Help with 401K in Mass Mutual & opening new taxable account

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Help with 401K in Mass Mutual & opening new taxable account

Postby blurryvision » Tue May 14, 2013 11:16 pm

Thank you reading this post. I’ve been lurking for the last year and have been reading as much as I can about index fund investing. I moved my Roth IRA funds over from Edward Jones 2 years ago and have been very happy no longer paying loads and account maintenance fees. I have just finished reading the Bogleheads Guide to Investing, will probably re-read it again soon.

At age 31, I already feel so overwhelmed with the investment options out there. :shock: I feel so behind having only started investing in my retirement for 2 years. Prior to this our number 1 priority was owning a home and paying off student loans. Although I suppose it’s a great time to jump in since stocks have only been going up. I know this won’t always be the case.

I wish my company offered their 401K through Vanguard. Unfortunately we are with MassMutual. Fortunately there is a 3% company match.

I signed up with the company 401K plan 2 years ago and did not know much about investing (still constantly learning).

I checked the investment selection portfolio labeled “Aggressive”
And it consists of the following. I’ve been listing the net expense ratio (not sure what the difference between gross and net expense ratio is)

Aggressive Portfolio (default options):
2% Stable Value Fixed Interest Fund
12% Select PIMCO Total Return MSPHX (0.67%)
2% Oppenheimer International Bond Y OIBYX (0.73%)
4% Eaton Vance Large-Cap Value A LW EHSTX.lw (0.98%)
4% Columbia Diversified Equity Income R4 IDQYX (0.93%)
13% MM 2&P 500 Index Fund MIEYX (0.45%)
13% T. Rowe Price Spectrum Growth PRSGX (0.80%)
3% Select Sands / Delaware Growth Opportunities Fund MAGYX (0.95%)
2% Alger Capital Appreciation A LW ACAAX.lw (1.31%)
3% American Funds Growth Fund of Amer R4 RGAEX (0.68%)
2% JPMorgan Mid Cap Value Sel JMVSX (1.00%)
6% Mid Cap Index (Northern) NOMIX (0.16%)
2% Nuveen Mid Cap Growth Opp I FISGX (1.03%)
2% Allianz NFJ Small Cap Value A LW PCVAX.lw (1.19%)
7% Small Cap Index (Northern) NSIDX (0.16%)
2% Invesco Small Cap Discovery A LW VASCX.lw (1.42%)
2% Allianz NFJ International Value A LW AFJAX.lw (1.30%)
10% American Funds EuroPacific Gr R4 REREX (0.85%)
2% Invesco Van Kampen International Growth Fund AIIEX (1.40%)
3% Oppenheimer Developing Markets Y ODVYX (1.00%)
4% Oppenheimer Real Estate Y OREYX (1.13%)

I was hoping that someone could critique this 401K choice. Currently I am contributing 10% of my pre-tax income into this 401K, looking to ramp it up in the near future. I was considering switching to a single fund Advantage Dow Jones Target 2045 (Wells Fargo) WFQPX (0.52%) just for simplicity sake.

Emergeny Fund: We have combined 3 months worth of expenses (including mortgage payment) just sitting in a savings account.
Debt: $394,368 Mortgage at 3.5% with 19 years left.
This is the only debt that we have.
Tax Filing Status: Married Filing Jointly
Tax Rate: I think 25% (pardon my ignorance but I’m not sure how to determine this – will update)
Income: My annual salary is $95,000 Wife’s annual salary is $40,000
State of Residence: CA
Age: 31 for him, 30 for her
Desired Asset allocation: something aggressive like 90% stocks / 10% bonds
Desired International allocation: I’m not sure, please recommend for me.

No Taxable account yet (saving up cash and looking to open a 3 fund portfolio Vanguard Total Stock Market (VTSMX), Vanguard Total International (VGTSX), Vanguard Total Bond Market (VBMFX) in this account. My other option was to open a Vanguard LifeStrategy Growth Fund (VASGX). I’ve been waiting for a RBD before I jump in and open a taxable account. What happened to “Sell in May?” I know I shouldn’t try to time the market. The only thing holding me back is needing to save up the minimum amount to open the account ($3,000).

Currently we both have the Vanguard Target Retirement 2045 (VTIVX) as our only fund in both of our Roth IRAs at Vanguard.

His ROTH IRA:
$19,033K
49.5% Target Retirement 2045 VTIVX

His 401K:
$19,424
50.50% In the above "aggressive mixed 401K" portfolio

Her ROTH IRA:
$10K
100% investment in Target Retirement 2045 VTIVX

She does not have a work 401K

Questions:

1. Should I stay with my current “aggressive” portfolio in my 401K with MassMutual or switch over to the Target date fund? Or is there a better way to mix these index funds together.
2. I've read that taxes matter. When I open a taxable account, is it best to fund it with only the VTSMX Vanguard Total Stock market and Total Internation VGTSX, and put the TBM (VBMFX) in my Roth IRA tax advantaged account?
3. What are the tax implications of keeping Vanguard Lifestrategy Growth (VASGX) in my taxable account versus splitting up the underlying indexes between taxable and tax advantaged accounts. Since the VASGX has the Total Bond Market, is it tax inefficient to have this fund in my taxable account?

I hope that these questions make sense. Thank you for bearing with me and I have much to learn from you all.
Last edited by blurryvision on Thu May 16, 2013 3:45 pm, edited 2 times in total.
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Re: Help with 401K in Mass Mutual & opening new taxable acco

Postby Default User BR » Wed May 15, 2013 1:36 am

That canned portfolio is not a good one. There are few good funds, you concentrate on those.

You haven't said how much is in the Roths. Does your wife have a company plan?


Brian
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Re: Help with 401K in Mass Mutual & opening new taxable acco

Postby blurryvision » Wed May 15, 2013 3:13 pm

I have updated the original thread with how much is in our Roths. Wife does not have a company plan yet.

Any suggestions on funds should I concentrate on in my 401K MassMutual plan? Thank you.
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Re: Help with 401K in Mass Mutual & opening new taxable acco

Postby patrick » Wed May 15, 2013 7:47 pm

Are you allowed to make your own selections among the funds listedinstead of using the pre mixed lineup? If so you could get the costs much lower by using only the small and mid indexes. Your overall portfolio could then be balanced with other categories of investment in the non 401k accounts.
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Re: Help with 401K in Mass Mutual & opening new taxable acco

Postby blurryvision » Thu May 16, 2013 1:17 am

patrick wrote:Are you allowed to make your own selections among the funds listed instead of using the pre mixed lineup? If so you could get the costs much lower by using only the small and mid indexes. Your overall portfolio could then be balanced with other categories of investment in the non 401k accounts.


Yes I am allowed to customize the % of contributions to each source of my listed investment options. These options are kind of overwhelmingly confusing for me. Sure would be nice if I could just pick a nice 3 fund portfolio like Vanguard's VTSMX, VGTSX and VBMFX.

Any suggestions out to get there? Thank you
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Re: Help with 401K in Mass Mutual & opening new taxable acco

Postby Default User BR » Thu May 16, 2013 1:31 am

The percentages you show should be of the total. We need to get a feel for how the Roths stack up against the 401(k). That determines fund selection and placement.


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Re: Help with 401K in Mass Mutual & opening new taxable acco

Postby blurryvision » Fri May 17, 2013 11:10 am

I've updated my original post. I'm looking for some guidance on how to simplify my 401K portfolio with mostly domestic and international stocks, maybe just 10% bonds.
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Re: Help with 401K in Mass Mutual & opening new taxable acco

Postby gerrym51 » Fri May 17, 2013 11:37 am

i worked(now part time) for a company that created it's own investment target date funds using common choices from vanguard,troweprice and others.

hidden in the fine print after careful study i found the expense ratios for these combined funds. i then looked at the expense ratios for the individual components.

i believe is you search carefully you will find the combined expense ratio buried somewhere.

by the way i actually was quite pleased with the combined expense ratio i found .

the total was .45 for this mix of indexed and not managed and managed funds. 1 component was .9 which i did not like up front but the other parts were far lower-and the international component which was this .9 actually seemed reasonable versus others in the class
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Re: Help with 401K in Mass Mutual & opening new taxable acco

Postby Default User BR » Fri May 17, 2013 2:00 pm

Don't use the canned mix. Too much overlap and too high of an expense. I would at a minimum consider all of "his" to be one portfolio. If you'd prefer to keep "hers" as a separate one in a TR fund, that's probably fine.

I think 90/10 is too aggressive, but that's up to you. You should probably have about 30% or more in international. We're working with about 38.5k. We'll assume about market weight in US stocks. For simplicity, let's say 80% large-cap, 20% small.

Large-cap: 38.5 * 0.9 * 0.7 * 0.8 == 19.4k
Small-cap: 38.5 * 0.9 * 0.7 * 0.2 == 4.8k
International: 38.5 * 0.9 * 0.3 == 10.4k
Bonds: 38.5 * 0.1 == 3.9k

The stock funds that look usable in your 401(k) are:

MM 2&P 500 Index Fund MIEYX (0.45%)
Mid Cap Index (Northern) NOMIX (0.16%)
Small Cap Index (Northern) NSIDX (0.16%)

So I would go with $14,600 in MIEYX and $4800 in NSIDX. Change your contributions to 80%/20% respectively.

In the Roth I would put:
International: $10400 VTIAX (Vanguard Total International Admiral)
Large Cap: 4800 VFINX (S&P 500)
Bonds: $3900 VBMFX (Vanguard Total Bond Index)

There's a small amount of rounding errors for you to work out. The exact recommendations are less important than understanding the process of how I came to them. Understand asset allocation and how to choose funds to fulfill the allocation. You should be able to follow where the numbers came from when I did the calculations.


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Re: Help with 401K in Mass Mutual & opening new taxable acco

Postby blurryvision » Fri May 17, 2013 3:06 pm

Thank you for your help and attention Brian,

I never thought about dividing up stocks (domestic / international) and bonds between my 401K and Roth IRA. I was trying to focus on AA separately within each retirement account.

My next question has to do with Value versus Growth. I'm looking for a somewhat aggressive portfolio that also tracks the entire stock market, and I've noticed that the funds you selected

MM 2&P 500 Index Fund MIEYX (0.45%)
Mid Cap Index (Northern) NOMIX (0.16%)
Small Cap Index (Northern) NSIDX (0.16%)

Are all Blended funds. Are these blended funds better able to track the entire stock market versus an all growth or all value fund?

Are the bond funds my 401K offers not a good choice when compared to the Vanguard Total Bond Index VBMFX?

These are the bond funds in my 401K
Select PIMCO Total Return MSPHX (0.67%)
Oppenheimer International Bond Y OIBYX (0.73%)

Again, thank you everyone. I'm learning more and more everyday.
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Re: Help with 401K in Mass Mutual & opening new taxable acco

Postby Default User BR » Fri May 17, 2013 3:42 pm

blurryvision wrote:Are these blended funds better able to track the entire stock market versus an all growth or all value fund?

Yes. By definition, a growth or value fund eliminates some stocks. A blend fund generally holds all the stocks within a valuation range. The S&P 500 is a bit different in that it is a custom index put together to represent the US economy. However, it is essentially a large-blend fund.

Some people like to have a tilt to include more value, or small-cap, or both. I happen to be one. If that's what you want to do, then you can make adjustments. It's a process.

blurryvision wrote:Are the bond funds my 401K offers not a good choice when compared to the Vanguard Total Bond Index VBMFX?

The aren't horrible, but you can save a bit on the ER. I'm not convinced that international bonds are necessary, but if want them you can get them cheaper.


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Re: Help with 401K in Mass Mutual & opening new taxable acco

Postby blurryvision » Wed May 22, 2013 4:10 pm

Just to update this thread, I've changed my balances in my 401K to the following:

70% MM S&P 500 Index (Northern Trust) MIEYX
20% Mid Cap Index (Northern) NOMIX
10% Small cap Index (Northern) NSIDX

Thank you everyone, this is a huge relief as my previous 401K investment selection was all over the place. :sharebeer
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Re: Help with 401K in Mass Mutual & opening new taxable acco

Postby mnvalue » Wed May 22, 2013 10:09 pm

Don't open a taxable account until you've maxed out all your and your wife's tax-deferred and Roth accounts.
blurryvision wrote:I've changed my balances in my 401K to the following:
70% MM S&P 500 Index (Northern Trust) MIEYX
20% Mid Cap Index (Northern) NOMIX
10% Small cap Index (Northern) NSIDX

That gets you part-way there. But if you leave it like this (without changing your IRAs), you're overweight in domestic stocks. Here's how you break down right now (percentages are of the total, across all accounts) and a suggested change:

His ROTH IRA:
39.4% Target Retirement 2045 VTIVX
21.6% Total Stock Market Investor Shares
10% Total Bond Market Investor Shares
7.8% Total International Investor Shares (slightly overweighted to meet the $3,000 fund minimum)

His 401K:
40.0% TSM approximated as quoted above

Her ROTH IRA:
20.6% investment in Target Retirement 2045 VTIVX
20.6% Total International Admiral Shares

If one/both of you insist on keeping your accounts separate, then leave hers in the target fund, and re-adjust your allocation excluding her Roth IRA. If you need help with the math, let me know.
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Re: Help with 401K in Mass Mutual & opening new taxable acco

Postby blurryvision » Thu May 23, 2013 11:08 am

My wife would like to keep our total investments separate. You are correct that I am only partway there.

Per Brian's advice above he suggested:

Bonds: $3900 VBMFX (Vanguard Total Bond Index) - 10% of total investments (401K + IRA)
International: $10400 VTIAX (Vanguard Total International Admiral) - should be 30% of total stock investments (which are 90% of total portfolio)
Large Cap: 4800 VFINX (S&P 500) - should be 70% of total stock investments (which are 90% of total portfolio)

International and Larg

Questions before I call Vanguard and make the changes

1. For my age (32) is 10% in Bonds too aggressive?
2. When considering Vanguard total stock market, what is the main difference between VFINX versus VTSMX? Seems like VTSMX is more diversified with more stocks but I'm not sure
3. I keep reading mixed reviews between Small cap and Mid cap Indexes, currently in my 401K I have a split of 20% in Mid cap and 10% in Small cap. Should I keep it this way, reverse it, or 50/50 it?

I'm almost there everyone.


mnvalue wrote:Don't open a taxable account until you've maxed out all your and your wife's tax-deferred and Roth accounts.
blurryvision wrote:I've changed my balances in my 401K to the following:
70% MM S&P 500 Index (Northern Trust) MIEYX
20% Mid Cap Index (Northern) NOMIX
10% Small cap Index (Northern) NSIDX

That gets you part-way there. But if you leave it like this (without changing your IRAs), you're overweight in domestic stocks. Here's how you break down right now (percentages are of the total, across all accounts) and a suggested change:

His ROTH IRA:
39.4% Target Retirement 2045 VTIVX
21.6% Total Stock Market Investor Shares
10% Total Bond Market Investor Shares
7.8% Total International Investor Shares (slightly overweighted to meet the $3,000 fund minimum)

His 401K:
40.0% TSM approximated as quoted above

Her ROTH IRA:
20.6% investment in Target Retirement 2045 VTIVX
20.6% Total International Admiral Shares

If one/both of you insist on keeping your accounts separate, then leave hers in the target fund, and re-adjust your allocation excluding her Roth IRA. If you need help with the math, let me know.
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Re: Help with 401K in Mass Mutual & opening new taxable acco

Postby mnvalue » Fri May 24, 2013 1:59 am

First off, according to http://www.bogleheads.org/wiki/Approxim ... ock_Market you should be 81% S&P 500, 6% Mid Cap, and 13% Small Cap in the 401k. Then you can treat your whole 401k (50% of your portfolio) as if it was TSM. If you want 90% stock and 30% of stock international, then you calculate .9 * .7 = .63 (63%) is domestic and .9 * .3 = .27 international. Since you already have 50% of domestic in your 401k, you need another 13% (of the portfolio) of TSM in your Roth IRA. Then, you need 27% international (TISM) in your Roth IRA. And finally, the 10% Total Bond Market. In the Roth IRA, you can only meet the Admiral Shares minimum for TISM. And you're fine on the minimum for the other funds in Investor Shares, so everything works out. Now, over time, assuming more of your contributions go to your 401k than the Roth IRA (because of the lower limit there), you're probably going to need to reduce TSM in the Roth IRA to rebalance. But that's okay, you have to rebalance periodically in any portfolio. Do it via exchanges in your Roth IRA, not separate buys and sells. (It's simpler and faster.) It'd be easier to stay in balance if you had your wife's Roth IRA included in the total portfolio. But you can worry about that problem (not being able to rebalance without it) later, if it actually happens.

If you let me know how much you're planning to contribute (and how much company match and/or profit sharing you receive) to each account, I can suggest the best contribution percentages (to minimize rebalancing other than caused by the market) for the Roth IRA. In the 401k, you'll contribute the same as the allocation listed above (81% S&P 500, 6% Mid Cap, 13% Small Cap).

His ROTH IRA:
13% Total Stock Market Investor Shares (VTSMX)
10% Total Bond Market Investor Shares (VBMFX)
27% Total International Admiral Shares (VTIAX)

His 401K (50% of total):
50% TSM approximated as quoted above
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Re: Help with 401K in Mass Mutual & opening new taxable acco

Postby blurryvision » Fri May 24, 2013 2:02 pm

Okay, I have made the appropriate change in my 401K (81% S&P 500, 6% Mid Cap, 13% Small Cap). This was what I was looking for. I will continue to treat my 401K as 50% of my portfolio as TSM for now.
Currently the employer match is 3%. I don't have profit sharing yet, but it will play a factor next year. Currently I am set to contribute $9,000 a year in my 401K, and will ramp up contributions after some home repairs.

Current value of my Roth IRA is $19,169
Current value of my 401K is $19,243
Total investments: $38412

Looks like my Roth IRA should be:

$3841 Total Bond Market VBMFX (10% of total investments)
$10371 Total International Admiral Shares VTIAX (27% of total investments)
$4957 Total Stock Market VTSMX (13% of total)
The numbers are very slightly off but they add up to me. When making these changes, are you suggesting I just do exchanges now?

I do want to focus more on equities for now and I think 90 / 10 (stocks / bonds) will work well for me. How often should I rebalance?

Currently I have been making weekly contributions to the Roth IRA, but I assume in the future I can't just make 1 contribution and have it distributed by percentage? Do I need to individually select which index it goes in with each contribution?

Thank you.


mnvalue wrote:First off, according to http://www.bogleheads.org/wiki/Approxim ... ock_Market you should be 81% S&P 500, 6% Mid Cap, and 13% Small Cap in the 401k. Then you can treat your whole 401k (50% of your portfolio) as if it was TSM. If you want 90% stock and 30% of stock international, then you calculate .9 * .7 = .63 (63%) is domestic and .9 * .3 = .27 international. Since you already have 50% of domestic in your 401k, you need another 13% (of the portfolio) of TSM in your Roth IRA. Then, you need 27% international (TISM) in your Roth IRA. And finally, the 10% Total Bond Market. In the Roth IRA, you can only meet the Admiral Shares minimum for TISM. And you're fine on the minimum for the other funds in Investor Shares, so everything works out. Now, over time, assuming more of your contributions go to your 401k than the Roth IRA (because of the lower limit there), you're probably going to need to reduce TSM in the Roth IRA to rebalance. But that's okay, you have to rebalance periodically in any portfolio. Do it via exchanges in your Roth IRA, not separate buys and sells. (It's simpler and faster.) It'd be easier to stay in balance if you had your wife's Roth IRA included in the total portfolio. But you can worry about that problem (not being able to rebalance without it) later, if it actually happens.

If you let me know how much you're planning to contribute (and how much company match and/or profit sharing you receive) to each account, I can suggest the best contribution percentages (to minimize rebalancing other than caused by the market) for the Roth IRA. In the 401k, you'll contribute the same as the allocation listed above (81% S&P 500, 6% Mid Cap, 13% Small Cap).

His ROTH IRA:
13% Total Stock Market Investor Shares (VTSMX)
10% Total Bond Market Investor Shares (VBMFX)
27% Total International Admiral Shares (VTIAX)

His 401K (50% of total):
50% TSM approximated as quoted above
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Re: Help with 401K in Mass Mutual & opening new taxable acco

Postby blurryvision » Fri May 24, 2013 4:12 pm

Ok it's done!

My portfolio is where I want it to be. I've combined my 401K and Roth IRA into "one" investment mix of 90% stocks / 10% bonds.

For the stock index I have divided it up between 70% domestic and 30% international.

My 401K will be all equities designed to mimic VTSMX (81% S&P 500, 6% Mid Cap, and 13% Small Cap)
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