Advice/Guidance on my 401k....

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BlurredReality
Posts: 5
Joined: Sun Mar 02, 2014 4:23 pm

Advice/Guidance on my 401k....

Post by BlurredReality » Sun Mar 02, 2014 4:49 pm

Hi All,

First time poster here, have ended up on this site numerous times just from searching 401k related topics online, I'm no expert when it comes to this stuff but looking over my portfolio today I think I definitely have some areas I could improve in, and I figured I would turn to this site to get some opinions and assistance! I'm 30 years old and make a pretty modest living, but am trying my best to have a decent nest egg prepared for the next 30-35 years of compound interest in my 401k.

Emergency Funds: 6 months of living expenses.

Debt: $15,373 @ 2.99% (Auto Loan)

Tax Filing Status: Single
Tax Rate: 25%
State of Residence: Minnesota
Age: 30
Desired Asset Allocation: 85-90% Stocks, 10-15% Bonds.
Desired International Allocation: 20-25%.

Current Portfolio: $31,981.80 (401k)

The funds at my employer are somewhat limited, though we do get access to a self brokerage option if I ever wanted to go down that path. My current allocation and dollars see below:

PIMCO Total Return Fund (PTRAX) 381.67 Shares/$4,144.98 (12.96%) (0.71% Fee)
Vanguard 500 Index Fund (Signal Shares) (VIFSX) 62.47 Shares/$8,874.77 (27.75%) (0.05% Fee)
Delaware Small Cap Value Fund (Institutional Shares) (DEVIX) 45.20 Shares/$2,519.73 (7.88%) (1.07% Fee)
T. Rowe Price New Horizons Fund (PRNHX) 92.07 Shares/$4,504.89 (14.09%) (0.80% Fee)
Vanguard Mid-Cap Index Fund (Signal Shares) (Sig) (VMISX) 123.95 Shares/$5,516.83 (17.25%) (0.10% Fee)
MFS International Value Fund R4 (MINHX) 186.75 Shares/$6,420.60 (20.08%) (0.89% Fee)

Below are the other options the plan offers.

American Beacon Large Cap Value Fund (Investor Class) (AAGPX) (0.97% Fee)
MainStay Balanced Fund (Class 1) (MBAIX) (0.96% Fee)
American Century Growth Fund (Investor Class)(TWCGX) (0.97% Fee)
Fidelity Contrafund (FCNTX) (0.74% Fee)
Parametric Emerging Markets Fund (Institutional Class) (EIEMX) (1.16% Fee)
Fidelity Diversified International Fund (FDIVX) (0.95% Fee)

And then also the standard very conservative/conservative/moderate/aggressive/very aggressive options.

I'm thinking I shouldn't have the overlap in the mid-cap growth funds, but I don't know which would be better to drop, the Vanguard ones that have virtually no fees tied to it, or the T Rowe, which has had far more substantial gains over the last 5-10 years. Most of what I've read and researched seems to indicate going with the lowest cost fund, but does that hold true in this type of scenario? I'm also assuming it's not worth using the Conservative/Moderate/Etc options - but lately I've been wondering if perhaps I'm incorrect on that, since it would diversify my holdings quite a bit... those fees all range from 0.60%-0.80%.

I'm also wondering if perhaps I should be putting more into the Delaware Small-Cap or Balanced Fund, since they would generate more dividends, and also if it would be worth trying to clear up 6-8% to put into the Parametric Emerging Markets Fund since everything I'm reading seems to indicate it's a good time to buy value wise on that... obviously I have a long way to go before I would ever see retirement on the horizon, but I want to develop a sound plan moving forward, I'm sorry if I didn't list all the information one typically would in here, if I missed anything I'll be glad to go back and add it if needed.

deikel
Posts: 449
Joined: Sat Jan 25, 2014 7:13 pm

Re: Advice/Guidance on my 401k....

Post by deikel » Sun Mar 02, 2014 5:45 pm

Every extra money available, I would think about paying the debt back first - consider that as payment into a bond at 3 %

at your age, I dont see the point of having any bond allocation yet (too young to worry) and currently all bonds suck and mid term will go even worse when interest rates will go up.

from your 401k options I would select only the vanguard S+P500 and skip the rest. When you are in a position to open a TIRA (or Roth) you could select a true small cap there and start paying towards the small cap in such an account (with low fee structure) vs your 401k (the Vanguard mid cap is an unnecessary overlap of large IMO and not worth too much)

Int allocation is all nice and shiny, but your selections have high fees and its less diverse than one would like (again, a seperate account somewhere else could provide better choices)
Everything you read in this post is my personal opinion. If you disagree with this disclaimer, please un-read the text immidiatly and destroy any copy or remembrance of it.

BlurredReality
Posts: 5
Joined: Sun Mar 02, 2014 4:23 pm

Re: Advice/Guidance on my 401k....

Post by BlurredReality » Sun Mar 02, 2014 6:19 pm

Thanks for the advice, I guess I hadn't considered just throwing everything into the Vanguard Fund, I guess I was hesitant on doing something like that just because I thought by having my funds spread out a bit more that when a correction happens or if the market has a type of crash again that maybe I wouldn't get hit quite as hard as if I had everything in just the one fund. Do you think if the Vanguard is the only one you're seeing there worth anything, that maybe going the self brokerage option should be considered? Or is that typically kind of a risky call to make?

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Zabar
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Joined: Thu Feb 27, 2014 9:05 pm
Location: San Francisco Bay Area

Re: Advice/Guidance on my 401k....

Post by Zabar » Sun Mar 02, 2014 7:17 pm

BlurredReality wrote: ...and also if it would be worth trying to clear up 6-8% to put into the Parametric Emerging Markets Fund since everything I'm reading seems to indicate it's a good time to buy value wise on that....


I agree that at your age you can have all equities. From the options available, I also agree that the VIFSX is a good bet. You can always open a Roth IRA and diversify through that, e.g., international index, EM index, Total Stock Market index, Small Cap index, etc.

I highlighted the statement above because it implies that you're trying to do some market timing. Given that you're planning on growing your retirement investments for the next 35+ years, you shouldn't be concerned whether "it's a good time to buy" this particular week.

BlurredReality
Posts: 5
Joined: Sun Mar 02, 2014 4:23 pm

Re: Advice/Guidance on my 401k....

Post by BlurredReality » Sun Mar 02, 2014 7:21 pm

Thanks for the reply Zabar, I suppose maybe I am doing that in a way, it's just a fund I had thought about hopping into at some point the last year or so, and from what I've seen/read lately I just thought this might be as good of time as any to do that. I think I'll go ahead and follow the threads advice so far and just move everything over into the one fund. I do have a small Roth right now but last year was the first year I was able to put anything in there, so the balance is only $5500, my main issue with that is how overwhelming it feels with all the different options. I'm not sure what would be a wise choice there, for someone in my situation does anyone have any advice on that front? Given the small amount of money I have in there I'm thinking the smart play would be to just limit it to 2-3 funds total, I've been doing alot of reading lately but with the 401k it's a bit easier due to only being given x amount of options, where the Roth is a whole different beast.

Laura
Posts: 7973
Joined: Mon Feb 19, 2007 7:40 pm

Re: Advice/Guidance on my 401k....

Post by Laura » Sun Mar 02, 2014 11:02 pm

I believe that everyone should have some bonds, even if only 10%. It allows you to rebalance and at times that is the top performing asset class. The Callan Table shows that clearly.

Do you happen to have a roth in addition to the 401k? In your 401k I would use only:

Vanguard 500 Index Fund (Signal Shares) (VIFSX) 62.47 Shares/$8,874.77 (27.75%) (0.05% Fee)
Vanguard Mid-Cap Index Fund (Signal Shares) (Sig) (VMISX) 123.95 Shares/$5,516.83 (17.25%) (0.10% Fee)
PIMCO Total Return Fund (PTRAX) 381.67 Shares/$4,144.98 (12.96%) (0.71% Fee) (high cost but okay for the small amount of bonds you will have)

There is probably a fee for using the brokerage window so I would skip that if possible (confirm the cost)

Put Total Intl Stock Market in the roth so your portfolio would look something like this:

his 401k
Vanguard 500 Index Fund (Signal Shares) (VIFSX) 62.47 Shares/$8,874.77 (27.75%) (0.05% Fee)
Vanguard Mid-Cap Index Fund (Signal Shares) (Sig) (VMISX) 123.95 Shares/$5,516.83 (17.25%) (0.10% Fee)
PIMCO Total Return Fund (PTRAX) 381.67 Shares/$4,144.98 (12.96%) (0.71% Fee) (high cost but okay for the small amount of bonds you will have)

his roth
Vanguard Total Intl Stock Market

Exactly how to set this up depends on the amount of new money going into each account each year (including matching funds).

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.

BlurredReality
Posts: 5
Joined: Sun Mar 02, 2014 4:23 pm

Re: Advice/Guidance on my 401k....

Post by BlurredReality » Mon Mar 03, 2014 12:10 pm

Thanks for your reply Laura, very informative. As far as new funds currently I earn roughly 45k or so a year, maybe 2k in either direction depending on Incentives, and I have 8% currently going into the 401k, the company matches up to 4%, and then end of year does a discretionary match and as I've now been here 5 years it jumps to 2% for me. So really a company match of 6% overall essentially, which seems to be pretty good. With that line of money going into there, how would you personally reccomend setting up the two Vanguard Funds split wise? I did go into my Roth this morning and sold off the shares I currently had funds in, and will look to get into the International Market there, and if I can add more funds this year, perhaps dip into the Small Cap or other markets there. Would you reccomend say a 55% into Vanguard Index, 30-35% into the Mid-Cap, and the rest into PIMCO, or do you feel that would be too much into the Mid-Cap?

Laura
Posts: 7973
Joined: Mon Feb 19, 2007 7:40 pm

Re: Advice/Guidance on my 401k....

Post by Laura » Mon Mar 03, 2014 12:39 pm

Personally I would aim for a ratio of about 75/25 or 80/20 S&P 500/Mid Cap.

If you want to translate all of those percentages of income into total dollar figures when all is said and done after employer contributions we can help you set this up. Please confirm you have a roth or have sufficient money available. The general rule of thumb for investing priority is:

1. 401k to receive all possible matching funds (are you at this level yet?)
2. Max out roth
3. Max out 401k
4. Taxable investing

Double check to make sure you are receiving all available matching funds.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.

BlurredReality
Posts: 5
Joined: Sun Mar 02, 2014 4:23 pm

Re: Advice/Guidance on my 401k....

Post by BlurredReality » Mon Mar 03, 2014 12:51 pm

I am currently investing 2% more into the 401k than I need to in order to get the full company match, I do have a Roth setup through ShareBuilder but I only have $5500 in funds there. For reference last year I put $3,206.74 into my 401k and my company matched $1,832.34 plus a 2% (little over $900) in January of this year. I'll be trying to move more money over into the Roth this year as well, but I'm not confident in my ability to guarantee moving $5500 on a yearly basis into that account currently, maybe at some point once I'm married/living with a spouse, but I would imagine I can get at least $2500 into the Roth again for this year. I could do the entire year contribution right now of another $5500, but that would be dipping into my savings/emergency savings, which right now stands at about $10,000. I was able to get that by not having a car loan the past couple years, I purchased a 2012 Subaru Legacy last October but have already paid down $2000 of the loan and plan to keep aggressively paying it as I can.

Laura
Posts: 7973
Joined: Mon Feb 19, 2007 7:40 pm

Re: Advice/Guidance on my 401k....

Post by Laura » Mon Mar 03, 2014 1:01 pm

I would set up your roth to be funded through small contributions each month rather than digging into your emergency funds. Figure out what you think would work and automate that so it just happens. Try to increase it over time. Every time you get a raise add more into the roth until you can hit the $5.5k automatically. If you happen to have money at the end of the year you can add that too if you haven't hit the limit. Automating investing is the key. There is a great book called "The Automatic Millionaire" that talks about this. Ignore his investing advice if you read the book but his points on the value of setting up investing to happen automatically is key.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.

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