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Building portfolios with exchange-traded funds

Q: I really like your low-cost “Couch Potato” investing approach. I would like to implement one of your Couch Potato Building Block portfolios, and I’m meeting with my Fidelity adviser to help me do this. Can you give me some tips?

A: Use a Fidelity brokerage account to create your Couch Potato portfolio. Build it with low-cost exchange-traded funds. Fidelity offers 65 such funds, commission-free. To build a basic Couch Potato portfolio, you could start with this list of ETFs, five of which are on the commission-free list at Fidelity:

• iShares TIPS Bond (TIP)

• iShares Core S&P Total U.S. Stock Market (ITOT)

• iShares Core MSCI EAFE (IEFA)

• iShares International Treasury Bond (IGOV)

• iShares U.S. Real Estate (IYR)

• Vanguard Energy Index (VDE

The last ETF is not on the no-commission list, so a commission payment will be necessary. The cost of an online trade commission at Fidelity is $7.95. These six ETFs will allow you to build the most basic five of the Couch Potato Building Block portfolios: the two-fund Couch Potato, the three-fund Margarita, the four-fund Four Square, the five-fund Five Fold and the six-fund Six Ways From Sunday.

For more information on simple portfolio building, my website is, where you will find a link to my “Couch Potato Cookbook” and another link to a monthly update of Couch Potato Building Block returns over periods out to five years.

Here’s an online link to the Fidelity list of commission-free ETFs:

Q: I have a question about my 401(k). It is located in my former employer’s system, The Boeing Co. I retired from Boeing in 2008. I have about $145,000 in its diversified accounts. I keep reading advice that suggests that monies should not stay behind in a company after retirement. Should I move these funds to another broker that handles 401(k)s? Do you have any recommendations? I am a USAA member and am considering moving the funds to them. I am also a Raymond James customer with an IRA with them, with about $125,000 in it.

A: Many workers, particularly those who work for relatively small companies, can benefit by moving from their employer-sponsored 401(k) plan because they can choose to move to a lower-cost plan. This will allow them to keep more of the return on their own money. Boeing, however, is a very large company. Its 401(k) plan can get in the ring with Exxon-Mobil, IBM and Texas Instruments for its focus on low-cost index funds. Its balanced index fund, a 60/40 mix of equities and fixed income, has a cost of only 0.08 percent a year, and the cost of its domestic equity and bond index funds is even lower. So you shouldn’t be in a hurry to move — you’d save very little by moving, even if you moved to a very low-cost firm.

The biggest factor that determines your cost of investing is the sales and marketing distribution channel used by the firm. Move to a brokerage firm such as Raymond James (or Merrill Lynch, Morgan Stanley, etc.) and you’ll face a high-cost distribution firm that will be targeting a “yield to broker” of about 2 percent — and that’s if you have enough money to make your account worthwhile to them.

But if you continue on the do-it-yourself path that you initiated when you started saving in your 401(k) plan, you can move to a low-cost discount brokerage firm. This would include Vanguard, of course, but it would also include firms such as Schwab, Fidelity and Ameritrade.

The advent of commission-free exchange-traded funds means that a careful do-it-yourself investor can truly minimize management expenses. That’s a good thing because it’s your money, and you need to make the most of it.

Questions about personal finance and investments may be sent by email to


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