401(k) Allocation

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401(k) Allocation

Postby mrsscuba » Wed Apr 03, 2013 1:23 pm

I am not a fan of my company's 401(k), but I also feel like I might just feel like it's bad when it really isn't. The expenses aren't super-high on most funds, but I feel like I'm missing options that would help me to diversify. I previously posted my entire portfolio and asked for assistance. I got some great advice, but not much about this particular aspect. Given my current allocation below and the funds that are available to choose from (the percentages listed are expenses), what allocation would you use? I am 34 and looking at an 80/20 to 90/10 overall allocation (but also happy to adjust the rest of my portfolio if that allocation is not possible in this account).

Current Allocation:
25% AMERICAN FUNDS INCOME FND R5 RIDFX .35% expenses
25% AMERICAN FUNDS AMER BAL R5 RLBFX .35% expenses
25% AMERICAN FUNDS AMER MUTUAL R5 RMFFX .37% expenses
25% AMERICAN FUNDS INVT CO AM R5 RICFX .35% expenses

Funds available (in addition to the above):
CAPITAL PRESERVATION FUND IP XFDIP --> don't know expenses, link came up not found :confused
PIMCO TOTAL RETURN INSTL PTTRX .46%
FRANKLIN STRATEGIC INC ADV FKSAX .65%
AMERICAN FUNDS CAP WRLD BND R5 RCWFX .57%
AMERICAN FUNDS CAP INC BLDR R5 RIRFX .36%
IVY ASSET STRAT I IVAEX .75%
AMERICAN FUNDS GLOBAL BAL R5 RGBFX .66%
INVESCO BALANCED-RISK ALLOC Y ABRYX .99%
AMERICAN FUNDS GROWTH FUND R5 RGAFX .39%
AMERICAN FUNDS NEW ECONOMY R5 RNGFX .54%
INVESCO GLOBAL REL EST Y ARGYX 1.26%
INVESCO SMALL CAP GROWTH Y GTSYX 1.02%
OPPENHEIMER DEVELOPING MRKTS Y ODVYX 1.03%
AMERICAN FUNDS EUROPACIFIC R5 RERFX .55%
AMERICAN FUNDS NEW PRSPCTV R5 RNPFX .50%
AMERICAN FUNDS SMALLCAP R5 RSLFX .78%
AMERICAN FUNDS CAP WLD G&I R5 RWIFX .50%
American Funds Target Date R5 Funds 2015-2055 .49%
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Re: 401(k) Allocation

Postby mrsscuba » Fri Apr 05, 2013 3:46 pm

So, any opinion on these funds?
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Re: 401(k) Allocation

Postby NYBoglehead » Fri Apr 05, 2013 3:58 pm

It looks like you've already picked the funds with the lowest ERs. You've got some diversification among the different funds. Diversification and low costs are absolute must-haves, so while your 401k lineup might not be awesome, it doesn't appear to be terrible. I'd probably go with just the Balanced Fund (low ER, mix of stocks/bonds) Anything that you might be missing out you can get through contributing to a Roth IRA in addition to the 401k (same thing if this is too stock heavy, go Balanced Fund in the 401k and TBM in the Roth).
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Re: 401(k) Allocation

Postby pingo » Fri Apr 05, 2013 5:41 pm

You have chosen the lowest cost funds, and looking at them through Morningstar.com's Instant X-ray they give you:

67% US Stock
11% International Stock <--11% Int'l ÷ (67% US + 11% Int'l) = 14% of your equities is International.
23% Bonds and Cash and other

I think that's pretty nice. If you like it, keep it.

Perhaps it's just me, but I'd probably put the whole account into one of the Target Date Funds (ER 0.49%). I know you'd increase expenses by 15 basis points, but you gain simplicity and greater diversification. In fact the TD funds utilize at least 2 of the funds you're already using, plus a few the other options that are also in your line up, along with several that are not. Another bonus (for me) is that it increases your international equity exposure to 36% of equities (typical recommendations are from 20-40% of equities), and your Emerging Markets exposure (within the international allocation) would be closer to market weight. Just eyeballing your current line up, your emerging markets exposure is next to nil.
Last edited by pingo on Thu Jun 06, 2013 5:37 pm, edited 5 times in total.
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Re: 401(k) Allocation

Postby pingo » Fri Apr 05, 2013 6:05 pm

I decided to look at your first portfolio thread here and it looks like you didn't receive any help once you updated your information per poster requests. :|

Given the context of this thread, I'll re-use a recent example to see if we can get things to progress a little further. You and your spouse may want to discuss whether it is advantageous (or preferable) to view your accounts/assets as a single portfolio, for example...

Hypothetical #1 (not your situation)

His 401k
56% US Equities

Her 403b
24% International Equities

His IRA
10% Bonds

Her IRA
10% Bonds


...or as separate portfolios like...

Hypothetical #2 (not your situation)

His 401k (56%)
31% US Stocks
14% International Stocks
11% Bonds

Her 403b (24%)
13% US Stocks
06% International Stocks
5% Bonds

His IRA (10%)
06% US Stocks
02% International Stocks
02% Bonds

Her IRA (10%)
06% US Stocks
02% International Stocks
02% Bonds

The advice on this thread results in separate portfolios for each account (obviously, we can't see the other accounts here). That is not automatically bad, if it is based on your current needs. But keep in mind that the asset allocation of each hypothetical is identical, but the first one is simpler and locates asset classes according to which account configuration offers the lowest costs to obtain each asset class. In the second hypothetical, each account would be forced to purchase asset classes at higher costs when the same asset classes could be obtained for less in a different account. All else being equal, the arrangement with the lowest costs wins.

Another way to look at it: You're at a buffet and you have 4 plates: 1 large, 1 medium plus 2 saucers to hold your cornflakes, milk, strawberries, eggs and bacon. You can put each item on different plates according to the size of the plate and the desired portions, or you can cram small amounts of everything on each plate so that each plate looks proportionally identical (even the saucers). Regardless, the amount of food is the same, but one option may make more sense than the other.

If you would like us to help you organize a portfolio that is more like Hypothetical #1 (even if you're not sure it's what you'd choose in the end), we should probably move back over to the other thread, so you don't have to totally rework this one. I will post a couple thoughts I have for the other thread, in case that helps as well.
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Re: 401(k) Allocation

Postby mrsscuba » Mon Apr 08, 2013 10:35 am

pingo, your hypothetical #1 is kind of where I was thinking I might want to go. My 401k doesn't offer much by the way of bonds, and keeping everything all even in all the accounts can be tiresome (although I'm pleased with the 3-fund basic portfolio often suggested here, I used to keep 10+ funds in my 401k in years past, just because I could). I don't mind the rebalancing, but I think it would be easier to keep a reasonable allocation if I started looking at all accounts together rather than one account at a time.
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Re: 401(k) Allocation

Postby pingo » Mon Apr 08, 2013 7:00 pm

It may be relative. Your 401k has the lowest ER of Pimco Total Return that I've ever come across and it's a very good bond holding even if it's not the first choice, academically-speaking. For that matter, your 401k offers the lowest costing iteration of the EuroPacific Growth fund, which is a great substitute for Vanguard Total International, when necessary.

But we'll need to see how the other thread progresses before it can be determined how clear the fund choices are for the portfolio(s).

The good news is that you've set things up nicely in your 401k. There's no need to change until or unless you come up with a plan that makes clear sense over what you have already chosen.
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Re: 401(k) Allocation

Postby mrsscuba » Tue Apr 09, 2013 1:23 pm

pingo wrote:It may be relative. Your 401k has the lowest ER of Pimco Total Return that I've ever come across and it's a very good bond holding even if it's not the first choice, academically-speaking. For that matter, your 401k offers the lowest costing iteration of the EuroPacific Growth fund, which is a great substitute for Vanguard Total International, when necessary.

But we'll need to see how the other thread progresses before it can be determined how clear the fund choices are for the portfolio(s).

The good news is that you've set things up nicely in your 401k. There's no need to change until or unless you come up with a plan that makes clear sense over what you have already chosen.


Thank you for telling me this about the low ERs for Pimco Total Return/ EuroPacific Growth. I have no faith in those making the decisions about the 401k at my company, so that has colored some of my opinions on it. And, we had a company match up until 2009, and there is some bitterness that is has not been reinstated. It's good to hear some good news.

It might take me a day or two to track down the answers to your questions in the other thread, but I am on it.
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