New Employer, New 401k

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minneapples
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Joined: Fri Jun 10, 2011 10:51 am

New Employer, New 401k

Post by minneapples » Thu Sep 13, 2012 2:36 pm

I've hit the one-year anniversary date with my "new" job and am finally eligible to contribute to the 401k starting 1 October. Right now all my retirement investments are at Vanguard, but my new 401k is run through Fidelity, and I'm trying to pick my funds from a bunch of options that look so sad to me compared to the great options I've had the last couple of years through Vanguard.

My retirement accounts total in the low 6 figures. I plan to max out the 401k each year for the foreseeable future, but expect to scale back Roth IRA contributions starting in 2013 and for the next few years as my husband and I are expecting our first child in early 2013 and we live in an extremely expensive day care market. I don't yet know how much we'll scale back those contributions, since we expect that we'll still be on the waiting list at every day care we've looked at until sometime after this kid is born, so we don't know what we'll be paying. :annoyed

Right now my investments at Vanguard are split as follows:
8% taxable
56% Roth IRA
36% rollover IRA

And my current asset allocation is as follows:
32% Vanguard total stock index (ER 0.06% in tax adv. accounts, 0.18% in taxable due to lower amount invested)
15% Vanguard REIT index (ER 0.10%)
15% Vanguard Inflation Protected Securities fund (ER 0.20%)
15% Vanguard long-term treasuries (ER 0.20%)
17% Vanguard developed markets index fund (ER 0.12% in tax adv. accounts, 0.20% in taxable due to lower amount invested)
6% Vanguard emerging markets index fund (ER 0.33%)

My husband also has retirement accounts in the low six figures, with roughly 30% in Roth-type accounts (either Roth IRA with Vanguard or Roth 401k) and 70% in a traditional 401k, no taxable accounts. He also maxes out his 401k and Roth IRA, and next year we will scale back our Roth IRA contributions in equal measure as needed to account for day care expenses. His target asset allocation is the same as mine, but because we get paid on different schedules and each do as much as we can to rebalance our own accounts with new contributions, we find it easier to manage if we each keep the same spread for each of us (e.g., no loading up bonds in his account and equities in mine, we keep the same spread). It may not be optimal from a numbers perspective, but I find that given the options available to each of us it winds up being pretty close, and the benefits to marital harmony are significant when we don't have to run the combined numbers every week to decide how to change our next set of investment elections. :D

I'm happy with this general asset allocation, but need advice on allocation as between my funds at Vanguard and at Fidelity, where most of my new money will be going.

These are the options at Fidelity (I do have a BrokerageLink option there, but at this point it looks like the fees associated with going that route will not be worth it):

DOMESTIC
Allianz NFJ Dividend Value Fund (ER 0.96%)
Dodge and Cox Stock (ER 0.52%)
Fidelity Capital Appreciation Fund (ER 0.98%)
Neuberger Berman Socially Repsonsible (ER 1.08%)
Spartan 500 Index Fund (ER 0.10%)
Artisan Mid Cap Value (ER 1.20%)
Columbia Acorn Select Fund Class Z (ER 1.0%)
Fidelity Leveraged Company Stock Fund (ER 0.85%)
Loomis Sayles Small Cap Value Retail (ER 1.31%)
Northern Small Cap Value (ER 1.38%)
Royce Value Plus Service (ER 1.45%)

INTERNATIONAL
Fidelity International Discovery Fund (0.97%)
Spartan International Index Fund (ER 0.11%)

SPECIALTY
Fidelity Real Estate Investment Portfolio (ER 0.85%)
Fidelity Freedom Fund 2045 (ER 0.76%)

BONDS
Stable Value (ER 0.55%)
Fidelity Capital & Income (ER 0.77%)
FIdelity Total Bond (0.45%)

OTHER
Fidelity Money Market Trust Retiremnt MM Portfolio (ER 0.42%)


A lot of dogs in there.

Thoughts?
Last edited by minneapples on Fri Sep 14, 2012 9:40 am, edited 3 times in total.

NYBoglehead
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Re: New Employer, New 401k

Post by NYBoglehead » Thu Sep 13, 2012 2:52 pm

Spartan S&P 500 for 10 bps is a great choice, as is Spartan International Index at 11 bps. Maybe it makes sense to use those and gradually become more bond heavy at Vanguard since it doesn't appear you have a decent bond option in the 401k.

And congrats on expecting a new addition to the family.

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Phineas J. Whoopee
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Re: New Employer, New 401k

Post by Phineas J. Whoopee » Thu Sep 13, 2012 4:16 pm

Hi minneapples,

Because this is a new 401(k) presumably you'll be building its value up gradually.

Like NYBoglehead, I like the two Spartan funds. I'd stash the money in those, and adjust your other tax-advantaged holdings to compensate over time.

PJW

minneapples
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Joined: Fri Jun 10, 2011 10:51 am

Re: New Employer, New 401k

Post by minneapples » Thu Sep 13, 2012 5:00 pm

Those do look like the best options, don't they? I am a little leery of treating a 500 fund as a stand-in for a total stock fund, which is what would happen in time with that approach as I build up the 401k much faster than the Vanguard accounts. But that won't be an issue for a couple of years, and maybe at that point the BrokerageLink account will be more attractive. If my quick look is correct, at least the Spartan international looks like a fair stand-in for Vanguard's developed markets fund.

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Duckie
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Re: New Employer, New 401k

Post by Duckie » Thu Sep 13, 2012 5:21 pm

minneapples wrote:I am a little leery of treating a 500 fund as a stand-in for a total stock fund, which is what would happen in time with that approach as I build up the 401k much faster than the Vanguard accounts.
Once the 500 Index Fund gets to $12K you could add (VEXMX) Vanguard Extended Market Index Fund Investor Shares (0.28%) at a four to one ratio (80% 500 Index, 20% Extended Market) to your IRA. This replicates the total US stock market.

You listed your retirement assets. Does your husband have any? We try to consider a couple's entire portfolio when making suggestions.

covertfantom
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Re: New Employer, New 401k

Post by covertfantom » Thu Sep 13, 2012 5:37 pm

Use http://www.bogleheads.org/wiki/Approxim ... ock_Market to balance out your S&P500 contributions with whatever you've currently got invested with Vanguard.

minneapples
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Re: New Employer, New 401k

Post by minneapples » Thu Sep 13, 2012 6:03 pm

Duckie wrote:
minneapples wrote:You listed your retirement assets. Does your husband have any? We try to consider a couple's entire portfolio when making suggestions.
Duckie, I edited the original post to provide some more information about this. Thanks for asking. I should have included it to start with, for clarity, but as you'll see with our approach it doesn't really alter the picture at all.

retiredjg
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Re: New Employer, New 401k

Post by retiredjg » Fri Sep 14, 2012 9:21 am

minneapples, I think something is wrong with your list. I didn't see a single bond fund or stable value fund there. That seems highly unlikely. Did I miss it? I wonder if something has fallen off the list or gotten overlooked. Please check.

If there is nothing on the fixed income side in your 401k, then your example would be the poster child for why a couple needs to consider a joint portfolio approach. It might also be a reason to mention to your employers that the plan they offer is not up to standards.
It may not be optimal from a numbers perspective, but I find that given the options available to each of us it winds up being pretty close, and the benefits to marital harmony are significant when we don't have to run the combined numbers every week to decide how to change our next set of investment elections.
There is no reason to have to run any numbers every week. This can be done once a year. Twice if you want to keep closer control. It sounds like you guys are making this much harder than it needs to be.
Duckie, I edited the original post to provide some more information about this. Thanks for asking. I should have included it to start with, for clarity, but as you'll see with our approach it doesn't really alter the picture at all.
I think it alters the picture significantly, particularly when contributions to Roth IRA are reduced. You can get all your bonds in the Rollover/Roth IRA for the immediate future. But eventually, you won't have enough space to hold your bonds, extended market or mid/small cap, emerging markets, and REIT in that space.

I think you two need to reconsider this separate portfolio idea. And once there's a baby in picture, there will be even less time to do this weekly re-evaluation of each of your portfolios.

NYBoglehead
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Re: New Employer, New 401k

Post by NYBoglehead » Fri Sep 14, 2012 9:40 am

You can always add the Vanguard Small Cap Index Fund to your 401k if you're worried about the S&P 500 not being a sufficient replacement for a TSM Fund. TSM is roughly 80 some odd percent S&P 500 anyway so you can easily achieve the same return as TSM by incorporating some small cap in there.

minneapples
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Re: New Employer, New 401k

Post by minneapples » Fri Sep 14, 2012 9:50 am

retiredjg: fixed it. Sorry. That's what I get for not proofreading.

And I appreciate the input on the consolidated portfolio approach, and certainly do understand why it would be desireable in certain situations, but for the reasons I already explained, it's not how we're interested in doing it. I think you may have misunderstood what I wrote above -- we do not currently manage our accounts 1x/week. But when making new contributions each pay cycle (2x/month for me, every other week for him), we do take a couple minutes independently to see what is over or underweighted so we can direct new contributions accordingly. Because we are not paid on the same cycle, taking a single-portfolio approach rebalancing with new money would require us to gather more data each time from twice as many accounts and to run combined numbers much more often, more frequently than we care to. And because our investment options are roughly comparable, the extra work is not worth it. As for your suggestion that we only run numbers 1 or 2 times per year, I don't see how it is possible to rebalance with new money by only checking what is over- or underweighted 1 or 2 times per year if you are putting money in 24x or 26x/year.

NYBoglehead
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Re: New Employer, New 401k

Post by NYBoglehead » Fri Sep 14, 2012 10:03 am

Total Bond for 45 bps isn't bad either.

If you do:

50% Spartan S&P at 10 bps
20% Spartan Internatioanl at 11 bps
30% Total Bond Market at 45 bps

You effective ER would be 20.7 bps. Not bad at all.

retiredjg
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Re: New Employer, New 401k

Post by retiredjg » Fri Sep 14, 2012 10:37 am

minneapples wrote:...it's not how we're interested in doing it.
That part is fine. You can choose something just because you prefer it. But this will only work out as well as a joint portfolio if your husband's choices are as low cost as yours.
As for your suggestion that we only run numbers 1 or 2 times per year, I don't see how it is possible to rebalance with new money by only checking what is over- or underweighted 1 or 2 times per year if you are putting money in 24x or 26x/year.
It is simpler than you would think. If you plan to invest $20k a year, you simply send X % to bonds, X% to international, X% to REIT.... It is not necessary to break this down into twice monthly or biweekly contributions. I'm not saying that hurts anything. It is just not necessary.

You should focus on being somewhere in the neighborhood of your target. Being on target all the time is simply not necessary and probably not even helpful.

mikegerard
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Re: New Employer, New 401k

Post by mikegerard » Fri Sep 14, 2012 10:47 am

Just use Spartan 500 Index Fund (ER 0.10%) and move funds around in your other accounts to maintain you desired AA.

My wife's plan has a good deal on a small cap index fund (0.2%) but the rest is lousy...so we just use that account to fund the small cap piece of our portfolio.

Good luck.
Mike

minneapples
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Re: New Employer, New 401k

Post by minneapples » Fri Sep 14, 2012 11:24 am

retiredjg wrote:
minneapples wrote:...it's not how we're interested in doing it.
That part is fine. You can choose something just because you prefer it. But this will only work out as well as a joint portfolio if your husband's choices are as low cost as yours.
And as I said, our options are comparable, so I didn't think it was necessary to go into much detail.

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