23 y/o 401k and international exposure advice

Have a question about your personal investments? No matter how simple or complex, you can ask it here.

23 y/o 401k and international exposure advice

Postby DietPepsi » Fri Apr 05, 2013 9:33 pm

Emergency funds: Don't need one, I can safely rely on my parents if needed
Debt: none
Tax Filing Status: Single
Tax Rate: 70k income unsure of % Federal, 0% State
State of Residence: Texas
Age: 23
Desired Asset allocation: 100% stocks / 0% bonds
Desired International allocation: 30% of stocks (I don't have a preference if someone tells me this is incorrect)

I have a few questions. 1) Am I contributing into the right funds for my 401k? 2) What should my composition be for non retirement investments? 3) Is there anything I'm doing wrong?
A little background: I am a recent college graduate in computer engineering working in Texas. I don't plan on always living in Texas so my state tax rate will eventually be nonzero (likely). I expect to be making significantly more in the future as engineering is very high paying and right now my company is on the lower end of what I expect. I'd like to retire relatively early around maybe 58 or so. I contribute 11% of my income + 4% company match to my 401k. I do not have a Roth IRA. After expenses (rent/food/gas/etc.) and withholding (401k/HSA/insurance) my monthly savings comes out to $2,500 a month because I live relatively frugally. I just graduated so I only have about $2k in my 401k. As I mentioned I have an HSA but I have a chronic illness that has a lot of recurring cost so I use the HSA as a debit account and pay pretax dollars for my medical stuff now instead of using it as a long term investment.

Here is my current breakdown of investments into my 401k (note these are not the names of the funds just the indexes they attempt to match):
S&P 500 index: 25% total fee: .0449%
S&P Midcap 400 index: 30% total fee: .0227%
MSCI EAFE index: 25% total fee: .174%
Russell 2000 index: 15% total fee: .0477%
Russell 1000 growth index: 5% total fee: .0377%

Also available to me but not currently investing in:
Barclays Capital Aggregate Bond Index total fee: .0247%
Russell 1000 Value index total fee: .0377%
Target Retirement 2050 total fee: .2098%
Balanced 60/40 stock/bond fund total fee: .26%
There are a few more that I'm not listing like other target retirement date funds and an income fund.

I also recently invested in the following index funds in a fully taxable account:

Vanguard Small-Cap Index Fund Admiral Shares: https://personal.vanguard.com/us/funds/snapshot?FundId=0548&FundIntExt=INT
Vanguard 500 Index Fund Admiral Shares: https://personal.vanguard.com/us/funds/snapshot?FundId=0540&FundIntExt=INT

I have $10,000 in each. The money I have in these taxable accounts is likely to be for a down payment on a house in 5-10 years. I have no urgent need for it and wouldn't be upset if I had to ride out a market downturn so I'm not very risk adverse on these investments. My next question is, I'd like to gain foreign exposure in my taxable portfolio but I'm not sure which international fund is best for me. I plan to put the next 10k I earn into whichever fund I decide on. The 2 I'm looking at look very similar except the Total is more diverse based purely on the fact it has more holdings. Can someone help me choose between the following:

Vanguard Total International Stock Index Fund Admiral Shares: https://personal.vanguard.com/us/funds/snapshot?FundId=0569&FundIntExt=INT
Vanguard FTSE All-World ex-US Index Fund Admiral: https://personal.vanguard.com/us/funds/snapshot?FundId=0570&FundIntExt=INT
DietPepsi
 
Posts: 20
Joined: Fri Apr 05, 2013 6:01 pm

Re: 23 y/o 401k and international exposure advice

Postby ruralavalon » Sat Apr 06, 2013 2:25 pm

Welcome to the forum :) .

DietPepsi wrote:I have a few questions. 1) Am I contributing into the right funds for my 401k? 2) What should my composition be for non retirement investments? 3) Is there anything I'm doing wrong?


DietPepsi wrote:Age: 23
Desired Asset allocation: 100% stocks / 0% bonds
Desired International allocation: 30% of stocks (I don't have a preference if someone tells me this is incorrect)
In my opinion 30% interational is within the range of what is reasonable.

In my opinion 0% bonds is unwise, and suggest minimum of 20-25%. Legendary value investor Benjamin Graham (mentor to Warren Buffett) suggested a minimum of 25% bonds for even the most aggressive investor, Wiki article link: Asset Allocation . Please see this regression -- ttp://www.bogleheads.org/forum/viewtopi ... 3#p1217243 . A modest amount of bonds greatly decreases volatility, with a relatively small impact on portfolio performance -- http://www.youngresearch.com/wp-content ... ontier.jpg .

You could add this to your 401k -- Barclays Capital Aggregate Bond Index total fee: .0247%.

I would NOT use a "growth" fund, like -- Russell 1000 growth index: 5% total fee: .0377%.

Total International vs FTSE? Here is an FAQ answer from the wiki -- http://www.bogleheads.org/wiki/FAQ_on_V ... d_ex-US.3F

Total International is my preference: holds more stocks(6191 vs 2332); and holds small cap.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
User avatar
ruralavalon
 
Posts: 4872
Joined: Sat Feb 02, 2008 11:29 am
Location: Illinois

Re: 23 y/o 401k and international exposure advice

Postby DietPepsi » Sat Apr 06, 2013 3:38 pm

ruralavalon wrote:Welcome to the forum :) .

DietPepsi wrote:I have a few questions. 1) Am I contributing into the right funds for my 401k? 2) What should my composition be for non retirement investments? 3) Is there anything I'm doing wrong?


DietPepsi wrote:Age: 23
Desired Asset allocation: 100% stocks / 0% bonds
Desired International allocation: 30% of stocks (I don't have a preference if someone tells me this is incorrect)
In my opinion 30% interational is within the range of what is reasonable.

In my opinion 0% bonds is unwise, and suggest minimum of 20-25%. Legendary value investor Benjamin Graham (mentor to Warren Buffett) suggested a minimum of 25% bonds for even the most aggressive investor, Wiki article link: Asset Allocation . Please see this regression -- ttp://www.bogleheads.org/forum/viewtopi ... 3#p1217243 . A modest amount of bonds greatly decreases volatility, with a relatively small impact on portfolio performance -- http://www.youngresearch.com/wp-content ... ontier.jpg .

You could add this to your 401k -- Barclays Capital Aggregate Bond Index total fee: .0247%.

I would NOT use a "growth" fund, like -- Russell 1000 growth index: 5% total fee: .0377%.

Total International vs FTSE? Here is an FAQ answer from the wiki -- http://www.bogleheads.org/wiki/FAQ_on_V ... d_ex-US.3F

Total International is my preference: holds more stocks(6191 vs 2332); and holds small cap.


I know nothing of bond funds at all. Is: +1 Yr +3.23% 3 Yr +5.45% 5 Yr +5.36% good gains for a bond fund? Is this a "safer" bond fund or riskier?
Also, is either FTSE or TI more heavily weighted in emerging market? Finally, after browsing my this forum and comparing my companies 401k selections to other companies, it seems like mine offers a very nice selection of quality funds. Is that accurate?
DietPepsi
 
Posts: 20
Joined: Fri Apr 05, 2013 6:01 pm

Re: 23 y/o 401k and international exposure advice

Postby ruralavalon » Sat Apr 06, 2013 3:55 pm

DietPepsi wrote:I know nothing of bond funds at all. Is: +1 Yr +3.23% 3 Yr +5.45% 5 Yr +5.36% good gains for a bond fund? Is this a "safer" bond fund or riskier?
Also, is either FTSE or TI more heavily weighted in emerging market? Finally, after browsing my this forum and comparing my companies 401k selections to other companies, it seems like mine offers a very nice selection of quality funds. Is that accurate?

Can't tell you anyrhing about whether that bond fund is "safer" or "riskier", but here is a comparison about gains --
Vanguard Total Bond Mkt Index Adm is: 1yr +3.81%; 3 yrs +5.49%; 5 yrs +5.43%; +10 yrs 5.03%. https://personal.vanguard.com/us/funds/ ... =INT#tab=1 .

FTSE and TI are esssentially the same weight in emerging markets:
Vanguard FTSE All-World ex-US Index Fund Admiral (VFWAX) = 20.8% emerging markets
Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) = 19.7% emerging markets
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
User avatar
ruralavalon
 
Posts: 4872
Joined: Sat Feb 02, 2008 11:29 am
Location: Illinois

Re: 23 y/o 401k and international exposure advice

Postby DietPepsi » Sat Apr 06, 2013 4:52 pm

ruralavalon wrote:
DietPepsi wrote:I know nothing of bond funds at all. Is: +1 Yr +3.23% 3 Yr +5.45% 5 Yr +5.36% good gains for a bond fund? Is this a "safer" bond fund or riskier?
Also, is either FTSE or TI more heavily weighted in emerging market? Finally, after browsing my this forum and comparing my companies 401k selections to other companies, it seems like mine offers a very nice selection of quality funds. Is that accurate?

Can't tell you anyrhing about whether that bond fund is "safer" or "riskier", but here is a comparison about gains --
Vanguard Total Bond Mkt Index Adm is: 1yr +3.81%; 3 yrs +5.49%; 5 yrs +5.43%; +10 yrs 5.03%. https://personal.vanguard.com/us/funds/ ... =INT#tab=1 .

FTSE and TI are esssentially the same weight in emerging markets:
Vanguard FTSE All-World ex-US Index Fund Admiral (VFWAX) = 20.8% emerging markets
Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) = 19.7% emerging markets

My question was meant as: I've read about the difference between a lot of bonds. There are treasury notes, company bonds, city bonds, and foreign country bonds. Where does this index distribute it's allocation?
DietPepsi
 
Posts: 20
Joined: Fri Apr 05, 2013 6:01 pm

Re: 23 y/o 401k and international exposure advice

Postby tyler_cracker » Sat Apr 06, 2013 5:14 pm

hi dp,

DietPepsi wrote:Emergency funds: Don't need one, I can safely rely on my parents if needed


everyone's family situation is different, but for me financial independence has to come before retirement planning.

more pragmatically, do your parents know that your financial plan includes their emergency funds? if you recently graduated then perhaps they do, but best to know this now rather than after an emergency!

Tax Rate: 70k income unsure of % Federal, 0% State


look it up. it's at the foundation of many financial decisions you will make.

Desired International allocation: 30% of stocks (I don't have a preference if someone tells me this is incorrect)


most hold 30-50% international, so your number is certainly reasonable. as someone with a long timeline and aggressive tolerance for risk, you might consider increasing this number.

some resources:
http://www.bogleheads.org/wiki/Domestic/International
http://www.bogleheads.org/wiki/Three-fu ... nal_stocks

Here is my current breakdown of investments into my 401k (note these are not the names of the funds just the indexes they attempt to match):
S&P 500 index: 25% total fee: .0449%
S&P Midcap 400 index: 30% total fee: .0227%
MSCI EAFE index: 25% total fee: .174%
Russell 2000 index: 15% total fee: .0477%
Russell 1000 growth index: 5% total fee: .0377%


i don't think these fee numbers are right unless they're transaction fees or something? you're looking for the Net Expense Ratio. can you clarify?

Can someone help me choose between the following:

Vanguard Total International Stock Index Fund Admiral Shares: https://personal.vanguard.com/us/funds/snapshot?FundId=0569&FundIntExt=INT
Vanguard FTSE All-World ex-US Index Fund Admiral: https://personal.vanguard.com/us/funds/snapshot?FundId=0570&FundIntExt=INT


i hold VTIAX as it holds many more individual stocks (6000 vs 2000).

I have a few questions. 1) Am I contributing into the right funds for my 401k? 2) What should my composition be for non retirement investments? 3) Is there anything I'm doing wrong?


you're doing great but let's take a step back.

generally, it's wise to keep separate buckets for separate goals (retirement vs down payment). in your case, since you're not concerned about risk in any of the buckets, i'd just treat it all as one big portfolio simplicity.

next, i think you should max out a Roth IRA before you do anything else. it will be nice when you can afford to buy a house, but it's no big deal if you wait a few extra months. but getting that money compounding tax-free right now will pay huge dividends when you retire. hurry up and contribute $5k for 2012!

i'm taking you at your word that you want 0% bonds, but i encourage you to read about The Efficient Frontier and consider having 10% in bonds.

given all this, here's an approximate AA by the end of 2013. i'm just saying your 401k will have $10k for easy numbers and since it's not entirely clear what the balance will be at that time.

401k 33%
S&P 500 Index 33%

Roth IRA 33% ($5000 for 2012 + $5500 for 2013)
Total US Stock Market 13%
Small Cap Value 20%

Taxable 33%
Total International Stock Market 33%


i preserved your small cap tilt but got rid of the mid caps for simpicity. i picked 20% out of the air, but market weight to offset the s&p in your 401k (see http://www.bogleheads.org/wiki/Approxim ... ock_Market) would be a 5:1 ratio, so i went a little higher.

if you decide to add stocks, replace some s&p with Barclays Capital Aggregate Bond Index.

hth!
User avatar
tyler_cracker
 
Posts: 261
Joined: Sat Dec 03, 2011 3:50 pm
Location: sending out the kicking team

Re: 23 y/o 401k and international exposure advice

Postby DietPepsi » Sat Apr 06, 2013 5:49 pm

tyler_cracker wrote:hi dp,

DietPepsi wrote:Emergency funds: Don't need one, I can safely rely on my parents if needed


everyone's family situation is different, but for me financial independence has to come before retirement planning.

more pragmatically, do your parents know that your financial plan includes their emergency funds? if you recently graduated then perhaps they do, but best to know this now rather than after an emergency!

Tax Rate: 70k income unsure of % Federal, 0% State


look it up. it's at the foundation of many financial decisions you will make.

Desired International allocation: 30% of stocks (I don't have a preference if someone tells me this is incorrect)


most hold 30-50% international, so your number is certainly reasonable. as someone with a long timeline and aggressive tolerance for risk, you might consider increasing this number.

some resources:
http://www.bogleheads.org/wiki/Domestic/International
http://www.bogleheads.org/wiki/Three-fu ... nal_stocks

Here is my current breakdown of investments into my 401k (note these are not the names of the funds just the indexes they attempt to match):
S&P 500 index: 25% total fee: .0449%
S&P Midcap 400 index: 30% total fee: .0227%
MSCI EAFE index: 25% total fee: .174%
Russell 2000 index: 15% total fee: .0477%
Russell 1000 growth index: 5% total fee: .0377%


i don't think these fee numbers are right unless they're transaction fees or something? you're looking for the Net Expense Ratio. can you clarify?

Can someone help me choose between the following:

Vanguard Total International Stock Index Fund Admiral Shares: https://personal.vanguard.com/us/funds/snapshot?FundId=0569&FundIntExt=INT
Vanguard FTSE All-World ex-US Index Fund Admiral: https://personal.vanguard.com/us/funds/snapshot?FundId=0570&FundIntExt=INT


i hold VTIAX as it holds many more individual stocks (6000 vs 2000).

I have a few questions. 1) Am I contributing into the right funds for my 401k? 2) What should my composition be for non retirement investments? 3) Is there anything I'm doing wrong?


you're doing great but let's take a step back.

generally, it's wise to keep separate buckets for separate goals (retirement vs down payment). in your case, since you're not concerned about risk in any of the buckets, i'd just treat it all as one big portfolio simplicity.

next, i think you should max out a Roth IRA before you do anything else. it will be nice when you can afford to buy a house, but it's no big deal if you wait a few extra months. but getting that money compounding tax-free right now will pay huge dividends when you retire. hurry up and contribute $5k for 2012!

i'm taking you at your word that you want 0% bonds, but i encourage you to read about The Efficient Frontier and consider having 10% in bonds.

given all this, here's an approximate AA by the end of 2013. i'm just saying your 401k will have $10k for easy numbers and since it's not entirely clear what the balance will be at that time.

401k 33%
S&P 500 Index 33%

Roth IRA 33% ($5000 for 2012 + $5500 for 2013)
Total US Stock Market 13%
Small Cap Value 20%

Taxable 33%
Total International Stock Market 33%


i preserved your small cap tilt but got rid of the mid caps for simpicity. i picked 20% out of the air, but market weight to offset the s&p in your 401k (see http://www.bogleheads.org/wiki/Approxim ... ock_Market) would be a 5:1 ratio, so i went a little higher.

if you decide to add stocks, replace some s&p with Barclays Capital Aggregate Bond Index.

hth!


Yeah my parents know. They're fine with it.
I believe those are the fees these funds are charging. They list 2 fees in the fees section of each fund: Exp. Ratio (Gross) and Management Fee. Here is the complete list:

S&P 500: Exp. Ratio (Gross): 0.0249% Management Fee: 0.02%
S&P Midcap 400: Exp. Ratio (Gross): 0.0227% Management Fee: 0%
MSCI EAFE: Exp. Ratio (Gross): 0.094% Management Fee: 0.08%
Russell 2000: Exp. Ratio (Gross): 0.0327% Management Fee: 0.015%
Russell 1000 Growth: Exp. Ratio (Gross): 0.0227% Management Fee: 0.015%
Barclays Capital Aggregate Bond Index: Exp. Ratio (Gross): 0.0277% Management Fee: 0.015%
Russell 1000 Value: Exp. Ratio (Gross): 0.0227% Management Fee: 0.015%
Target Retirement 2050: Exp. Ratio (Gross): 0.1098% Management Fee: 0.1%
Balanced 60/40 stock/bond: Exp. Ratio (Gross): 0.26% Management Fee: 0%

With regards to VTIAX, I learned about it after investing in VFIAX and the market is down so I plan on hopefully buying 10k of that fund as soon as I have the cash from my FVIAX to sell since I want the admiral shares.

For Roth: I may start investing in a Roth but I won't be able to max out 2012 since I don't have the cash on hand to do so. I'll probably put money into it later on but it will likely come out of what I would be contributing to my 401k. Right now I also pay for all my girlfriends expenses while she is in school so I can't do 11% into a 401k and 5.5k into a Roth.

Thanks

**edit: wow just looked it up and apparently you don't add the fees, gross already contains the management fee. Am I wrong in thinking my employer has a great 401k plan selection?
DietPepsi
 
Posts: 20
Joined: Fri Apr 05, 2013 6:01 pm

Re: 23 y/o 401k and international exposure advice

Postby Duckie » Sat Apr 06, 2013 8:49 pm

DietPepsi wrote:wow just looked it up and apparently you don't add the fees, gross already contains the management fee. Am I wrong in thinking my employer has a great 401k plan selection?

Although the expense ratios (which do contain management fees) are paid to the individual funds, I'll bet the management fees are listed separately because they are on top of the expense ratios and are paid to the 401k plan, not the funds. You still have a good plan.
User avatar
Duckie
 
Posts: 2440
Joined: Thu Mar 08, 2007 3:55 pm

Re: 23 y/o 401k and international exposure advice

Postby DietPepsi » Sat Apr 06, 2013 10:07 pm

Duckie wrote:
DietPepsi wrote:wow just looked it up and apparently you don't add the fees, gross already contains the management fee. Am I wrong in thinking my employer has a great 401k plan selection?

Although the expense ratios (which do contain management fees) are paid to the individual funds, I'll bet the management fees are listed separately because they are on top of the expense ratios and are paid to the 401k plan, not the funds. You still have a good plan.

I'm unsure because these are fund specific. Some of the funds don't have any management fee. There is, however, an $80 yearly fee payed for the ability to use the plan.
DietPepsi
 
Posts: 20
Joined: Fri Apr 05, 2013 6:01 pm


Return to Investing - Help with Personal Investments

Who is online

Users browsing this forum: 22twain, dooley63, Funkey, JoeJohnson, juggyjt, kkhanmd, rgarling, riptide, Yeti and 63 guests