Roth 2015

Last year I put my Roth 2014 contribution in to Vanguard’s Total International Stock Index, which wound up losing money. International stocks haven’t recovered as quickly as the US market, so last year I figured they were due, but instead the US continued to outperform the rest of the world. As I watched all of this unfold, I started to realize I was probably too heavily weighted in international stocks anyway. Still, in a market lull during October, I took a little money I had in a short-term bond fund (cash, essentially) and put it in Vanguard’s European Index. This went up about 10% almost immediately, but by December was back down to near where I bought it. I wound up selling it as well as my domestic small cap value fund to buy Vanguard’s Total Stock Market Index fund, which invests in the whole US stock market (instead of just the S&P 500 large caps). Some of that is too late because small caps dragged in 2014 as well, but now I have only two Vanguard investments: total US market and total foreign markets. So that’s everything! I still have more than I should in the international fund, so I am putting some of my 2015 contribution into the domestic fund.

To get my 2015 contribution I sold all of my shares of Janus Overseas. I first bought Janus back in 1998 and it had some great years and some terrible years. Lately it had performed less well (last year Morningstar gave it only 2 stars out of 5), but I left money in there hoping for another big turnaround. But Morningstar now gives it only 1 star meaning it is trailing almost all other mutual funds that invest in international markets. I took a look at some of what it is invested in now and they have a lot of exposure to oil-related stocks. So this year was absolutely miserable for it. Also it has always been able to increase its performance by investing in emerging markets, but emerging markets haven’t been doing well lately either. Worse, it also invested in oil stocks based in emerging market countries. Yikes. It couldn’t have made a poorer choice for this year probably (and maybe its fortunes will reverse next year). I have sold off big chunks of it before for good profits, but after losing 17% this year on it, I will get to write off a small capital loss. I put some of the money into international funds I already owned: Fidelity Diversified International, which has done less poorly than Janus the last few years, and some more in Vanguard’s Emerging Market Index. I actually put too much into those and didn’t have enough left over for my entire 2015 Roth contribution, which is now $6,500, $1,000 extra because I turn 50 this year.

So yesterday I put $2,000 of my 2015 IRA contribution into Vanguard’s Total Stock Index fund and $2,000 into Fidelity Small Cap Growth, both domestic funds. I will save up and put the remaining $2,500 of my IRA contribution into something later, probably Total Stock. I had sold all of my IRA shares of Fidelity Small Cap Growth in August in order to focus more on large cap stocks (switching the money to Fidelity Contrafund), but I don’t mind a little exposure to small caps and Fidelity’s Small Cap Growth fund isn’t too bad. Indecision. Small Caps only represent something like 10% of the total stock market, so if you have more than 10% of your money in small caps, you are overweighting that sector. Small caps were really hot for a while because the performance was better, but I think the result was too much money chasing too few shares, just like what happened in emerging markets. The other change I made at Fidelity was to sell my shares in the dubiously focused Low Priced Stock Fund which predominantly invests in shares of companies with stock prices less than $35 per share. Since a company can control the price of its stock through splits, I don’t know what the point of basing a fund on stock price is, but it had good returns. Morningstar categorizes it as a medium cap value fund, which was a sector I wanted some exposure to, and it was actively managed instead of an index, which makes it a good pick for an IRA so that all the capital gains from the churn wouldn’t be taxed (Fidelity always has big distributions on their funds which is painful during tax time unless it is in an IRA). Anyway, I sold the Low Price Stock Fund at the end of December and put the money into new shares of Small Cap Growth, so now my main holdings at Fidelity are only Contrafund and Small Cap Growth Index. I have a little bit in gold and silver ETF’s so if those ever make money (no chance of that so far) I won’t to pay the higher tax rate due on precious metals that I would pay if it wasn’t in a tax deferred account.

I think this approach is pretty rational. At Vanguard the Total Stock Market Index invests in value and growth shares at all US market cap levels and in proportion to each sector. Likewise, Total International Stock Index invests in all foreign markets, including emerging markets. I can make small adjustments by going with a sector if I want, but if I have no idea, I can’t go too far wrong with this blend of blends.

2 thoughts on “Roth 2015

  1. I put another $1,000 each into Vanguard Total Stock Market and Fidelity Small Cap Growth and put the last $500 into Vanguard Total International to finish out my Roth IRA contribution for 2015. 30% seems to be a good number for the percent of holdings that should be international, and if I take the combined Fidelity and Vanguard portfolios, I am below that, although Contrafund has some international exposure (about 9% right now). At Fidelity, I also used existing IRA funds to buy $1,000 of USO, an exchange traded fund that invests in oil futures. By investing in USO in my tax-free IRA I can avoid dealing with gains on oil futures contracts on my taxes. I also have some silver and gold ETF’s in my IRA to avoid issues with taxes on precious metals.

  2. After finishing up my contributions, I realized that Vanguard’s Total International Index is a terrible fund that has never really made any money for me in the 7 years I have owned it. It lags way behind the 4-star Fidelity Diversified International, earning only 2 stars (below average) from Morningstar. Unfortunately Vanguard doesn’t offer much of anything any better. Their best international fund invests half of its money in the US right now, so not really all that international. Fidelity has a number of 4-star international funds and one 5 star fund. I don’t want to try to move money from Vanguard to Fidelity, but I can move money from Vanguard Total International into Total Stock Market fund, which invests primarily in US large cap companies. And over at Fidelity I can move money out of the US large cap Contrafund into a Fidelity international fund, keeping my overall market sector mix about the same. I don’t want to take a huge chunk out of Contrafund, so I decided to just do the move with a portion of Vanguard’s fund and then take the same amount from Contrafund and put it into Fidelity International Growth, a 5-star fund. I doubt the fund can maintain 5-star performance, but I had to pick something, so why not their best one? I’ll see how this goes for a little while and maybe do another move later in the year (ended up doing this the next week) and then next year maybe put more back in Contrafund. That will leave me with only 1 fund at Vanguard, invested in all segments of the US market. At Fidelity I have all actively managed funds representing US large caps, small caps, and an international fund (as well as small ETF investments in gold, silver, and oil).

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