Every year I contribute $5000 to a traditional IRA with fidelity. I
always put the money in the same index fund, Fidelity four-in-one
Index, FFNOX. It has an expense ratio of .26%. Should I keep putting
money in the same fund every year? Or does it make sense to find
something with lower expense ratio? I would think from an accounting/
recordkeeping point of view, it would be best to put everything in the
same fund or close the account?
"Mr. Nonsense" writes:
You've got one right question below and one wrong one:
While many of us feel very strongly that it's in the investor's
best interest to keep expenses to a minimum, the fact is that
0.26% is *very* low. You could beat it, sure, with a couple
of straight-up index funds (ie. Admiral shares of certain
Vanguard index funds are as low as 0.07%). But you're not
buying a simple straight-up index fund. FFNOX (actually,
per Morningstar, at 0.21%) has a very low expense ratio for
a blended fund. And it's got subtantial assets not just in
the large-cap US equity market (which is easy to invest in
and keep expenses low) but also in small caps, international
equities and a bond index. So, no, if you're moving just to
save on expenses, I'd be surprised to find many funds which
provide you with that kind of diversification which have
a lower expense ratio. You'd have to build the asset class
mix yourself out of several funds, manage the rebalancing
on your own, not to mention have enough in each of the asset
classes to get into the lower-cost share classes in question.
Expense-wise, FFNOX is a pretty good deal. That isn't to say
that it's a great fund necessarily, or that it's the fund most
suitable for you or your situation. Those are separate issues.
But it certainly is inexpensive.
If this is your IRA, then you don't have to worry about
tax lots, cost-basis (well, unless you do non-deductible
contributions, but in that case, it's still not tied to
the individual investments but rather to the IRA as a whole
via your annual form 8606).
The question you're missing here, and the most important one,
is whether the investment itself is suitable for you and your
situation and your time horizon, risk tolerance and does it
mix in appropriately with the rest of your asset allocation.
FFNOX is actually a pretty great one-stop-shopping fund.
It's aggresively invested, with 60% in US equities (48%
US Large-Caps via an S&P 500 Index) and 12% small-caps,
plus about 25% international large caps and about 15%
in an investment grade bond fund. And it's all done through
the use of low-cost, transaction and expense-efficient
index funds. If you're looking for an 85% stock / 15% bond
portfolio, you could do a hell of a lot worse than that.
The question is whether that's the blend you're looking for
and within the blend if you'd rather have more exposure to
other asset classes (ie. value, small-caps, emerging markets,
a different blend of bonds).
And that's not a question we can come close to answering,
certainly not based on what little you've posted.
Hope that helps.
Plain Bread alone for e-mail, thanks. The rest gets trashed.