Advice Needed for Investment (401K) Account

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Advice Needed for Investment (401K) Account

Postby Frosty5011 » Thu May 23, 2013 1:47 am

First of all, let me say that up until about a week ago, I had never heard of "Bogleheads." I was doing some research on possible investment strategies and came across the term on a few sites. So, I came here a few days ago and started reading through the forum. It seems that I have come to the right place. A lot of what I've read mirrors my own experiences and thoughts, and some of the posts were very informative - things I did not know. Since I have faith that the collective Bogleheads on the forum are far smarter than I am, I would like to hear your opinions on my allocation strategy.

I'm 48 yrs old, plan on retiring at somewhere around 62-65. I have two accounts; one being a 403b (which I'm not too concerned about as it is the lesser of the two and undergoing acceptable growth), and a 401k with around 250k in it. In the past, it seemed that no matter what I do or how I allocated my funds, I just wasn't doing a good job, hence my quest for knowledge.

Now that I'm starting to get up there in age, I would say my risk tolerance is at the "average" level. My company just changed (3rd change in 10 yrs) to another 401k plan, this one being with EXPERTPLAN, and I am not really too happy with the funds they offer. Most seem to have fairly high expense ratios. But, I have no choice other than to play the cards I have been dealt.

I tend to gravitate to the 4 CORE or LAZY 3-Fund Portfolio models which I read about on this site. I would like to see an average annual growth of 8% or better on my savings/investments, if possible.

I wanted to ask if you all thought that this was a good idea. From the funds I have available, I thought I would apportion it as follows:

48% in Bonds - 4 funds, 12% in each
E/R - Fund
0.95 Credit Suisse High Yield (CHIAX)
0.13 DFA Inflation Protected (DIPSX)
0.9 Delaware Diversified Income (DPDFX)
0.9 Templeton Global Bond (TPINX)

30% in Stocks - 5 funds, 6% in each
E/R - Fund
0.91 T Rowe Price Small Cap Growth (PRDSX)
0.46 Columbia Mid Cap Index (NTIAX)
0.24 Vanguard Large Cap Index (VLACX)
1.3 Blackrock Health Sciences (SHSAX)
0.32 DFA Global Real Estate Securities (DFGEX)

22% International - 2 Funds, 11% in each
E/R - Fund
1.21 MFS International Value (MGIAX)
1.58 Blackrock International Opportunities (BREAX)

As you can see, some of the expense ratios are kind of high. Among the other funds that are available, they offer:

0.82 DFA Emerging Markets Small Cap (DEMSX) <-- (maybe use this in lieu of the MGIAX?)
0.85 Pimco Real Return (PRTNX) <-- (perhaps this is a better choice than one of the bond funds I have listed above?)
1.21 First Eagle Gold (SGGDX) <-- (possible inflation hedge to use in the future if we do see a respectable rise?)

There are several different other funds: Maybe you know/believe that some of these would be a better choice than what I have chosen.

    American Century Prem Money Market (TCRXX) 0.46
    Bancorp Bank Master Demand Acct Adv   * (Doesn't say, think this fund is discontinued)
    Invesco Energy A (IENAX) 1.13
    First Eagle Gold A   * (SGGDX) 1.21
    Henderson European Focus A   * (HFEAX) 1.53
    MFS Intl Diversification A   * (MDIDX) 1.32
    MFS International Growth & Inc A   * (MGIAX) 1.21
    Burnham A   * (BURHX) 1.43
    JPMorgan Large Cap Growth A (OLGAX) 1.11
    Principal Equity Income (PQIAX) 0.96
    HighMark Geneva Mid Cap Growth A (PNMAX) 1.38
    First Eagle U.S. Value A   * (FEVAX) 1.17
    American Century One Choice: Mod (AOMIX) 0.90
    Loomis Sayles Strategic Income A   * (NEFZX) 0.96
    Prudential Jennison Natural Res A (PGNAX) 1.19
    DFA Short Term Govt I   * (DFFGX) 0.20
    ClearBridge Sm Cap Gr A (SASMX) 1.28
    Janus Triton T   * (JATTX) 0.95
    Diamond Hill Small Cap A   * (DHSCX) 1.31
    Paradigm Value (PVFAX) 1.51
    Ivy Science & Technology A   * (WSTAX) 1.39
    MFS Utilities A   * (MMUFX) 1.02

    Funds with an asterisk, have the following notation: (* This fund may contain a fee that will not exceed 25 basis points. ). I do not know whether this is already in the P/E mentioned above.

Please feel free to comment on / criticize my selections. Just please also tell me briefly why. I am here to learn! :happy Thank you very much in advance for taking the time to help.
Last edited by Frosty5011 on Thu May 23, 2013 6:42 pm, edited 1 time in total.
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Re: Advice Needed for Investment (401K) Account

Postby icefr » Thu May 23, 2013 1:54 pm

From what I can see, the best funds in your 401(k) are:
0.13 DFA Inflation Protected (DIPSX)
0.24 Vanguard Large Cap Index (VLACX)

That obviously isn't a full portfolio though and we'll need to see what you have in your other accounts to help you fully. For example, I would probably not use any of the international funds in your 401(k) and instead put that somewhere else in your portfolio.

If you could go back and edit your original post to follow this guide: viewtopic.php?f=1&t=6212 that would be really helpful! Also, be sure to include the expense ratios on ALL the funds available in your 401(k).
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Re: Advice Needed for Investment (401K) Account

Postby ruralavalon » Thu May 23, 2013 2:14 pm

Welcome to the forum :) .

I think you are right to think in terms of one of the lazy portfolios, such as the core four.

What is your desired asset allocation?

Of the funds you are using, these two seem the best --
0.13 DFA Inflation Protected (DIPSX); and
0.24 Vanguard Large Cap Index (VLACX)

Can you add the expense ratios for that list of funds you are not using?

I assume that the funds you mentioned and listed are those in the 401k, correct?

To make the best use of what is offered in the 401k, its necessary to know what is available in all accounts. That way you can build the best portfolio by using a a mix of the best funds from each of them (for example by using a good int'l fund and/or a good diversified bond fund from some other account, to complement the 2 best funds in your 401k).

What funds (names, tickers, expense ratios) are offered in the 403b? How much is in the 403b?

Do you have any other retirement or investing accounts? If so, same info please.

Please see this for format -- viewtopic.php?t=6212 .

Please just add this new information to your original post using the "edit" button; it helps a lot to have all of your information in one place.
Last edited by ruralavalon on Thu May 23, 2013 2:18 pm, edited 1 time in total.
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Re: Advice Needed for Investment (401K) Account

Postby ieee488 » Thu May 23, 2013 2:16 pm

If it was me, I would only have DFA Inflation Protected (DIPSX), Columbia Mid Cap Index (NTIAX), and Vanguard Large Cap Index (VLACX).

Make up the lack of small cap index in your Roth IRA.
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Re: Advice Needed for Investment (401K) Account

Postby Frosty5011 » Thu May 23, 2013 7:25 pm

OK, I have edited my original post to show the fund tickers as well as e/r's for the other funds available in my 401k plan.

My 403b plan only has around 32k in it. It currently consists of

TIAA Traditional (18%)
TIAACREF Mid-Cap Growth – Retirement Class (50%)
CREF Stock – (29%)
TIAA Real Estate – (3%)

Funds available are: (Sorry, it doesn't always list the ticker symbol)

TIAA Traditional Annuity (no e/r, 4% guaranteed)
CREF Stock (0.49)
CREF Global Equities (0.53)
CREF Growth (0.46)
CREF Equity Index (0.42)
International Equity  (TRERX) (0.78)
CREF Large-Cap Value  (TRLCX) (0.71)
Mid-Cap Growth  (TRGMX) (0.73)
Mid-Cap Value  (TRVRX) (0.71)
Small-Cap Equity  (TRSEX) (0.73)
TIAA Real Estate (0.9)
CREF Bond Market (0.44)
CREF Inflation Linked Bond (0.44)
CREF Money Market (0.44)
CREF Social Choice (0.45)
And then 9 different “Lifecycle Funds, that average around 0.80 e/r
(Example: Lifecycle 2025  (TCLFX), 0.71 net e/r)

No other retirement/investment accounts other than a few thousand $ in an IRA that was opened up a few years ago, only for the sake of not having to pay Uncle Sam when doing my tax return.

Some of you have mentioned the DIPSX fund (which I am currently in) stating that it looks like it's one of the better funds. I realize that it has a very low E/R, however, I have been very disappointed in it's performance. It has been nothing but a loss ever since I've been in it I think it's been close to a 2% loss over the past 2-1/2 to 3 months (which is when the company changed 401K plans). I know, past performance is not indicative of future performance, but I am a bit leery of it.

I should mention that I kind of want to keep the 403b separate from the 401k since I may end up taking around 15k out of it. Stupid move, you may say, but it's to buy back an additional 4 yrs from the military time and applying it towards state retirement. So, I don't really want to skew things by using it for one asset class in the make-up of my total portfolio.

Again, thank you all for your input!!!
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Re: Advice Needed for Investment (401K) Account

Postby Laura » Thu May 23, 2013 9:58 pm

You should look at these two accounts together. Even if you take money out then you just need to rebalance you asset allocation at that time. If you don't look at these as one portfolio you will end up wasting money by using high cost funds when low cost options are available and you just waste time managing a portfolio that is much more complex than needed.

You have decent low cost funds in your new retirement account.

401k
Vanguard Large Cap Index (VLACX) (ER .24)
Columbia Mid Cap Index (NTIAX) (ER .46)
DFA Global Real Estate Securities (DFGEX) (ER .32)
DFA Short Term Govt I * (DFFGX) 0.20

In fact, these are lower cost than your preferred 403b plan.

Which account are you contributing to now and how much new money, including matching funds, is going into each account each year? Do you have a roth, IRA, or taxable investment account as well?

With a bit more information we can help you build a low cost, easy to manage portfolio.

Laura
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Re: Advice Needed for Investment (401K) Account

Postby Frosty5011 » Thu May 23, 2013 11:27 pm

Going into the 403b, I have $130/month, with the same being matched by the employer (at max matching).
Going into the 401k, I have $1200/month, with the employer contributing an additional $120/month.

What I meant by saying that I kind of want to keep the 2 accounts separate, is.....let's use the following example. Let's say it is determined that the 403b has much better stock/equity funds than the 401k, and it were decided that I should have my 401k split between bonds and foreign funds, whereas the 403b held only the stock funds. The disparity ($ amount) is already so large between the two accounts, so that if I were actually to take the $15k that I mentioned earlier, out of the 403b, there is no way I could have the proper portfolio allocations. And, unfortunately, if I do take it from one of the accounts, it can only be taken from the 403b, or paid cash. I don't know if I will have that available in cash, and not deplete my emergency fund.

The state job (with the 403b) is not my main job. In fact, it may only be 2 or so years before I drop that job. Therefore, I kind of place less of a priority on the account associated with that employment.

In my case, I do not think it is a bad decision to use the 15k to buy time. Doing this would benefit me an additional $240/month in my retirement pay (drawable at age 60). In a retirement account, by age 60, the 15k would probably grow to around $32k, using a 7% yearly growth figure. Whereas the $240/month extra, should net me around $60k extra (using 20 yrs as a rough figure).
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Re: Advice Needed for Investment (401K) Account

Postby Laura » Thu May 23, 2013 11:57 pm

Frosty,

You can manage this as one then compensate when you remove the $15k. It won't be a problem.

As I understand it you and your employer are adding:

$3120 per year total to the 403b
$15840 per year total to the 401k

You are an average risk investor looking at holding a portfolio with about 50% stocks and 50% bonds. You also want 8% return which in today's investing environment is going to be tough. A very risk tolerant investor may possibly be able to earn that by investing almost entirely in stocks but that same investor needs to be prepared to lose 50% of their portfolio in a market decline. You are better off with a 50/50 portfolio.

The big problem in both of your accounts is poor international fund options. That isn't critical so we will do the best that we can.

So, here is how I would set this up:

403b
$32k International Equity (TRERX) (0.78)

401k
$80k Vanguard Large Cap Index (VLACX) (ER .24)
$29k Columbia Mid Cap Index (NTIAX) (ER .46)
$141k DFA Short Term Govt I * (DFFGX) 0.20

New Contributions:

403b
$3120 International Equity (TRERX) (0.78)

401k
$4.4k Vanguard Large Cap Index (VLACX) (ER .24)
$1.9k Columbia Mid Cap Index (NTIAX) (ER .46)
$9.5k DFA Short Term Govt I * (DFFGX) 0.20

Several years goes by an you now want to take $15k out of the 403b for the military buyin. No problem, you just redo your portfolio percentages. Using the amounts you have today you would just do this using less international to keep that in your 403b given the poor 401k options:

403b
$17k International Equity (TRERX) (0.78)

401k
$80k Vanguard Large Cap Index (VLACX) (ER .24)
$36k Columbia Mid Cap Index (NTIAX) (ER .46)
$134k DFA Short Term Govt I * (DFFGX) 0.20

You can look at your investments together then rebalance once you reduce the 403b by the $15k. No problem at all. You have a portfolio that is much easier to manage, benefits from using the lowest cost options in at least one of your accounts and a decent international option in the other, and have flexibility for future changes you want to make.

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