historical returns are within .5% of each other and their top 10 holdings are the exact same but with different weightings.

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ninjahackerman OP t1_jabmfhz wrote

Now is it worth getting the ETF equivalent or just go with Fidelitys native funds? I’m looking for low fees and decent returns 8-10% but I’d like to be aggressive until my mid 30s

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Craft_feisty t1_jabo4pb wrote

>ve product which is why someone would use Fidelity for FXAIX vs Vanguard for VTSAX. Purchase them if you're using that broker but generally these mutual funds also have a ETF equivalent and in VTSAX case that would be VTI. If you really want VTSAX you can buy VTI with your Fidelity account.
>
>I don't see much difference between VTSAX and FXAIX and comparing their historical returns are within .5% of each other and their top 10 holdings are the exact same but with different weightings.

you can be aggressive until your late 30s or early 40s. Since you are just starting.

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Stock-Freedom t1_jac4xxm wrote

Only start a taxable account after maxing tax advantaged accounts. Follow the flowchart.

My generic advice:

https://i.imgur.com/lSoUQr2.png

Here is the flowchart from the r/personalfinance subreddit’s Prime Directive. If you follow that, you will be ahead of almost all of your peers.

Stop by the sidebar to see the Common Topics, which include basic money handling and investing.

You don’t need to talk to anyone or buy some random book to do this. You have all the tools right here.

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