Help with Asset Allocation/Fund Choices in 457(b) Plan

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nightman212
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Joined: Mon Jul 22, 2013 12:57 pm

Help with Asset Allocation/Fund Choices in 457(b) Plan

Post by nightman212 »

Hello everyone, this is my first post to Bogleheads! I am looking for some help with my 457b plan.

Emergency funds: Yes - 3 months, ~$2000 (growing this)

Debt: Total: ~$54300
Auto Loan: $8000 @ 1.990
Sallie Mae Private Loan: $5400 @ 6.75%
DOE Loans: $18700 @ 5.25%; $9300 @ 5.25%
Perkins Loan: ~$3900 @ 5%
Chase Private Student Loans: $5700 @ 6.87%; $3300 @ 7.27%
I have paid off, in full, 3 private loans between December 2012 and June 2013 thus far. I am working to pay down all of my debt as fast as possible, while saving at a decent rate.

Tax Filing Status: Single
Tax Rate: 15% Federal, No state income tax
State of Residence: NH
Age: 24 in October
Desired Asset allocation: 80/75% stocks / 20/25% bonds
Desired International allocation: 20% of stocks

I am aiming for something like this:
US Large: 40%
US Small: 10%
US Mid: 10%
International: 20%
Bond: 20%

Portfolio size: Low to mid 4 digits

Current retirement assets

Taxable
29%, currently cash (recently sold 105 shares of HBAN) I use this account for ST trades, but am considering using the money for longer term investing.

My 457b
3%, Fund Selection below.
No company match.

My Roth IRA at Fidelity
69%, Fidelity Freedom 2055 (FDEEX) (0.82)

(I have a Traditional IRA open (but empty) that I used to roll over the FDEEX position from prior employer’s 401k. I recently converted the Trad. IRA to the Roth IRA. The trad. IRA will remain open and unfunded for some time).

0% My State Pension, mandatory contributions of 7% of my weekly paycheck ($48.36) I put “0%” because I cannot control this account.


Contributions:
New annual Contributions
$2496 my 457b (no match)
$2400 Roth IRA ($200/month automatic investments)
$0 taxable
$2515 to Pension Fund


Funds available in my 457(b)

SPECIALTY
Investment Choice Ticker Expense Ratio
Invesco Real Est IARAX 1.25
Htfd HC HLS HIACX 0.91
MFS Utilities MMUFX 1.02

INTERNATIONAL/GLOBAL
Investment Choice Ticker Expense Ratio

AF New Perspective RNPCX 1.12
Htfd Int Opps HLS HIAOX 0.74
MFS Intl Value MINGX 1.21

SMALL CAP
Investment Choice Ticker Expense Ratio

AmBeacon SC Val AASSX 1.42
Baron Small Cap BSCFX 1.31
Htfd Sml Company HLS HIASX 0.72
Lord Abbett SCap Val LRSPX 1.38
SSgA SC Ind Sec Lend SVSCX 0.40

MID CAP
Investment Choice Ticker Expense Ratio

Artisan MidCap Value ARTQX 1.20
Goldman Sachs Gr Opp GGOAX 1.35
Htfd MidCap HLS HIMCX 0.71
SSgA MC Ind NL Ser ???Class II 0.40

LARGE CAP
Investment Choice Ticker Expense Ratio

AmCent Equity Income TWEIX 0.95
AF Growth Fund Amer RGACX 0.98
Htfd Cap App HLS HIACX 0.67
Htfd Div & Grwth HLS HIADX 0.67
NB Socially Resp NBSTX 1.08
SSgA S&P 500 Ind SL SVSPX 0.35
Invesco Comstock ACSTX 0.88

ASSET ALLOCATION/BALANCED
Investment Choice Ticker Expense Ratio

Oakmark Eq & Inc OARBX 1.09
SSgA DJ Tgt 2015 SL ?/NA 0.83
SSgA DJ Tgt 2025 SL ?/NA 0.80
SSgA DJ Tgt 2035 SL ?/NA 0.80
SSgA DJ Tgt 2045 SL ?/NA 0.80
SSgA DJ Tgt Today SL ?/NA 0.80
Inv Eq and Inc ACEIX 0.81

BOND
Investment Choice Ticker Expense Ratio

Loomis Sayles Bd LBFAX 1.20
PIMCO Total Return PTTRX 0.85
Putnam HY Advantage PHYIX 1.04

I have the following distribution in my 457b, which I think needs work:
35% OARBX
25% MINGX
20% PTTRX
10% ARTQX
10% HIASX

Additional information:
I have only made 2 contributions to my 457b thus far. I am looking for advice as to which funds to pick, with what % allocation. I can rebalance/transfer from my elected funds above.


Questions:
1. What is the best combination of these (457b) funds to achieve my stated AA?

2a. Is there a simpler combination than what I currently have? I am hesitant to consider the Target Date funds because my Roth is a Fidelity Freedom 2055 Target Date Fund. Moreover, my 457b doesn’t offer a Target Date Fund for my age (the highest one is 2045, which is a decade too soon).

2b. Is it worth investing in individual Mid and Small cap funds?

3. In terms of the Roth, I have been considering converting from the Freedom 2055 to FFNOX, would this be worthwhile, recommended, etc.?

Thank you for the help! :D
Last edited by nightman212 on Wed Jul 24, 2013 8:29 am, edited 1 time in total.
ieee488
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Re: Help with Asset Allocation/Fun Choices in 457(b) Plan

Post by ieee488 »

Some of the 29% in cash should be used to fund your emergency fund and to pay off your student loans (a guaranteed 7.27% return which is almost impossible to find these days with any investments).


457b = SSgA SC Ind Sec Lend SVSCX 0.40 + SSgA MC Ind NL Ser ??? Class II 0.40 + SSgA S&P 500 Ind SL SVSPX 0.35
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Topic Author
nightman212
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Joined: Mon Jul 22, 2013 12:57 pm

Re: Help with Asset Allocation/Fun Choices in 457(b) Plan

Post by nightman212 »

ieee488 wrote:Some of the 29% in cash should be used to fund your emergency fund and to pay off your student loans (a guaranteed 7.27% return which is almost impossible to find these days with any investments). the 29% cash is only $1030. But I am paying off loans as fast as I can.


457b = SSgA SC Ind Sec Lend SVSCX 0.40 + SSgA MC Ind NL Ser ??? Class II 0.40 + SSgA S&P 500 Ind SL SVSPX 0.35
Does this allocation cover enough international & bonds?

Thank you!
Topic Author
nightman212
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Joined: Mon Jul 22, 2013 12:57 pm

Re: Help with Asset Allocation/Fund Choices in 457(b) Plan

Post by nightman212 »

Anyone?

Self bumping!
patrick
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Re: Help with Asset Allocation/Fund Choices in 457(b) Plan

Post by patrick »

I completely agree with the previous advice to pay off the debt. Interest is great when it works for you but awful when it works against you, especially if it's 5% or more!

Beyond that, note that what matters is your overall asset allocation, not the allocation of any individual account. If I were in this 457 plan I would use only the SSgA index funds in order to lower the costs. Since most of your money is in the IRA, you could get your desired international and bond amount in the IRA and don't need to buy them in the 457. Switching to four-in-one would probably be a benefit as it does have lower costs, and would at least come fairly close to your target percentages. Once you have more money in the IRA you could match more precisely by buying international/bond funds specifically.
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Peter Foley
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Re: Help with Asset Allocation/Fund Choices in 457(b) Plan

Post by Peter Foley »

If your retirement plan is a 457b you are likely a government employee. I'm disappointed with the choices you have been offered in your plan. The fees are much higher than they should be. I agree with ieee48. What he/she is recommending is to recreate a total stock market holding in your 457b account by combining the 3 lowest cost index options you have.

In your situation I would consider debt retirement to the the equivalent of a bond allocation. You have many years of contributions ahead of you and plenty of time to diversify. I would concentrate on playing down debt for a couple years and then switch to Roth contributions. Those contributions can fill out what is missing in your 457b - a low cost bond fund and a low cost international option. For the next couple of years I would just leave the Roth IRA in the Fidelity Freedom 2055 fund. Once your high cost student loans are paid off you can take another look at your AA. At that point in time see where you stand in your 457b and use your Roth to purchase mutual funds that will get to your desired AA.
Mudpuppy
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Re: Help with Asset Allocation/Fund Choices in 457(b) Plan

Post by Mudpuppy »

nightman212 wrote:I have the following distribution in my 457b, which I think needs work:
35% OARBX (ER 1.09)
25% MINGX (ER 1.21)
20% PTTRX (ER 0.85)
10% ARTQX (ER 1.20)
10% HIASX (ER 0.72)
This is a very expensive combination (I've added the ERs in blue after each option). Keep in mind that you don't have to recreate your desired AA individually in each account. In your case, I think this is an important point. Your 457b international and bond options are expensive. For the long term, your best choices in the 457b are the SSgA small cap, mid cap, and large cap funds, as ieee488 pointed out. The Fidelty IRA can be used to get the bond and international portions of your AA. Use their Spartan funds as much as possible, e.g. FSIIX for international and FBIDX for bonds (there's a few other Spartan bond funds too for things like treasuries and various bond duration "families").

However, if my calculations are correct, you have less than $4,000 between the IRA and 457b. That means the above advice is "down the road" advice for a few years from now when you have more money in the IRA account, because you don't currently have the fund minimums for the Spartan funds in the IRA. For the moment, I would keep it simple and choose the SSgA Target 2045 in the 457b and keep the Fidelity Freedom 2055 in the IRA. The SSgA 2045 fund is the same current asset allocation as their 2055 fund (which isn't available in your plan for some reason), but just has a different glide path towards retirement. Since this is a short term plan while you build up your investments, it's fine to choose this fund. When you have enough money to manage the minimums in the IRA for splitting the Freedom fund into individual Spartan funds, then you can take the above advice.

I'll end with an FYI. Both the SSgA 2045 and Fidelity Freedom 2055 funds are currently at around a 90% stock / 10% bond allocation. If that is too aggressive for you, you can always step down a notch. SSgA 2035 and Freedom 2035 are closer to 80/20, which is the AA you stated that you wanted.
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ruralavalon
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Re: Help with Asset Allocation/Fund Choices in 457(b) Plan

Post by ruralavalon »

Welcome to the forum :) .

Glad to hear you are working on paying off those loans as fast as possible. Keep it up, thats probably the best "investment" strategy for you. In your 457b the SSgA S&P 500 Ind SL SVSPX, er = 0.35, is your best choice. Don't try to be too complex at this point, until the loans are under better control. With a little more detail from you, can probably offer some more concrete suggestions.
nightman212 wrote:Age: 24 in October
Desired Asset allocation: 80/75% stocks / 20/25% bonds
Desired International allocation: 20% of stocks
In my opinion youre desired asset allocation is within the range of what is reasonable. That works out to say: 20% bonds,15% international stocks; and 65% domestic stocks.

nightman212 wrote:I have paid off, in full, 3 private loans between December 2012 and June 2013 thus far. I am working to pay down all of my debt as fast as possible, while saving at a decent rate
. . . . .
Contributions:
New annual Contributions
$2496 my 457b (no match)
$2400 Roth IRA ($200/month automatic investments)
$0 taxable
$2515 to Pension Fund
About how much per year are you putting toward the loans already?

Thats so we can know the total per year you can have available for both paying off loans and investing.

Can you list the loans, giving for each: the type; amount; and interest rate?

About how much is currently in each of the three accounts: taxable, Roth IRA and the 457b?

Where (what fund company) are the Roth IRA and taxable ccounts located currently?

Please add any additional information to your original post using the "edit " button, so that all of your information is in one place.
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Topic Author
nightman212
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Joined: Mon Jul 22, 2013 12:57 pm

Re: Help with Asset Allocation/Fun Choices in 457(b) Plan

Post by nightman212 »

ieee488 wrote:Some of the 29% in cash should be used to fund your emergency fund and to pay off your student loans (a guaranteed 7.27% return which is almost impossible to find these days with any investments). Okay, I will be splitting some of the cash (roughly $1000) between emergency fund and paying down the principal of the high-interest chase student loan.


457b = SSgA SC Ind Sec Lend SVSCX 0.40 + SSgA MC Ind NL Ser ??? Class II 0.40 + SSgA S&P 500 Ind SL SVSPX 0.35
Mudpuppy wrote:
nightman212 wrote:I have the following distribution in my 457b, which I think needs work:
35% OARBX (ER 1.09)
25% MINGX (ER 1.21)
20% PTTRX (ER 0.85)
10% ARTQX (ER 1.20)
10% HIASX (ER 0.72)
This is a very expensive combination (I've added the ERs in blue after each option). Keep in mind that you don't have to recreate your desired AA individually in each account. In your case, I think this is an important point. Your 457b international and bond options are expensive. For the long term, your best choices in the 457b are the SSgA small cap, mid cap, and large cap funds, as ieee488 pointed out. The Fidelty IRA can be used to get the bond and international portions of your AA. Use their Spartan funds as much as possible, e.g. FSIIX for international and FBIDX for bonds (there's a few other Spartan bond funds too for things like treasuries and various bond duration "families").

However, if my calculations are correct, you have less than $4,000 between the IRA and 457b. That means the above advice is "down the road" advice for a few years from now when you have more money in the IRA account, because you don't currently have the fund minimums for the Spartan funds in the IRA. For the moment, I would keep it simple and choose the SSgA Target 2045 in the 457b and keep the Fidelity Freedom 2055 in the IRA. The SSgA 2045 fund is the same current asset allocation as their 2055 fund (which isn't available in your plan for some reason), but just has a different glide path towards retirement. Since this is a short term plan while you build up your investments, it's fine to choose this fund. When you have enough money to manage the minimums in the IRA for splitting the Freedom fund into individual Spartan funds, then you can take the above advice.

I'll end with an FYI. Both the SSgA 2045 and Fidelity Freedom 2055 funds are currently at around a 90% stock / 10% bond allocation. If that is too aggressive for you, you can always step down a notch. SSgA 2035 and Freedom 2035 are closer to 80/20, which is the AA you stated that you wanted.
I have tranferred out of all the aforementioned funds, and into the SSgA 2045 fund, thank you for the guidance :happy

Addressing some of the other questions/comments:
I agree, the plan options are not very good, and are quite expensive. I have actually explored being on the committee that determines which benefit provider to go with :wink:.

I will also consider and plan for the future strategy of using the 3 SSgA funds to mimic total market, then use the IRA for bonds/international, as stated by patrick.

Believe me all, I am HUNGRY to pay my loans off! This amount of debt is no good for me in both the ST and LT, and I enjoy a larger amount of free cash flow.


All: I am still very curious about moving out of FDEEX (Fidelity Freedom 2055) and into FFNOX (Fidelity 4-in-1). The fees are lower, and the performance seems to be much better. This would be within my Fidelity Roth IRA. Is this adviseable? As a follow-up, when it comes time to adjust my AA, would I simply sell out of FFNOX, and buy into another fund?

Thank you for all the replies!!
dickenjb
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Re: Help with Asset Allocation/Fund Choices in 457(b) Plan

Post by dickenjb »

I am curious why you are investing at all in a non matched 457(b) when you are not maxing out your (lower cost) Roth IRA.

Additionally in the 15% bracket the Roth option is at least as desirable as tax deferred and probably more desirable as it hedges against your tax rate being higher in retirement.
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nightman212
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Re: Help with Asset Allocation/Fund Choices in 457(b) Plan

Post by nightman212 »

dickenjb wrote:I am curious why you are investing at all in a non matched 457(b) when you are not maxing out your (lower cost) Roth IRA.

Additionally in the 15% bracket the Roth option is at least as desirable as tax deferred and probably more desirable as it hedges against your tax rate being higher in retirement.
I agree, this was a large reason as to why converted to a Roth from a Traditional IRA

I had stopped contributing to the 457b after a few weeks on my new job (began in March). However, I thought it would help to have 14% of my income go towards pre-tax retirement (7% 457b, 7% state pension fund), and 7% go towards the Roth retirment savings. I thought it would be wise to spread my sources of retirement savings. Even if I stopped contributing entirely to the 457, I would remain unable to max out the Roth...I don't make much money. Also, my prior employer had absolutely zero 401k match, I don't think that is a good basis for not contributing to a retirement fund. I have also lowered my cost in the 457b by contributing solely to the SSgA 2045 fund.

I make regular contributions to my Roth, then when I do odd jobs, receive birthday money, et cetera, I funnel it to savings and the Roth in an attempt to hit the max.
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ruralavalon
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Re: Help with Asset Allocation/Fund Choices in 457(b) Plan

Post by ruralavalon »

nightman212 wrote:Debt: Total: ~$54300
Auto Loan: $8000 @ 1.990
Sallie Mae Private Loan: $5400 @ 6.75%
DOE Loans: $18700 @ 5.25%; $9300 @ 5.25%
Perkins Loan: ~$3900 @ 5%
Chase Private Student Loans: $5700 @ 6.87%; $3300 @ 7.27%
. . . . .
Age: 24 in October
Desired Asset allocation: 80/75% stocks / 20/25% bonds
Desired International allocation: 20% of stocks
. . . . .
Contributions:
New annual Contributions
$2496 my 457b (no match)
$2400 Roth IRA ($200/month automatic investments)
$0 taxable
$2515 to Pension Fund
In my opinion, your first "investing" priority should be accelerating paying down/pay off those private student loans at 7.27%, 6.87%, and 6.75% interest. Thats like getting guaranteed 7.27%, 6.87%, and 6.75% rates of return, guranteed rates of return that you can't get on any other investment anyplace on the planet. Use the money from the taxable account ($1,030) to pay down that much of the 7.27% private loan for a start.

I see that you have stopped contributing to the 457b. Also, do use most or even all of that contribution of $2,496/yr formerly intended 457b to attack those three higher interest loans, rather than into the IRA. You can get that 7.27% private student loan out of your hair fairly quickly if you do that.

With no match on the 457b the investing priorites should generally be, in this order:
1. pay off high interest debt;
2. fund the IRA; and only then
3. fund the 457b.
Wiki article link: Prioritizing investments . Yet, I don't see any real issue with putting $200/mo into the IRA as long as you are being very aggressive on those higher interest private student loans. You seem to be taking pay off of those loans seriously, and it is good to get yourself started in the habit of investing.

In my opinion, your desired asset allocation is within the range of what is reasonable. In my opinion, attacking those three high interest private student loans is much more beneficial for you and much more important for now than trying to get the asset allocation exact, or trying to max out the IRA. The funds I suggest below will give you very close to your desired asset allocation, but still in a reasonable allocation for you, and with lower expense ratios.

You can get lower investing expenses and good diversification, in the accounts you now have, like this:

457b (04% of portfolio; no new contributions for now)
04%, SSgA S&P 500 Ind SL SVSPX, er = 0.35%
(use this for all 457b money, the lowest expense ratio offered, lower than SSgA TR 2045 by 0.45%)
(skip the mid caps and small caps for now)

Roth IRA @ Fidelity (96% of portfolio; adds $200/mo, $2,400/yr)
96%, Fidelity® Four-in-One Index Fund (FFNOX), er = 0.22%
(85/15 stock/bond mix, 30% of stocks in int'l stocks)
(lower er than FDEEX 2055, by 0.60%)
(I do see that you have already thought of this, good idea)

I hope that this helps.
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ieee488
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Re: Help with Asset Allocation/Fund Choices in 457(b) Plan

Post by ieee488 »

ruralavalon wrote:
In my opinion, your first "investing" priority should be accelerating paying down/pay off those private student loans at 7.27%, 6.87%, and 6.75% interest. Thats like getting guaranteed 7.27%, 6.87%, and 6.75% rates of return, guranteed rates of return that you can't get on any other investment anyplace on the planet. Use the money from the taxable account ($1,030) to pay down that much of the 7.27% private loan for a start.
+1

Exactly. Where in the world is the OP going to get a guaranteed return 7.27%. Where???
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Topic Author
nightman212
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Re: Help with Asset Allocation/Fund Choices in 457(b) Plan

Post by nightman212 »

You will all be happy to know, I have gotten a "guaranteed return" of 6.91%, 7.28%, and 9.0% on the 3 loans I have already paid off between December 2012 and June 2013 :D
ieee488
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Re: Help with Asset Allocation/Fund Choices in 457(b) Plan

Post by ieee488 »

All the more reason to continue doing that. :-)
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ruralavalon
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Re: Help with Asset Allocation/Fund Choices in 457(b) Plan

Post by ruralavalon »

nightman212 wrote:You will all be happy to know, I have gotten a "guaranteed return" of 6.91%, 7.28%, and 9.0% on the 3 loans I have already paid off between December 2012 and June 2013 :D
Congratulations on that.

You are doing the right thing in zeroing out the high interest loans as fast as practical.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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