Help w/ 401k Elections

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canga
Posts: 71
Joined: Thu Nov 26, 2009 7:50 pm

Help w/ 401k Elections

Post by canga » Mon Sep 09, 2013 7:15 pm

Hi Bogleheads,

I am trying to select 401k options for new 401k choices and would really appreciate your help. Here is my info:

Basic Info
Emergency funds: Six months in I Bonds
Debt: $0
Tax Filing Status: Single
Tax Rate: 28% Federal, 0% State
State of Residence: Expat
Age: 31
Desired Asset allocation: 62.1% stocks / 6.9% REIT (i.e. 10% of equities)/ 31% bonds
Desired International allocation: 33.8% of stocks
Mid 6 figures

Current retirement assets
Taxable
27.2% Vanguard Tot Stock Index Admiral (VTSAX) (0.05%)
11.6% Vanguard Sm-Cp Val Index Fund Admiral (VSIAX) (0.10%)
5.2% Vanguard European Index Admiral (VEUSX) (0.12%)
5.2% Vanguard Pacific Stock Index Admiral Shares VPADX (0.12%)
5.2% Vanguard Emerging Markets Stock Index Admiral Shares (VEMAX) (0.20%)
7.8% FTSE All World Ex-US Sm-Cp Val (VFSVX) (0.45%)
9.0% I Bonds

Old 401k
18.4% Bond
6.9% REIT

Roth IRA
2.9% Vanguard Total Bond Market Index Inv (VBMFX) (0.20%)

Contributions
Max 401k, Roth, and I Bonds. Mid 5 Figures to Taxable.

401(k) Available funds
Stable Principal (0.57%) (Current Yield: 1.87%)
PIMCO Total Return Fund (PTTRX) (0.46%)
PIMCO Commodity Real Return Strategy Fund (PCRIX) (0.74%)
Loomis Sayles Strategic Inc (NEZYX) (0.71%)
Invesco Global Real Estate (IGREX) (0.90%)
Vanguard 500 Index (VIFSX) (0.05%)
MFS Value (MEIJX) (0.71%)
T. Rowe Price Blue Chip Growth (TRBCX) (0.76%)
Vanguard Extended Market Index (VEMSX) (0.14%)
Vanguard Total International Stock Index (VTSGX) (0.16%)
Franklin Micro Cap Value (FRMCX) (1.17%)
Eagle Small Cap Growth (HSIIX) (0.78%)
Fidelity Diversified International (FDVIX) (1.00%)
Columbia Acorn International (ACINX) (0.93%)
Oppenheimer Developing Markets Fund (ODVYX) (1.03%)
Oppenheimer Global (OGLYX) (0.93%)

Question 1: In 401k I plan to use Invesco Global Real Estate (IGREX) (0.90%) for my REIT fund. Due to the expense ratio I plan to change my Roth from Vanguard Total Bond Market Index Inv (VBMFX) to Vanguard REIT (VGSIX). Remainder of my REIT will utilize Invesco Global Real Estate (IGREX). Sound good so far?

Question 2: In 401k I plan to use PIMCO Total Return Fund (PTTRX) (0.46%) as my main bond fund. I am questioning the use of Stable Principal (0.57%) (Current Yield: 1.87%) and PIMCO Commodity Real Return Strategy Fund (PCRIX) (0.74%) as diversifying my portfolio. Larry Swedroe recommends commodities as 5-10% of equities when looking at portfolio returns as a whole, but has some negative things to say about PIMCO's "small bets" on the market (http://www.cbsnews.com/8301-505123_162- ... -portfolio). If I did add Commodities I was thinking of a constant 4% of portfolio and reducing equities by 4% accordingly. For Stable Value I was considering 10 to 20% of overall bond allocation but this may not be needed. In a perfect world the idea would be to decrease portfolio risk and increase estimated portfolio return.

I am relatively risk averse, and already have a small value tilt. I am also considering the option of an early retirement (mid to late 40s). Should I go with Option 1 or Option 2 below, or a combination? Please let me know if I left something out.

Option 1

New 401k
18.4% PIMCO Total Return Fund (PTTRX)
4.0% Invesco Global Real Estate (IGREX) (0.90%)

Roth IRA
2.9% Vanguard Total Bond Market Index Inv (VBMFX) (0.20%)

Option 2

New 401k
3.1% Stable Value (Current Yield: 1.87%)
15.3% PIMCO Total Return Fund (PTTRX)
4.0% Invesco Global Real Estate (IGREX) (0.90%)
4% PIMCO Commodity Real Return Strategy Fund (PCRIX) (0.74%) -- Would gradually reduce equities by 4% under this option.

Roth IRA
2.9% Vanguard Total Bond Market Index Inv (VBMFX) (0.20%)

Question 3: Currently my plan is to increase bond allocation as a percentage in age in bonds. However, I plan to limit bonds to 40% or 50% of portfolio due to the option of early retirement. Is this a reasonable target? I have a few years to ponder this decision.

Question 4: Long term option is to keep purchasing I Bonds to reduce the need for bonds inside my 401k. This would allow me to eventually start purchasing Vanguard Total International Stock Index (VTSGX) (0.16%) in 401k rather than Vanguard Tot Stock Index Admiral (VTSAX) (0.05%) in Taxable. This would have the effect of lowering overall portfolio expenses. Would another strategy be better?

patrick
Posts: 1608
Joined: Fri Sep 04, 2009 3:39 am
Location: Mega-City One

Re: Help w/ 401k Elections

Post by patrick » Mon Sep 09, 2013 8:41 pm

Switching the IRA to the REIT fund to reduce the use of the high-cost REIT fund in the 401K looks like a clear winner, preferably sooner rather than later. In the case of the stable value fund it's not obvious, but at least compare its yield with regular bonds, and look into the credit risk.

canga
Posts: 71
Joined: Thu Nov 26, 2009 7:50 pm

Re: Help w/ 401k Elections

Post by canga » Wed Sep 11, 2013 8:32 pm

patrick wrote:Switching the IRA to the REIT fund to reduce the use of the high-cost REIT fund in the 401K looks like a clear winner, preferably sooner rather than later. In the case of the stable value fund it's not obvious, but at least compare its yield with regular bonds, and look into the credit risk.
Thanks. The credit quality is AA+. What percentage of the bond portfolio should the Stable Value fund be limited to? I'm concerned that PIMCO Total Return Fund (PTTRX) (0.46%) is an active bond fund and Bill Gross may make another bad call.

What about commodities? Should the PIMCO Commodity Real Return Strategy Fund (PCRIX) (0.74%) be used? Thanks for your help.


Stable Value details are shown here:
Total Assets: $1.733 billion
Average Quality: AA+
Market To Book Ratio: 1.0086
Average Life: 2.57 years
Current Yield (before fees): 2.16%
Current Yield (after fees): 1.76%

pingo
Posts: 2594
Joined: Sat Sep 19, 2009 8:24 pm

Re: Help w/ 401k Elections

Post by pingo » Thu Sep 12, 2013 6:11 pm

Does the employer match any of your 401k contributions? If so, what is the dollar amount?

Would you mind listing the options in your Old 401k (plus available tickers and expense ratios) ?

canga wrote:Option 1

New 401k <--22.4% of portfolio?
18.4% PIMCO Total Return Fund (PTTRX)
4.0% Invesco Global Real Estate (IGREX) (0.90%)

Roth IRA
2.9% Vanguard Total Bond Market Index Inv (VBMFX) (0.20%)

Option 2

New 401k <--26.4% of portfolio?
3.1% Stable Value (Current Yield: 1.87%)
15.3% PIMCO Total Return Fund (PTTRX)
4.0% Invesco Global Real Estate (IGREX) (0.90%)
4% PIMCO Commodity Real Return Strategy Fund (PCRIX) (0.74%) -- Would gradually reduce equities by 4% under this option.

Roth IRA
2.9% Vanguard Total Bond Market Index Inv (VBMFX) (0.20%)
How did those percents get into a new 401k with $0? Also, the percent totals of the New 401k in options 1 and 2 don't match.

Where did the Old 401k go? Is it that you intend to roll it into the new 401k? If so, neither of the New 401k percent totals match the old 401k total:

canga wrote:Old 401k <--25.3% of portfolio?
18.4% Bond
6.9% REIT
:confused

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