401K and AA

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gravity
Posts: 7
Joined: Thu Aug 28, 2014 12:22 pm

401K and AA

Post by gravity »

Current retirement assets:

Taxable
21% (41k) Total Stock Market (VTSAX) (0.05)

His 401k
13% (25k) 500 Index (VFINX) (0.17)
15% (30k) Capital Opportunity (VHCOX) (0.48)
15% (29k) Wellington (VWELX) (0.26)

His Roth IRA
4% (8k) Total Stock Market (VTSAX) (0.05)
9% (17k) REIT (VGSLX) (0.10)

His Company Stock
5% (10k)

Her Roth IRA
18% (35k) Total Stock Market (VTSAX) (0.05)


Contributions:

New annual Contributions
$17,500 his 401k (company match 100% up to 3%, 50% up to 5%)
$5,500 his Roth IRA
$5,500 her Roth IRA
$7,500 company stock (company match of 3% - I sell whatever I can every year and roll into my taxable Vanguard)
$10,000 taxable (plus my company stock sales, so maybe 17.5k total now)

Available funds:

Funds available in his 401(k)
Vanguard Target Retirement Income Fund, VTINX, 0.16%
Vanguard Target Retirement 2010 Fund, VTENX, 0.16%
Vanguard Target Retirement 2015 Fund, VTXVX, 0.16%
Vanguard Target Retirement 2020 Fund, VTWNX, 0.16%
Vanguard Target Retirement 2025 Fund, VTTVX, 0.17%
Vanguard Target Retirement 2030 Fund, VTHRX, 0.17%
Vanguard Target Retirement 2035 Fund, VTTHX, 0.18%
Vanguard Target Retirement 2040 Fund, VFORX, 0.18%
Vanguard Target Retirement 2045 Fund, VTIVX, 0.18%
Vanguard Target Retirement 2050 Fund, VFIFX, 0.18%
Vanguard Target Retirement 2055 Fund, VFFVX, 0.18%
Vanguard Target Retirement 2060 Fund, VTTSX, 0.18%
Vanguard Wellington Fund Investor Shares, VWELX, 0.26%
Vanguard Total Bond Market Index Fund Investor Shares, VBMFX, 0.20%
Vanguard 500 Index Fund, VFINX, 0.17%
Baron Small Cap Fund Retail Class, BSCFX, 1.31%
Dodge & Cox Stock Fund, DODGX, 0.52%
Vanguard Capital Opportunity Fund Investor Shares, VHCOX, 0.48%
Vanguard Growth and Income Fund Investor Shares, VQNPX, 0.36%
Vanguard U.S. Growth Fund Investor Shares, VWUSX, 0.45%
Templeton Foreign Fund Class A, TEMFX, 1.19%
Vanguard Total International Stock Index Fund Investor Shares, VGTSX, 0.22%


Questions:

1) I am not sure what my correct asset allocation should be. Currently I have about 5% bonds coming from the Wellington fund, none directly though. Should I bump this up to 10% (or more), and if so how? Should I buy a bond index fund? Also, what account do I do this in? All my accounts are Vanguard (401k, Roth, and Taxable). I am 32, but 30% bonds seems SO high!

2) To go along with #1, I am very unsure what to buy in my 401k. I have Capital Opportunity just because its done great (doesn't mean it will continue obviously, and now that 48 basis points seems high). I have Wellington for the bonds, which doesn't seem smart on paper to me (why not just buy a bond fund?). The performance has been good though (thanks Jack!). My question is, do I continue to hold VHCOX and VWELX? Do I just index more and shove it all into VFINX? All this Bogle reading I've done seems stupid to hold these managed funds (even though Jack does, and they are low expense). And the 401k plan doesn't offer Admirable shares (arrrggg!).

3) I don't know how I need to diversify into other markets (REIT, International, etc). Right now I hold some REITs because I read a lot about how they are uncorrelated to regular stocks (yet still perform well with good dividends). Do I continue to hold these, and if so still 10%? What about international? I've read holding the entire US market gives you international exposure, I don't know if that holds water in reality though.

I am 32, married filing jointly. I save a very high percentage of my income (including my mortgage). My appetite for risk I would say is pretty high. Given my time horizon I want to maximize my returns with a high equities exposure, even if it will be a bumpy ride. I like a simple portfolio, but I like to manage it myself as well (I enjoy it).

Thanks for all the help, and ANY advice you can give is better than none!
jf89
Posts: 426
Joined: Sun Aug 11, 2013 11:53 pm

Re: 401K and AA

Post by jf89 »

If I were in your situation, I would pick the Target Date fund in my 401k that best met my current AA (great thread on this from the last few days http://www.bogleheads.org/forum/viewtop ... st=2170945).

Then in the two IRAs I'd buy Total International and Total Bond to balance the Total Stock in the taxable account (to the target AA).

Simplicity is a great thing, and you have the opportunity to keep things oh so simple across four accounts that a lot of people don't have because of poor 401k options that force some awkward fund combinations.
"Save as much as you can, diversify diversify diversify, and you can't go wrong with tech stocks" | -First investing advice I recall from my parents in the 90's (two outta three ain't bad)
investor1
Posts: 1050
Joined: Thu Mar 15, 2012 8:15 pm

Re: 401K and AA

Post by investor1 »

Read http://www.bogleheads.org/wiki/Asset_al ... C_and_need

I think a good way to pick an AA is to consider a 50% drop in equities and think about how much that can affect your portfolio without you freaking out and diverting off course (aka selling).

If you don't want to own REITs, sell them. Many people don't hold them, so you won't be lonely.

Honestly, your AA doesn't seem bad given your age. I've seen a number of target date funds tend to stay at 90/10 until they are 30 years from the target date. If you plan on retiring at 65, that shift would begin at age 35.

You could buy target date funds and call it a day, but since you have a taxable account, you should understand the tax consequences of asset classes and how to leverage your various accounts to lower your tax bill. Read http://www.bogleheads.org/wiki/Principl ... _placement. Target date funds would make it difficult to utilize this knowledge.

I think you should simplify and setup a three or four fund portfolio. Read http://www.bogleheads.org/wiki/Three-fund_portfolio. Vanguard's TD funds are four fund'ers. They also have international bonds. Figure out what you want to do and do that. You'll just have to handle the rebalancing and AA shifting yourself. You don't have access to a TSM fund in your 401k. Here are some options:
1. You could say, "Whatever, the S&P tracker is good enough."
2. You could also hold all or most of your US stocks in another account.
3. You could read over http://www.bogleheads.org/wiki/Approxim ... ock_market and use the S&P tracker along with other funds (in other accounts) to roll your own TSM.

The Wellington is a fine fund, but it makes it difficult to rebalance. Holding total market funds where each asset class is in its own fund makes it easier.
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