My husband and I, age 80 and 76, have had all of our IRA money (about $930,000) in an adviser-directed account at Fidelity for the last two years. We both have a 60/40 mix. Before that, a friend helped us, but he is ill. So we went to the Fidelity service and pay $6,000 a year for both accounts.
The investments in the two accounts in the IRA just hit their benchmarks. We feel we would be just fine in index accounts that we monitor. We want to switch to Vanguard and have Fidelity roll over the money to them. That means all the investments in the Fidelity account will go into cash before the rollover to Vanguard. We would eventually set up a portfolio with 60 to 70 percent in domestic and international stock index funds and 30 to 40 percent in bond index funds for each of our accounts.
You can’t time the market, so the transfer is what it will be. However, can you advise us on a time frame and method of investing into the new index accounts? We don’t want to invest a great deal of money all at once when the market is so high. We made that mistake when we rolled our 401(k)s into the market in 2007. We didn’t even think of a cost-averaging method, and it cost us dearly. We are just now better off than we were in 2007! We don’t need our IRA money for ourselves, but would like to leave the accounts to our four children. What do you suggest? — J.T., by email
You have more freedom than you think you have. For one thing, you can transfer your account from one custodian to another without selling everything if the contents are marketable securities. What you can’t transfer are things such as proprietary unit-investment trusts where your brokerage firm is the only firm that makes a market in the security.
But you can have Vanguard funds on the Fidelity platform, and you can have Fidelity funds on the Vanguard platform. The only difference will be the small brokerage commission you will pay on transactions when you sell a Fidelity fund on the Vanguard platform or a Vanguard fund on the Fidelity platform. This would be a consideration for a $50,000 or $100,000 account, but it’s pretty minor for a $1 million account.
The bottom line is that you can stay at Fidelity and slowly liquidate your current portfolio to build your new lower-cost index fund portfolio. And you can do that by using exchange-traded funds from a variety of firms, including Vanguard. Indeed, Fidelity offers no-commission trades on 65 iShares ETFs, many with annual expense ratios nearly as dirt cheap as those from Vanguard.
The iShares Core S&P Total US Stock Market ETF (ticker: ITOT), for instance, has an expense ratio of only 0.07 percent. The Vanguard Total Stock Market ETF (Ticker: VTI) has an expense ratio of 0.05 percent. When expenses get this close, you probably need to ask whether you should chase the pennies or pay attention to the bulldozer.
Since you don’t have to move your account, you can also change your portfolio, to less risk or more risk, at a pace that suits you.