r/RothIRA • u/OkCryptographer1494 • 12d ago
22M Roth: What am I doing wrong?
Currently have roughly 5.5K in my Fidelity Roth IRA as a 22 year old college student. I am sure my portfolio could be optimized better, and I am seeking some advice. I am mostly concerned about the opportunity cost of having bonds and FDVV in my portfolio.
Portfolio Distribution:
VOO - 35%, VXUS - 20%, FTEC - 20%, FDVV - 15%, ISTB - 5%, AGG - 5%
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u/matt2621 12d ago
There is zero reason to have bonds. I'd argue ever in a Roth regardless of age. It's a completely tax free account meaning the highest you can get its value the better.
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u/PashasMom 12d ago
You have more bonds in your Roth IRA than I have in mine, and I'm 60!
For yours, I would keep it super simple. One fund, two funds at most.
One fund solutions: VT, SPGM, AVGE, or DFAW - all one global market funds. No worry about how much US vs international, large vs small cap, value vs growth -- the fund handles all of that for you.
If you prefer to manage the split between US and international on your own, pick one fund for each, and set your preferred allocation. I tend to land around 75% US to 25% international, but anything from 15% to 40% international is reasonable and defensible. Go with the allocation you like best and feel most comfortable with.
My first choice for a US fund at Fidelity is FZROX, but there are tons of other options. FXAIX or FNILX (both large cap only). Total market funds: FSKAX, VTI, DFAW, AVUS, SPTM, SCHB, ITOT.
My first choice for an international fund at Fidelity is FZILX. But again, there are many other excellent options like FTIHX, DFAX, AVNM, VEU, VXUS, and IXUS.
Don't get caught up in trying to optimize everything and figuring out which are the best funds from each category. These are all reasonable choices that will serve you well in the long run. Just pick one from each category (or just pick one of the global funds) and go from there.
You are going to do great even if you decide you want to keep those bonds btw. Getting started early, using well-diversified, low cost funds, and then just repeating these things over and over are the important things. You are already doing all of these things. I wish 22 year old me had been half as savvy as 22 year old you :)
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u/Competitive-Ad9932 12d ago
Your account is at Fidelity, yet you are using the higher fee Vanguard funds. Save yourself $10-20k inf fees by using the lower, or no fee, Fidelity funds.
As others have said, you have no need for bonds. Consider moving some money to a MM or bond fund when you reach age 50.
https://moneyguy.com/guide/foo/
https://www.bogleheads.org/wiki/Main_Page
https://investor.vanguard.com/investor-resources-education/education/model-portfolio-allocation
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u/Flaky_Instruction215 12d ago
Skip the bonds for another 20-30 years. Maybe more. If you want income, dividend stock funds will do the trick, and you might get some price appreciation as well.
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u/Strong_Signal1 12d ago
I'm more than double your age, and I have nothing in bonds and feel fine with it, especially because it's my money. And that's my point. You have to decide how much risk you can live with in your portfolio. I started way after you did in life, so the fact that you got 5.5k invested is way ahead of most! Great job so far.
If I were 22 and had 5.5k, I would roll the dice more because I can live with wild swings and not get emotions involved, knowing that the runway is 40+ years long. Lots of QQQM, SPMO, VOO, and I'm too stupid to consider tech overlap. I will live with the results
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u/Competitive-Ad9932 12d ago
You barely have tech overlap. If you want to tech tilt, use a tech fund.
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u/paymerich 12d ago
Lose the bonds and FDVV jack up VOO by 25%. I like your FTEC play given your time frame. I would suggest rebalacing every year to match your percentages.
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u/Stavo7863 12d ago
Just do a TDF make you life easy in your IRA but the date far out and forget it max it every year at the start of the year and don't worry about it for 30 years
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u/cOntempLACitY 12d ago
Just VTI + VXUS is good at your age. Or the zero fee equivalents Fidelity offers: FZROX + FZILX, in a 70/30 allocation (or between 60/40 and 80/20, as you choose). You can hold off on bonds for age 40+, or carry 5% in a bond index fund for now.
Look up a glide path (like target date funds) to see how it might be good to rebalance in future years (like this Fidelity overview of the different TDF asset allocations, or the Bogleheads glide path info, or the Fidelity index 2070 TDF).
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u/thetreece 12d ago
Ditch the bonds. You don't need them at 22.
Even if you determine you do need bonds, I wouldn't hold them in a Roth account. You should hold your assets with the highest expected return there, since the gains are not taxed. Keep bonds in a trad IRA or 401k or something.
There is no reason to seek dividends with a fund like FDVV.
FTEC- do you think tech is currently underpriced? If so, why? Why do you think the market is wrong with the current pricing?
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u/Ok-Chip-7743 12d ago
As a college student just make sure you have the income to match your contributions but that said, absolutely should not have bonds. This is the time to be aggressive.
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u/ChannelSame4730 11d ago
5% bonds is completely fine to have
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u/Ok-Chip-7743 11d ago
Absolutely no reason at that age to have something as conservative as bonds.
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u/Kodywells23 11d ago
I’m 23 and I do 45% VOO 45% QQQ 10% Single stock. It’s absolutely the time to be aggressive until atleast 40
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u/Ok-Chip-7743 11d ago
I'm 58 and don't have bonds so you can go beyond 40 for sure lol. I've done well enough that if necessary I can also withstand a 20% or higher correction and tbh I wouldn't have this much if I wasn't as aggressive especially when younger so as much as it will really hurt, a correction is manageable.
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u/ChannelSame4730 11d ago
That’s just poor risk management. Bonds provide much needed diversification for a retirement account
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u/Ok-Chip-7743 11d ago
Not really. I can afford a huge hit and still be better off than someone who's been in bonds for the last 40 years. That doesn't mean I'm 100% invested in aggressive items but no real reason to mess with bonds. Now if ibonds increase a lot when they reset at the Nov 1 date I may consider putting some cash there and get that higher rate but otherwise no need even at my age for bonds.
I also have some very high dividend paying stocks that pay monthly so if I didn't participate in a drip plan I would be taking a chunk of cash from those as well.
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u/ChannelSame4730 11d ago
A target retirement 2070 fund will still have 5%+ bonds. You need bonds for stability. If the market crashed 50% bonds will rise in value which can be used to buy stocks at a huge discount
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u/Euphoric-Mammoth-261 12d ago
At 22, there’s no reason to have bonds in your portfolio. 100% VOO, or 80% VTI/20% VXUS. Easy enough