Does this retirement allocation make sense?

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User12345
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Does this retirement allocation make sense?

Post by User12345 » Sun Jan 18, 2015 4:56 am

Age: 25
Filling status: single
Marginal tax federal/state: 28/9.5 (CA)
Desired stock allocation: 90/10 I guess is a good start
Desired domestic/international allocation: 60/30
Debt: collage loan 17k @ 1.5%, payment income indexed (currently ~1k/month)
Emergency fund: 7+1 month (savings + checking) - I intend to have a full year in a year
Expenses (except debt repayment): Around 20% of gross or 50% of paycheck (after 401(k), HSA, ESPP, taxes and insurance)

401(k):
Maxed. 1.5k matched
Most funds are quite expensive (0.5%+) so I guess the free broker (Fidelity) seems to be a good option:
  • 4% ITOT [iShares Core S&P Total U.S. Stock Market ETF] (0.07): desired allocation in 401(k) 12%
  • 4% IUSG [iShares Core U.S. Growth ETF] (0.08): desired allocation in 401(k) 12%
  • 4% IUSV [iShares Core U.S. Value ETF] (0.08): desired allocation in 401(k) 12%
  • 4% IJT [iShares S&P Small-Cap 600 Growth ETF] (0.25): desired allocation in 401(k) 12%
  • 4% IJS [iShares S&P Small-Cap 600 Value ETF] (0.25): desired allocation in 401(k) 12%
  • 7% IEFA [iShares Core MSCI EAFE ETF] (0.12): desired allocation in 401(k) 20%
  • 3% IEMG [iShares Core MSCI Emerging Markets ETF] (0.18): desired allocation in 401(k) 10%
  • 1% AGG [iShares Core U.S. Aggregate Bond ETF] (0.08): desired allocation in 401(k) 3.3%
  • 1% LQD [iShares iBoxx $ Investment Grade Corporate Bond ETF] (0.15): desired allocation in 401(k) 3.3%
  • 1% EMB [iShares J.P. Morgan USD Emerging Markets Bond ETF](0.60): desired allocation in 401(k) 3.3%
  • 13% TRRNX [T. Rowe Price Retirement 2055] (0.75): desired allocation in 401(k) 0% (I just haven't sold it yet)
HSA
Maxed.
I'd like to keep my current deductible in safe bonds and maximum out of pocket in bonds (just in case) and rest use as "super IRA". I don't intend to use the first part before using up the emergency fund but I guess still prefer to have an extra safeguard.
  • 1% ITOT [iShares Core S&P Total U.S. Stock Market ETF] (0.07): desired allocation in HSA 12%
  • 0% IUSG [iShares Core U.S. Growth ETF] (0.08): desired allocation in HSA 12%
  • 1% IUSV [iShares Core U.S. Value ETF] (0.08): desired allocation in HSA 12%
  • 0% IJT [iShares S&P Small-Cap 600 Growth ETF] (0.25): desired allocation in HSA 12%
  • 1% IJS [iShares S&P Small-Cap 600 Value ETF] (0.25): desired allocation in HSA 12%
  • 0% IEFA [iShares Core MSCI EAFE ETF] (0.12): desired allocation in HSA 20%
  • 0% IEMG [iShares Core MSCI Emerging Markets ETF] (0.18): desired allocation in HSA 10%
  • 20% TIP [iShares TIPS Bond ETF] (0.20): desired allocation in HSA - deductible
  • 7% AGG [iShares Core U.S. Aggregate Bond ETF] (0.08): desired allocation in HSA - half of maximum out of pocket - deductible + 3.3%
  • 7% HYG [iShares iBoxx $ High Yield Corporate Bond ETF] (0.50): desired allocation in HSA - half of maximum out of pocket - deductible + 3.3%
  • 1% EMB [iShares J.P. Morgan USD Emerging Markets Bond ETF] (0.60): desired allocation in HSA - 3.33%
ROTH IRA
Not opened yet - I intend to fund it by sell of the ESPP.

Taxable retirement accounts
Not opened. I'm not sure if I need them - if I keep the plan the 3% rule withdrawal should allow me to get more per year then my current gross salary (assuming 5% real annual growth and 40 years time frame, and excluding HSA - or 4.5% including).

Other taxable accounts
  • 8% Safety Net on Betterment (intended for 'extended' period of emergency fund beyond the savings accounts)
  • 8% Build Wealth on Betterment (independence would be nice for peace of mind and it would work as taxable retirement account as well)
Accounts on Betterment (chosen as it was first place I knew which offered investing small amounts but I'm thinking about opening 'proper' account which would offer free ETF trades and no additional expense ratio). I'd like to add 'Car' to the mix as well (where I would put money I would paid for car loan if I took one instead of paying cash).

Questions
  • Does this allocation/plan make sense? I guess that it's easier to change it now by contributing new funds then restructure it later.
  • Do I need separate taxable retirement account? I guess that I don't but I have no idea how to calculate the health care costs I will have in 40 years.
Last edited by User12345 on Sun Jan 18, 2015 6:03 am, edited 2 times in total.

livesoft
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Joined: Thu Mar 01, 2007 8:00 pm

Re: Does this retirement allocation make sense?

Post by livesoft » Sun Jan 18, 2015 5:19 am

I personally don't think this asset allocation makes sense. First, I'm pretty good with ticker symbols, but IDK NOW WHA TTHO SET ICK ERS YMB OLS ARE. Second, too many symbols. Third, percentage devoted to individual symbols is too low. Fourth, generally an HSA is pretty small relative to rest of portfolio, so I would use only one fund in it.

You may be interested in the Trev H simplified ultimate thread: http://www.bogleheads.org/forum/viewtopic.php?t=38374

I think one can get what they need with about 6 ticker symbols until they start tax loss harvesting.
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User12345
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Re: Does this retirement allocation make sense?

Post by User12345 » Sun Jan 18, 2015 5:55 am

livesoft wrote:I personally don't think this asset allocation makes sense. First, I'm pretty good with ticker symbols, but IDK NOW WHA TTHO SET ICK ERS YMB OLS ARE. Second, too many symbols. Third, percentage devoted to individual symbols is too low. Fourth, generally an HSA is pretty small relative to rest of portfolio, so I would use only one fund in it.

You may be interested in the Trev H simplified ultimate thread: http://www.bogleheads.org/forum/viewtopic.php?t=38374

I think one can get what they need with about 6 ticker symbols until they start tax loss harvesting.
I've added classes if that helps - I was trying to following the guidelines which specifies only to put ticket symbols (they are from iShare which are a commission-free ETFs at Fidelity - I though they would be reasonably standard). I'll read the thread tomorrow. (Also - I don't think you do Tax Harvesting on the 401(k)/HSA/... - except that you need to avoid wash sales).

EDIT: Actually guidelines ask for full name. I'll update in a second.

BigJohn
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Re: Does this retirement allocation make sense?

Post by BigJohn » Sun Jan 18, 2015 9:05 am

Nothing wrong with your overall AA plan but you are using way too many funds. While this may give the appearance of diversification, there is so much overlap between these funds that this is adding a lot of complexity without any real benefit. At your age I'd consider a simple 3-fund portfoilio https://www.bogleheads.org/wiki/Three-fund_portfolio. I'd also suggest you read William Bernstein's "If You Can" which is specifically written for someone your age and is available for free here http://www.etf.com/docs/IfYouCan.pdf

randomguy
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Re: Does this retirement allocation make sense?

Post by randomguy » Sun Jan 18, 2015 9:15 am

There is pretty much no point in buying the same amount of a growth and value fund in a tax advantaged account. Just buy the blended fund.

With how little money you have in bonds, I don't think splitting it into 3 funds makes any sense.

36% total us
24% small cap
20% core MSCI EAFE
10% Emerging markets
10% bond

doesn't look so bad. People will argue against the small tilt (I would prefer small value) and emerging market (may or may not pay off) but they are pertty personal choices.

If I were to hold emerging market bonds, I would consider them more equity than bonds. They can have a pretty wild ride when countries start defaulting (or the risk goes away) and historically the returns and volatility have been closer to stocks.

livesoft
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Re: Does this retirement allocation make sense?

Post by livesoft » Sun Jan 18, 2015 9:26 am

Since you are at Fidelity, I would recommend (and use myself) some of their Fidelity Spartan Advantage index funds if you are added every paycheck. For instance
FSGDX total int'l stock index
FSITX total US bond index
FSTVX total US stock Index

Get some small cap value in the form of IJS and some small-cap foreign with VSS.

Add REITs if you like.

One may wish to write down an asset allocation of asset classes without using any fund names. Then later figure out the funds that can be used.
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WHL
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Re: Does this retirement allocation make sense?

Post by WHL » Sun Jan 18, 2015 9:32 am

Yeesh. As has been said, you are only adding complexity to a portfolio by holding so many funds. Sell everything, buy a total market fund for us, international, and bonds, and be done with it.

User12345
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Re: Does this retirement allocation make sense?

Post by User12345 » Sun Jan 18, 2015 3:49 pm

Thanks to everyone for answers. Maybe I am unrepentable with regard to complications but I'm now considering the randomguy allocation - possibly merging emerging markets and EAFE into total international giving:
  • Total US: 36% (ITOT)
  • Small Cap Value: 24% (IJS)
  • Developed markets: 20% (IEFA)
  • Emerging markets: 10% (IEMG)
  • Bonds: 10% (AGG)
livesoft wrote:Add REITs if you like.
That may be a strange question but why would I (i.e. what I'm betting for/against)? I don't have a full charts but it would look like it performs similar to small cap value - with exception of 2008 (much larger crash) and beginning of 2015 (growth rather then fall) but I would guess both are 'noise' which you would get in any sector tracking index.
livesoft wrote:Since you are at Fidelity, I would recommend (and use myself) some of their Fidelity Spartan Advantage index funds if you are added every paycheck..
I don't use funds as Advantage class have minimum of 10,000 and with exception of total market stock they don't have better expense ratio. Once I will have 10,000 in total market it might be something to consider though.
livesoft wrote:One may wish to write down an asset allocation of asset classes without using any fund names. Then later figure out the funds that can be used.
To clarify - that was what I done. I might just got a bit over with number of classes...

livesoft
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Re: Does this retirement allocation make sense?

Post by livesoft » Sun Jan 18, 2015 3:52 pm

User12345 wrote:I don't use funds as Advantage class have minimum of 10,000 and with exception of total market stock they don't have better expense ratio. Once I will have 10,000 in total market it might be something to consider though.
You know there are Spartan index funds with initial minimums of $2,500, right? So no need to wait for $10,000.
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livesoft
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Re: Does this retirement allocation make sense?

Post by livesoft » Sun Jan 18, 2015 3:54 pm

User12345 wrote:
livesoft wrote:Add REITs if you like.
That may be a strange question but why would I (i.e. what I'm betting for/against)? I don't have a full charts but it would look like it performs similar to small cap value - with exception of 2008 (much larger crash) and beginning of 2015 (growth rather then fall) but I would guess both are 'noise' which you would get in any sector tracking index.
REITs are sometimes considered an alternative asset class to equities since they seem to be correlated less with equities. So some believe they provide additional diversification and the free lunch that goes with that. You may wish to read up more about them.
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