Automatic Investing
- Intro
- Cash Management
- Investing (you are here)
- Insurance
The Setup
- Fidelity Brokerage Account ("brokerage") with margin enabled
- Fidelity Roth IRAs
- Fidelity Solo 401K
- Fidelity Four-In-One Index Fund (FFNOX)
How Money Flows
- Every investable dollar is in FFNOX across all account types
- Automatically purchase a fixed amount of FFNOX in the brokerage account every pay period
- Automatically contribute to my employer's 401K plan every pay period
- Once per year fund our Roth IRAs
- Once per year fund our Solo 401K (if possible/advantageous)
Why
I don't want anyone to have to think about where to pull money from at any time. I want me or my wife to be able to login to Fidelity and sell enough to cover cash needs with a very small number of clicks.
FFNOX is a fund of funds consisting of four inexpensive Fidelity index funds. It invests in 60% US total stock market, 25% international developed total stock market, and 15% US total bond market. This fits our family's desired asset allocation.
The brokerage account has margin enabled. Margin allows you to borrow up to 50% of the value of your investable assets (everything but cash and CDs) from your broker for any purpose whatsoever. It kicks in while you run out of cash and will automatically pay itself back when you deposit cash in the account.
We have margin turned on so that we don't have to worry about selling investments to raise cash while something awful is happening. We can login to Fidelity and sell some FFNOX when it's convenient rather than having to do it one some kind of schedule.
We have automatic investing turned on so that I don't have to make a decision to purchase twice a month. I'm frequently tempted to mess with the program but my own lived experience and that of countless others suggests that the more hands off I can be the better off I'll end up.
Contributing to my employer's 401K plan is an automatic tax break and also means I get my employer's matching contribution. I have it set up to max out my contribution space ($19,000 for 2019) by dividing that by the number of pay checks in the year and setting a fixed dollar contribution.
We fund the IRAs and Solo 401Ks once a year just for practicality.
We're right on the bubble where sometimes we have to do what's called a "backdoor" Roth IRA contribution and that's complex enough that I only want to deal with it once a year.
The amount we can contribute to the 401K depends on how much self-employment income I raised during the year. It only makes sense to calculate at tax time.
We don't use robo-investors. FFNOX's total expenses are capped at 0.08%, or $80 per $100,000 annually. Wealthfront charges 0.25% (more than 3x) on top of the fees for the actual ETFs (typically ~0.1%). Robo-investors are never going to offset their fees when compared to FFNOX or similar funds (Target Retirement funds at Vanguard or Freedom Index funds at Fidelity).