More Help On Asset Allocation, Thanks.

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More Help On Asset Allocation, Thanks.

Postby goodoboy » Sun Jan 20, 2013 9:40 pm

Hello,

Upate Jan-25-2013: If you would like to help me and save time reading scroll down to post 28, as suggest my final plan for bogleheads to consider. Lots of changes made and teaching in the first few post. Thank you.

I spent all weekend thinking about AA. I been reading books by Jack Bogle and I just need some more help to get me going in the right place. I need simplicity. Trying to Allocate across multiplier accounts its a bit confusing in the beginning.

I would like to have a 70/30 AA, 50%-stocks, 20%-Intel, 30%-bonds index funds only as they are cheap.Please tell me if what I have planned makes sense. In my opinion, what I have planned for AA and contributions moving forward are simple, cost less and less time with trying to asset allocation across multiple accounts. But I really appreciate any comments possible. We just opened two ROTH IRA accounts at Vanguard and plan to start contributing every month to max out by end of the year

I would like my approximate our 401K stocks portion to the total (80% stocks, 20% mid-small cap) stock market index at Vanguard.

Total Cash Amounts and Contributions
His 401k Rollover IRA: Current Holding $36K in cash at Vanguard
His ROTH IRA: Currently holding $0:
Contribute monthly @ 458/month to get $5500 max per year starting now
Her ROTH IRA Currently holding $0:
Contribute monthly @ 458/month to get $5500 max per year starting now
His 401k: $9.8k
Contribute $8751.6 per year. (6%, plus the company match at 4%)
Her 403(B) PLAN: $1.9k
Contributes $3360 per year. (8%, plus the company match at 4%, plus she contributes 2% more, for total of 10%)
Total Contributions per 401K year: $12,111.
Total Contributions per year to Roth: $11,000.

AA Option 1:
His IRA: Move 100% of money to Vanguard Target Retirement 2040 Fund (VFORX, expense fee 0.19%).
I like this option because the fund holds three of Vanguard’s index funds (total stock market, international, and bonds). Plus the rebalance is hands-off and this could be 401K rollover dump in case I switch jobs, which I am certain I will switch jobs about 2-3 more times before I retire. This gives me more time to focus on work, kids, and some free time.
Concerns: The fund is a bit aggressive with the 90/10 stocks/bonds allocation. I like aggressive and they are the professionals, but this doesn’t match my 70/30 mix. Maybe I can choose the 2025 target plan.
His Roth IRA:
Contribute 100% ($458 monthly) to Vanguard Target Retirement 2040 Fund (VFORX) until the day I retire.
Her Roth IRA:
Contribute 100% ($458 monthly) to Vanguard Target Retirement 2040 Fund (VFORX) until the day I retire.
His 401K Contributions Options: (I will only show index funds less than 0.50% expense ratio, as the rest are too high)
American Beacon S&P 500 Index Fund Institutional Class Symbol: AASPX (0.16%, expense ratio)
American Beacon International Equity Index Fund Class Institutional Symbol: AIIIX (0.24%)
Dreyfus Bond Market Index Fund Basic Class Symbol: DBIRX (0.15%, expense ratio)
Her 403(B) PLAN Contributions Options: (Her index funds options are far better than mine and really, really cheap)
Spartan® Total Market Index Fund - Fidelity Advantage Class Symbol: FSTVX (0.06%, expense ratio)
Spartan® Extended Market Index Fund - Fidelity Advantage Class Symbol: FSEVX (0.07%, expense ratio)
Spartan® International Index Fund - Fidelity Advantage Class Symbol: FSIVX (0.12%, expense ratio)
Spartan® 500 Index Fund - Institutional Class Symbol: FXSIX (0.04%, expense ratio)
Spartan® U.S. Bond Index Fund - Fidelity Advantage Class Symbol: FSITX (0.10%, expense ratio)

And this is where I stop at, as its really getting complicated for me and I been thinking on this all weekend. Maybe I just need to leave for a week and come back. I just need an example to get me going in the right direction. I want to be sure my contributions are correct.

1. How can I make my currently contributions for my wife and I 401K match the Total Stock Market Index at Vanguard with the options and contributions amount? Does anyone have an asset allocation spreadsheet I can use.

2. What I would like to do, is have the target Vanguard Fund 2040 for the IRA, and both Roth IRA, and then use both our 401K accounts to build one portfolio that will mirror a 70/30 AA with Total Market Index fund, International and Bond. Laur recommends this as an option here http://www.bogleheads.org/wiki/Asset_Al ... index_fund. Although this is easy, I am not sure the disadvantages of it.

3. Even though I don't have 5500 in each ROTH IRA, do I perform contributions with the thought of end of the year, will have combined $11k?

Any help is well appreciated.

Thanks
Last edited by goodoboy on Fri Jan 25, 2013 5:08 pm, edited 4 times in total.
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Re: More Help On Asset Allocation, Thanks.

Postby Occupier » Sun Jan 20, 2013 11:32 pm

Sounds fine there is nothing wrong with the target 2040. Dave
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Re: More Help On Asset Allocation, Thanks.

Postby goodoboy » Sun Jan 20, 2013 11:38 pm

Occupier wrote:Sounds fine there is nothing wrong with the target 2040. Dave


Thanks Occupier, but the 2040 is 90/10 AA. I am not sure why its so aggressive. My wife is 32 and I am 34, and I was using the 70/30 by Bogle rule of thumb. Also, I am reading that its better to consider all accounts as one portfolio.
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Re: More Help On Asset Allocation, Thanks.

Postby hoppy08520 » Sun Jan 20, 2013 11:55 pm

Goodoboy,

It looks like you have a good handle on where you need to go. It can be tricky to make all the funds align just right, especially when you've looking to increase your portfolio by 50% in one year, and when you won't be making new contributions to what is currently your largest account.

The good news is, it's not important for your AA to be precisely 70/30 with 72/28 US/Intl each month along the way. As long as you're close. Once your balances get bigger, then you can dial in your AA and the ongoing contributions won't cause as much movement. And, if all goes well, at some point in the future, your investment gains (and losses) from the market will have an even bigger effect than your contributions.

In this google spreadsheet, which is a personalized version of a spreadsheet I use to keep track of my accounts, I took a stab at a portfolio that will work pretty well for you today and through one year.

It looks like this starting out:

His IRA
75% Vanguard LifeStrategy Moderate Gr Inv (VSMGX)

His Roth
0% Vanguard Total Intl Stock Index Inv (VGTSX) <-- future contributions will go here

Her Roth
0% Vanguard Total Bond Market Index Inv (VBMFX) <-- future contributions will go here

His 401(k)
20% American Beacon S&P 500 Idx Instl (AASPX)
0% Dreyfus Bond Market Index Basic (DBIRX) <-- some future contributions will go here

Her 403(b)
1% Fidelity Spartan Intl Idx Advtg (FSIVX)
3% Fidelity Spartan Extnd Mkt Idx Advtg (FSEVX)

Future Contributions:

His Roth
$5,500 Vanguard Total Intl Stock Index Inv (VGTSX)

Her Roth
$5,500 Vanguard Total Bond Market Index Inv (VBMFX)

His 401(k)
$7,000 American Beacon S&P 500 Idx Instl (AASPX)
$1,750 Dreyfus Bond Market Index Basic (DBIRX) <-- a good bond fund with a good ER in your plan

Her 403(b)
$672 Fidelity Spartan Intl Idx Advtg (FSIVX)
$2,688 Fidelity Spartan Extnd Mkt Idx Advtg (FSEVX) <-- complements the 500-index fund in His 401(k)

Your target AA is:
S&P 500 40.00%
Extended 10.00%
International 20.00%
Bonds 30.00%

Starting out, you'll have an overall AA of:
45.90% - S&P 500
9.13% - Extended Market
14.78% - International
30.19% - Bonds

In a year, assuming no gains, the contributions will change your AA to this, which is closer to your targets:
40.81% - S&P 500
9.94% - Extended Market
18.67% -International
30.57% - Bonds

A few points:
  • The 80/20 ratio between the S&P 500 index fund and the extended market index fund is suggested by Approximating Total Stock Market.
  • Although it seems strange to use the Vanguard LifeStrategy Growth Fund, as 60/40 stock/bond fund, in your IRA, it seemed to work, and you don't really need to do any rebalancing in that account over the first year.
  • Although you start out a little low in international, that was done intentionally because over the year, you'll have more international grow steadily in one of the IRAs. If you really wanted to, you could shift $1,000 in His 401(k) into the international fund to move that number up a bit, but then you have one more fund to keep track of (not a big deal either way). You could tweak this spreadsheet around to move the percentages up or down 1 or 2 points, but it won't make a big difference in this early stage.
  • After this one year, you might need to do some rebalancing. But this portfolio should get you through the first year.
  • The Bond fund in your 401(k) tracks the same target benchmark as the Vanguard Total Bond Market Index Fund.
  • Ultimately, you should hold Vanguard Total International Stock Market Index Fund instead of the Fidelity international fund, but holding some Fidelity is good enough for now and it made the numbers balance.
  • This suggestion above is one of dozens that could work. I tried to do something that wouldn't require any intra-account fund transfers in the first year.
  • The minimum balances for the Vanguard funds in your IRA's is $3,000. Therefore, you'll need to stockpile $3,000 before you can start. Or, start with $1,000 in a target date fund, which has lower minimums, and just park it there until you get to $3,000. It won't matter much to be temporarily in the "wrong" fund.
  • Can you get a head start on your IRAs by making contributions for tax year 2012 (last year)?
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Re: More Help On Asset Allocation, Thanks.

Postby goodoboy » Mon Jan 21, 2013 12:32 am

Thank you so much for contributing.

Can you get a head start on your IRAs by making contributions for tax year 2012 (last year)?


Yes, I can get head start by starting to contribute from Jan to April for the tax year 2012 on the Roth IRA and then begin the 2013 year in April. I hope this makes sense.

I have a question before going forward: Why asset allocation across multiple accounts? Why not set the IRA and Roth IRA to vanguard 2040 and let it go, and then treat the 401K as one portfolio. Just asking.

How about the following

HIS IRA 75%:

-50% to VTSMX
-20% to VGTSX
- 30% to VBMFX

Thanks for the help
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Re: More Help On Asset Allocation, Thanks.

Postby hoppy08520 » Mon Jan 21, 2013 1:04 am

goodoboy wrote:I have a question before going forward: Why asset allocation across multiple accounts? Why not set the IRA and Roth IRA to vanguard 2040 and let it go, and then treat the 401K as one portfolio. Just asking.

You certainly could put the IRAs on auto-pilot with a target date fund, and then treat the 401k's as one portfolio. For the IRA's, choose whichever target date fund is 70/30. Or, choose a combination of LifeStrategy funds -- put half your funds in the 60/40 one (Moderate Growth), and the other half in the 80/20 one (Growth), and you'll have a 70/30 blend.

One reason many Boglehead investors don't create a mini-portfolio in their 401(k) plans is because their 401(k) plans have some weak or expensive options, but your options are pretty good.

Looking just at your 401(k) and her 403(b), your 401(k) is around 70% and hers is 30% (or at least it will be after a year). Conveniently, you could hold the 500-index fund and Bond fund in your plan, and the extended market and international fund in her 403(b), at roughly the same percentages I listed above in my earlier reply.

You could even do a mini-portfolio in the 401(k), and a mini portfolio in her 403(b), but then your 401(k) would lack US small-caps (unless you have a small-cap fund that you didn't list). This is why, if you go with the target-date-funds-in-the-IRAs strategy, it would be good to think of your 401k and 403b as a blended portfolio, so you can complement your 500-index fund with her extended market index fund in a 80%/20% blend.

The only drawback to this, and it's minor, is that some people would favor the Vanguard Total International Stock Market index fund over the Fidelity international fund; that's why I tried to leave the international funds out of your 401k/403b and instead use Vanguard for international. The Fidelity fund tracks the MSCI EAFE index which is large-cap stocks in developed markets (see http://www.bogleheads.org/wiki/Fidelity_Investments); the international fund in your 401(k) tracks the same benchmark as well. The Vanguard fund contains large-cap developed market stocks as well as emerging markets and small-cap stocks and Canadian stocks too, for that matter. at their market caps. The Vanguard fund is a more complete international fund. You will, of course, have that fund in your target date or LifeStrategy funds, so at least you'll be getting some exposure to those sectors.

goodoboy wrote:
Can you get a head start on your IRAs by making contributions for tax year 2012 (last year)?

Yes, I can get head start by starting to contribute from Jan to April for the tax year 2012 on the Roth IRA and then begin the 2013 year in April. I hope this makes sense.

If that's the case, then you might as well backfill your IRAs for the 2012 tax year. If you manage to be able to save more this year, then you can squeeze more into your IRAs for the 2013 tax year. And if you don't, then it will be the same either way.
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Re: More Help On Asset Allocation, Thanks.

Postby goodoboy » Mon Jan 21, 2013 1:24 am

hoppy08520 wrote:
goodoboy wrote:I have a question before going forward: Why asset allocation across multiple accounts? Why not set the IRA and Roth IRA to vanguard 2040 and let it go, and then treat the 401K as one portfolio. Just asking.

You certainly could put the IRAs on auto-pilot with a target date fund, and then treat the 401k's as one portfolio. For the IRA's, choose whichever target date fund is 70/30. Or, choose a combination of LifeStrategy funds -- put half your funds in the 60/40 one (Moderate Growth), and the other half in the 80/20 one (Growth), and you'll have a 70/30 blend.

One reason many Boglehead investors don't create a mini-portfolio in their 401(k) plans is because their 401(k) plans have some weak or expensive options, but your options are pretty good.

Looking just at your 401(k) and her 403(b), your 401(k) is around 70% and hers is 30% (or at least it will be after a year). Conveniently, you could hold the 500-index fund and Bond fund in your plan, and the extended market and international fund in her 403(b), at roughly the same percentages I listed above in my earlier reply.

You could even do a mini-portfolio in the 401(k), and a mini portfolio in her 403(b), but then your 401(k) would lack US small-caps (unless you have a small-cap fund that you didn't list). This is why, if you go with the target-date-funds-in-the-IRAs strategy, it would be good to think of your 401k and 403b as a blended portfolio, so you can complement your 500-index fund with her extended market index fund in a 80%/20% blend.

The only drawback to this, and it's minor, is that some people would favor the Vanguard Total International Stock Market index fund over the Fidelity international fund; that's why I tried to leave the international funds out of your 401k/403b and instead use Vanguard for international. The Fidelity fund tracks the MSCI EAFE index which is large-cap stocks in developed markets (see http://www.bogleheads.org/wiki/Fidelity_Investments); the international fund in your 401(k) tracks the same benchmark as well. The Vanguard fund contains large-cap developed market stocks as well as emerging markets and small-cap stocks and Canadian stocks too, for that matter. at their market caps. The Vanguard fund is a more complete international fund. You will, of course, have that fund in your target date or LifeStrategy funds, so at least you'll be getting some exposure to those sectors.

goodoboy wrote:
Can you get a head start on your IRAs by making contributions for tax year 2012 (last year)?

Yes, I can get head start by starting to contribute from Jan to April for the tax year 2012 on the Roth IRA and then begin the 2013 year in April. I hope this makes sense.

If that's the case, then you might as well backfill your IRAs for the 2012 tax year. If you manage to be able to save more this year, then you can squeeze more into your IRAs for the 2013 tax year. And if you don't, then it will be the same either way.



Thanks for your response. The target I would like to use for the IRAs (IRA, ROTH IRAs) is the 2040 target, but the AA is 90/10 (http://www.bogleheads.org/wiki/Vanguard ... ment_Funds) I am not sure why they so aggressive. I could choose the 2025, but I am not sure if a few years down the road, they make it more conservative. My plan was to change the AA to 60/40 once I turn 40 years old.

Yes, the International Fund in the 401K is not too good. I prefer to use her and his 401k as one portfolio because she has a good extended fund to go with the SP500 index. The only problem is the International Index funds in the 401K is not that good.

Thanks
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Re: More Help On Asset Allocation, Thanks.

Postby goodoboy » Mon Jan 21, 2013 2:06 am

hoppy08520 wrote:
goodoboy wrote: For the IRA's, choose whichever target date fund is 70/30. Or, choose a combination of LifeStrategy funds -- put half your funds in the 60/40 one (Moderate Growth), and the other half in the 80/20 one (Growth), and you'll have a 70/30 blend.


Thank you,

I am considering making the 3 IRA accounts in the LifeStrategy Funds. How did you calculate the 60/40 and 80/20 to the 70/30 blend? So basically, I can make HIS Roth IRA 60/40 and then make her Roth IRA 80/20. The only question is what to do with the His IRA?

If I understand correctly, the LifeStrategy Funds, I have to manually allocate on my own, where the Target Fund will change automatically.

Thanks
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Re: More Help On Asset Allocation, Thanks.

Postby hoppy08520 » Mon Jan 21, 2013 9:17 am

goodoboy wrote:The target I would like to use for the IRAs (IRA, ROTH IRAs) is the 2040 target, but the AA is 90/10 (http://www.bogleheads.org/wiki/Vanguard ... ment_Funds) I am not sure why they so aggressive. I could choose the 2025, but I am not sure if a few years down the road, they make it more conservative. My plan was to change the AA to 60/40 once I turn 40 years old.

Goodoboy, target date funds do have a "glide path" toward less stocks and more bonds, as you mentioned. (See detailed Vanguard paper: https://personal.vanguard.com/pdf/icrtdf.pdf). Therefore, if you do select the 2025 fund, then yes, it will start getting more bond-heavy. If you're not yet ready to go that bond-heavy, then you can skip forward to the 2030 fund, etc. As much as you want to go on auto-pilot, you will still need to pay attention every few years or so to make sure your overall asset allocation is where you want it to be.

goodoboy wrote:Yes, the International Fund in the 401K is not too good. I prefer to use her and his 401k as one portfolio because she has a good extended fund to go with the SP500 index. The only problem is the International Index funds in the 401K is not that good.

You'll have to decide if that potential shortcoming is worth the extra administration to split the funds out. At least you'll have some broader international exposure in the IRAs through the Target Date or LifeStrategy funds.

Given that you're just getting your feet wet, I wouldn't stress out about this too much. Just go with your plan for a year or so, and if you feel inclined in the future, after reading more and becoming more comfortable with all this, then consider these semi-advanced options.

goodoboy wrote:I am considering making the 3 IRA accounts in the LifeStrategy Funds. How did you calculate the 60/40 and 80/20 to the 70/30 blend? So basically, I can make HIS Roth IRA 60/40 and then make her Roth IRA 80/20. The only question is what to do with the His IRA?

You could either put the IRAs all in the same target date fund that has a 70/30 split, and then every five years or so, push back to the date to whichever target date fund has a 70/30 (or whatever you want your AA to be at that future date).

Therefore put one Roth IRA in Growth, put the other Roth IRA in Moderate Growth. And put the traditional IRA in a 50/50 split.

If you put $1,000 in a 60/40 fund, and $1,000 in a 80/20 fund, you'll wind up with a blend of 70/30 . Example:

LifeStrategy Growth
Stocks: 80% * $1,000 = $800
Bonds: 20% * $1,000 = $200

LifeStrategy Moderate Growth
Stocks: 60% * $1,000 = $600
Bonds: 40% * $1,000 = $400

When you combine these two funds:

Combined stocks: $1,400 ( $800 + $600)
Combined bonds: $600 ( $200 + $400)
Combined total = $2,000

Which makes these blended percentages:

Combined stocks: 70% ( $1,400 / $2,000 = 70%)
Combined bonds: 30% ( $600 / $2,000 = 30%)
Combined total = $2,000

This combined total winds up with 70% stocks + 30% bonds. Keep in mind that with this LifeStrategy blend, you may still need to rebalance. If the stock market goes way up, then the Growth fund will get bigger relative to the Moderate Growth fund, and vice versa.

For example, lets say after a year, stocks get hammered. You might have just $800 in Growth and $900 in Moderate Growth. This will look like:

LifeStrategy Growth
Stocks: 80% * $800 = $640
Bonds: 20% * $800 = $160

LifeStrategy Moderate Growth
Stocks: 60% * $900 = $540
Bonds: 40% * $900 = $360

Combined stocks: $1,180 ( $1,180 / $1,700 = 69.5%)
Combined bonds: $520 ( $520 / $1,700 = 30.5%)
Combined total = $1,700

Actually, there goes my theory. Even if these funds lose 10% and 20%, your blended AA barely budges.

Anyway, no matter what you do, you will need to keep track of your investments from time to time to ensure your asset allocation does not veer too far off.

Within your 401k/403b, you'll still need to check in every year or so. If stocks go up a lot, then you should rebalance which will have the effect of exchanging stocks for bonds. And if stocks fall and bonds hold their value, then you'll be exchanging bonds for stocks. If US stocks climb and international stocks descend, then you might need to exchange US stocks for International to get back to your 75/25 ratio. ETc. etc. That's what rebalancing is: you wind up selling high and buying low in order to return your AA to your desired target.

goodoboy wrote:If I understand correctly, the LifeStrategy Funds, I have to manually allocate on my own, where the Target Fund will change automatically.

Correct. But as noted above, I think you'll still need to do some monitoring of your accounts, at least annually. You can't just ignore it for 30 years :|

One last thought: check out the 401k and 403b and see if they don't have a target date fund or similar all-in-one fund. If they do, and if they are composed of index funds and don't have a ridiculous expense ratio, then you might want to consider them.
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Re: More Help On Asset Allocation, Thanks.

Postby goodoboy » Mon Jan 21, 2013 11:40 am

hoppy08520 wrote:
goodoboy wrote:The target I would like to use for the IRAs (IRA, ROTH IRAs) is the 2040 target, but the AA is 90/10 (http://www.bogleheads.org/wiki/Vanguard ... ment_Funds) I am not sure why they so aggressive. I could choose the 2025, but I am not sure if a few years down the road, they make it more conservative. My plan was to change the AA to 60/40 once I turn 40 years old.

Goodoboy, target date funds do have a "glide path" toward less stocks and more bonds, as you mentioned. (See detailed Vanguard paper: https://personal.vanguard.com/pdf/icrtdf.pdf). Therefore, if you do select the 2025 fund, then yes, it will start getting more bond-heavy. If you're not yet ready to go that bond-heavy, then you can skip forward to the 2030 fund, etc. As much as you want to go on auto-pilot, you will still need to pay attention every few years or so to make sure your overall asset allocation is where you want it to be.

goodoboy wrote:Yes, the International Fund in the 401K is not too good. I prefer to use her and his 401k as one portfolio because she has a good extended fund to go with the SP500 index. The only problem is the International Index funds in the 401K is not that good.

You'll have to decide if that potential shortcoming is worth the extra administration to split the funds out. At least you'll have some broader international exposure in the IRAs through the Target Date or LifeStrategy funds.

Given that you're just getting your feet wet, I wouldn't stress out about this too much. Just go with your plan for a year or so, and if you feel inclined in the future, after reading more and becoming more comfortable with all this, then consider these semi-advanced options.

goodoboy wrote:I am considering making the 3 IRA accounts in the LifeStrategy Funds. How did you calculate the 60/40 and 80/20 to the 70/30 blend? So basically, I can make HIS Roth IRA 60/40 and then make her Roth IRA 80/20. The only question is what to do with the His IRA?

You could either put the IRAs all in the same target date fund that has a 70/30 split, and then every five years or so, push back to the date to whichever target date fund has a 70/30 (or whatever you want your AA to be at that future date).

Therefore put one Roth IRA in Growth, put the other Roth IRA in Moderate Growth. And put the traditional IRA in a 50/50 split.

If you put $1,000 in a 60/40 fund, and $1,000 in a 80/20 fund, you'll wind up with a blend of 70/30 . Example:

LifeStrategy Growth
Stocks: 80% * $1,000 = $800
Bonds: 20% * $1,000 = $200

LifeStrategy Moderate Growth
Stocks: 60% * $1,000 = $600
Bonds: 40% * $1,000 = $400

When you combine these two funds:

Combined stocks: $1,400 ( $800 + $600)
Combined bonds: $600 ( $200 + $400)
Combined total = $2,000

Which makes these blended percentages:

Combined stocks: 70% ( $1,400 / $2,000 = 70%)
Combined bonds: 30% ( $600 / $2,000 = 30%)
Combined total = $2,000

This combined total winds up with 70% stocks + 30% bonds. Keep in mind that with this LifeStrategy blend, you may still need to rebalance. If the stock market goes way up, then the Growth fund will get bigger relative to the Moderate Growth fund, and vice versa.

For example, lets say after a year, stocks get hammered. You might have just $800 in Growth and $900 in Moderate Growth. This will look like:

LifeStrategy Growth
Stocks: 80% * $800 = $640
Bonds: 20% * $800 = $160

LifeStrategy Moderate Growth
Stocks: 60% * $900 = $540
Bonds: 40% * $900 = $360

Combined stocks: $1,180 ( $1,180 / $1,700 = 69.5%)
Combined bonds: $520 ( $520 / $1,700 = 30.5%)
Combined total = $1,700

Actually, there goes my theory. Even if these funds lose 10% and 20%, your blended AA barely budges.

Anyway, no matter what you do, you will need to keep track of your investments from time to time to ensure your asset allocation does not veer too far off.

Within your 401k/403b, you'll still need to check in every year or so. If stocks go up a lot, then you should rebalance which will have the effect of exchanging stocks for bonds. And if stocks fall and bonds hold their value, then you'll be exchanging bonds for stocks. If US stocks climb and international stocks descend, then you might need to exchange US stocks for International to get back to your 75/25 ratio. ETc. etc. That's what rebalancing is: you wind up selling high and buying low in order to return your AA to your desired target.

goodoboy wrote:If I understand correctly, the LifeStrategy Funds, I have to manually allocate on my own, where the Target Fund will change automatically.

Correct. But as noted above, I think you'll still need to do some monitoring of your accounts, at least annually. You can't just ignore it for 30 years :|

One last thought: check out the 401k and 403b and see if they don't have a target date fund or similar all-in-one fund. If they do, and if they are composed of index funds and don't have a ridiculous expense ratio, then you might want to consider them.



Thank you so much for the suggestions. Well appreciated. What I will do now, is re-read your post and respond with a plan going forward to mix the LifeStrategy funds per IRAs account. I like the LifeStrategy (will look at the Target funds as well) as they are cheap, simple, less funds, and meet our allocation as time goes by. I will also post the how I will allocate the 401Ks and set the future contributions. Thanks and will respond shortly.

I will check to see if the 401Ks have target funds that are well cheap and composed of index funds. I thought mine those.

Thanks.
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Re: More Help On Asset Allocation, Thanks.

Postby SSSS » Mon Jan 21, 2013 2:20 pm

goodoboy wrote:I would like to have a 70/30 AA, 50%-stocks, 20%-Intel


Intel? Like the company? Or was that an autocorrect for "international" or something?
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Re: More Help On Asset Allocation, Thanks.

Postby goodoboy » Mon Jan 21, 2013 3:25 pm

SSSS wrote:
goodoboy wrote:I would like to have a 70/30 AA, 50%-stocks, 20%-Intel


Intel? Like the company? Or was that an autocorrect for "international" or something?


Sorry, I meant international.
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Re: More Help On Asset Allocation, Thanks.

Postby goodoboy » Mon Jan 21, 2013 7:51 pm

hoppy08520 wrote:
goodoboy wrote: you will still need to pay attention every few years or so to make sure your overall asset allocation is where you want it to be.


After reviewing and reading the Vanguard Target Fund pdf you sent and other asset allocation and starting to think at age 34, 70/30 asset allocation could be a bit too conservative. I was following Jack Bogle rule of thumb that mentions your bonds should be near your age, but I am reading around and seeing more aggressive suggestions. I am setting my AA to 80/20 (because I don’t want to be too conservative) for now, and will start reading some the recommended books here and determine how to pick a decent AA. Also, most asset allocator tools used with my criteria lends towards a 80% stocks allocation. My risk tolerance is pretty high. Back in 2008, not knowingly I was 100% stocks in my 401K during this whole time. I just kept on working and made no changes. Of course then I had no clue, and just knew I wanted be all stocks at the time. Also, purchased stocks in brokerage account during the 2009 timeframe held. And if market falls, I will do the same but this time in my 401K account, contribute more to stocks assets. So I leave 80/20 now and at 40-43 age, I change to 70/30.
Can you recommend a book or some calculations to perform to determine a good educated calculation on AA for a 34 year old? Our plan retirement age was between 60-62.
Until then I will write up my investment strategy for a review as discussed earlier.

Thanks for any comments.
Last edited by goodoboy on Mon Jan 21, 2013 8:11 pm, edited 1 time in total.
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Re: More Help On Asset Allocation, Thanks.

Postby hoppy08520 » Mon Jan 21, 2013 8:09 pm

goodoboy wrote:
hoppy08520 wrote:
goodoboy wrote: you will still need to pay attention every few years or so to make sure your overall asset allocation is where you want it to be.


After reviewing and reading the Vanguard Target Fund pdf you sent and other asset allocation and starting to think at age 34, 70/30 asset allocation could be a bit too conservative. I was following Jack Bogle rule of thumb that mentions your bonds should be near your age, but I am reading around and seeing more aggressive suggestions. I am thinking of setting my AA to 80/20 (because I don’t want to be too conservative) for now, start reading some the recommended books here and determine how to pick a decent AA. Also, most asset allocator tools used with my criteria lends towards a 80% stocks allocation. My risk tolerance is pretty high. Back in 2008, not knowingly I was 100% stocks during this whole time. I just kept on working. Of course then I had no clue, and just knew I wanted be all stocks at the time.
Can you recommend a book or some calculations to perform to determine a good educated calculation on AA for a 34 year old? Our plan retirement age was between 60-62.
Until then I will write up my investment strategy for a review as discussed earlier.

Thanks for any comments.

Goodoboy, what you're asking might be the most critical decision in all of investing. It can be hard to answer this question. That being said, the difference between 70/30 and 80/20 isn't that big of a deal. Where I think a "wrongly chosen" asset allocation can be a problem is in these three cases:

1. Someone with a large balance chooses an aggressive AA, like 80/20, but they can't stick with it. Then the financial crisis hits in 2008. Their stock holdings drop from $500,000 to $250,000. Out of fear and despair, they sell in March 2009 at the bottom after they can endure no more, and then sit on the sidelines in cash for the next couple of years, waiting for the right time to get in, and miss out on the 75% + recovery. Now they've locked in their losses.

2. Similar to above, a 65-year-old wants to retire, but they had too much of their portfolio in an aggressive AA. Now that they're in retirement, the 2008/2009 financial crisis hits, their balance is plummeting, then need to take withdrawals, and they don't have the time to wait it out and let their balance recover. By taking withdrawals, they're forced to sell shares at a huge loss without the chance to recover.

3. This person is terrified of losing money in the stock market, so they pick an ultra-safe AA of 25/75 their whole career. This person may not earn enough. To make up for their lack of gains, they will need to save more.

You need to make sure you're not Person 1. Person 1 probably should have had a 60/40 or a 50/50 allocation, or maybe even 40/60, so they could sleep at night through the crash. Many, many people fall into this trap.

Person 2 should have been on a retirement glide path. Unfortunately, many many people had this happen to them in 2009. Many had to go back to work, cut back on expenses, etc.

Person 3 - you don't sound like this person.

I'd start with reading the "Asset Allocation" page in the wiki and go from there. It's hard to let any online calculator tell you what your AA should be since it's so personal. You can read forever on this topic if you wanted to, and each new thing you read will make you want to change your mind. Vanguard, FYI, is often said to be too aggressive in their target date plans. See: viewtopic.php?f=10&t=97444 for example.
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Re: More Help On Asset Allocation, Thanks.

Postby goodoboy » Mon Jan 21, 2013 8:29 pm

hoppy08520 wrote:
goodoboy wrote:
hoppy08520 wrote:
goodoboy wrote: you will still need to pay attention every few years or so to make sure your overall asset allocation is where you want it to be.


After reviewing and reading the Vanguard Target Fund pdf you sent and other asset allocation and starting to think at age 34, 70/30 asset allocation could be a bit too conservative. I was following Jack Bogle rule of thumb that mentions your bonds should be near your age, but I am reading around and seeing more aggressive suggestions. I am thinking of setting my AA to 80/20 (because I don’t want to be too conservative) for now, start reading some the recommended books here and determine how to pick a decent AA. Also, most asset allocator tools used with my criteria lends towards a 80% stocks allocation. My risk tolerance is pretty high. Back in 2008, not knowingly I was 100% stocks during this whole time. I just kept on working. Of course then I had no clue, and just knew I wanted be all stocks at the time.
Can you recommend a book or some calculations to perform to determine a good educated calculation on AA for a 34 year old? Our plan retirement age was between 60-62.
Until then I will write up my investment strategy for a review as discussed earlier.

Thanks for any comments.

Goodoboy, what you're asking might be the most critical decision in all of investing. It can be hard to answer this question. That being said, the difference between 70/30 and 80/20 isn't that big of a deal. Where I think a "wrongly chosen" asset allocation can be a problem is in these three cases:

1. Someone with a large balance chooses an aggressive AA, like 80/20, but they can't stick with it. Then the financial crisis hits in 2008. Their stock holdings drop from $500,000 to $250,000. Out of fear and despair, they sell in March 2009 at the bottom after they can endure no more, and then sit on the sidelines in cash for the next couple of years, waiting for the right time to get in, and miss out on the 75% + recovery. Now they've locked in their losses.

2. Similar to above, a 65-year-old wants to retire, but they had too much of their portfolio in an aggressive AA. Now that they're in retirement, the 2008/2009 financial crisis hits, their balance is plummeting, then need to take withdrawals, and they don't have the time to wait it out and let their balance recover. By taking withdrawals, they're forced to sell shares at a huge loss without the chance to recover.

3. This person is terrified of losing money in the stock market, so they pick an ultra-safe AA of 25/75 their whole career. This person may not earn enough. To make up for their lack of gains, they will need to save more.

You need to make sure you're not Person 1. Person 1 probably should have had a 60/40 or a 50/50 allocation, or maybe even 40/60, so they could sleep at night through the crash. Many, many people fall into this trap.

Person 2 should have been on a retirement glide path. Unfortunately, many many people had this happen to them in 2009. Many had to go back to work, cut back on expenses, etc.

Person 3 - you don't sound like this person.

I'd start with reading the "Asset Allocation" page in the wiki and go from there. It's hard to let any online calculator tell you what your AA should be since it's so personal. You can read forever on this topic if you wanted to, and each new thing you read will make you want to change your mind. Vanguard, FYI, is often said to be too aggressive in their target date plans. See: viewtopic.php?f=10&t=97444 for example.


Thanks hoppy,

You are correct. I can read forever on this the AA topic and it will still come back to my own personal risk tolerance. Even the time when change AA at certain age is a challenge. Thanks for the post as it sums up everything I was looking for.

Unfortunately Person 1 was my step father, but luckily he did not sell and just held his 401K as is til 2010 retirement. Good for him. I am happy he chose to work another 2 years after 2008 madness. And even more happier he is retired comfortable. Now I must follow suit as the times has changed.

As far as me, the reason I am at boglehead is because I decided to change my fiances totally. I was the one thinking I can trade stocks, no way. Some luck, but not worth the time or effort. I sold and paid off my student debt as I wrote in previous post here at boglehead thanks to some good people here who suggested I do. Now I want to relax and learn how to manage my fiances for the betterment of my family with less risk and bad decisions. And so far I think I am on the right with reading books and here.

Thank you.
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Re: More Help On Asset Allocation, Thanks.

Postby Duckie » Mon Jan 21, 2013 11:18 pm

goodoboy, if you want an AA of 50/20/30, here's what you could have at the end of 2013:

Portfolio #1

His 401k -- $18K -- 26%
26% (FFFEX) Fidelity Freedom 2030 Fund (0.71% ??)

Her 403b -- $5K -- 7%
7% (FFFEX) Fidelity Freedom 2030 Fund (0.71% ??) <-- If the plan has it.

His Rollover IRA at Vanguard -- $36K -- 51%
51% (VTTVX) Vanguard Target Retirement 2025 Fund (0.18%)

His Roth IRA at Vanguard -- $5.5 -- 8%
8% (VTTVX) Vanguard Target Retirement 2025 Fund (0.18%)

Her Roth IRA at Vanguard -- $5.5 -- 8%
8% (VTTVX) Vanguard Target Retirement 2025 Fund (0.18%)

Portfolio #2

His 401k -- $18K -- 26%
26% (AASPX) American Beacon S&P 500 Index Fund Institutional Class (0.16% + 0.045% = 0.205%)
0% (DBIRX) Dreyfus Bond Market Index Fund Basic Class (0.15% + 0.15% = 0.30%) <-- If needed in the future.

Her 403b -- $5K -- 7%
7% (FSEVX) Fidelity Spartan Extended Market Index Fund Advantage Class (0.07%) <-- Roughly 80% large caps (500 Index) plus 20% mid/small caps (Extended Market) makes up the total US stock market.
0% (FSTVX) Fidelity Spartan Total Market Index Fund Advantage Class (0.06%) <-- When needed in the future.
0% (FSITX) Fidelity Spartan U.S. Bond Index Fund Advantage Class (0.10%) <-- When needed in the future.

His Rollover IRA at Vanguard -- $36K -- 51%
21% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.18%)
30% (VBTLX) Vanguard Total Bond Market Index Fund Admiral Shares (0.10%)

His Roth IRA at Vanguard -- $5.5 -- 8%
8% (VTSMX) Vanguard Total Stock Market Index Fund Investor Shares (0.18%)

Her Roth IRA at Vanguard -- $5.5 -- 8%
8% (VTSMX) Vanguard Total Stock Market Index Fund Investor Shares (0.18%)

My comments:
-- Portfolio #1 is easier. Portfolio #2 is cheaper.
-- In Portfolio #2 keep the international at Vanguard.
-- When you listed the options in His 401k you forgot to add the management fees listed in your previous thread. They are still the three best choices, but they're more expensive than you're showing.
-- Having some balanced funds (Target Retirement, LifeStrategy) and the rest separate funds makes things harder to monitor and rebalance. Plus Vanguard has a better international option. Either do it all balanced or all separate.
-- What happened to Her old 401k? Did she roll it to Her 403b?

Just some possibilities.
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Re: More Help On Asset Allocation, Thanks.

Postby goodoboy » Tue Jan 22, 2013 1:44 am

Thank you Duckie for the helping me with our investment strategy to begin with. I will respond tommorow with a propose allocation plan going forward to you and hoppy. Currently working 10 hours days this week, so up late. Thanks,
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Re: More Help On Asset Allocation, Thanks.

Postby retiredjg » Tue Jan 22, 2013 2:03 pm

Here are a few ideas that I didn't see suggested above. For now, I'll just use your original 70/30 ratio for simplicity.

1) You don't have to use Roth IRA at all. Instead contribute more to the 401k and 403b. You would contribute in the same ratio you have been using for the last few months (about 50% to US stocks, 20% to international stocks, 30% to bonds if I recall correctly). This is a reasonable choice in the 25% tax bracket - it just reduces your taxable income more. However, since you do want some Roth IRA assets at some point, even though this is a reasonable choice, I'm not sure it is the best choice.

2) Open 2 Roth IRAs and fill them with Vanguard Target Retirement 2025 which is at 70/30 (or use TR 2030 if you decide you would rather be at 80/20). Then manage the other 3 accounts (401k, 403b, traditional IRA) just like you have been (those 3 at your desired ratio - completely independent of the Roth IRAs.)

3) Open 1 roth IRA and fill it with a target fund. Manage the other 3 accounts just like you have been (although more money would be going there.) Again, the Roth IRA would be independent of the other 3 accounts. This would put more money into 401k/403b (lower your taxable income) but you would also have some Roth IRA building up (a good thing). And it would reduce 5 accounts to 4 which would be more manageable.

4) If you are having difficulty managing the 5 (or 4 if you use only 1 Roth IRA) separate accounts, you can manage each of the 5 separately. The Roth IRAs and the traditional IRA would hold a Target Fund at the right stock to bond ratio. Each 401k and 403b would be handled alone - at the stock to bond ratios you want. The weakness of this approach is that the 401k and 403b would not have the best international fund. But the other three accounts would all have the best international fund so the "damage" (if there even is damage) would not be too great.

5) I think your plan as originally posted earlier this week is also reasonable. Apparently you don't have trouble managing the 401k and 403b as one. It's just the 5 accounts that is difficult. You could manage those 2 together and simply hold a Target Retirement fund in each of the IRAs - 2025 if you want 70/30 and 2030 if you decide to move to 80/20.


Regarding your 70/30 to 80/20 shift. Either is appropriate for your age. You can use either one. Some changes are expected as you learn about what you are doing and perhaps 80/20 suits you better as you have learned more. But it is important that you settle somewhere at some point. :wink:

Regarding Target Retirement vs LifeStrategy funds. Either is fine. They contain the exact same stuff. The difference is that the Target Funds will automatically migrate to more bonds as the years go by. If you choose LifeStrategy, you'll have to do it yourself and there may be some periods of time where you will have to mix 2 of them to get the number you want.

The Target Retirement funds would be easier, but if you use them, you should check every 3 or 4 years to see what the stock to bond ratio is at that time - just to be sure it has migrated enough to suit you or to be sure it has not migrated out of your comfort zone. If the fund is no longer at your target, just exchange it to the next younger or older Target Retirement fund and go along your merry way.
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Re: More Help On Asset Allocation, Thanks.

Postby goodoboy » Wed Jan 23, 2013 12:25 am

retiredjg wrote:Here are a few ideas that I didn't see suggested above. For now, I'll just use your original 70/30 ratio for simplicity.

1) You don't have to use Roth IRA at all. Instead contribute more to the 401k and 403b. You would contribute in the same ratio you have been using for the last few months (about 50% to US stocks, 20% to international stocks, 30% to bonds if I recall correctly). This is a reasonable choice in the 25% tax bracket - it just reduces your taxable income more. However, since you do want some Roth IRA assets at some point, even though this is a reasonable choice, I'm not sure it is the best choice.


Thank you retiredjg,

I am now spending some time on rather to max out 401K or one account and ROTH IRA the other. I need to decide this first before moving to allocation parts.

Here is where I am now:

1. After running some numbers and thinking reading viewtopic.php?f=1&t=109107 very comments here and reviewing our savings we decided to reduce to one ROTH IRA for now. Two ROTH IRA will decrease our savings (to about $3500 after paying all the taxes)) per year and increase taxes. Once my wife reach 34 and her income hopefully increases she can start her ROTH IRA, and by this time my silly car note :oops: will be gone and I can add a bit more to 401k contributions. Decisions decisions, but thankfully I am planning now and reading and learning now then later.

Since I don't know my future tax rate and I don't want to be stuck in bind at that time. i will do both. I tend to overthink everything. :)

I will proceed to the allocation (1 ROTHA IRA, 1 IRA, and 2 401K) in a few hours for review.

Any comments are welcome.
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Re: More Help On Asset Allocation, Thanks.

Postby retiredjg » Wed Jan 23, 2013 12:48 pm

goodoboy wrote:1. After using http://turbotax.intuit.com/tax-tools/ca ... taxcaster/ and running some numbers for 2013 tax bill approximation. Right now, I calculate about a tax bill of about $5300 for next year to send to government. Add on $2750 (11000 x 25%) or the ROTH IRA, so that's about a $8050 check to send to government next year. That's alot for us to pay as I our total salary will be about $122K next year.

This is confusing. Putting money into Roth IRA does not add to your tax bill. But putting money into traditional 401k will subtract from your tax bill.

Also, if your total tax bill is only $8050 for a total income of near $100k, that's very low - in fact it doesn't seem right. Are you talking about how much you owe when you file or how much you pay in total tax all year?


2. ROTH IRA, I know this the ultimate decision for this depends on if I believe my tax rate will go up when I retire and ofcourse the 401k fund options. However, if we are redrawing only $60K (pre-calculated in todays number) from our retirement funds (401K) a year in our retirement years this will put us in the ruffly in about the 15% tax bracket. And I can only assume a tax rate of 25% 30 years from now for that same $60K case incase tax rate increases. This will approximate to the tax rate to date. Is my logic thinking correct for the most part? Right now my income is $97K per year, I can only assume it will go up over the next 30 years.

I think it is reasonable to assume you will retire in the 15% to 25% tax bracket - assuming that brackets do not go up a lot between now and then. Obviously, if brackets all jump up 10%, that won't be true. But if brackets all jump 10%, and you pull out the equivalent of $60k today, you'll be in the 25% bracket then - same as now.

3. If contributing the more to 401K, how do I determine how much my taxable income will decrease per year? Do I subtract the additional contributes from the earned income in the turbotax tool above? My w-2 shows 95,921.61 now and this is with 6% company match.

Yes, you subtract the contributions from your income. Your W-2 should show 2 different numbers. One is your gross amount (might be called SS wages or medicare wages) The other is the taxable amount or wages. This might be Box 1 and it is what is left after 401k contributions are subtracted from the gross amount. I think W2 forms might have changed since I last got one, so I'm not sure what things are called now.

4. I may just need to reduce to one ROTH IRA for now, and when my wife turn 34 years old, evaluate, and then start her ROTH IRA, besides I do plan to retire before her by 2 years. Hopefully by then she can contribute more income to our saving rate.

Using only one Roth IRA now is reasonable. In fact, I think your earlier plan of

    Total Contributions per 401K year: $12,111
    Total Contributions per year to Roth: $11,000.
is just too much going to Roth and not enough going to 401k.

I think a better balance would be $17,611 to the 401k/403b and $5,500 to Roth IRA. If one 401k/403b is better than the other, put more money in the better one.
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Re: More Help On Asset Allocation, Thanks.

Postby goodoboy » Wed Jan 23, 2013 1:40 pm

Thank you retiredjg for the comments and clearing up my thinking. Slowly but surely, I am getting there. :happy

This is confusing. Putting money into Roth IRA does not add to your tax bill. But putting money into traditional 401k will subtract from your tax bill.

Also, if your total tax bill is only $8050 for a total income of near $100k, that's very low - in fact it doesn't seem right. Are you talking about how much you owe when you file or how much you pay in total tax all year?


Sorry for the confusion. I am talking about how much we owe when you file.

When I run the numbers on turbo tax I get balance due equals $5300 http://turbotax.intuit.com/tax-tools/ca ... taxcaster/ . So this is how much I approximately owe the government for 2013. Now, if I add the extra tax for the ROTH IRA contribution (5500 x .25 = $1375), would this mean I owe the government 1375 + 5300 = $6675 (approximately)? I did not see a place on the taxcaster to show ROTH IRA contributions.

Is my thinking correct?

I think a better balance would be $17,611 to the 401k/403b and $5,500 to Roth IRA. If one 401k/403b is better than the other, put more money in the better one.


Thanks, I think that's a good mix as well. Then as time goes by, we can add more to 401K (similar to the mix you suggested above) to decrease our tax bill. Afterwards, work on getting her ROTH IRA growing in the next 3-4 years. Here 403b options is better than mine and cheaper, but her contributions amount is less than mine per year. She has the total stock market index, bond and international and much cheaper. I will present a asset allocation in a little bit of what I think is best.

Thank you.
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Re: More Help On Asset Allocation, Thanks.

Postby retiredjg » Wed Jan 23, 2013 2:23 pm

goodoboy wrote:When I run the numbers on turbo tax I get balance due equals $5300 http://turbotax.intuit.com/tax-tools/ca ... taxcaster/ . So this is how much I approximately owe the government for 2013.

Do you mean you will pay that much with your 2012 tax return (filing now through April 15) or how much you think will be due a year from now for your 2013 taxes?

Now, if I add the extra tax for the ROTH IRA contribution (5500 x .25 = $1375), would this mean I owe the government 1375 + 5300 = $6675 (approximately)? I did not see a place on the taxcaster to show ROTH IRA contributions.

No. This is money that has already been or will be accounted for in your salary at some point. It is not more salary. Contributions to Roth IRA are not reported on your income tax return that's why taxcaster doesn't ask for it.


Here 403b options is better than mine and cheaper, but her contributions amount is less than mine per year. She has the total stock market index, bond and international and much cheaper. I will present a asset allocation in a little bit of what I think is best.

If hers is better, you might want to put as much in there as she possibly can. This might mean putting less in yours, but that's OK.
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Re: More Help On Asset Allocation, Thanks.

Postby goodoboy » Wed Jan 23, 2013 2:43 pm

Thank you

retiredjg wrote:Do you mean you will pay that much with your 2012 tax return (filing now through April 15) or how much you think will be due a year from now for your 2013 taxes?


This is how much I think will be due a year from now on my 2013. I am just trying to get an approximate figure.

No. This is money that has already been or will be accounted for in your salary at some point. It is not more salary. Contributions to Roth IRA are not reported on your income tax return that's why taxcaster doesn't ask for it.


I'm a bit confused now, so when and how will i pay the taxes on the ROTH IRA contributions each year? :confused

If hers is better, you might want to put as much in there as she possibly can. This might mean putting less in yours, but that's OK.


Currently, we both are getting the company match. But when we decide to contribute more, yes indeed I will get her to contribute more and just pay one of her bills with my own money for sure. :happy Is this what you mean? Because I don't want to miss the company match.

Thanks for your help.
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Re: More Help On Asset Allocation, Thanks.

Postby goodoboy » Wed Jan 23, 2013 3:16 pm

goodoboy wrote:Thank you

retiredjg wrote:Do you mean you will pay that much with your 2012 tax return (filing now through April 15) or how much you think will be due a year from now for your 2013 taxes?


This is how much I think will be due a year from now on my 2013. I am just trying to get an approximate figure.

No. This is money that has already been or will be accounted for in your salary at some point. It is not more salary. Contributions to Roth IRA are not reported on your income tax return that's why taxcaster doesn't ask for it.


I'm a bit confused now, so when and how will i pay the taxes on the ROTH IRA contributions each year? :confused


:) Ok, I see now. I have already paid taxes on the ROTH IRA cause its coming straight from my pay check (after-tax dollars). Now, I understand better. I don't have to pay an additional 25% on $5500 and send to the government as I previous stated.

Am I correct, I think so.
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Re: More Help On Asset Allocation, Thanks.

Postby retiredjg » Wed Jan 23, 2013 4:27 pm

goodoboy wrote: :) Ok, I see now. I have already paid taxes on the ROTH IRA cause its coming straight from my pay check (after-tax dollars). Now, I understand better. I don't have to pay an additional 25% on $5500 and send to the government as I previous stated.

Am I correct, I think so.

You got it!
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Re: More Help On Asset Allocation, Thanks.

Postby retiredjg » Wed Jan 23, 2013 4:30 pm

goodoboy wrote:Currently, we both are getting the company match. But when we decide to contribute more, yes indeed I will get her to contribute more and just pay one of her bills with my own money for sure. :happy Is this what you mean? Because I don't want to miss the company match.

Thanks for your help.

Be sure that you each get your full match, but once that's done, put as much as you can in the better plan.
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Re: More Help On Asset Allocation, Thanks.

Postby goodoboy » Wed Jan 23, 2013 6:19 pm

retiredjg wrote:
goodoboy wrote:Currently, we both are getting the company match. But when we decide to contribute more, yes indeed I will get her to contribute more and just pay one of her bills with my own money for sure. :happy Is this what you mean? Because I don't want to miss the company match.

Thanks for your help.

Be sure that you each get your full match, but once that's done, put as much as you can in the better plan.


Thanks,

I will respond with asset allocation now that I have the whole tax and ROTH IRA vs 401K deal figured out. Either 2 ROTH IRA or more 401k, either way I will look at both options and display the options. I can look at two now since I now know better about the taxes and so forth. Thanks,
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Re: More Help On Asset Allocation, Thanks.

Postby goodoboy » Thu Jan 24, 2013 2:59 pm

Thank you all for the help. Its been a busy week but I finally manage to write up an asset allocation after lots of thought.

After much reading and thoughts and running number we decided that we don't really need two ROTH IRA accounts right now. but one could be helpful.

We calculated our retirement income at $68K a year in today money. This puts us redrawing in the 15% bracket if taxes remain the same. And if they go up, the next level is assumed 25% tax bracket. Which is less taxable income on the $68k, then what I am paying now (25% taxed on $121k). With $68K projected retirement income we are looking at 15% tax bracket with a lot of room to spare (due to deductions and exemptions). Therefore, we really don't need to add any money to ROTH IRA at the moment. However having one ROTH could be ok for allocation purposes and as an hedge incase tax rate sky rocket and this RMB stuff. Atleast that's my opinion.

The ultimate problem with going all 401K is that her 401k have better options of funds to pick at cheaper price. Mine has ok funds. I list the 2013 contributions amounts, funds, and cost above:

Can you help me decide on the four options, and then I can move on to allocation (now) and contribution (future) in the next post:
Please review and share you comments.



AA=80/20 (3 fund port, similar to Vanguard Target 2035 Target Fund)

His 401K options (all the options have cost above 1%)
American Beacon S&P 500 Idx Instl 0.16%
Dreyfus Bond Market Index Basic 0.15%
American Beacon International Equity Index 0.24%
JPMorgan SmartRetirement 2040 Fund Institutional Class Shares 0.79%

Her 401K options (much better choices than mine)
Spartan® Total Market Index Fund 0.06%
Spartan® Extended Market Index Fund 0.07%
Spartan® International Index Fund - Fidelity Advantage 0.12%
Spartan® 500 Index Fund - Institutional Class 0.04%
Spartan® U.S. Bond Index Fund Advantage Class 0.10%
Fidelity Freedom K® 2040 Fund 0.62%

2013 Contributions
His 401K ($19751) including company match
Her 401K ($3360) including company match

Option 1: Two 401K and no ROTH IRA

Idea: Use Both 401k as individual portfolios.

The only problem with option 1 is:
1. His 401K is missing the extended market index and the other mid/cap funds in 401K are far too expensive (above 1%). Also his International Index fund is incomplete from the emerging market.
2. Her 401K port will be easy to manage and allocate (total market index, bond index, international index and done!! :happy ) as she has great options and great low cost and good index funds to pick from.

Option 2: Two 401K and one ROTH IRA

Idea: Use her 401K as individual portfolio and combined his 401K with ROTH IRA to make one portfolio:

1. Allocating (total market index, bond index, and international index, easy!!) her 401K is doable with her options. No problem here.
2. With his I can use ROTH IRA International Index and Extended market index to achieve what I am looking for: (45%-SP 500, 15%-extended market, 20% International index, and 20% Bond.
3. With this option I would have to send $5K to ROTH IRA now to get started for the 2012 and continue contributing for the 2013 year.
4. If my job changes, I use the Rollover IRA i already have (will set it to Vanguard Target 3035) as account to dump the 401k and keep it going. Then start over with new job 401K options


Option 2: Two 401K no ROTH IRA

Idea: Use both 401k to make one portfolio

1. Use international, SP 500 and Bond Index in his 401k and Extended Market in hers to build on portfolio.
2. If my job changes, I use the Rollover IRA i already have (will set it to Vanguard Target 3035) as account to dump the 401k and keep it going. Then start over with new job 401K options

Option 3: Two 401K all Target Funds

Idea: Use both 401K as target funds

1. The problem with this idea is the cost. I am not sure how much of a cost difference it makes compared with option 1 and 2.
2. The good thing is I want have to do any re-balance.
3. If my job changes, I use the Rollover IRA i already have (will set it to Vanguard Target 3035) as account to dump the 401k and keep it going. Then start over with new job 401K options.
4. Update: as a matter of fact. My wife options are so good it would be better to take advantage of those low cost funds in her account. No way I am putting her money in Fidelity Target account when such good index funds. I can balance her myself yearly. The only question is should mine be in a target fund.

Option 4: Two 401K and one ROTH IRA

idea: Create one port using all 3 accounts
1. Use all accounts to create one portfilio.
2. Only problem is if I change jobs this could screw up allocations. I guess thats for later to worry about
3. This will be a bit more work each year when rebalancing.

Option 5: Two 401K and one ROTH IRA

idea: Use ROTH IRA as Vanguard Target and use both 401K as one port. Or use all 3 accounts as Target funds.

1. For this case, I can use one ROTH IRA for Vanguard Target Fund, his 401K with JP Morgan Target Fund, and her 401k with Fidetly Target Fund.
2. The cost of vanguard is way cheaper then the other two.
3. It doesn't follow the index funds as boglehead suggest. :|
4. This way is much easier for me, but the cost are up there for the two Target funds in 401k.
5. Overall, the HIS IRA Rollever and ROTH IRA will be vanguard target fund and the two 401K will be target funds (just a bit pricey)

Please feel free to comment on the above plan for now. Appreciate all the help.

What will be easier for me for the most part is either using the ROTH IRA as Target Fund and combining our two 401K as one portfolio. My only concern is what happen if I change jobs.

Thank you for your time.
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Re: More Help On Asset Allocation, Thanks.

Postby retiredjg » Fri Jan 25, 2013 7:35 pm

I'm going to bump this up because an edit does not send an email out to people following the thread.

I'm not sure right now just what my preference is. There are lots of choices. My one firm preference right now is to put more into traditional 401k/403b than into Roth (whether that is 1 Roth IRA or 2 Roth IRAs).
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Re: More Help On Asset Allocation, Thanks.

Postby Duckie » Fri Jan 25, 2013 7:45 pm

goodoboy, at this point you don't have that much in retirement assets and you really seem to be having a problem deciding what to do. This isn't permanent. If you want to change your mind later there is no problem because it's all tax-sheltered. But given that, I would pick the target funds just for simplicity. Yes, they're more expensive but you won't have to fuss with them. They will work for all your accounts.

His 401k
(SMTIX) JPMorgan SmartRetirement 2040 Fund Institutional Class (0.79%)

Her 403b/401k
(FFFFX) Fidelity Freedom 2040 Fund (0.62%)

His Rollover IRA at Vanguard
(VTTHX) Vanguard Target Retirement 2035 Fund (0.19%)

His/Her Roth IRAs at Vanguard
(VTTHX) Vanguard Target Retirement 2035 Fund (0.19%)

-- Does she have a 401k or a 403b? You keep switching the terms.
-- You keep mentioning changing jobs. Are you planning on it? Do you expect it to happen soon?
-- Since her plan is so much better than yours could she contribute more to hers to get the better options and you contribute less? Is this possible?
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Re: More Help On Asset Allocation, Thanks.

Postby goodoboy » Fri Jan 25, 2013 9:09 pm

Thanks Duckie for replying.

But given that, I would pick the target funds just for simplicity. Yes, they're more expensive but you won't have to fuss with them. They will work for all your accounts.


Yes, simplicity works best! The target funds for one ROTH IRA, HIS 401K, and HER 401K seems reasonable. I can do Target Funds for me and the one ROTH IRA, however, no way I can do target funds for her given the good options she has and the cheap index funds (overall this will reduce cost).

His 401k
(SMTIX) JPMorgan SmartRetirement 2040 Fund Institutional Class (0.79%)

Her 403b/401k
(FFFFX) Fidelity Freedom 2040 Fund (0.62%)

His Rollover IRA at Vanguard
(VTTHX) Vanguard Target Retirement 2035 Fund (0.19%)

His/Her Roth IRAs at Vanguard
(VTTHX) Vanguard Target Retirement 2035 Fund (0.19%)


This seems good,except for her 403b (she has 403b the entire time, I probably made mistake earlier stating 401k) will look look like this:

Her 403b/401k
60% Spartan® Total Market Index Fund 0.06%
20% Spartan® International Index Fund - Fidelity Advantage 0.12%
20% Spartan® U.S. Bond Index Fund Advantage Class 0.10%

This give her the 80/20 and will give a total cost of .28% which is much cheaper than Fidelity Freedom 2040 Fund (0.62%). How does this sound for her instead of the Fidelity target fund? I will check if re-balance is needed once a year.

You keep mentioning changing jobs. Are you planning on it? Do you expect it to happen soon?


No I am not planning on changing jobs now, but there is always the possibility of changing jobs in the next 2-3 years if a better challenge comes up. I work in Oil and Gas, and its important to get as much field experience while young.

Since her plan is so much better than yours could she contribute more to hers to get the better options and you contribute less? Is this possible?


Yes, her plan is better than mine. She is nurse assistance for now, so her salary is only $23K a year, plus she attends college. Yes it is possible to just give her enough money to cover the contributions of the extended market index fund that my 401K account is needed to be complete. This could be an option, but seems like a headache, but cost could be lower. maybe cause i been thinking about this again all day. 8-)

Also, after running some numbers with http://turbotax.intuit.com/tax-tools/ca ... taxcaster/ by contributing the extra $5500 to my 401K this decreases my tax bill :D
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Re: More Help On Asset Allocation, Thanks.

Postby goodoboy » Fri Jan 25, 2013 9:19 pm

retiredjg wrote:I'm going to bump this up because an edit does not send an email out to people following the thread.

I'm not sure right now just what my preference is. There are lots of choices. My one firm preference right now is to put more into traditional 401k/403b than into Roth (whether that is 1 Roth IRA or 2 Roth IRAs).


Thanks retiredjg,

I think you will agree with my final decision unless more comments.

Its been a long day as I have been crunching numbers all day trying to determine which options to pick. My final conclusion came about when I started caluculateed what I will owe the government in taxes for 2013 year. :!:

I decided to go with option 3 (contribute more to both 401ks and no ROTH IRA):

I chose no ROTH IRA for the following reasons:

1. I want my tax bill (check to government every year) to go down. Its currently about $5500, by fully maxing out ($17.5k) my 401K, I will reduce our taxable income and reduce my yearly tax bill to about $3500. I would love to get it down more, but that's what I can do for now. I am not a fan of sending the government a big check every year.

2. As of now, like I stated before, we don't need ROTH IRA right now as we are assuming our tax rate in retirement to be less than or equal 25%. We are in 25% tax bracket now ($121k) and we project our retirement income to about $68K. With $68k in retirement we are looking at 15% tax bracket with a lot of room to spare (due to deductions and exemptions).

3. In about 1-2 years, once my car payment is paid off, for sure I will start contributing to ROTH IRA.

4. My 401k options are not the best (they are decent), but I am leaning toward combing my wife and my 401k together for index and cost portfolio. My first option is to combine both and use all index funds across both accounts to take full advantage of the cheap index funds since I am going all 401K for now. Second option is to use JP Morgan Target Fund for my 401k and then create a portfolio for the wife account with her good and low cost index funds. As you see abovemy 401K is missing the extended index fund.

5. The only disadvantage in going all 401K route for now is salaries increase too fast and no longer can contribute to ROTH IRA. I don't see this happening no time soon.

Thanks for your help. Sorry for all the posting, but it been a long task making decisions now rather than later.

Is anyone willing to help me attempt to allocate both 401Ks as one portfolio? I will try again tommorow, as tired as I am I can throw all mine JP target fund and allocate her own my own using her good funds. :D :D The IRA is going straight to vanguard target 2035.

Total Amount Now: 401ks $12,295 (his=$10.3k, her=$1995.00), IRA $36k (going to vanguard target fund 2035)
Total Contributions per 401K year: $12,111 with company match.
Total Available to contribute to 401ks : $11,500

Thanks for support.
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Re: More Help On Asset Allocation, Thanks.

Postby hoppy08520 » Sat Jan 26, 2013 10:48 am

Goodoboy, I think your proposal to invest solely in the 401(k)/403(b) plans makes good sense at your marginal tax rate.

I'd agree with Duckie's reply about using target date funds in all of your accounts.

If desired, as described in earlier posts, you could break out into individual index funds in your employer plans and even in the IRAs to have the "perfect" Boglehead portfolio, with the lowest expenses, but I want to point out that at this point in your investing, we're talking about saving maybe $100 a year on fund expenses.

The target date funds in your employer plans have an ER of around 0.6% to 0.7%. If you split these funds out, you can pay closer to 0.2% or so. The difference is 0.5%, which is $100 annually on a $20,000 balance.

In a decade or so, when your balances are (we hope) up to around $300,000, then we're talking $1,500 annually and that drag can have a bigger impact. So, when you get to that point, then you can scrutinize your options more to make the most of them.

But at this point, just getting started, I think it will be better for your nerves to just put all your accounts in target date funds so you can relax and not worry about second-guessing yourself and hyper-analyzing things. The "perfect" portfolio is a portfolio you can maintain and live with, and that's probably the target date portfolio.

It's easy to obsess about the investment half of the equation. But far more important, especially in the early years, is to obsess about the savings side of the equation. Worrying about Fund A or Fund B, and saving 0.1% in expenses, is trivial compared to just saving a bit more. People go through all these complex calculations to wring out another 0.2% of fund fees, but simply finding a way to cut out some unnecessary household expenses and put that money into retirement savings can have ten times the impact if you can just increase your savings rate by 2%.

As you get older and your balances climb, then managing your accounts and optimizing your investments becomes more import simply because you have more money. That will be a few years away, and you can learn more in that time. But for now, I'd just stick to the target date funds.
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Re: More Help On Asset Allocation, Thanks.

Postby retiredjg » Sat Jan 26, 2013 10:50 am

goodoboy, you are to be congratulated on how much you have learned about investing. You've now gotten to the point where you can figure out options for yourself rather than just make decisions based on what someone else has thought up. Nicely done!

A few comments. It is apparent you have pretty well fried your brain this week. :wink: For that reason, I'd let things sit for a few days before you actually do anything. Just let your decision simmer on the back burner to see if any new thoughts come up.

The other comment is that Vanguard Target 2035 is not the fund closest to your chosen target of 80/20. Target 2030 would be the closer choice. Or LifeStrategy Growth would be right on target and it contains the same funds.

His 401k $10,300

Her 403b $1,995

His tIRA $36k


Contributions =

Well, I've run into one small problem. At the beginning of the thread, I thought you planned to invest $8,751 in His 401k, $3,360 in Her 403b, $5,500 in His Roth IRA and $5,500 in Her Roth IRA. Now the $11k for the Roth IRAs seems to have disappeared. Why is that money not included in what you plan to put into the 401k/403b?
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Re: More Help On Asset Allocation, Thanks.

Postby goodoboy » Sat Jan 26, 2013 11:21 am

retiredjg wrote:Well, I've run into one small problem. At the beginning of the thread, I thought you planned to invest $8,751 in His 401k, $3,360 in Her 403b, $5,500 in His Roth IRA and $5,500 in Her Roth IRA. Now the $11k for the Roth IRAs seems to have disappeared. Why is that money not included in what you plan to put into the 401k/403b?


Thanks retirejg:

The entire $11K that was going to both ROTH IRAs will now go to 401k/403b?

Total Contributions per 401K year: $12,111 with company match.
Total Available to contribute to 401ks : $11,500

So basically, I will maxing out my 401K to the $17.5k limit and then regular contribution to the wife account.

Does this clear things up? Thanks
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Re: More Help On Asset Allocation, Thanks.

Postby retiredjg » Sat Jan 26, 2013 11:56 am

goodoboy wrote:The entire $11K that was going to both ROTH IRAs will now go to 401k/403b?

That's what I'm asking. Have you decided to put that money into the 401k/403b plans or did you decide to do something else with it? It appears you plan to put it in the 401k/403b plans.

If you can save $23,611, that means $17,500 to His 401k and $6,111 to Her 403b (plus matches). However, I'm not sure She is allowed to put that much in Her 403b (because of the low salary). Can you find out please?

How much is the match on His 401k? How much is the match on Her 403b?
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Re: More Help On Asset Allocation, Thanks.

Postby goodoboy » Sat Jan 26, 2013 12:34 pm

Thanks

The entire $11K that was going to both ROTH IRAs will now go to 401k/403b?


Yes that is correct. The entire amount is going to my 401K for now. It will be $11.666k going to mine to get to the gov limit of $17.5k.

So the contributions will look like this:

His 401K contributions:
$19,752 (6%, and company match 3%) His contribution = $5834, company match = $2917, contributing extra: $11.666K (so I will be contributing $17.5k)

Her 403b contributions:
$3494 (8%, and company match 4%) Her contribution = $1997, company match = $998, contributing extra: $499 (she contributes an extra 2% now)

Total Contributions Plus Company match: $23246 ( $19,752 + 3494)

I'm not sure She is allowed to put that much in Her 403b (because of the low salary). Can you find out please?


Yes I can find out if she can contribute more to her 403b. Not sure the difference between 403 and 401k.

Let me know if its clear now. Thanks for the help
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Re: More Help On Asset Allocation, Thanks.

Postby retiredjg » Sat Jan 26, 2013 12:48 pm

goodoboy wrote:Yes I can find out if she can contribute more to her 403b. Not sure the difference between 403 and 401k.

The difference is not 403b vs 401k. But some plans have a limit on how much of your salary you can contribute. I was not sure if we might be over that limit (if one exists) for her salary.

However, it seems unlikely that they would limit her contributions since she is only at 10% now.

Thanks, I can work with these numbers.
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Re: More Help On Asset Allocation, Thanks.

Postby retiredjg » Sat Jan 26, 2013 1:26 pm

Total 401k/403 Portfolio = $12,295 <---Percentages below are based on this number.

His 401k 83.8% $10,300
44.8% American Beacon S&P 500 Idx Instl 0.16%
15% Dreyfus Bond Market Index Basic 0.15%
24% American Beacon International Equity Index 0.24%

Her 403b 16.2% $1,995
11.2% Spartan® Extended Market Index Fund 0.07%
5% Spartan® U.S. Bond Index Fund Advantage Class 0.10%

You would change what you currently have in the 401k and 403b to this above and then make contributions at about the same ratio to keep your allocations near your target.

Contributions = $23, 246
His 401k $19,752 <---- $3,758 to bonds, $5,579 to International, $10,415 to 500 Index
Her 403b $3,494 <---- $2,603 to Extended Market, $891 to Bonds
These contribution numbers do not have to be exact. I didn't round off to easy numbers so you could see the math if you want to. Let me know if it doesn't make sense.



Not included in percentages above:

His tIRA $36k
Target 2030 or LifeStrategy Growth

If you had some extra money at the end of the year, you could put it in a Roth IRA just using either TR 2030 or LifeStrategy Growth and it would not affect the ratios in your 401k/403b plans.

Is this what you have in mind?

I don't disagree with other posters who have encouraged you to just use a target type fund in each account. That would be easiest and only cost a little more each year. However, you seem to want to "get this right" and optimal now even though it doesn't matter much right now in terms of dollars. If the above makes good sense to you, it's a pretty good choice.
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Re: More Help On Asset Allocation, Thanks.

Postby goodoboy » Sat Jan 26, 2013 10:57 pm

retiredjg wrote:Total 401k/403 Portfolio = $12,295 <---Percentages below are based on this number.

His 401k 83.8% $10,300
44.8% American Beacon S&P 500 Idx Instl 0.16%
15% Dreyfus Bond Market Index Basic 0.15%
24% American Beacon International Equity Index 0.24%

Her 403b 16.2% $1,995
11.2% Spartan® Extended Market Index Fund 0.07%
5% Spartan® U.S. Bond Index Fund Advantage Class 0.10%

You would change what you currently have in the 401k and 403b to this above and then make contributions at about the same ratio to keep your allocations near your target.

Contributions = $23, 246
His 401k $19,752 <---- $3,758 to bonds, $5,579 to International, $10,415 to 500 Index
Her 403b $3,494 <---- $2,603 to Extended Market, $891 to Bonds
These contribution numbers do not have to be exact. I didn't round off to easy numbers so you could see the math if you want to. Let me know if it doesn't make sense.



Not included in percentages above:

His tIRA $36k
Target 2030 or LifeStrategy Growth

If you had some extra money at the end of the year, you could put it in a Roth IRA just using either TR 2030 or LifeStrategy Growth and it would not affect the ratios in your 401k/403b plans.

Is this what you have in mind?

I don't disagree with other posters who have encouraged you to just use a target type fund in each account. That would be easiest and only cost a little more each year. However, you seem to want to "get this right" and optimal now even though it doesn't matter much right now in terms of dollars. If the above makes good sense to you, it's a pretty good choice.


Thanks retiredjg.

I will reply tonight or in the morning. Give this brain a rest for now. :happy
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Re: More Help On Asset Allocation, Thanks.

Postby goodoboy » Sun Jan 27, 2013 3:18 pm

retiredjg wrote:Total 401k/403 Portfolio = $12,295 <---Percentages below are based on this number.

His 401k 83.8% $10,300
44.8% American Beacon S&P 500 Idx Instl 0.16%
15% Dreyfus Bond Market Index Basic 0.15%
24% American Beacon International Equity Index 0.24%

Her 403b 16.2% $1,995
11.2% Spartan® Extended Market Index Fund 0.07%
5% Spartan® U.S. Bond Index Fund Advantage Class 0.10%

You would change what you currently have in the 401k and 403b to this above and then make contributions at about the same ratio to keep your allocations near your target.

Contributions = $23, 246
His 401k $19,752 <---- $3,758 to bonds, $5,579 to International, $10,415 to 500 Index
Her 403b $3,494 <---- $2,603 to Extended Market, $891 to Bonds
These contribution numbers do not have to be exact. I didn't round off to easy numbers so you could see the math if you want to. Let me know if it doesn't make sense.




Thank you retiredjg for the efforts. Yes, i would like to get it close as right for now, just for learning purpose. I fully understand we are just talking about an extra $100 in fees each year for now from going the target fund route. The big difference will take place as these accounts grows, so I am using time now for learning and to practice getting right and learn how fees effect. I am happy now that I do have a plan going forward as to compared to a few days ago.

Just a few more questions:

1. To approximate the total stock market index should the mix be 80% to S&P 500 and 20% extended market?

The mix I was considering was for AA is 80/20:
Total Market Index = 60% (45% S&P 500 and 15% extended, is that correct or does it matter much??)
Bonds = 20%
International = 20%

Is my idea correct?

2. If using the allocation you suggested will my total fees be 0.72% (I added .16+.15+.24+.1+.07)?
Thank you
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Re: More Help On Asset Allocation, Thanks.

Postby retiredjg » Sun Jan 27, 2013 4:59 pm

goodoboy wrote:1. To approximate the total stock market index should the mix be 80% to S&P 500 and 20% extended market?

Roughly, more or less. Your idea (45% S&P 500 and 15% extended) is 75% and 25% instead of 80% and 20% and that is close enough. It might give you a very small tilt to small cap, but many people would consider that desirable.

The mix I was considering was for AA is 80/20:
Total Market Index = 60% (45% S&P 500 and 15% extended, is that correct or does it matter much??)
Bonds = 20%
International = 20%

Is my idea correct?

It is a little different from what I suggested, but still a fine idea. My idea has a little less extended market and a little more international. But your idea is just fine too and certainly well within the ranges suggested.

2. If using the allocation you suggested will my total fees be 0.72% (I added .16+.15+.24+.1+.07)?
Thank you

No. That's not how you do it. You would have to figure the ER for the amount of money in each fund and then add them altogether. But you could get a rough estimate. My eyeball guess is the portfolio has an average ER of .2%. So for each 10k invested, the expenses would be $20. That's cheap.
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Re: More Help On Asset Allocation, Thanks.

Postby hoppy08520 » Sun Jan 27, 2013 8:15 pm

2. If using the allocation you suggested will my total fees be 0.72% (I added .16+.15+.24+.1+.07)?
Thank you

No. That's not how you do it. You would have to figure the ER for the amount of money in each fund and then add them altogether. But you could get a rough estimate. My eyeball guess is the portfolio has an average ER of .2%. So for each 10k invested, the expenses would be $20. That's cheap.

Goodoboy, if you want to get more precise, the wiki has a little section explaining/illustrating how to compute your overall blended expense ratio for a portfolio using the method that retiredjg specified: Expense Ratios
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Re: More Help On Asset Allocation, Thanks.

Postby goodoboy » Sun Jan 27, 2013 11:29 pm

retiredjg wrote:
goodoboy wrote:1. To approximate the total stock market index should the mix be 80% to S&P 500 and 20% extended market?

Roughly, more or less. Your idea (45% S&P 500 and 15% extended) is 75% and 25% instead of 80% and 20% and that is close enough. It might give you a very small tilt to small cap, but many people would consider that desirable.

The mix I was considering was for AA is 80/20:
Total Market Index = 60% (45% S&P 500 and 15% extended, is that correct or does it matter much??)
Bonds = 20%
International = 20%

Is my idea correct?

It is a little different from what I suggested, but still a fine idea. My idea has a little less extended market and a little more international. But your idea is just fine too and certainly well within the ranges suggested.

2. If using the allocation you suggested will my total fees be 0.72% (I added .16+.15+.24+.1+.07)?
Thank you

No. That's not how you do it. You would have to figure the ER for the amount of money in each fund and then add them altogether. But you could get a rough estimate. My eyeball guess is the portfolio has an average ER of .2%. So for each 10k invested, the expenses would be $20. That's cheap.


Thank you retiredjf and hoppy08520,

Ok, I will still to the allocation I stated above and make my final contribution and allocation for the 401k and 403b combined. I got busy today with home stuff.

Its been a long learning week, but its been a week of learning and planning for now. So either later tonight or later tommorow I will show my allocation for this year and hopefully you can comment on it before I make the final changes this week and let it roll. But the learning doesn't stop here, I still have some more reading to do. Thanks all and I will reply back shortly.
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Re: More Help On Asset Allocation, Thanks.

Postby goodoboy » Mon Jan 28, 2013 7:49 pm

Thanks retiredjg and hoppy08520 and duckie for the help so far.

I have concluded how will allocate the current balance and future balance below. Please review if you have time for any comments or questions.

Desire AA = 80/20
Total Stock Market = 60% (45% S&P 500 and 15% extended stock market (mid/small cap))
International = 20%
Bonds = 20%

Objective: Combine 401K/403b as one portfolio for reduced expense and future learning of re-balancing low cost 401k funds. His IRA move to Vanguard target fund for low cost and simplicity.

Current Balances
Current Balance 401K/403b = $12, 295 (His 10300, Her 1995)
His Current IRA Rollover = $36K

Set Current Balance to the following:
His IRA Rollover $36k:
100% = Vanguard Target Fund 2030

His 401k 83.8% $10,300
45% ($5724) American Beacon S&P 500 Idx Instl 0.16%
20% ($2459) Dreyfus Bond Market Index Basic 0.15%
19% ($2144) American Beacon International Equity Index 0.24%

Her 403b 16.2% $1,995
16% ($1967) Spartan® Extended Market Index Fund 0.07%

So, I will make these changes now to give the AA I needThe numbers are slightly off, but I think this will work ok. :happy These number changes daily with the market.


Future (Starting from Today) Contributions
His = $16826 (His contribution) + 2917.2 (match) = $19744 I am contributing $17.5K for the year, $673 already contributed for the 2013 year
Her = $3494
Total 2013 Contributions : $23238

His 401k 83.8% $19744
45% ($10457) American Beacon S&P 500 Idx Instl 0.16% (set contribution in 401k to 53%)
20% ($4648) Dreyfus Bond Market Index Basic 0.15% (set contribution in 401k to 23%)
20% ($4648) American Beacon International Equity Index 0.24% (set contribution in 401k to 24%)

Her 403b 16.2% $3494
15% ($3486) Spartan® Extended Market Index Fund 0.07% (set contribution in 403b to 100%)

The numbers are not exactly match the contributions but they come close enough to get it going.

1. The cost of the combined portfolio 401k/403b will cost $56.67 (not including any gains) by end of 2013. I added up the cost of each fund and how much will money will be in each fund by the end of each year. By going the target fund route for the 401k and 403b, the cost will be $274. Ending balance for HIS is $30,044.00 and HER is $5,489.00 for end of 2013 year. Now I am just messing around now, but in the future I now the see the benefit of combining the least cost index funds as possible.

2. My only question is do you think my allocation method and contributions looks ok? I tried to keep the allocations as close as possible.

3. The plan is to re balance this once a year if the percentages are off by +/- 5%. Contribute to it and let it run.

4. Of course by going the target route for my 401k and me create a portfolio for her and her good funds is an option, but that's another story for now. I am about ready to sum this up for now and continue learning and contributing to boglehead for others what I have learned.


Please reply with any comments or questions. I used hoppy08520 spreadsheet to help with the numbers.
goodoboy
 
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Re: More Help On Asset Allocation, Thanks.

Postby retiredjg » Mon Jan 28, 2013 8:05 pm

It looks very good to me. My only concern is this - this year, your allocations work out with your contributions almost right down to the dollar. At some point in the future, this won't be the case. You'll need to add a fund to Her 403b to make things work out right. That shouldn't be very difficult though.

You've done a good job of learning how to manage a fairly simple portfolio. With some practice, you'll soon be able to handle more complex issues if you need to. But, if you are like me, you might need to make some notes to remind yourself of what you've learned! :D
retiredjg
 
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Re: More Help On Asset Allocation, Thanks.

Postby goodoboy » Mon Jan 28, 2013 8:16 pm

retiredjg wrote:It looks very good to me. My only concern is this - this year, your allocations work out with your contributions almost right down to the dollar. At some point in the future, this won't be the case. You'll need to add a fund to Her 403b to make things work out right. That shouldn't be very difficult though.

You've done a good job of learning how to manage a fairly simple portfolio. With some practice, you'll soon be able to handle more complex issues if you need to. But, if you are like me, you might need to make some notes to remind yourself of what you've learned! :D


Thanks retiredjg.

The whole idea is simplicity. I would love to set these to retirement target funds and let it go. But, I doubt that will be case going forward. What I like most about my plan, is the IRA Rollover will be just a dump in case any change of employment and the new job does not have likable index funds.

I think as long as I can maintain the desired asset allocation across both accounts, it should work out fine. I have already email my job HR requesting they add a Total Stock Market Index fund to our employers 401K. I am shocked to see the high cost fees of some of these funds. One of the funds expense is 2% and did not beat the S&P 500 this year. The small cap fund I was in was at 1.68%,.., I am happy to be outta there.

Yes, I have a word document full of notes. Lots of notes.

I have one more question. Is it true that, for instance, by continuing to buy the same funds (for instance the SP 500 index), over time this will increase dividends returns as well? Thanks
goodoboy
 
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Re: More Help On Asset Allocation, Thanks.

Postby retiredjg » Mon Jan 28, 2013 8:36 pm

goodoboy wrote:I have one more question. Is it true that, for instance, by continuing to buy the same funds (for instance the SP 500 index), over time this will increase dividends returns as well? Thanks

I'm not exactly sure what this question means.
retiredjg
 
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Re: More Help On Asset Allocation, Thanks.

Postby dbr » Mon Jan 28, 2013 9:18 pm

goodoboy wrote:
I have one more question. Is it true that, for instance, by continuing to buy the same funds (for instance the SP 500 index), over time this will increase dividends returns as well? Thanks


Continuing to buy the same funds will not change the returns those funds deliver.

But I think there is confusion here. Return is the amount of increase in an investment as a percent of the amount invested. Investing more in a fund does not increase the return. By the same definition, having more invested in a fund, at the same return, will be a larger increase in actual dollars gained by the fund.

It may be you are thinking of the general concept of compound growth of an investment.

A portfolio does not need to be invested in the same funds year after year to experience compound growth. The return from a portfolio does have to be reinvested to generate compound growth.
dbr
 
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Re: More Help On Asset Allocation, Thanks.

Postby goodoboy » Tue Jan 29, 2013 12:34 am

retiredjg wrote:
goodoboy wrote:I have one more question. Is it true that, for instance, by continuing to buy the same funds (for instance the SP 500 index), over time this will increase dividends returns as well? Thanks

I'm not exactly sure what this question means.

Let's say a person has a 401k he is contributing to for 5 years and has to switch jobs. For instance me. What happens to all the dividend gained while investing in my portfilio? Are they reinvested when divends are received?
goodoboy
 
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