Roth IRA

In January I decided to put my 2007 Roth IRA contribution in Vanguard’s total international fund. The total fund includes some exposure to emerging markets which was a very good thing since Vanguard’s emerging markets fund was up 40% compared to 11% for developed markets. This lifted the total fund up to 14% for the year.

The growth half of the S&P 500 index fund did very well with a 15% return, vs. 7.5% for the 500 index (my small cap value index fund actually lost about 4%). Whereas last year my do-good FTSE Social Index fund had outperformed the growth index, this year it got walloped and FTSE actually lost a little bit of money (-0.5%). So I will lose my social conscience and put that money elsewhere. I didn’t mind when there was a little bit of a spread between the two, but 15.5% is just too much.


Meanwhile, this year as well as last year my Fidelity Small Cap fund had enormous distributions of capital gains. This year it distributed over 15% of its value, which I then have to pay taxes on, even though the fund only increased 7.5% (at least most of the distribution is long term gains which are taxed at only 15%). The share price actually went down, though I now have more shares since the distributions were reinvested. Meanwhile, Vanguard’s index funds have minimal distributions since they pretty much stay in the same funds all the time.This is something that has always bugged me about Fidelity funds. Even when the funds don’t do that well, they still have substantial distributions from the enormous turnover in their funds.

Anyway, this year’s huge distribution made me realize that this fund belongs in an IRA account where I don’t have to worry about paying taxes on the distributions. So I decided I would transfer my maximum for 2008, $5,000, into a new Fidelity Roth IRA account from my current taxable holdings. While I was at it, I would also move the money I have in Vanguard’s Social Index fund into a Fidelity fund. Based on past performance, both Capital Appreciation, Independence, and Fidelity Fifty look pretty good. Contrafund, which was one of the first mutual funds I ever bought (and sold to buy my house) is closed to new investors, but had a very good year.

So today I set up an account. You can do a transfer of assets from one company’s Roth IRA to another company’s without it counting as a taxable withdrawal. I hoped this could be done online or over the phone, but I went to Fidelity’s website, set up an account, and at the end they had me print a form out that I needed to sign and mail in to them along with my most recent Vanguard statement. Only then will they be able to get the funds from Vanguard. They said it could take 2-3 weeks, so it isn’t fast, but I don’t guess it matters.

2 thoughts on “Roth IRA

  1. On January 1 I set up a transfer to go from my Fidelity Small Cap shares to my Fidelity IRA at the end of the day on January 2. Unfortunately Small Cap is closed to new investors and the transfer just went into a money market. Instead of Small Cap I opted for a similar fund, Small Cap Growth (FCPGX), which should have executed at the end of today. Both Small Cap Growth and its sister, Small Cap Value, outperformed the closed Small Cap, so maybe this will be a good thing.

    Vanguard is showing pending activity on my FTSE shares, so they will close that out and send the money to Fidelity. That could take anywhere from a day to a week. Right now I am planning on putting the money in Fidelity Value Discovery (FVDFX) which invests mostly in large caps, but has been in mid-caps before and can invest in foreign stocks. It seems like it should behave like the closed Contrafund.

    Both of the new funds were given five stars by Morningstar. We’ll see if their past performance continues this year.

  2. The money from Vanguard showed up in my Fidelity money market account this morning. I put in an order to get Value Discovery and bought it at today’s closing price. During the transfer time the fund lost 5%, so it was like getting a discount. Now it needs to start going up again.

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