Sunday, February 25, 2007

consolidating my investments into Fidelity and Vanguard - what to do with that solo 401k

As I've mentioned earlier, I've begun shifting the bulk of my investments to Vanguard in pursuit of low cost index fund options.

Unfortunately, Vanguard doesn't offer a solo 401k (aka individual 401k). Fidelity does, though it's called a Keogh by them.

I successfully rolled over our individual 401ks (my wife's and my own) to Fidelity. It happened much faster than the moves to Vanguard - I think we were delayed by end of year retirement account set-up activities.

I was very unhappy with the $50 fee per rolled account Schwab charged me. I wonder if there's a way to ask them to take it back. Felt like a kick in the pants on the way out!

I still have minor accounts at schwab - non-retirement trading accounts, the amounts are small. I'm delaying transferring them for several reasons:
  1. Vanguard is expensive as a brokerage with higher fees than Fidelity and Schwab.
  2. I need to age the holdings before selling them or else my capital gainst will count as regular income (taxed at the regular rate).
  3. I'm wondering if Shanda (SNDA) will continue it's recovery - up 100% from it's low, but still down 30% from it's purchase by me.

The money I rolled over from Schwab was placed in Fidelity's Four-in-One (FFNOX) fund. The idea being that the bulk of my holdings would be placed in self-managed retirement or balanced funds until after our relocation, at which time, we would resume the investment planning with our financial advisor.

FFNOX is an interesting fund. Historically it's slightly exceeded the s&p 500 by 0.6% to 2% when examining trailing returns. The fund is a balanced combination of the following low cost index funds:

55% Fidelity Spartan 500 (s&p 500)

16% Fidelity Spartan International Index (EFA)

15% Fidelity Spartan Extended Mkt Index (not s&p 500)

14% Fidelity U.S. Bond Index

The exact percentages are not where my target asset allocation is, but it will keep me in the approximate direction.

I was very tempted to load up on international index, international small cap, and domestic small cap value and a REIT index, but the fidelity family products do not include much of what I was interested in. I'll have to steer as much of the diversification investment into Vanguard to compensate. I've already pushed my 401k investments toward small cap value (not indexed), international and bonds. I may move in a similar direction with my wife's 401k, which is now predominantly invested in Barclay's 2030 life cycle fund.

How easy things would be if we could do in-service transfers into our private IRAs from our corporate 401ks!! As things are, my portfolio is pretty far from the target. The equity to bond allocation isn't that bad, but large to small and market to growth ratios need alot of help. As things are, I just have to bite my lip until we start-up again with the investment advisor in July or so.

The Schwab to Fidelity rollover took about two weeks or so. Much faster than the move to Vanguard.

This week I'll focus on rolling one of my son's retirement account from Schwab to Vanguard (where he has other retirement accounts). That will eliminate all but our trading accounts at Schwab. We also have trading accounts at First Trade, but can't move them until the assets hit the 1 year mark - due to capital gains - we've had significant gains there.

Regards, makingourway


Anonymous said...

I thought I recall you saying that you have young kids. What kind of retirement account did you set up for your son? Is this in addition to the 529 plan?

Mark said...

Hi there. Love the blog. Anyways, I am currently looking at starting a solo 401(k) and this website -- -- is an intermediary that will permit me to invest in Vanguard.

They do charge .25% p/a on your acccount's balance. I know that Vanguard has the lowest fees, but I have not done the math on Vanguard +.25% to see if it is greater than Fido.

makingourway said...

I do have young children. However, they are old enough to participate in various family businesses by providing either physcial labor, acting as spokespeople or modelling for which they are compensated.

I went with Fido becuase I chose the four in one low cost index fund - it's a balanced fund of index funds. Makes life simple and has low expense ratio. Fido has some very low index funds, but not the diversity that Vanguard offers. However, Vanguard requires a minimum of $3k for most of it's funds, so when setting up a solo 401(k), you may not have enough money to select many different funds. You might go with the fido all in one to start and after the second year's contribution begin diversifying further.
I expect Vanguard to come out with a direct solo 401k product in the next year or two. I believe their challenge is to find the righ prototype etc....
Frankly, I don't like anyone charging me 0.25% or whatever percentage if I can avoid it. However, 0.25% of $15,500 is very small change - less than $40. If that's the way you want to go, park the money there and roll it over to Vanguard's offering when it arrives. Just delay rolling any other funds into to avoid creating a more significant expense.

Regards, makingourway