VG Small Cap Fund for Roth, right move?

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VG Small Cap Fund for Roth, right move?

Postby guitarguy » Thu Jan 31, 2013 9:30 am

Hello all,

I would like to make an adjustment to my AA, as over the past few months my bonds,international, and small cap allocations have shifted. To make the adjustment, I think I would like to add a Small Cap fund in my Roth at VG (either NAESX, VISVX, or VISGX), and sell come Small Caps in my 401k and exchange for some bonds and SP 500. From the looks of it, this should give us what we want for our overall AA with our current money, allow for new money contributions to be right in line, and lower expenses too (slightly).

CURRENT ALLOCATIONS

His 401k at Prudential:
SP500 Index (ER 0.17): $11257.32 (26.6%)
SV Kennedy Fund (ER 0.90): $8666.75 (20.5%)
Bond Index Fund (ER 0.22): $5427.44 (12.8%)

Her 401k at Mass Mutual:
Select Index Equity Fund (SP500) (ER 0.43): $4424.30 (10.4%)

His Roth IRA at Vanguard:
Vanguard Total International (ER 0.32): $12578.60 (29.7%)

Overall: 57.5/29.7/12.8 US/Int/Bonds
Stocks: 66/34 US/Int
US Stocks: 64/36 Large/SCV

PROPOSED CHANGES TO CURRENT MONEY - necessary to add a fund in my Roth to then adjust new money contributions

His 401k at Prudential:
SP500 Index (ER 0.17): $14257.32 (33.7%)
SV Kennedy Fund (ER 0.90): $4666.75 (11.0%)
Bond Index Fund (ER 0.22): $6427.44 (15.2%)

Her 401k at Mass Mutual:
Select Index Equity Fund (SP500) (ER 0.43): $4424.30 (10.4%)

His Roth IRA at Vanguard:
Vanguard Total International (ER 0.32): $9578.60 (22.6%)
* Either NAESX (ER 0.24), VISVX (ER 0.35), or VISGX (ER 0.24): $3000 (7.1%)

Overall: 62.2/22.6/15.2 US/Int/Bonds
Stocks: 73/27 US/Int
US Stocks: 71/29 Large/SC(Blend, Value, or Growth)

This would put our current money right in line with our desired AA (85/15 stocks/bonds with stocks 70/30 US/Int), and would also lower expenses a bit by taking some Small Caps out of the Kennedy fund (ER 0.9) and moving into one of the cheaper VG funds. Then,

NEW MONEY CONTRIBUTIONS

His 401k:
SP500 Index (ER 0.17): $2794.77 (19.5%)
SV Kennedy Fund (ER 0.90): $1956.34 (13.7%)
Bond Index Fund (ER 0.22): $2096.07 (14.6%)

Her 401k:
Select Index Equity Fund (SP500) (ER 0.43): $1980.00 (13.8%)

His Roth IRA:
Vanguard Total International (ER 0.32): $3800 (26.5%)
Either NAESX (ER 0.24), VISVX (ER 0.35), or VISGX (ER 0.24): $1700 (11.9%)

Overall: 58.8/26.5/14.6 US/Int/Bonds
Stocks: 69/31 US/Int
US Stocks: 71/29 Large/SC(Blend, Value, or Growth)

1. Does this look like a viable/smart plan? It seems like it does because it adjusts our AA to where we want it and also (slightly) cuts expenses, but I want to make sure we're not missing anything. Also when the Total International hits $10k (which will be very soon) we can convert into Admiral Shares.

2. Any recommendation on which small cap fund to choose for the Roth? Or should we be thinking of something that we haven't considered yet?

As usual, thank you all for the advice!
guitarguy
 
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Re: VG Small Cap Fund for Roth, right move?

Postby Naikansha » Thu Jan 31, 2013 11:02 am

Is there any reason to even keep the Kennedy fund, with its very high ER? If you decide on a small cap fund in your Roth, it doesn't seem there is any need for it at all. Without it you will be able to use your Index 500 fund more.
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Re: VG Small Cap Fund for Roth, right move?

Postby tyrion » Thu Jan 31, 2013 11:06 am

I think this looks reasonable. Lowering your overall expense ratio is almost always a good thing.

I do something similar, and use the admiral version of Small Cap Value Index in my Roth.

I'm assuming you don't have a good International fund in your 401k. If you do, and the ER difference between your 401k Intl and Roth Intl is less than the ER difference of your 401k SV and Roth SV, then it would make sense to switch the location of International. I think I said that right.

You can rebalance using just your 401k, which always makes things easier.
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Re: VG Small Cap Fund for Roth, right move?

Postby guitarguy » Thu Jan 31, 2013 11:53 am

tyrion wrote:
I'm assuming you don't have a good International fund in your 401k. If you do, and the ER difference between your 401k Intl and Roth Intl is less than the ER difference of your 401k SV and Roth SV, then it would make sense to switch the location of International. I think I said that right.

You can rebalance using just your 401k, which always makes things easier.


This is exactly right. International in the 401ks are ER > 1.

Ideally yes, I'd like to get rid of that Kennedy fund and move everything into cheaper VG funds. Once my balances increase a little more I should be able to do that without underweighting anything.

As I once read here...pitfalls of a portfolio < $50k...hard to allocate exactly the way I want it because of the fund minimums. My proposed plan though, takes me closer to the ideal by at least getting some Small Caps into a cheaper alternative.
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