Help with Mom's 401K Allocation

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Topic Author
Sales6280
Posts: 65
Joined: Thu Feb 06, 2014 6:49 am

Help with Mom's 401K Allocation

Post by Sales6280 »

My mother has approximately 10 years to retirement. She shared her 401K with me for the first time (asking me for help) and I feel like she is in way too many funds. I would appreciate some insight on her asset allocation. For the time being her 401k is her only retirement vehicle. Taxable and IRA are not an option.

Gross Income: 150k/year
Tax Filing Status: Single
Tax Rate: 25% Federal / 0% State
State of Residence: FL
Age: 57
Desired Allocation: 50% stock / 50% bond
Desired International: not sure

Contributions
10% Salary to 401K, 6% Employer Match

This is how her portfolio is currently allocated. These are also her only fund choices. Your help is greatly appreciated.

- DODGE & COX INTERNATIONAL ST (.64%) 11.01%

- MIDAMERICAN STABLE VALUE FD (.45%) 18.94%

- PIMCO TOTAL RETURN PORT. INSTL (.46%) 7.94%

- SSGA INTERNATIONAL EAFE IND TR (.18%) 3.01%

- SSGA PASSIVE BOND MRKT INDX TR (.12%) 25.90%

- SSGA RUSSELL 1000 LRG CAP VAL (.09%) 3.01%

- SSGA RUSSELL 2000 SML CAP IND (.13%) 10.97%

- SSGA S&P 500 INDEX (.10%) 16.19%

- THE OAKMARK EQUITY & INCOME FD (.77%) 3.03%
Last edited by Sales6280 on Tue Feb 24, 2015 3:34 pm, edited 3 times in total.
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Christine_NM
Posts: 2796
Joined: Tue Feb 20, 2007 12:13 am
Location: New Mexico

Re: Help with Mom's 401K Allocation

Post by Christine_NM »

Maybe more funds than necessary but not "way too many". I've heard of 401k investors tending to put a little in each fund available just because it was there.

She seems to be roughly age-in-bonds, though that may be by accident not design.

If it were me I'd use only the S&P fund, have international in a taxable account, and mostly bonds/some stock in an IRA.

You may want to post the whole portfolio according to the usual format to get decent advice. Sorry I don't know where the link is, but I am sure someone will post it.

ETA: Link to Asking Portfolio Questions: http://www.bogleheads.org/forum/viewtopic.php?t=6212 Make sure it is OK with Mom before you post her portfolio.
16% cash 49% stock 35% bond. Retired, w/d rate 2.5%
Topic Author
Sales6280
Posts: 65
Joined: Thu Feb 06, 2014 6:49 am

Re: Help with Mom's 401K Allocation

Post by Sales6280 »

Thank you I've updated my original post
dirkronk
Posts: 58
Joined: Thu Jan 01, 2015 4:58 pm

Re: Help with Mom's 401K Allocation

Post by dirkronk »

My knee-jerk response: she has better choices than I have in my 401(k). But streamlining could be accomplished. In fact, you could go one of two quite different ways.

Since this is the Boglehead site, I assume something like this would be first consideration:

- SSGA INTERNATIONAL EAFE IND TR (.18%) 15%
- SSGA PASSIVE BOND MRKT INDX TR (.12%) 35%
- SSGA RUSSELL 2000 SML CAP IND (.13%) 15%
- SSGA S&P 500 INDEX (.10%) 35%

Adjust percentages as desired. Drop the Russell Small Cap/add to S&P 500 to simplify further. Nothing wrong with letting the big boys dominate the equity space. Add new funds to S&P and, gradually, Bond index.

If the market weren't a long-in-tooth bull and with a bond hickey awaiting us, too, I'd feel pretty good about the choices above. However, I'm a bit torn. I looked up the bond fund and am not that impressed vs the PIMCO (even with Gross now gone)...plus, international is a bit dicey right now. In short, this is one time when I don't think experienced active managers at the helm of those two segments would be a bad thing. Might even result in a better sleep-at-night combo in the current market. Why? Because I see three remarkably good actively managed funds here, with good teams and ERs well under 1%...not often can you find that in 401(k) options. So an alternative though pretty non-Bogle approach might be:

- DODGE & COX INTERNATIONAL ST (.64%) 20%
- PIMCO TOTAL RETURN PORT. INSTL (.46%) 30%
- THE OAKMARK EQUITY & INCOME FD (.77%) 50%

Since the Oakmark is a balanced fund, its 13% bond allocation dovetails with the 30% PIMCO to get to approximately 35% for the overall portfolio. Or you could do 35% for PIMCO and swap out the Oakmark for 45% S&P 500 Index for a purer bond+equity option. Obviously, percentages are rather arbitrary, meant to roughly approximate those in the passive portfolio. I imagine many folks would want to up the bond allocation significantly above 35%, given your mom's age, but I'm upping it from where she has it now.

Remember, all just my opinion. Good luck and good for you for helping your mom out.

Dirk

OK...mea culpa. I composed my reply before noting the the 50% equity/50% bond allocation desire. Obviously, that was not taken into account in my suggested split among funds. For the passive: 50 bond/10 int'l/10 small cap/30 lg cap. For the active option, perhaps 45bond/10int'l/45equity, recalling the 13% bond component in Oakmark.
Topic Author
Sales6280
Posts: 65
Joined: Thu Feb 06, 2014 6:49 am

Re: Help with Mom's 401K Allocation

Post by Sales6280 »

Thanks for our comments. I like the idea of the folowing allocation. Simple and low expenses.

- SSGA INTERNATIONAL EAFE IND TR (.18%) 15%
- SSGA PASSIVE BOND MRKT INDX TR (.12%) 35%
- SSGA S&P 500 INDEX (.10%) 50%

Edit

I think the following 60/40 could work. Any reason to keep Pimco Total Return vs just using SSGA Passive bond for all 40% of bonds?

- PIMCO TOTAL RETURN PORT. INSTL (.46%) 20%

- SSGA INTERNATIONAL EAFE IND TR (.18%) 10%

- SSGA PASSIVE BOND MRKT INDX TR (.12%) 20%

- SSGA S&P 500 INDEX (.10%) 50%
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Watty
Posts: 28860
Joined: Wed Oct 10, 2007 3:55 pm

Re: Help with Mom's 401K Allocation

Post by Watty »

Sales6280 wrote:Thanks for our comments. I like the idea of the folowing allocation. Simple and low expenses.

- SSGA INTERNATIONAL EAFE IND TR (.18%) 15%
- SSGA PASSIVE BOND MRKT INDX TR (.12%) 35%
- SSGA S&P 500 INDEX (.10%) 50%

You should see this wiki if you have not already seen it.

http://www.bogleheads.org/wiki/Three-fund_portfolio

Only having 35% in bonds is pretty high unless she has other investments that provide a lot of bond exposure. If she does have other investments then she should look at her overall asset allocation across all accounts and make sure the investments are in most tax efficient accounts.

http://www.bogleheads.org/wiki/Principl ... _placement
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Watty
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Re: Help with Mom's 401K Allocation

Post by Watty »

Sales6280 wrote:Any reason to keep Pimco Total Return vs just using SSGA Passive bond for all 40% of bonds?

- PIMCO TOTAL RETURN PORT. INSTL (.46%) 20%

Not with the higher ER.
dirkronk
Posts: 58
Joined: Thu Jan 01, 2015 4:58 pm

Re: Help with Mom's 401K Allocation

Post by dirkronk »

Watty wrote:
Sales6280 wrote:Any reason to keep Pimco Total Return vs just using SSGA Passive bond for all 40% of bonds?

- PIMCO TOTAL RETURN PORT. INSTL (.46%) 20%

Not with the higher ER.

If you adhere strongly to a purist indexing philosophy, this is your answer. And you can't deny the appeal of simplicity. Otherwise, it may be a little more complicated than that. It is for me, I confess...bonds make my head hurt just a tad. Here, both funds ostensibly cover the same territory, but PIMCO earned most of its rep on finding inefficiencies in the bond realm. Result: based on 10-year growth of a $10K investment, PTTRX showed 15.2% outperformance compared to the SSgA ($18.1K vs. $15.7K). Of course, historic returns don't guarantee future ones. And if you think Bill Gross was some kind of magician who has now taken the mojo away from PIMCO, then no...but I have to assume they have a little deeper bench than that (hence my comment about Gross earlier). Your call.

Dirk
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