Game on. I have been spending a lot of time reworking our investments and ended up with accounts at Vanguard and at Fidelity. I consolidated 401Ks and Rollover IRAs and also cleaned up our messy investment strategy. We have been following what I call now “Old-School Retirement Investment Advice” (OSRIA) and the results have been disappointing. More on that later.
Disclaimer: This blog post describes my investment plan. It is not considered investment advice. I am also using affiliate links in this blog post to support this website. I appreciate your support if you would buy any recommended products through these links. End Disclaimer
I have been spending a lot of time figuring out the best way to move forward by setting a goal of being retirement ready in about 10 years from today – ideally when I would turn 60 (I am currently 51 years old). That is an ambitious goal for sure and requires not only an optimized way of investing, but also a stricter approach of putting more money away into savings every month.
While reading a lot of FIRE blogs and investment advice for millenials who would like to retire in 5-10 years, I stumbled upon the Bogleheads community. In short, this community goes back to the founder of Vanguard Investment Funds and a very simple approach to investing by using a) low-cost funds and b) a very simple portfolio of three, maybe four different fund types. The more I read about it, the more I was intrigued that this might work for us – combined with the savings approach a millenial with a 5-10 year target goal for retirement would have.
I jumped the gun an ordered the book “The Bogleheads’ Guide to the Three-Fund Portfolio” from Amazon to educate myself even more. (Link to Amazon / affiliate link to support this blog)
How does this look like?
The investment approach is very simple. Use broad market investment funds that represent the entire US equity market, the entire global equity market (minus US equities), and fund that resembles the entire US bond market. Nothing else is needed.
The idea is to follow a small number of simple investment principles that have been shown over time to produce risk-adjusted returns far greater than those achieved by the average investor or Wall Street gurus. Added benefit, one would spend a lot less time to do investment research or to actively trade stocks. The only adjustment needed is to rebalance the ratios between the three options with funds earned through an account or added through savings.
Now we have accounts across Vanguard and Fidelity and identified the matching funds to follow this investment strategy:
FSKAX – Fidelity® Total Market Index Fund
FSGGX – Fidelity® Global ex U.S. Index Fund
FXNAX – Fidelity® U.S. Bond Index Fund
VTSAX – Vanguard Total Stock Mkt Idx Adm
VBTLX – Vanguard Total Bond Market Index Adm
VTMGX – Vanguard Developed Markets Index Admiral
Some of the original Bogleheads funds of choice have been close to new investors and their Admiral fonds are now the next best choice.
All six funds listed above are low-expense/low-cost investment funds.
I am still in process of shifting funds around, but by early next week all accounts will show the right mix of these six investment funds. I am looking to work with the following mix/investment ratio:
US Total Equity Market: 60%
US Total Bond Market: 20%
Global Equities (intl. Markets): 20%
In a more perfect world I would have a larger portion moved to bonds already to the reduce the risk, but as you might suspect – we are technically behind with saving for retirement due to us following old-school retirement saving advice. Our approach now matches more up with how a millennial who wants to retire in 10 years would invest. The good news is that no matter how things work out until I am 60 years old, I do not necessarily have to retire at that age and can easily adjust to market conditions if needed. By aiming at a 10 year time-frame I am forcing myself to be committed and to do what is necessary to meet that goal.
Where will all future savings go?
I am currently maxing out my 401K contributions – including catch-up payments. Unfortunately I cannot invest in a similar way within my 401K account and that money goes a slightly different way.
But all additional savings will go into the Vanguard/Fidelity IRAs and taxable accounts and resemble the approach described above. Taxable investment accounts will carry no bonds investment funds, but rather just equity investment funds to avoid being taxed too much. Accordingly the investments inside the tax-advantage accounts will be covering the proper bonds investment funds to make up for this.
One Year Comparison Plan
Next week when the re-balancing of investments has been completed I will start monitoring all accounts for performance and compare the investment options. There are some minor variances between the Fidelity funds and the Vanguard funds. Looking at a 10-year investment plan, I want to make sure to pick the right horse for the ride. Hopefully in a year from now I can say that the investments performed almost identical or I know that I need to move accounts either from Vanguard to Fidelity or vice-versa.
If you already follow the Boglehead approach, please leave a comment below. I would love to hear your success story.