Forum Mailbag: Conservative Asset Allocation, HSA Question, Emerging Markets In Total International Fund, And More!

There is so much great information on personal finance forums. I participate on several message boards, including the Bogleheads and White Coat Investor forums. Here are some of the discussions happening around the internet.

1. Bogleheads: 37-Year-Old Investor With 60/40 Allocation?

Question: BashDash is a 37-year-old investor who is leaning towards a 60% stocks / 40% bonds portfolio. He knows this is more conservative than the average investor his age. Below are some of the reasons he lists for his asset allocation decision and wants reassurance from the Bogleheads community:

1. Helps him sleep better at night
2. He’s not comfortable with lowering his asset allocation over time (i.e. when he gets older)
3. He can better withstand bear markets with this allocation
4. He feels that this allocation is the right balance of participating in the stock market while having a “smoother ride” with a significant bond exposure

WSP’s Take: The typical asset allocation for 37-year-old investors would be 90% stocks / 10% bonds based on the allocation of target-date funds offered by Fidelity and Vanguard, but a 60% stock / 40% bond portfolio is completely reasonable, especially for a risk-averse investor.

He should keep in mind that a 60%/40% allocation would have a lower expected return than an allocation with more stocks, which means that he will likely need a higher savings rate in order to reach his retirement goals.

But the reasons he listed, particularly the importance of sleeping better at night and staying the course, are all valid reasons for choosing a more conservative asset allocation.

2. White Coat Investors Facebook Group: Possible to Pay for Past Healthcare Expenses with HSA?

Question: A reader on the White Coat Investors Facebook group has an upcoming medical expense this month. He will not open an HSA until next year. He was wondering whether he could save the receipt and then use the HSA to get reimbursed for this medical expense.

WSP’s Take: Unfortunately, you need to already have an HSA account to get reimbursed for medical expenses. So if you open an HSA in 2019, you can only be reimbursed without penalty for eligible medical expenses in 2019 and beyond. However, if in the future you switch out of a high-deductible health plan, making you ineligible to make additional HSA contributions, you can still use money in the existing HSA account to pay for eligible medical expenses.

3. Boglehads: Emerging Markets Percentage In Fidelity Total International Index Fund

Question: Sgt.Pepper asks what percentage of Fidelity’s Total International Index Fund (FTIHX) is in developed international markets versus emerging markets.

WSP’s Take: Fidelity has a confusing array of international stock index funds. Fidelity’s Total International Index Fund is the most diversified international index fund offered by Fidelity because it holds not just developed international markets, but also emerging markets. It also holds both large-cap and small-cap international stocks, which cannot be said for all Fidelity international stock index funds (see FSIVX for an example of a fund that only holds large-cap developed international stocks).

To answer the reader’s question, FTIHX holds approximately 75% in developed international markets and 25% in emerging markets. By comparison, Vanguard’s international index fund, VTIAX, holds about 80% in developed international markets and 20% in emerging markets.

4. White Coat Investor: Best 529 for Ohio Resident?

Question: Hightower, a regular on the WCI forum, asks for recommendations for which state to open a 529 plan. He is an Ohio resident and could get a $4,000 per child tax deduction for 529 contributions to their College Advantage plan, but knows that there are many excellent out-of-state options around the country.

WSP’s Take: Ohio has an excellent 529 plan, and the tax deduction (approximately 5% for taxpayers with doctor salaries) should outweigh any slightly higher fees. Ohio’s 529 plan has many low-cost options, including the Vanguard 500 Index Option, which has a fund expense of 0.02% in this plan. Using this investment option, it would cost only 0.17% to invest in a 529 in Ohio after including additional administrative costs.

Wall Street Shares: 5 Articles To Read This Week

1. The Physician Philosopher: The Real Secret To Financial Success — Hint: it’s not about finding the perfect asset allocation.
2. Doctor of Finance MD: Burnout Factor Units per Vagabond MD — a unique way of quantifying the daily stresses in our life.
3. A Wealth Of Common Sense: Revisiting the Fall of 2008 — Hard to believe we’re 10 years on from the fall of Lehman Brothers.
4. Dads Making Cents: Opportunity Cost Is A Real Cost — When evaluating investments, don’t forget the opportunity costs involved.
5. The Boss MD: Don’t Be Hard On Your Kids — You can be anything you want in life, as long as it is either a doctor, lawyer, or businessperson.

What do you think? Do you agree or disagree with any of my responses? What’s your take on the topics in this week’s forum mailbag?