Help to choose right 401k mix

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Help to choose right 401k mix

Postby samsnow25 » Tue Apr 10, 2012 11:12 am

Hello and thank you in advance to everyone who takes time to offer advice to novice investors such as myself. I was referred by good folks at TFB.

I am a IT guy with 80k salary. Wife makes 78k.1 Child – 4 year old. Not planning for more.
Emergency funds = 20k in checking, 50k in CDs.
Debt: mortgage – 210k, 15 years at 3.5%.
Tax Filing Status: MFS - better return because of Ohio tax tables
Tax Rate: 25% Federal 6% State - OH
Age: 34, 32
Desired Asset allocation: (60/40). After more reading, I think this should be (65/35). We tend to be more conservative.
Intl allocation: unknown


Current portfolio:
Taxable - None
Roth/IRA – None (income limit / filing status). Also, our goal is to maximize 401k first.
His 401k (22k)
15.37 % BLACKROCK GLOBAL ALLOC I (MALOX) (0.90)
10.26% NORTHERN TR CL AGG BD IDX II (benchmark - BarCap US Govt/Credit 5-10 Yr TR USD ) (0.04)
74.37% RETIREMENTDATEFUND 2045 (Benchmark - Morningstar Lifetime Moderate 2045) (0.23)
Company Match? yes

Her 401k (8k)
73.39 % JPMorgan Smart Retirement 2045 (JSAAX) (1.43/1.04)
13.94% Bank Equity Index Fund (KNIEX) (0.60/0.20)
12.67% BlackRock Inflation Protected Bond (BPRAX) (0.99/0.86)
Company Match? yes

New annual Contributions
I am almost maxing out my 401k. We want to start maxing out hers.

Funds available in his 401(k)
EQUITY/STOCK
ABERDEEN EMERGING MARKETS INST 1.10%
Emerging Markets Funds
DODGE & COX INTERNATIONAL ST 0.65%
International Large-Cap Core
LARGE CAP EQUITY 0.43%
NORTHERN TR CL EAFE INDX FD II 7 0.08%
NORTHERN TR CL RUSSELL 2000 II 6 0.07%
NORTHERN TR CL S&P 400 IDX II 5 0.06%
NORTHERN TR CL S&P 500 IDX II 4 0.02%
SMALL & MID CAP EQUITY FUND 0.84%
BOND/FIXED INCOME
NORTHERN TR CL AGG BD IDX II 3 0.04%
MONEY MARKET/STABLE VALUE
FIXED INCOME FUND 1 0.26%
ALLOCATION FUNDS
BLACKROCK GLOBAL ALLOC I 0.90%
RETIREMENTDATEFUND 2020 0.28%
RETIREMENTDATEFUND 2025 0.26%
RETIREMENTDATEFUND 2030 0.25%
RETIREMENTDATEFUND 2035 0.24%
RETIREMENTDATEFUND 2040 0.23%
RETIREMENTDATEFUND 2045 0.23%
RETIREMENTDATEFUND 2050 0.23%

Funds available in her 401(k)
JPMorgan Smart Retirement Income A JSRAX 1.17 / 0.88
JPMorgan Smart Retirement 2010 A JSWAX 1.16 / 0.86
JPMorgan Smart Retirement 2015 A JSFAX 1.21 / 0.91
JPMorgan Smart Retirement 2020 A JTTAX 1.24 / 0.94
JPMorgan Smart Retirement 2025 A JNSAX 1.29 / 0.99
JPMorgan Smart Retirement 2030 A JSMAX 1.33 / 1.02
JPMorgan Smart Retirement 2035 A SRJAX 1.37 / 1.04
JPMorgan Smart Retirement 2040 A SMTAX 1.37 / 1.04
JPMorgan Smart Retirement 2045 A JSAAX 1.43 / 1.04
JPMorgan Smart Retirement 2050 A JTSAX 1.43 / 1.04
American Funds EuroPacific Growth Fd REREX 0.85 / 0.85
Eaton Vance Structured Emerging Mkts A EAEMX 1.45 / 1.45
Nuveen Real Estate Securities A FREAX 1.29 / 1.29
Alger Small Cap Growth A ALSAX 1.43 / 1.43
Columbia Small Cap Value I Fund – A CSMIX 1.33 / 1.33
Dreyfus Small Cap Stock Index Fund DISSX 0.51 / 0.50
Principal MidCap S&P 400 Index Inst MPSIX 0.27 / 0.27
Prudential Jennison Mid Cap Growth A PEEAX 1.09 / 1.09
RidgeWorth Mid-Cap Value Equity A SAMVX 1.35 / 1.35
Allianz AGIC Growth A PGWAX 1.16 / 1.16
Columbia Dividend Income A LBSAX 1.06 / 1.00
Fifth Third Equity Index Fund – Instl KNIEX 0.60 / 0.20
American Century Diversified Bond Inv ADFIX 0.61 / 0.61
Artio Global High Income A BJBHX 1.01 / 1.00
BlackRock Inflation Protected Bond A BPRAX 0.99 / 0.86
Fidelity Advisor Government Income A FVIAX 0.76 / 0.76
Fifth Third Short Term Bond Instl KNLMX 0.80 / 0.47

Questions:
1. My immediate goal is to max out 401ks. I need help to choose right funds to achieve (60/40).
2. How often should I rebalance? When I do so, should I move existing money as well as new contributions? Should I be picking new funds during this process or generally stick with the ones I already have.
3. I am looking at options to save on taxes, as well as plan to retirement and kid’s education. I started 529 plan last week. Any other suggestions/tax strategies? I am unable to do Roth IRA because of filing status.
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Re: Help to choose right 401k mix

Postby Johm221122 » Tue Apr 10, 2012 9:43 pm

70,000 in EF is large and produces taxable income maybe put some in I bonds
his 401 useEAFE index (international) s&p 400 index,Russell 2000 index,500 index stable value
Her fifththird short term bond and fifth third equity index
Rebalance once a year
You are doing fine
Total portfolio would look like
15% international 10%sp400 5% Russell 2000 30% large cap 40% bond
I would move $50000 CD into I bonds over 3 years
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Re: Help to choose right 401k mix

Postby hoppy08520 » Tue Apr 10, 2012 10:10 pm

samsnow25 wrote:Principal MidCap S&P 400 Index Inst MPSIX 0.27 / 0.27
Prudential Jennison Mid Cap Growth A PEEAX 1.09 / 1.09
RidgeWorth Mid-Cap Value Equity A SAMVX 1.35 / 1.35
Allianz AGIC Growth A PGWAX 1.16 / 1.16
Columbia Dividend Income A LBSAX 1.06 / 1.00
Fifth Third Equity Index Fund – Instl KNIEX 0.60 / 0.20

I'm confused about how you're formatting the expense ratio for Her 401k Plan options. What's the first and second number, and why are they sometimes the same and sometimes different? When I look up the tickers, it seems that the second number is the "base" ER. Is the first number the total combined ER you actually pay, with an additional surcharge baked in?
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Re: Help to choose right 401k mix

Postby hoppy08520 » Tue Apr 10, 2012 11:31 pm

Welcome to the forum.

You posted on the Boglehead site, so following the Bogleheads® investment philosophy, here's a way you can fashion a pretty good Three-fund portfolio from among your 401k plan choices. The 3-fund portfolio contains three main funds, held in a ratio that matches your asset allocation:
* Total US Stock Index
* Total International Stock Index
* Total Bond Index

I think your current choices are a bit askew, and you are choosing higher-fee funds when you have lower-fee alternatives. For example, you have target date retirement funds in both accounts, yet you also have some single-sector funds. That causes your overall asset allocation to be off and it also means you're distorting your holdings by over-investing in some sectors and under-investing in others.

When assembling a couple's portfolio, you can often start with looking at the least bad option in the lesser of the two 401k plans. The lesser plan is obviously Hers. Among the better choices are the S&P 500 index fund Fifth Third Equity Index Fund – Instl KNIEX. You can approximate the Total US Stock Market by holding this fund and a complementary Russell 2000 fund in an 86:14 ratio per Approximating Total Stock Market, and that's what I'm suggesting below.

You don't specify how much international stock you want to hold, but let's just say one-third of your overall stocks, so you'll be 40% US stock, 20% international stock, and 40% bonds. With that asset allocation, you could do this:

His 401k
40% NORTHERN TR CL AGG BD IDX II (benchmark - BarCap US Govt/Credit 5-10 Yr TR USD ) (0.04)
20% NORTHERN TR CL EAFE INDX FD II 7 0.08%
7.73% NORTHERN TR CL S&P 500 IDX II 4 0.02%
5.60% NORTHERN TR CL RUSSELL 2000 II 6 0.07% <<-- completes your combined holdings in S&P 500 fund

Her 401k
26.66% Fifth Third Equity Index Fund – Instl KNIEX 0.60 / 0.20

Highlights:
* Use the S&P 500 fund in her 401k because it's the cheapest broad-market index fund
* Put all the bonds in your 401k because that's the cheapest and best fund.
* Put all your international allocation in the EAFE fund. Be aware that this excludes emerging markets. You didn't seem to have a good EM fund.
* As described above, your US Total Stock Market holding is comprised of a mix of funds in both of your accounts.
* If you want to lower (or raise) your international component, then lower it in your 401K and raise the amount in your S&P 500/Russell 2000 funds by the same amount, holding to the 86:14 ratio. FWIW, Vanguard Target Date funds generally hold 30% of stocks in international, so 33.33% is not far off. Most people in this site recommend between 20% and 40% of your stocks to be in international stocks (although some say higher than that).
* For ongoing contributions, ensure that you maintain the 86:14 ratio between the Russell 2000 in your 401k and the combined totals in your S&P 500 funds as best you can, but don't lose sleep over it. Just try to keep it close.
* As your balances rise in both accounts, at some point you may need to use other funds in her 401k because the S&P 500 fund in her account will get too large relative to your overall portfolio and desired AA. When you get to that point, you might want to look at American Funds EuroPacific Growth Fd REREX 0.85 / 0.85 in her 401k and start putting some international funds there. This fund tracks pretty closely with the Vanguard Total Stock Market Index (a fact that I learned from this thread) so it's a good choice for your international holdings.

samsnow25 wrote:
2. How often should I rebalance? When I do so, should I move existing money as well as new contributions? Should I be picking new funds during this process or generally stick with the ones I already have.

If you decide you want to change up your fund choices, then I'd do it all at once and get in the funds you want to be in. I don't think you need to do a gradual approach on it. What is suggested above isn't radically different from what you have now, only more consolidated and in lower-fee index funds. If you were changing your overall AA radically, then you might want to phase it in but in your case I don't think that's necessary.

samsnow25 wrote:
3. I am looking at options to save on taxes, as well as plan to retirement and kid’s education. I started 529 plan last week. Any other suggestions/tax strategies? I am unable to do Roth IRA because of filing status.

Have you thought about doing a Backdoor Roth IRA? You could open up an emerging markets fund in a Roth IRA to "complete" the EAFE fund in your 401k so you'll own the Total International Stock Market (replicating the Vanguard Total International Stock Index Fund Investor Shares (VGTSX) fund).
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Re: Help to choose right 401k mix

Postby Johm221122 » Wed Apr 11, 2012 9:05 am

I would definitely do two funds in wife's 401,it will be easier to rebalance.Also,you need both small and mid cap index in husband's 401 to match total market
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Re: Help to choose right 401k mix

Postby samsnow25 » Wed Apr 11, 2012 2:44 pm

Hoppy and Johm,
Thank you for taking time and detailed responses. I will take look at I-Bonds and Backdoor Roth IRA once I complete 401 mix.

As far as fees on her plan, here are details for 2 options in consideration. Please let me know if this should change anything.

Fee Summary (Fifth Third Equity Index Fund – Instl KNIEX)
Gross Expense Ratio (07/31/2011) ......................... 0.60%
Net Expense Ratio ............................................ 0.20%
Management Fee ............................................. 0.30%
12b-1 Fee ..................................................... NA
Other Expenses ............................................. 0.30%
Redemption Fee ............................................. NA

Fee Summary (Fifth Third Short Term Bond Instl KNLMX)
Gross Expense Ratio (07/31/2011) ......................... 0.80%
Net Expense Ratio ............................................ 0.47%
Management Fee ............................................. 0.50%
12b-1 Fee ..................................................... NA
Other Expenses ............................................... 0.30%
Redemption Fee ............................................... NA

I like both the approaches. It will be easier to have stock and bond mix in her plan to help with rebalancing. I tried to come up with following hybrid approach. Please let me know what you think, any adjustments?.

His 401k:
NORTHERN TR CL S&P 500 IDX-----10%
NORTHERN TR CL EAFE INDX-------36%
NORTHERN TR CL RUSSELL 2000 --24%
NORTHERN TR CL AGG BD IDX ----30%
Her 401k:
Fifth Third Equity Index Fund------50%
Fifth Third Short Term Bond-------50%
Combined mix:
Total Stock – 60% (42% US + 18% Int). 42% US = 30% Large cap + 12% Small Cap
Total Bond – 40%
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Re: Help to choose right 401k mix

Postby hoppy08520 » Wed Apr 11, 2012 5:52 pm

samsnow25 wrote:It will be easier to have stock and bond mix in her plan to help with rebalancing. I tried to come up with following hybrid approach. Please let me know what you think, any adjustments?.

His 401k:
NORTHERN TR CL S&P 500 IDX-----10%
NORTHERN TR CL EAFE INDX-------36%
NORTHERN TR CL RUSSELL 2000 --24%
NORTHERN TR CL AGG BD IDX ----30%
Her 401k:
Fifth Third Equity Index Fund------50%
Fifth Third Short Term Bond-------50%
Combined mix:
Total Stock – 60% (42% US + 18% Int). 42% US = 30% Large cap + 12% Small Cap
Total Bond – 40%

Just one thought on this. You have 30% large cap and 12% small cap. This means you have a very strong small cap tilt. Per Approximating Total Stock Market, you should have a 86:14 ratio of S&P 500 to Russell 2000. Are you aware that you've tilted this much and is this what you want to do?
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Re: Help to choose right 401k mix

Postby retiredjg » Thu Apr 12, 2012 1:16 pm

samsnow25 wrote:I like both the approaches. It will be easier to have stock and bond mix in her plan to help with rebalancing. I tried to come up with following hybrid approach. Please let me know what you think, any adjustments?.

His 401k:
NORTHERN TR CL S&P 500 IDX-----10%
NORTHERN TR CL EAFE INDX-------36%
NORTHERN TR CL RUSSELL 2000 --24%
NORTHERN TR CL AGG BD IDX ----30%
Her 401k:
Fifth Third Equity Index Fund------50%
Fifth Third Short Term Bond-------50%
Combined mix:
Total Stock – 60% (42% US + 18% Int). 42% US = 30% Large cap + 12% Small Cap
Total Bond – 40%



Samsnow25, you are headed in the right direction, but it appears to me you've done the math wrong. If you break this down into percentage of portfolio (both accounts together) rather than percentage of account, it translates into this rather than your "combined mix" above:


His 401k 73% of portfolio
7.3% NORTHERN TR CL S&P 500 IDX (10% of account)
26.3% NORTHERN TR CL EAFE INDX (36% of account)
17.5% NORTHERN TR CL RUSSELL 2000 (24% of account)
21.9% NORTHERN TR CL AGG BD IDX (30% of account)

Her 401k 27% of portfolio
13.5% Fifth Third Equity Index Fund (50% of account)
13.5% Fifth Third Short Term Bond (50% of account)


Combined mix:
20.8% 500 Index
17.5% Russell 2000 (small cap)
26.3% EAFE
35.4% Bonds

This would be a portfolio set at 65% stock, 35% bonds, with 40% of stock (26.3% of portfolio) in international. This is a fine idea if you want to overweight the small cap stocks (which many people find desirable). If you want something that is approximately like the total stock market, you would want:

Combined mix:
32.9% 500 Index
5.4% Russell 2000 (small cap)
26.3% EAFE
35.4% Bonds

See if you can figure out how you did the math wrong (it's not apparent to me) and whether the approach I took makes sense to you. Once it clicks in your mind, it is much easier to do percentage of portfolio.

Some things you might want to consider.

1) The bond fund in her 401k is a short term bond fund. Since this is a retirement portfolio, I think it would be better to have less of the short term bond fund and more of the intermediate term bond fund in His 401k (a total bond market index fund). I agree it is easier to have a stock and a bond fund in each account. I just don't think I'd put half of Her 401k into short term bonds. Maybe 1/4 short term bonds and 3/4 of the Fifth Third Equity Index Fund.

2) The current idea has about 40% of stock in foreign stocks. This is not crazy nuts, but it is on the aggressive side of the range suggested by Vanguard (20% to 40% of stocks). Since you describe yourselves as conservative, you might consider dialing that back to 30% of stocks. This would give your international fund a wider range to wander up and down without getting too aggressive. In other words, it could wander between 25% of stocks and 35% of stocks without needing any action on your part. Did that make sense?

All of the portfolio ideas so far are fairly similar. It just seems you need to narrow down the final details like the two things above (and maybe some other things I didn't think of) and then make a plan based around those final decisions.


1. My immediate goal is to max out 401ks. I need help to choose right funds to achieve (60/40).

I think everyone is close to agreement on the best funds to choose.

2. How often should I rebalance? When I do so, should I move existing money as well as new contributions? Should I be picking new funds during this process or generally stick with the ones I already have.

The word "rebalance" means to bring your percentages back to your targets. If you start with what you want and contribute in the same percentages, you will only need to rebalance once a year under normal market conditions. In a huge run-up or in a crash, you might want to keep and eye on it and rebalance as things get out of whack by 5% or so. For example, if your stock to bond ratio wanders to 71/29 in a bull market, you might want to rebalance back to 65/35 or at least closer to 65/35 so that your portfolio does not get more aggressive than your plan. The opposite would happen in a crash.

So, yes, you would change all your existing money to the funds you want. Then you would keep the portfolio on track by contributing in the same percentages. And you would check once a year to be sure your numbers are near their targets. If not, rebalance either by selling and buying or by changing your contributions to build up the asset class you are short of. There is no reason to pick new funds for this process.

3. I am looking at options to save on taxes, as well as plan to retirement and kid’s education. I started 529 plan last week. Any other suggestions/tax strategies? I am unable to do Roth IRA because of filing status.

I think your plan of 2 401ks and a 529 is just fine.

I believe you can add on a Roth IRA by contributing to a traditional IRA (you cannot deduct it due to your filing status) and then converting this to a Roth IRA. This is often referred to as the "back door" way to contribute to Roth IRA. If you convert immediately, there would be no earnings to keep up with and this money would be available to you (say, for an emergency) without the 5 year waiting period.

If you decide to d o this, the obvious thing to put there would be either an emerging markets fund (the EAFE fund is only developed foreign markets) or simply hold all of your international in a fund that contains both. Vanguard's Total International VGTSX is a fund that contains both developed and emerging markets. If you were to fund a Roth IRA right now (assuming you have $5k cash ready to invest) that would be 14% of your portfolio so you could hold a good portion of your international in that one place.
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Re: Help to choose right 401k mix

Postby samsnow25 » Thu Apr 12, 2012 9:58 pm

Thank you retiredjg. I ignored the existing balances from calculation and it went wrong. Here is the updated one to match your proposed combined mix.

His 401k 73% of portfolio
12.4% NORTHERN TR CL S&P 500 IDX (17% of account)
26.3% NORTHERN TR CL EAFE INDX (36% of account)
5.1% NORTHERN TR CL RUSSELL 2000 (7% of account)
29.2% NORTHERN TR CL AGG BD IDX (40% of account)

Her 401k 27% of portfolio
20.2% Fifth Third Equity Index Fund (75% of account)
6.7% Fifth Third Short Term Bond (25% of account)

1. Could you please review to make sure I got it right this time before I make these changes in our 401ks?
2. What is the easiest way to come up with combined mix to cover total market each year? Did you propose this based on age?

Thanks for the additional information about backdoor Roth IRA.
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Re: Help to choose right 401k mix

Postby Kevin M » Fri Apr 13, 2012 5:48 am

Just doing the math in my head, I'm not sure about the ratio of S&P 500 to small-cap. I would make this ratio about 4:1, since S&P 500 is about 80% of Total US last I checked. Technically you would use 80% of US in S&P 500 and 20% in an extended market fund, but small-cap and extended market perform almost the same, so I would do 20% of US in small-cap.

I personally do 40% of stocks in international, but I agree with retiredjg that 30% is a good default, since this is what Vanguard uses in it's Target Retirement and LifeStrategy all-in-one funds.

The funds look right. Just choose the lowest-cost index funds that approximate total market. I would really want to add emerging markets, since they make up about 25% of international. Backdoor Roth would help give you choices like this, but otherwise, you might use an EM fund in 401k even if higher cost; I would just check to see if it tracks something like Vanguard EM fund pretty closely; if so, I would use it.

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Re: Help to choose right 401k mix

Postby retiredjg » Fri Apr 13, 2012 10:39 am

samsnow25 wrote:His 401k 73% of portfolio
12.4% NORTHERN TR CL S&P 500 IDX (17% of account)
26.3% NORTHERN TR CL EAFE INDX (36% of account)
5.1% NORTHERN TR CL RUSSELL 2000 (7% of account)
29.2% NORTHERN TR CL AGG BD IDX (40% of account)

Her 401k 27% of portfolio
20.2% Fifth Third Equity Index Fund (75% of account)
6.7% Fifth Third Short Term Bond (25% of account)

1. Could you please review to make sure I got it right this time before I make these changes in our 401ks?

This looks good if you want 40% of your stocks in international.


2. What is the easiest way to come up with combined mix to cover total market each year?

Here's an example using $16k to His 401k and $12k to Her 401k (made up numbers based on your first post).

Total Contributions $28k. You can split this out many ways, but this seems the easiest.

35% ($9,800) goes to bonds <--$7040 to His and $2760 to Hers
26% ($7,280) goes to the international fund <--His
33% ($9,240) goes to 500 Index <--Hers
6% ($1,680) goes to the Russell 2000 <--His


Did you propose this based on age?

No. I based in on the 65/35 you said you wanted. But it is in a range that is appropriate for your age.
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Re: Help to choose right 401k mix

Postby retiredjg » Fri Apr 13, 2012 10:48 am

Kevin M wrote:Just doing the math in my head, I'm not sure about the ratio of S&P 500 to small-cap.

According to the Wiki article on approximating total stock market, the right ratio is 86:14 when using the Russell 2000 Index. I have not run that through Instant X-Ray myself, but I assume it is correct. I think using 80/20 would be fine as well and some people do like to do their math with rounder numbers.

Wiki article link: Approximating Total Stock Market
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Re: Help to choose right 401k mix

Postby samsnow25 » Fri Apr 13, 2012 12:47 pm

Thanks Kevin and retiredjg . I think I am getting pretty close to finalize this with you help. Here is my updated allocation.
The % in bracket will be my allocation during rebalancing (hopefully soon).

His 401k:
18 % NORTHERN TR CL S&P 500 IDX (24% of account)
20 % NORTHERN TR CL EAFE INDX (27% of account)
7 % NORTHERN TR CL RUSSELL 2000 (9% of account)
29.2% NORTHERN TR CL AGG BD IDX (40% of account)
Her 401k:
20.2% Fifth Third Equity Index Fund (75% of account)
6.7% Fifth Third Short Term Bond (25% of account)

I have considered 65/35 for Stock/Bond. 30% stock in International. S&P 500 to small-cap ratio at 85:15. Please let me know if I got it right this time. I am learning this by doing it and it's been fun :happy .
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Re: Help to choose right 401k mix

Postby retiredjg » Fri Apr 13, 2012 1:08 pm

samsnow25 wrote:Thanks Kevin and retiredjg . I think I am getting pretty close to finalize this with you help. Here is my updated allocation.
The % in bracket will be my allocation during rebalancing (hopefully soon).

His 401k:
18 % NORTHERN TR CL S&P 500 IDX (24% of account)
20 % NORTHERN TR CL EAFE INDX (27% of account)
7 % NORTHERN TR CL RUSSELL 2000 (9% of account)
29.2% NORTHERN TR CL AGG BD IDX (40% of account)
Her 401k:
20.2% Fifth Third Equity Index Fund (75% of account)
6.7% Fifth Third Short Term Bond (25% of account)

I have considered 65/35 for Stock/Bond. 30% stock in International. S&P 500 to small-cap ratio at 85:15. Please let me know if I got it right this time. I am learning this by doing it and it's been fun :happy .

It appears to me that you've got it!
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Re: Help to choose right 401k mix

Postby Kevin M » Fri Apr 13, 2012 3:23 pm

retiredjg wrote:
Kevin M wrote:Just doing the math in my head, I'm not sure about the ratio of S&P 500 to small-cap.

According to the Wiki article on approximating total stock market, the right ratio is 86:14 when using the Russell 2000 Index. I have not run that through Instant X-Ray myself, but I assume it is correct. I think using 80/20 would be fine as well and some people do like to do their math with rounder numbers.

Wiki article link: Approximating Total Stock Market

Got it. My thinking is that since S&P500 is 80% of market, and very high median market cap, it is good to balance it a bit more with small-cap. In looking previously at VG small-cap and extended market, they perform almost the same, so I consider them pretty much interchangeable for practical purposes. However, I see that Russell 2000 has diverged a bit more, especially in the last few years.

http://www.google.com/finance?chdnp=0&c ... IWM&ntsp=0

Personally, I would go with 80/20, but no big deal.

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Re: Help to choose right 401k mix

Postby Kevin M » Fri Apr 13, 2012 3:40 pm

I still think you should include emerging markets. Otherwise you are leaving out 25% of total international; maybe in 10 years it will be 50% of international--you really don't want a piece of that?

Like I said, I would open Roth IRAs (backdoor) and use them for EM; Vanguard EM is a good one.

Or, take a closer look at the EM fund in your 401k. Main concern is that ABERDEEN EMERGING MARKETS INST has not tracked VG EM very closely--it happens to have done a lot better, but I look more for tracking the index, because if they diverge on upside or downside, they are taking risks different than the market. This is much more significant than a 1% ER.

If you look at the chart linked below (showing one year), then drag the slider to the left, you'll see that they tracked VG EM a lot more closely (usually doing better) until middle of last year, when they managed to not drop near as much as VG EM. Then look at most recent 6 months, and they are tracking again. Hmm, almost makes me believe that some active managers actually do know what they're doing; at least they've been pretty lucky.

http://www.google.com/finance?chdnp=0&c ... UTF:ABEMX&

I probably would put at least some international in this fund if you don't do the Roths (which I think you should). Standard priority is to get the max 401k match, then IRA (Roth or TIRA), then back to 401k. If you use Roth, this gives you some "tax diversification" to hedge against unknown future tax code.

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Re: Help to choose right 401k mix

Postby samsnow25 » Fri Apr 13, 2012 4:45 pm

Kevin and retiredjg...
How about ‘Eaton Vance Structured Emerging Mkts A EAEMX 1.45 / 1.45’ in Her portfolio.
It seems to be tracking VEIEX pretty well. It has really high ER though. I am not sure if is high enough not to add it.
I looked at the composition, they seems to hold stocks for same countries, percentages are slightly different.
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Re: Help to choose right 401k mix

Postby Kevin M » Fri Apr 13, 2012 6:52 pm

samsnow25 wrote:Kevin and retiredjg...
How about ‘Eaton Vance Structured Emerging Mkts A EAEMX 1.45 / 1.45’ in Her portfolio.
It seems to be tracking VEIEX pretty well. It has really high ER though. I am not sure if is high enough not to add it.
I looked at the composition, they seems to hold stocks for same countries, percentages are slightly different.

That's a good one! You're getting the hang of this.

Yes, the ER is high, but if they've managed to track the index fund so closely for 5 years, I wouldn't worry too much about it. Remember one of the things about active managers is that they are not likely to outperform the market after costs. If they can match the market after costs, then maybe they are adding just enough value to offset their higher costs.

Hopefully there are no loads, since I notice it's share class is A. Class A shares have a front-end load, but I think it may be waived in some 401k plans. I would ask. If there's a big load, I would think twice about it.

Also consider if you are 60% stocks x 30% international x 25% EM, that's less than 5% of portfolio, so it's not a huge deal. That could even be an argument for skipping it altogether, but I just really don't like to not own any EM.

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Re: Help to choose right 401k mix

Postby retiredjg » Fri Apr 13, 2012 7:02 pm

Like Kevin, I think having emerging markets is important. Is it possible that $8k could go into a Roth IRA from the $50k you have in CDs?

Total Portfolio = 38k

His 401k 57.9% (22k)
21.3% NORTHERN TR CL S&P 500 IDX
6.6% NORTHERN TR CL RUSSELL 2000
30% NORTHERN TR CL AGG BD IDX

Her 401k 21.1% (8k)
16.1% Fifth Third Equity Index Fund
5% Fifth Third Short Term Bond

His or Her Roth IRA 10.5% (4k)
10.5% Vanguard Total International

Her Roth IRA IRA 10.5% (4K)
10.5% Vanguard Total International

Another alternative would be to just put a little (maybe $3k) into 1 Roth IRA and fill it with just the Vanguard Emerging Markets Fund VEIEX .33%. That would take much less money from your CDs.

I suppose you can use the expensive emerging markets fund in the 401k plan since you would need so little (5% of portfolio), but paying that high an expense ratio just grates on me. But in reality, you're talking a few bucks a year.
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Re: Help to choose right 401k mix

Postby retiredjg » Fri Apr 13, 2012 7:20 pm

Not sure why you would be interested in the one with the higher ER. The first one is expensive enough. :D

As you can see, there are many ways to approach this "problem".
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Re: Help to choose right 401k mix

Postby samsnow25 » Fri Apr 13, 2012 8:18 pm

retiredjg wrote:
samsnow25 wrote:Thanks Kevin and retiredjg . I think I am getting pretty close to finalize this with you help. Here is my updated allocation.
The % in bracket will be my allocation during rebalancing (hopefully soon).

His 401k:
18 % NORTHERN TR CL S&P 500 IDX (24% of account)
20 % NORTHERN TR CL EAFE INDX (27% of account)
7 % NORTHERN TR CL RUSSELL 2000 (9% of account)
29.2% NORTHERN TR CL AGG BD IDX (40% of account)
Her 401k:
20.2% Fifth Third Equity Index Fund (75% of account)
6.7% Fifth Third Short Term Bond (25% of account)

I have considered 65/35 for Stock/Bond. 30% stock in International. S&P 500 to small-cap ratio at 85:15. Please let me know if I got it right this time. I am learning this by doing it and it's been fun :happy .

It appears to me that you've got it!


Kevin and Retiredjg,

I think I will go with this one for now to keep it simple. As Kevin suspected, Eaton fund had 5.75% load.
I will keep eye on EM and study backdoor ROTH.
Thanks for all your help.
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Re: Help to choose right 401k mix

Postby retiredjg » Fri Apr 13, 2012 8:22 pm

Remember that loads are often waived within a 401k. Just because it is in the prospectus does not mean it applies to your plan.

I think you're fine without emerging markets for a little while. I would not suggest it for year after year after year. It's an important asset class.
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Re: Help to choose right 401k mix

Postby Kevin M » Fri Apr 13, 2012 9:39 pm

retiredjg wrote:Not sure why you would be interested in the one with the higher ER. The first one is expensive enough.

Because it tracks the index much more closely. One thing I've learned in evaluating poor choices in 401k funds is that ER isn't everything. I also look at turnover, number of holdings, and how well it tracks the index fund I would rather own. I would much rather pay a bit more in ER for a fund that has a solid track record of hugging the index.

Kevin
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Re: Help to choose right 401k mix

Postby Johm221122 » Fri Apr 13, 2012 9:46 pm

I think I will go with this one for now to keep it simple. As Kevin suspected, Eaton fund had 5.75% load.
I will keep eye on EM and study backdoor ROTH.
Thanks for all your help.[/quote]

I would definitely keep it simple.Keep learning, in time maybe you will want to do more.I would really think about I bonds for CD's, when rates rise you will be paying alot of unnecessary tax(with I bonds you will still have piece of mind with EF)
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Re: Help to choose right 401k mix

Postby samsnow25 » Mon Apr 23, 2012 1:27 pm

retiredjg wrote:Like Kevin, I think having emerging markets is important. Is it possible that $8k could go into a Roth IRA from the $50k you have in CDs?

Total Portfolio = 38k

His 401k 57.9% (22k)
21.3% NORTHERN TR CL S&P 500 IDX
6.6% NORTHERN TR CL RUSSELL 2000
30% NORTHERN TR CL AGG BD IDX

Her 401k 21.1% (8k)
16.1% Fifth Third Equity Index Fund
5% Fifth Third Short Term Bond

His or Her Roth IRA 10.5% (4k)
10.5% Vanguard Total International

Her Roth IRA IRA 10.5% (4K)
10.5% Vanguard Total International

Another alternative would be to just put a little (maybe $3k) into 1 Roth IRA and fill it with just the Vanguard Emerging Markets Fund VEIEX .33%. That would take much less money from your CDs.

I suppose you can use the expensive emerging markets fund in the 401k plan since you would need so little (5% of portfolio), but paying that high an expense ratio just grates on me. But in reality, you're talking a few bucks a year.


Retiredjg, Kevin and Johm,

I have finally got my arms around the concept of backdoor ROTH and would start contributions soon. Even though I missed the boat for 2011 contribution, I plan to add 2012 contributions soon and convert them to ROTH before end of the year. I have few questions around this.

1. Since ROTH contributions are in bulk and 401k is over the 1 year period, I will keep the International in his 401k to help even spread. I will allocate 5% of my ROTH to VEIEX first and then divide the remaining ROTH amongst VTSMX – 45%, VGTSX – 20% and VBMFX (or VIPSX) – 35%. This would also allow me to contribute easily in installments.
Is this a good plan?
2. In ROTH, which Bond fund one would be better, VBMFX or VIPSX ?
3. Some of these Vanguard funds are available as ETF and Investor Shares with different expense ratios. Which option is better suited for my purposes?
4. Is adding and converting to ROTH in the same calendar year a cleaner approach than say, converting the next year?

Thanks for your help.
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Re: Help to choose right 401k mix

Postby retiredjg » Mon Apr 23, 2012 1:48 pm

1. Since ROTH contributions are in bulk and 401k is over the 1 year period, I will keep the International in his 401k to help even spread. I will allocate 5% of my ROTH to VEIEX first and then divide the remaining ROTH amongst VTSMX – 45%, VGTSX – 20% and VBMFX (or VIPSX) – 35%. This would also allow me to contribute easily in installments. Is this a good plan?

Way to much trouble and mutual funds have a $3k minimum. If you do what I suggested above, there is no need for all this maneuvering. Or perhaps I misunderstood. If you need to cobble together something for a year, just use a target retirement fund with the stock to bond ratio you want.

2. In ROTH, which Bond fund one would be better, VBMFX or VIPSX ?

Does not matter.

3. Some of these Vanguard funds are available as ETF and Investor Shares with different expense ratios. Which option is better suited for my purposes?

The different expense ratios amount to a handful of dollars and that only lasts one or two years until you hit $10k (at which point the expense ratios are the same). ETFs are more trouble in my opinion, but some people like them a lot. Pick whichever you like best.

4. Is adding and converting to ROTH in the same calendar year a cleaner approach than say, converting the next year?

Some people think so. It probably does not matter a lot, but it might be easier to keep straight doing it this way.
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Re: Help to choose right 401k mix

Postby Kevin M » Mon Apr 23, 2012 2:19 pm

samsnow25 wrote:3. Some of these Vanguard funds are available as ETF and Investor Shares with different expense ratios. Which option is better suited for my purposes?
4. Is adding and converting to ROTH in the same calendar year a cleaner approach than say, converting the next year?

I would just stick with mutual funds, since they are easier to buy and sell. For ETFs, you need a brokerage account, and I think there is a $20 annual fee unless you have enough money in Vanguard funds (then they waive the fee). One advantage of ETFs is that the minimum is the price of one share--under $100, but if you want to keep your portfolio simple, this should not be a factor.

I think most people just convert within a few days of contributing to TIRA, since this minimizes any potential taxes on earnings. Some people wait longer because of a concern that the IRS may start disallowing conversions done so soon. Tfb (The Finance Buff) published a blog post on this which I'm sure you can find with a web search. Personally I think I would just convert right away.

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Re: Help to choose right 401k mix

Postby samsnow25 » Tue Apr 24, 2012 11:17 am

retiredjg wrote:
1. Since ROTH contributions are in bulk and 401k is over the 1 year period, I will keep the International in his 401k to help even spread. I will allocate 5% of my ROTH to VEIEX first and then divide the remaining ROTH amongst VTSMX – 45%, VGTSX – 20% and VBMFX (or VIPSX) – 35%. This would also allow me to contribute easily in installments. Is this a good plan?

Way to much trouble and mutual funds have a $3k minimum. If you do what I suggested above, there is no need for all this maneuvering. Or perhaps I misunderstood. If you need to cobble together something for a year, just use a target retirement fund with the stock to bond ratio you want.


Retiredjg,
Using retirement fund during ramp up would be definitely better than my approach. Thank you. This year, I will probably start with 3k in VEIEX.
During my next rebalance or when I have enough funds in ROTH to cover the entire international, I can switch to VGTSX, the way you suggested.
Would this be too frequent of buying/selling than recommended?

If I contribute 10k in ROTH, I will have to add something else so that my international allocation does not become greater than 20% (intended). I am thinking about moving some of the Bond funds from 401k to ROTH. It will look something like this.
Thoughts?

His 401k 22,000 55%
Her 401k 8,000 20%
Roth 10,000 25%

His 401k
23% NORTHERN TR CL S&P 500 IDX 42%
7% NORTHERN TR CL RUSSELL 2000 12%
25% NORTHERN TR CL AGG BD IDX 45%

Her 401k
15% Fifth Third Equity Index Fund 75%
5% Fifth Third Short Term Bond 25%

Roth
20% VGTSX 80%
5% Bond (VBMFX/VIPSX) 20%

Thanks to you and Kevin for details around mutual fund option.
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Re: Help to choose right 401k mix

Postby retiredjg » Tue Apr 24, 2012 12:17 pm

samsnow25 wrote:Using retirement fund during ramp up would be definitely better than my approach. Thank you. This year, I will probably start with 3k in VEIEX. During my next rebalance or when I have enough funds in ROTH to cover the entire international, I can switch to VGTSX, the way you suggested.
Would this be too frequent of buying/selling than recommended?

No. This type of buying and selling is not a problem. It's willy nilly back and forth because you think this other fund might be doing better buying and selling that is a problem.

If I contribute 10k in ROTH, I will have to add something else so that my international allocation does not become greater than 20% (intended). I am thinking about moving some of the Bond funds from 401k to ROTH.

That's fine too.

Another alternative is to buy the right amount of international in the two Roth IRAs ($5k in one, whatever you need in the other) and then finish filling the other Roth IRA with a target fund that has a 65/35 ratio (target funds have a minimum of $1k).

A third alternative is to put the whole $10k into international for the first year and just not worry about it because that percentage (although it may be a little more than you want) is still within a reasonable range.

Wait...your idea is fine in theory, but with $5k in the account, you can't buy two funds that have a $3k minimum. I think you'll need to go with one of the above options.
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Add taxable or increase 529 or ?

Postby samsnow25 » Fri Sep 28, 2012 4:27 pm

After good suggestions from multiple folks here and some reading, I am now maxing out 401k for wife & me. Also, did backdoor ROTH for 2012.
In the first 5 years of my career, I did not contribute to 401k. I was not motivated enough because of no match and some other personal circumstances.
Now, I want to catch up and increase my investments in general. I don't think can do catch up 401k (I am 35).
As I am running out of tax favored venues, I think I have 2 options – add taxable investments or add more funds to 529. Thoughts?
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Re: Add taxable or increase 529 or ?

Postby hoppy08520 » Fri Sep 28, 2012 4:39 pm

samsnow25 wrote:After good suggestions from multiple folks here and some reading, I am now maxing out 401k for wife & me. Also, did backdoor ROTH for 2012.
In the first 5 years of my career, I did not contribute to 401k. I was not motivated enough because of no match and some other personal circumstances.
Now, I want to catch up and increase my investments in general. I don't think can do catch up 401k (I am 35).
As I am running out of tax favored venues, I think I have 2 options – add taxable investments or add more funds to 529. Thoughts?

Other than 401(k), IRA and 529, there's also the Flexible Spending Account. You might also be able to do After-tax 401(k) contributions if you're permitted to do this in your plan.
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Re: Help to choose right 401k mix

Postby retiredjg » Fri Sep 28, 2012 6:06 pm

Do not be afraid of using a taxable account to save for your retirement. It is an excellent place to hold stock index funds such as international index and total stock index.

I would use a Flexible Spending Account, but not for retirement money. An FSA is a use it or lose it account. Whatever you don't spend on health care during the year is simply lost so you really can't save money there.

Many people do use a Health Savings Account (HSA) for retirement savings. I believe this has to be part of a high deductible health insurance policy though.

After-tax contributions to a 401k is a thought. Just how much do you want to save for retirement each year? When you first posted, you were not saving enough to make this option worthwhile.
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Re: Add taxable or increase 529 or ?

Postby Johm221122 » Sat Sep 29, 2012 9:38 pm

samsnow25 wrote:After good suggestions from multiple folks here and some reading, I am now maxing out 401k for wife & me. Also, did backdoor ROTH for 2012.
In the first 5 years of my career, I did not contribute to 401k. I was not motivated enough because of no match and some other personal circumstances.
Now, I want to catch up and increase my investments in general. I don't think can do catch up 401k (I am 35).
As I am running out of tax favored venues, I think I have 2 options – add taxable investments or add more funds to 529. Thoughts?

Consider I bonds
http://www.bogleheads.org/wiki/I_Savings_Bonds
EE bonds
"EE Bonds issued after May 2005 earn a fixed rate in effect at the time of purchase. They must be held for a minimum of one year. Bonds redeemed within five years must pay a 3-month interest penalty. They are guaranteed to double in value in 20 years, which equals a guaranteed return of 3.5% a year. For more information, see rates and terms from TreasuryDirect"
From. http://www.bogleheads.org/wiki/EE_Savings_Bonds
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Re: Help to choose right 401k mix

Postby samsnow25 » Mon Oct 01, 2012 12:01 pm

Thank you for all the pointers. I researched them over the weekend.

Since, my employer does not offer After-tax 401(k) contributions, it will be a moot point to investigate further.

I do have HSA account for my HDHP. However, the investment options are limited and pricey. The funds have greater fees on the top of monthly maintenance fees by custodian. However, I should increase my contribution to keep my account balance close to annual deductible.

We purchased I-Bonds this year, thanks to earlier suggestion for moving some of the money from CDs.

I am thinking of adding more funds to 529 for 2 reasons – Ohio allows you to claim deduction on unlimited carry forward basis. If I add more funds early and slow/stop later, I can continue to claim deduction plus funds get more time to grow tax-free.

In near future, I will open up a joint taxable account and use multiple account allocation technique to place funds in tax efficient manner. I think Joint account will help reach admiral level faster.

Thoughts, am I on right track?
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Re: Help to choose right 401k mix

Postby retiredjg » Mon Oct 01, 2012 12:15 pm

samsnow25 wrote:Since, my employer does not offer After-tax 401(k) contributions, it will be a moot point to investigate further.

Just to be clear, this is NOT the same as Roth 401k.

Thoughts, am I on right track?

I think so. A lot of people are hesitant to use a taxable account like this for retirement, but there is no reason to be hesitant as long as you use tax-efficient funds there.
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changes in 401K investment menu

Postby samsnow25 » Wed Mar 20, 2013 1:51 pm

Greetings everyone, I need your feedback as a result of some changes in my 401K investment menu.

Current allocation: 102k
Large Cap – 43% (both 401ks)
Small Cap – 6% (his 401k)
Int. total – 22 % (Roth IRAs, backdoor)
Bonds – 28 % (both 401ks)

All the low cost Northern TR Equity options are getting replaced with following 2 options in his 401k.
a) Blackrock MSCI ACWI IMI Index non-lendable fund – ER = 0.07
b) US All Cap Equity custom fund – ER=0.58

1. To continue achieving low cost ER, I am thinking about letting my Large and Small cap equity balance (~22k) transfer to new Blackrock fund and swap my Roth IRAs (~23k) to VTSMX. Thoughts?

2. I have completed my backdoor ROTH for the year, so my Bond allocation has deviated from desired AA of 35%. I will be investing additional 20k this year. I have already bought 10k worth of I-Bonds. For the remaining 10k, please take a look at these options or suggest more .
a) More I-bonds. I have not considered I-bonds as a part of overall AA. If I do and buy more, my Bond allocation will be lot more than desired. My primary emergency fund is in CDs.
b) 5k worth of Muni Bonds (Ohio or National) for more diversity in overall Bond allocation and 5k worth of VTSMX in taxable account.
Because of changes in point 1, I also have opportunity to buy some Bonds in ROTH instead of complete swap.
Ohio LT Taxable-Equivalent Yield is 3.23%.

Thanks for your time.
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Re: changes in 401K investment menu

Postby retiredjg » Wed Mar 20, 2013 5:05 pm

samsnow25 wrote:1. To continue achieving low cost ER, I am thinking about letting my Large and Small cap equity balance (~22k) transfer to new Blackrock fund and swap my Roth IRAs (~23k) to VTSMX. Thoughts?

It seems that would work, but it is hard to see since we don't know the complete breakdown of things. Your Roth IRAs are not large enough to hold everything.

2. I have completed my backdoor ROTH for the year, so my Bond allocation has deviated from desired AA of 35%. I will be investing additional 20k this year. I have already bought 10k worth of I-Bonds. For the remaining 10k, please take a look at these options or suggest more .
a) More I-bonds. I have not considered I-bonds as a part of overall AA. If I do and buy more, my Bond allocation will be lot more than desired. My primary emergency fund is in CDs.
b) 5k worth of Muni Bonds (Ohio or National) for more diversity in overall Bond allocation and 5k worth of VTSMX in taxable account.
Because of changes in point 1, I also have opportunity to buy some Bonds in ROTH instead of complete swap.
Ohio LT Taxable-Equivalent Yield is 3.23%.


I really can't picture how this will work. You don't have the I bonds included in your allocations you posted. We don't know what percentage of what is where. There are probably people who can "see" this, but I'm not one of them. If you could repost what you currently have (and add the I bonds in), it would be helpful.
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Re: Help to choose right 401k mix

Postby samsnow25 » Thu Mar 21, 2013 9:59 am

Good morning, here are the details of current allocation.

Total Portfolio = 102k

His 401k 41% (42k)
38% NORTHERN TR CL S&P 500 IDX 
14% NORTHERN TR CL RUSSELL 2000 
48% NORTHERN TR CL AGG BD IDX 

Her 401k 32% (33k)
76% Fifth Third Equity Index Fund 
24% Lord Abbot Bond Fund

His Roth IRA 11% (11k)
100% Vanguard Total International

Her Roth IRA 11% (11k)
100% Vanguard Total International

Taxable account 3%(3k)
100% Vanguard Total Stock Market Index

Ibonds (currently not part of AA)
total = 30k

Emergency Funds = 50k in CDs

1. You are right about Roth IRAs being not large enough. I am thinking about buying more in taxable account when needed or add some in my 401k later? I just don't want to pass on an opportunity to invest in low cost International fund in my 401k.

2. I am struggling with I-bonds allocation. I read few posts and see that some consider this as a part of emergency fund/cash and others add them in bond allocation. If I keep on accumulating them every year, my emergency fund will be more than desired. At what point would I add them in my Bond allocation?
I think this question will drive how I allocate my next 10k.
Munis - I have enough exposure to Govt and Corporate bonds through 401k and I-bonds. I thought Munis can provide some diversification especially with tax benefits.
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Re: Help to choose right 401k mix

Postby Kevin M » Thu Mar 21, 2013 3:16 pm

RE: I Bonds and your EF, why not just count the appropriate portion of them as your EF and include the rest as fixed income in your portfolio (disclaimer; I haven't read the details of your situation lately, just the question I'm addressing here).

Personally, I have never considered any part of my portfolio as an EF, but I wasn't into rigorous asset allocation years ago, when it might have made a difference. At some point, your fixed income allocation may become large enough that you don't have to worry about breaking out an EF. I think I remember Taylor saying he didn't have a separate EF, so this approach has some street cred.

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Re: Help to choose right 401k mix

Postby retiredjg » Thu Mar 21, 2013 5:28 pm

Notice that I changed the percentages to represent the percentage of the portfolio instead of the percentage of each account.

As it turns out, if you flip flop your US stocks and your international stocks, the Roth IRAs are exactly the right size to hold the US stocks that had been in His 401k. At this point I'm not sure how that will be maintained. More on that later.


Total Portfolio = 102k

His 401k 41% (42k)
21.3% Blackrock MSCI ACWI IMI Index non-lendable fund – ER = 0.07 <--same as Vanguard's Total International Index
19.7% NORTHERN TR CL AGG BD IDX 

Her 401k 32% (33k)
15.3% Fifth Third Equity Index Fund (500 Index)
6% Principal MidCap S&P 400 Index Inst MPSIX 0.27 / 0.27
3% Dreyfus Small Cap Stock Index Fund DISSX 0.51 / 0.50
7.7% Lord Abbot Bond Fund

His Roth IRA 11% (11k)
11% Vanguard Total Stock

Her Roth IRA 11% (11k)
11% Vanguard Total stock

Taxable account 3%(3k)
3% Vanguard Total Stock Market Index

In Her 401k, I split some of the 500 index into mid and small caps just to make something roughly equivalent to total stock market. This leaves the portfolio with 73% stocks and 27% bonds, not including the I Bonds. I understand that is below your intended target of 35% bonds. We'll come back to this too.

Ibonds (currently not part of AA)
total = 30k




2. I am struggling with I-bonds allocation. I read few posts and see that some consider this as a part of emergency fund/cash and others add them in bond allocation.

Correct. The I Bonds can be either part of your retirement money or part of your emergency fund (after the 1 year during which you can't redeem them). If you consider that to be retirement money, you need to include it in your retirement asset allocation. What do you consider the I Bonds to be?

If I keep on accumulating them every year, my emergency fund will be more than desired. At what point would I add them in my Bond allocation?

This depends solely on what you consider that money to be set aside for.

I think this question will drive how I allocate my next 10k.

Let's talk about this. Is this next $10k over and above what you are putting in your 401ks and IRAs? Have you already completed both your 2012 and 2013 IRA contributions?

Munis - I have enough exposure to Govt and Corporate bonds through 401k and I-bonds. I thought Munis can provide some diversification especially with tax benefits.

Some people do see it that way. And right now, people are seeing muni bonds in two different ways. I'll call the first opinion the conventional opinion - this viewpoint says to hold all your bonds as taxable bonds in tax-advantaged accounts unless you don't have enough room (you do). That is because, ordinarily, you make more money that way. Right now munis are paying better than taxable bonds and some people are using munis in contrast to the conventional opinion. I don't see that there is any great harm in doing that, but at some time you might want to switch back to the conventional way of doing things.

If you were to set your portfolio up as above (or similar), how much money do you have left this year to contribute to the 401ks, the IRAs, and the taxable account?
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Re: Help to choose right 401k mix

Postby samsnow25 » Thu Mar 21, 2013 7:38 pm

Correct. The I Bonds can be either part of your retirement money or part of your emergency fund (after the 1 year during which you can't redeem them). If you consider that to be retirement money, you need to include it in your retirement asset allocation. What do you consider the I Bonds to be?

I consider them as a part of my retirement portfolio. I might use them for Kids's education. Thanks to you and Kevin for simplifying this for me.

Let's talk about this. Is this next $10k over and above what you are putting in your 401ks and IRAs? Have you already completed both your 2012 and 2013 IRA contributions?

Yes. I have completed 2013 Roth (Backdoor).

If you were to set your portfolio up as above (or similar), how much money do you have left this year to contribute to the 401ks, the IRAs, and the taxable account?

401ks - 28 k (His and Her combined)
IRAs - none
Taxable - 10k
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Re: Help to choose right 401k mix

Postby retiredjg » Thu Mar 21, 2013 7:51 pm

samsnow25 wrote:401ks - 28 k (His and Her combined)

Can you split these please?
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Re: Help to choose right 401k mix

Postby samsnow25 » Thu Mar 21, 2013 9:23 pm

Can you split these please?

Here you go sir.
His 401k - 14k
15% or 2.1k - NORTHERN TR CL RUSSELL 2000 II
35% or 4.9k - NORTHERN TR CL S&P 500 IDX II
50% or 7k - NORTHERN TR CL AGG BD IDX II

Her 401k - 14k
70% or 9.8k - Fifth Third Bank Equity Index Fund A
30% or 4.2k - Lord Abbett Short Duration Income I
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Re: Help to choose right 401k mix

Postby retiredjg » Thu Mar 21, 2013 10:16 pm

Sorry. I meant how much of the 28k is going to his and how much is going to hers. This is to see how easily the new money flows into the portfolio idea I posted earlier.

It is easy to just figure out a portfolio with what you have. It can be harder to make money go into it, especially with US stocks in the IRAs and international in the 401k. I'm not sure how it will work till I know how much money will go into each account each year. Might be easy. Might take some juggling.
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Re: Help to choose right 401k mix

Postby samsnow25 » Fri Mar 22, 2013 9:10 am

Sorry. I meant how much of the 28k is going to his and how much is going to hers. This is to see how easily the new money flows into the portfolio idea I posted earlier.

14k will go into his and 14k into hers as per the allocation in previous post (unless we decide to change future direction).
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Re: Help to choose right 401k mix

Postby retiredjg » Fri Mar 22, 2013 9:55 am

I see you had already told me that part. Sorry. Doing 2 things at once....

I'm going to rearrange things and put the I Bonds into the portfolio. Should I assume you won't have an extra $20k or so to invest each year? It appears that might be a one time thing. I'm wondering if that money should go into a 529 account for college instead of into the retirement portfolio.
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Re: Help to choose right 401k mix

Postby samsnow25 » Fri Mar 22, 2013 10:10 am

Should I assume you won't have an extra $20k or so to invest each year?

It will be safe to assume that I will have extra 20k each year to invest. I may not have 20k on the top of Roth (which will be different than this year).
I started building portfolio late in my career, so I am more aggressive in adding to retirement portfolio. If I have leftover, I will do little bit of 529.
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Re: Help to choose right 401k mix

Postby retiredjg » Fri Mar 22, 2013 10:24 am

Ok. I'm tinkering with it now.

If you put $11k into Roth IRAs, that will leave $9k. Do you want that $9k to go to retirement savings or to college savings? If you want it to go specifically to college savings, it could go to a 529 plan. What are your thoughts on that?
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Re: Help to choose right 401k mix

Postby retiredjg » Fri Mar 22, 2013 10:26 am

By the way, if you each are in the 25% bracket and MFSeparately, why do a back door contribution to Roth IRA rather than a direct contribution to Roth IRA? Please note, I didn't scour the thread to see if this has already been discussed.
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Re: Help to choose right 401k mix

Postby samsnow25 » Fri Mar 22, 2013 10:42 am

If you put $11k into Roth IRAs, that will leave $9k. Do you want that $9k to go to retirement savings or to college savings? What are your thoughts on that?

retirement savings.

By the way, if you each are in the 25% bracket and MFSeparately, why do a back door contribution to Roth IRA rather than a direct contribution to Roth IRA? Please note, I didn't scour the thread to see if this has already been discussed.

For MFS, the contribution limit for Roth is 0 for AGI >=10,000.

On a separate note, I plan to start diverting funds from some of my CDs to I-Bonds as they mature rather than adding more and more of new money to I-bonds.
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