Scared to take the BH jump (30yr old) (portfolio)

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paperstaples
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Scared to take the BH jump (30yr old) (portfolio)

Post by paperstaples » Thu Oct 29, 2015 5:19 pm

Emergency funds: Yes
Debt: Mortgage (owe 145k)
Tax Filing Status: Married 2 Kids
Tax Rate: 25% Federal, 5.75% State
Income: 1XX
State of Residence: NC
Age:30
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 20% of stocks
Last edited by paperstaples on Fri Oct 14, 2016 10:09 am, edited 5 times in total.

yosef
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Re: Scared to take the BH jump (30yr old)

Post by yosef » Thu Oct 29, 2015 9:02 pm

You should read The Bogleheads Guide to Investing. The single best predictor of mutual fund performance is expense ratio. You don't say what the expenses are on your current fund, but I'm sure it's higher than Vanguard index funds. That expense ratio difference is not a fad - it's guaranteed money in your pocket. You're right to be skeptical of advisor fees also; you don't need one. Just do some reading here (don't forget the wiki) and get some answers from the Boglehead sages.

IPer
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Re: Scared to take the BH jump (30yr old)

Post by IPer » Thu Oct 29, 2015 9:26 pm

Welcome to the forum!

You should study more. Also, you might open an account at Vanguard with 3-5K in a Target or Balanced
Fund and watch / study it as you do your other background work. Don't ever buy anything you don't want,
enjoy or understand.

ps this does not show your Asset Allocation or what you have your money in so there is no way to
accurately comment about what the reader here (though you will get many opinions) thinks you
should do and why: "Current Retirement Assets: 250k in 401ks, Roths, IRAs"
Last edited by IPer on Thu Oct 29, 2015 9:28 pm, edited 1 time in total.
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Re: Scared to take the BH jump (30yr old)

Post by Grt2bOutdoors » Thu Oct 29, 2015 9:27 pm

paperstaples wrote:

I personally identify best with BH investing versus active funds. I'm afraid to take the leap and convert my retirement to indexes. I'm concerned this could turn out to be a mistake or fad, leaving me with a crappy retirement. Is taking the index route committing a mediocre retirement (not as much upside as active. ie less risk)?
Welcome to the forum!

A mistake?, you're right it's a mistake that nearly all public and private pension funds have been making for over 40 years to the great benefit of their constituents - past, present and future. Why think of all those pension payments made on time and as promised, not because the pension funds beat the market, no, it was because the pension funds matched the market returns. Just imagine if the pension funds had failed to meet the market returns! A fad you say, well Vanguard stands in testament that it most certainly is not a "fad". How many fads do you know last more than 6 months, let alone 12 months? Vanguard's been in business for over 40 years - that's some fad don't you think?

https://www.etf.com/docs/IfYouCan.pdf - start with this primer, then continue reading my recommended reading list below, especially John Bogle's book.

I recommend you read The Little Book of Common Sense Investing written by John Bogle. After reading that, if you're still not convinced, come back and I'll give you a list of some more books to read like - A Random Walk Down Wall Street - Burton Makiel, Winning the Losers Game - Charles Ellis, The Only Guide to a Winning Investment Strategy - Larry Swedroe, All About Asset Allocation - Rick Ferri, The Four PIllars of Investing - William Bernstein.

You're worried about missing out on the upside from active? You should be more worried about going along for the ride on the downside of active management - the tyranny of never ending fees, churning, trading in search of the holy grail of active management, the 10 or 100 bagger as Peter Lynch called them. You enjoy looking for that needle in the haystack? Why look for the needle when you can own the entire haystack and farm?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Re: Scared to take the BH jump (30yr old)

Post by Fallible » Thu Oct 29, 2015 9:59 pm

paperstaples wrote:...
Situation
A new job has made me refocuses on my finances. My retirement is currently invested in actively managed, growth mutual funds (American Funds, 2040 Retirement). I want to pool all my accounts (2 401k, 2 Roth IRA, 1 IRA) into the same investing strategy for simplicity. I've met with local advisors who run the gambit of investing: 1.5% fee for active investing, commission based mutual funds (2.5%), 1.25% fee for indexes. None convinced me to handle my money. The yearly % fee is a real turnoff when calculating the cost over 30 years. The commission isn't as big of a negative factor over 30 years.

I personally identify best with BH investing versus active funds. I'm afraid to take the leap and convert my retirement to indexes. I'm concerned this could turn out to be a mistake or fad, leaving me with a crappy retirement. Is taking the index route committing a mediocre retirement (not as much upside as active. ie less risk)?
You have your answers from the posters here, in particular from Grt2bOutdoors, but you've nearly answered your own questions. You've produced enough of the right reasons to forget active management but IMO not quite enough on the passive side, at least not that I can read here. That information will come from some good reading and help you make that leap. I agree with Grt2bOutdoors on "If You Can: How Millennials Can Get Rich Slowly" and John Bogle's great "The Little Book on Common Sense Investing."

Welcome to the forum!
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Re: Scared to take the BH jump (30yr old)

Post by Chadnudj » Thu Oct 29, 2015 10:05 pm

paperstaples wrote:I personally identify best with BH investing versus active funds. I'm afraid to take the leap and convert my retirement to indexes. I'm concerned this could turn out to be a mistake or fad, leaving me with a crappy retirement. Is taking the index route committing a mediocre retirement (not as much upside as active. ie less risk)?
Yes, indexing is perfectly mediocre on an annual basis. You end up matching the market nearly exactly, each year.

By doing just that each year (matching the market), you end up outperforming 95% or more of all investors/funds over the long term.

Embrace the mediocrity to be extraordinary.

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BL
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Re: Scared to take the BH jump (30yr old)

Post by BL » Thu Oct 29, 2015 10:13 pm

Good advice!
I was going to look up If You Can but Grt2bOutdoors beat me to it. It is great and written just for you.

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Re: Scared to take the BH jump (30yr old)

Post by mhalley » Fri Oct 30, 2015 12:11 am

Go to https://www.portfoliovisualizer.com/backtest-portfolio# and backtest the american vs vanguard 2040 funds. They track each other almost exactly. Cagr is 4.35 vs 4.15
That being said, there is no rule that you have to become 100% a passive index investor. We think that in the long run you will do better by using that strategy, but if you really want to have some of your portfolio actively invested, then you can look into some funds that have good track records without the high fees associated with the american funds.
Vanguard of course has some low fee active funds. Primecap also comes to mind.
Not that i am really recommending this, i would go with the vanguard tr or 3 fund instead. Check out the affect of fees on your portfolio.
https://investor.vanguard.com/mutual-funds/low-cost
Mike

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David Jay
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Re: Scared to take the BH jump (30yr old)

Post by David Jay » Fri Oct 30, 2015 1:15 am

Paper:

You don't have to go "all in". Take 5% of your total retirement portfolio (in a Roth or tIRA) and use it to follow whatever strategy suits your fancy. But make sure you start a spreadsheet and track the performance. After a year or two (if you are a fast learner) the numbers will convince you. It took some of us 20 or 30 years to learn it.

Many, many BH regulars have "been there, done that". Almost all are some type of "reformed _________" (active fund selector, financial advisor worshiper, day trader, whole life "investor", individual stock picker, fund manager follower, financial porn viewer).

"Hi,my name is David, I am a reformed active fund selector"
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Re: Scared to take the BH jump (30yr old)

Post by BlackStrat » Fri Oct 30, 2015 7:42 am

Count your blessings that you have something many of us who discovered the Bogleheads late in life don't; Time.

There are lots of ups and downs, but for the most part index investing is an escalator ride up and you'll thank yourself in 35 years (or less!).

Good luck.

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Re: Scared to take the BH jump (30yr old)

Post by tibbitts » Fri Oct 30, 2015 7:59 am

I'm concerned this could turn out to be a mistake or fad, leaving me with a crappy retirement. Is taking the index route committing a mediocre retirement (not as much upside as active. ie less risk)?
Index funds do have less upside than active. The issue is what the odds are of experiencing the upside.

Also it's possible you'll have a mediocre retirement at best with index investing, but you could have a worse retirement (or better) with active funds. Index investing is based on the overall economy doing reasonably well. Everybody in index funds will suffer somewhat we get fifty years of nothing in terms of growth, that's just a fact, and a possibility. And it's possible that people will look at history at that point, and conclude that although only 10% of people in active funds "won", that's the only way to have any retirement. The index phenomena is based on "average" providing reasonably generous returns, and it has for previous generations. For yours, only time will tell.

In any case, index or active, almost everyone agrees that costs matter, so even if you decide you want active funds, giving part of the money away in excessive fees is unlikely to help. You'll have to decide what "excessive" is.

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goingup
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Re: Scared to take the BH jump (30yr old)

Post by goingup » Fri Oct 30, 2015 8:14 am

Don't jump. Sit down and read a few books, as many posters have suggested. The single best I found was Boglehead's Guide to Investing.

You'll discover that investing doesn't need to be complicated; you don't require an advisor, and nobody has a greater interest in your personal financial success than you!

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Re: Scared to take the BH jump (30yr old)

Post by abuss368 » Fri Oct 30, 2015 8:22 am

Hi paperstaples,

Moving our asset to Vanugard and designing an investment portfolio around a few total market index funds was the best financial decision we ever made.

Best.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: Scared to take the BH jump (30yr old)

Post by Lafder » Fri Oct 30, 2015 9:36 am

welcome!

Take the time to post all of your holdings like this including ERs (expense ratios). That alone may be eye opening to you. And it will help you get organized to see what AA you have and figure out how to place everything in the way that makes the most sense for you, which may include leaving some as is if that is your preference. Go back and add the full details to your first post above rather than restarting a new post.

viewtopic.php?f=1&t=6212

I am a believer that index funds beat fund managers over time. As already stated above, ERs are a huge factor in long term performance. Those two factors help convince me the best advice you can find is on this forum :)

A 3 fund portfolio or all in one funds are as simple as it gets and hard to beat. viewtopic.php?f=10&t=88005

lafder

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Re: Scared to take the BH jump (30yr old)

Post by pkcrafter » Fri Oct 30, 2015 9:38 am

Guess I'll get in line and give it a shot. :happy
I personally identify best with BH investing versus active funds. I'm afraid to take the leap and convert my retirement to indexes. I'm concerned this could turn out to be a mistake or fad, leaving me with a crappy retirement. Is taking the index route committing a mediocre retirement (not as much upside as active. ie less risk)?
I'm concerned this could turn out to be a mistake or fad
I think your intuitive sense is on target here. Indexing has been a fad with uneducated investors who chase returns. You should not see index funds in the top return categories for short time periods. The advantage is there and it gets larger over time, but there is something called Dunn's law. Dunn's law says when an asset class does well, an index fund in that class does even better. So, there is a recent fad element. A fad is one thing, but it can't be a mistake to invest in index funds, especially when thinking long term. If you invest in the S%P500 or Total market, you will get market returns, and that can't be bad. No active fund can continue to go up while the market is going down, so active funds won't save you.

The stock market average return is created by all active investors, and before costs half must outperform and half must underperform. And, of course, it's not always the same investors who are top half. When costs are included, a low cost fund that simply tracks the market will produce a higher return and thus actually beat the average of all higher cost strategies. This small advantage compounds over time.

Large cap, low cost index funds do not produce mediocre returns over longer periods of time. They have beaten 80% of active funds over any period of 20 years, and you can be confident that it will continue. And you can't pick in advance any of the 20% that might succeed over the next 20 years.

What happens with active funds is the top 3 quintiles rotate as the market moves in and out of alignment with the strategies, but it doesn't last, so top managers come in and out of favor. In fact, runs of good active performance can't be clearly identified as luck or skill. The bottom 2 quintiles aren't even competitive and they stay there because of bad management and high costs.

If you want to take a rational approach to investing, consider the facts and then make your decision.
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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Re: Scared to take the BH jump (30yr old)

Post by feh » Fri Oct 30, 2015 11:38 am

Indexing is a fad? I didn't realize Bogleheads had become so trendy!

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Re: Scared to take the BH jump (30yr old)

Post by small_index » Fri Oct 30, 2015 1:15 pm

You already have the answer in your original post:
paperstaples wrote:The yearly % fee is a real turnoff when calculating the cost over 30 years.
Financial fees and a mutual fund's expense ratio both subtract from your fund assets. So even if indexing were a fad, it's the fad with the lowest expense.

You mentioned talking to several investment advisers, who earn nothing if you invest in an index fund. That's probably why you used the term "mediocre". If you think about it, anyone who deviates from the stock market weights is trying to outguess everyone else - trying to beat legions of professionals and experts. The market weights on any given day are probably wrong - but everyone else's guess is even worse. The cheapest way to capture the most expert opinion of what to hold is buying a total stock market index. Every expert in Apple stock has set the price, and the index just buys it in proportion to the market price.

Another thought, does passive indexing win because it's an index, or because it's passive? Funds with very low turnover reduce the tax bill you have to pay. It's another area where index funds perform better than most active funds, which tend to have high turnover. If you compare Vanguard Total Stock Market against other funds, I think you'll agree it's taking less of your money for the next 30 years than other funds.

(By way of disclosure, I own Vanguard Total Stock Market fund. Unlike advisers, I receive $0 for recommending it)

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Re: Scared to take the BH jump (30yr old)

Post by paperstaples » Fri Oct 30, 2015 1:58 pm

Thanks everyone for the responses, advice and encouragement. I did an initial read of "If You Can" and I've read "Random Walk Down Wall Street" previously. Will look into the others over time.

My hesitation with BH investing is that everyone in the financial industry is a salesman. Yes, I view BH forum members as selling/advising. Nobody knows the perfect investment. However, BH investing may be the best choice for me (risk tolerance). Its not worth the risk trying to pick the perfect active investments over 30 years. I can identify and understand that over 30 years that indexing will rise *near* the top performers. The mutual funds are like random noise, when averaged over 30 years, will mostly drop.

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Re: Scared to take the BH jump (30yr old)

Post by paperstaples » Fri Oct 30, 2015 2:50 pm

Interesting you should be thankful for free advice and encouragement and then call members of this non-commercial forum who gave it to you salespeople who are part of the financial industry.
I can be thankful of someone's time and effort, but yet still take their advice with a grain of salt. I don't view BH members as sleezy salesmen. Its more inline with all works of writing have an amount of bias. Some more, some less.

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Re: Scared to take the BH jump (30yr old)

Post by Christine_NM » Fri Oct 30, 2015 2:51 pm

What is this BH jump you speak of?

Index funds invest in the same markets as managed (closet index) funds. They are cheaper so you keep more of your money. They stay fully invested but take less risk than managed funds. Indexed portfolios are simple because there is no adviser with an interest in making investing look complex and therefore, making the adviser look like a necessary expense.

What are you scared of? Do not say crappy retirement. Maybe you are scared of all investing? That would be reasonable. Does indexing take the place of expensive but cookie-cutter managed funds that will change managers several times before you retire and/or die? My answer is yes based on my experience. Nobody pays me to say so.

Happy Halloween and Boo! to scared Bogleheads :shock:
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Re: Scared to take the BH jump (30yr old)

Post by ddurrett896 » Fri Oct 30, 2015 9:55 pm

paperstaples wrote: Is taking the index route committing a mediocre retirement (not as much upside as active. ie less risk)?
Look at the facts:

Index funds have lower expense ratios which plays a big role in future growth. Even if the return is less than managed funds, the expenses wipe out the gain.

BTW I'm 29 and switched from American Funds about a year ago and love what I have now with Vanguard. After a week of reading threads here and watching videos, I understand what I have and what I need to do moving forward. Plus, if I have any questions I have everyone here.

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Re: Scared to take the BH jump (30yr old)

Post by pingo » Sat Oct 31, 2015 4:17 am

paperstaples wrote:I personally identify best with BH investing versus active funds. I'm afraid to take the leap and convert my retirement to indexes. […] Is taking the index route committing a mediocre retirement (not as much upside as active. ie less risk)?
Here's a simple visual.

Blue line: Investors who committed to a "mediocre" retirement through a low cost S&P 500 index fund.
Orange line: Investors who wanted the "upside" of active management.

Image

Note that "Large Blend" is Morningstar.com's measurement of the performance of all funds in the U.S. Large Blend Category combined. So, the orange line represents most investors, or the average investor, who chose actively managed large cap funds rather than an S&P 500 index fund. How did the average investor/fund perform?

On average, the average investor chooses a more expensive, actively-managed fund and still obtains average investment results minus the (higher) costs; a low cost index fund rides on the backs all those active stock-picking, upside-seeking mutual funds at a lower cost.

It's what they call "ironic". Tracking the market average through a low cost fund produces above-average returns.

P.S. I frequently recommend American Funds when a lower cost index fund of the same category is not available. I only do so when the fund in question is not going to result in relatively high expense ratios and/or egregious sales loads. American Funds is a good investment firm, but it has many iterations of each fund in order for them (or those who sell them) to levy the most money they can out of clients' pockets.
Last edited by pingo on Wed Dec 02, 2015 12:28 am, edited 11 times in total.

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Re: Scared to take the BH jump (30yr old)

Post by pingo » Sat Oct 31, 2015 4:32 am

P.P.S. It really can be quite relative. We really should see all funds offered in the 2 401ks, with there respective ticker symbols (if available) and the fees/expense ratios listed in the 401k plan (which may be different than what we'd find if we look up the ticker symbol). For example, if you prefer target funds and you have a new job, putting money into an American Funds 2040 target retirement fund can be very reasonable, assuming it's expense ratio is somewhere in the vicinity of 0.50% and assuming the other 401k has a good, low cost target fund. Since low cost target funds can also be used in the IRAs no-problem (sometimes one must move the accounts to Vanguard), and we also keep in mind where new contributions are for the benefit of the whole portfolio, the expense impact of the American target fund might be nil to small when considering the all-in, or "weighted" costs of the entire portfolio of accounts. (Here's an example of what I mean from a different portfolio; notice the weighted ER 0.19% despite the 401k target fund ER 0.63%.)

It doesn't always work out that nicely, but it can often be simpler and more effective than one imagines at first. I think you should post your account information per the Bogleheads.org recommendations for asking portfolio questions. Often the experience of going through the details of portfolio management is such a learning experience that you'll see things you didn't before, and you'll realize that you really can do it.
Last edited by pingo on Thu Nov 05, 2015 12:04 am, edited 1 time in total.

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Re: Scared to take the BH jump (30yr old)

Post by epictetus » Sat Oct 31, 2015 7:41 am

if you have some decent (low cost) actively managed fund options that makes some difference.
and/or if the index funds are not decent (you mentioned index fund option of over 1% in ER) that makes a difference also

definitely don't pay someone else 1-2% plus to manage your portfolio.

some people here use actively managed funds (Wellington, Wellesley, etc.).

as noted above in the long-run cost is the best predictor of outcome.

you could put 1/2 your portfolio in low-cost index funds and 1/2 in low-cost actively managed funds and see how that feels to you/how that works for you. if you do be sure and compare the performance of the active funds to an appropriate benchmark.
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Re: Scared to take the BH jump (30yr old)

Post by Impromptu » Sat Oct 31, 2015 8:27 am

It was a 10 month process for me to become a boglehead.

The first step was to get out a spreadsheet (google docs or Excel) and find all of my investment accounts,

The second step was to list out all of the investments in each of the accounts, ticker number, expense ratio, current amount invested. I used simple spread sheet functions to multiply the expense ratio by the amount invested. I also labeled them by asset class so I could get an overall feel of my current asset allocation. It was a bit tedious, especially with so many different investments, but was critical for me to understanding my investments.

After 3 months of this I made the plans on how I would leave my financial advisor. Step 3 was leaving my financial advisor. It was pretty easy. Bye bye 1.5% AUM fees.

I hadn't yet changed my asset allocation from the one my financial advisor had given me. I tried following their strategy for a few more months, but it became so complicated with so many investments across different accounts (personal and spousal 401(k), roth IRA, other), that I wanted something simpler. So step 4 was to become an actual boglehead and go with a true 3 fund strategy.

I decided to have US, Intl, and Bonds in each of my accounts in my desired asset allocation (which is fine to do if all of them have low expense ratio options. I was a late starter because of education, but had a high earnings potential, so I went 80% stocks and 20% bonds. My stocks are 40% US and 40% international. I was able to hold steady during the recent 10% decline (though it was a little intense), so I think I chose wisely.

During the whole process I kept my wife involved. She likes the simplicity and could pick up where I left off if I were to die.
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Re: Scared to take the BH jump (30yr old)

Post by kazper » Sat Oct 31, 2015 8:41 am

Honestly, what are your other options? I Am still relatively young compared to a lot on this board. I "saw the light" after reading many books that suggest spending a huge amount of time researching individual stocks and only investing in the best. They all warn, even with all the extra effort you might lose. So my options were:

1. Active funds with high expense ratios that offered little diversification.
2. Mutual funds with higher ERs with more diversification than option 1.
3. Hire someone to manage, but they would take some of my money and might not buy the lowest cost, best funds for my situation.
4. Read a lot and do everything myself, particularly buy lower cost, no load indexes. Not a lot of time spent researching (unless you want), instant diversification, and a 10 on the easy scale.

Guess which one I picked :)

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Re: Scared to take the BH jump (30yr old)

Post by BogleBoogie » Sat Oct 31, 2015 9:22 am

paperstaples wrote:Emergency funds: Yes
Debt: Mortgage (owe 145k, 260k value, 30yr fixed 3.875%)
Tax Filing Status: Married Jointly, kids (1yr, 0yr)
Tax Rate: 25% Federal
Income: 140k
State of Residence: NC
Age:30
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 20% of stocks

Current Retirement Assets: 250k in 401ks, Roths, IRAs

Situation
A new job has made me refocuses on my finances. My retirement is currently invested in actively managed, growth mutual funds (American Funds, 2040 Retirement). I want to pool all my accounts (2 401k, 2 Roth IRA, 1 IRA) into the same investing strategy for simplicity. I've met with local advisors who run the gambit of investing: 1.5% fee for active investing, commission based mutual funds (2.5%), 1.25% fee for indexes. None convinced me to handle my money. The yearly % fee is a real turnoff when calculating the cost over 30 years. The commission isn't as big of a negative factor over 30 years.

I personally identify best with BH investing versus active funds. I'm afraid to take the leap and convert my retirement to indexes. I'm concerned this could turn out to be a mistake or fad, leaving me with a crappy retirement. Is taking the index route committing a mediocre retirement (not as much upside as active. ie less risk)?
I would be much more afraid to NOT take the leap. This is the steady approach that values long term strategy versus unnecessary fees and risk for a more immediate gratification. This is a fear reduction move.

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Re: Scared to take the BH jump (30yr old)

Post by The Wizard » Sat Oct 31, 2015 10:51 am

Sounds like the OP is proposing to leap OUT of shark-infested waters!
Attempted new signature...

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Re: Scared to take the BH jump (30yr old) (portfolio)

Post by paperstaples » Sat Oct 31, 2015 1:24 pm

Updated initial post with portfolio details and questions. Thanks for any advice.

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Re: Scared to take the BH jump (30yr old)

Post by GerryL » Sat Oct 31, 2015 2:37 pm

paperstaples wrote:Thanks everyone for the responses, advice and encouragement. I did an initial read of "If You Can" and I've read "Random Walk Down Wall Street" previously. Will look into the others over time.

My hesitation with BH investing is that everyone in the financial industry is a salesman. Yes, I view BH forum members as selling/advising.
Yes, many (most?) "financial advisors are salesmen, but most BH members are not IN the financial industry; they are customers of the industry.

Nobody knows the perfect investment. Exactly correct. BH investing is not about trying to find the perfect investment. It's not about chasing performance. It's about embracing the good enough.
However, BH investing may be the best choice for me (risk tolerance). Its not worth the risk trying to pick the perfect active investments over 30 years. I can identify and understand that over 30 years that indexing will rise *near* the top performers. The mutual funds are like random noise, when averaged over 30 years, will mostly drop.

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Re: Scared to take the BH jump (30yr old) (portfolio)

Post by Grt2bOutdoors » Sat Oct 31, 2015 4:03 pm

Available Funds in current 401k
Guaranteed Income Fund0.25
Prudential Total Return Bond A PDBAX 0.87
Templeton Blobal Bond Adv TGBAX 0.66
Goldman Sachs Infl Protected Secs A GSAPX 0.96
Prudential Day One 2015 Fund 0.76
5 Year increments
2060 Fund 0.76
Prudential Day One Income Fund 0.76
PIMCO ALl Asset A PASAX 1.53
Large Cap Value / LSV Asset Management 0.97
Fidelity Advisor Large Cap A FALAX 1.30
Vanguard 500 Index Admiral VFIAX 0.05
Large Cap Growth / Jennison Fund 0.96
Prudential Mid Cap Value Z SPVZX 1.07
AB DIscovery Growth A CHCLX 1.04
Small Cap Value / Kennedy Capital Fund 1.31
Wells Fargo Advantage Small Co Growth A WFSAX 1.40
Dodge & COx International Stock DODFX 0.64
T Rowe Price Real Estate Adv PAREX 1.02

New Contributions
$5500 His Roth IRA
$5500 Her Roth IRA
$7000 His 401K Traditional (employer match)
$11200 His 401K Roth

Goal
I want to simplify my holdings and covert to the 3 Fund BH account.
70% Total Stock US
10% Total Stock International
20% Total Bond US

Questions
1. Should I open vanguard accounts for 2 Roths and 1 Rollover IRA? Move all existing money to vanguard?
2. Should I contribute to my 401k as Roth or Traditional? I’m in the 25% tax bracket. Even if I did traditional, I would hit the 25% bracket.
3. How to allocate my new 401k? They have Vanguard 500 index admiral (VFIAX) but nothing else jumps off the page.[/quote]

Your 401k options - what is the Guaranteed Income fund? If there is no available symbol, try and find out what it's composition is and what the current yield is. It has a low cost; 25bps, for a fixed income option that is pretty reasonable. Your next reasonable choice for International is the Dodge and Cox fund (they have a good track record for an active management firm), and for domestic equity use the Vanguard 500 fund. A 70/10/20 mix of those three funds would result in a 14.9bp expense ratio on a blended basis - that beats the pants off of any of the other options in the plan.

Why do you have to move the old 401k money, is your former employer closing or are the existing fund options terrible? You have 1 of 3 choices, leave it where it is, move it to your new employer or roll it over to Vanguard. Another question, instead of using the Roth 401k option, consider using the Traditional 401k option and contributing more money - if you are truly in the 25% tax bracket you should be able to contribute $14K in pre-tax monies that equate to your $11,200 after-tax contribution. In my mind, more money working for you is better than less even if it is tax-free. You most likely will be in the same if not lower tax bracket at retirement short of you having a large increase in your income in the future (unknown as of now) or Zimbabwe type inflation.

Wife's plan has Class B shares, before investigating a move, first find out if there is any deferred sales charge involved, if there is a liquidation of those shares could result in a back-end sales charge upon exiting the fund. You could choose to roll over to Vanguard at some point - either use a Target Retirement fund that most closely approximates your allocation plan or create your own 3 fund plan with Total Stock Market Index, Total Bond Market Index and Total International Stock Index.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Re: Scared to take the BH jump (30yr old) (portfolio)

Post by pingo » Sat Oct 31, 2015 6:14 pm

Thank you for updating your original post.

I noted that some of the American Funds you were sold had larger up-front "loads" (sales charges) in exchange for a lower expense ratio. Others have higher expense ratios in exchange for lower sales charges. American Funds nows how to invest well and is a good steward over your money…if you can actually get all of your money into the fund to begin with. Since 401ks usually use "load-waived" funds, it is less of an issue using American Funds in a 401k if otherwise they are the best options.

I entered your whole portfolio into Morningstar.com's Instant X-Ray feature. It breaks down your assets in a number of ways, starting with the following:

35% U.S. Stocks
25% International Stocks
40% Cash and Bonds

A 60% stock / 40% bond portfolio is a classic growth portfolio, sometimes referred to as a "moderate growth" portfolio. It was probably more aggressive than 60/40 before you moved Old 401k #2 into cash, which means that you probably were in line with your desired 80/20 allocation.

Your International Stocks are 42% of equities. (25% international allocation ÷ 60% combined stock allocation = 42% of stocks.) Most target funds, including the American Funds Target Retirement series, have roughly 30-35% of stocks in foreign markets. Vanguard's Target Retirement series now has them at 40% of equities. Anywhere between 20% of equities and global market weight (~50% of equities) is reasonable as long as it fits with your willingness, tolerance and need for risk as well as your personal investment outlook and the (more important) priority of keeping costs low.

Here is the breakdown of your Large, Mid and Small cap stocks:


Val/Cor/Grwth
23 : 28 : 29 /Lg
05 : 06 : 05 /Md
01 : 01 : 01 /Sm


There is no significant difference between the stock makeup of all those funds they sold you versus a single American Funds Target Retirement fund. For example, American Funds Target Retirement Funds hold 2 percentage points less in Mid Caps and 1 percentage point more in Small Caps while tilting the Large Caps to Core and Growth-style stocks.

The stock holdings in low cost index fund-based target funds such as those by Vanguard, Fidelity, BlackRock (a.k.a. "BTC"), are pretty much same, with merely percentage point differences here and there:

Val/Cor/Grwth
25 : 25 : 25 /Lg
06 : 06 : 06 /Md
02 : 02 : 02 /Sm

Morningstar.com says your average mutual fund expense ratio is 0.47%, however that figure doesn't include any expense for Old 401k #2 (whatever it held before), nor does it account for the boat loads of sales charges of <5.75%, which created losses in your investment returns (not the funds' investment returns). I don't know if "average expense ratio" is a weighted expense ratio, but "weighted" would be more accurate and I don't have time to calculate it.

All else being equal (or very close, anyway), the portfolio with the lowest costs wins. That said, if we can get your portfolio costs low enough, simplicity and peace of mind are worth spending a few more basis points. In other words, cutting expenses in half from 1% to 0.50% can have a huge long-term impact on returns, whereas dropping from ER 0.15% to ER 0.075% is nearly meaningless.


Now, there are a couple of great (and simple!) portfolio possibilities in your life waiting to be awakened, but further clarification is in order.

1. Do you expect a pension? (I assumed you would not, but I might as well clarify.)
2. Does your 401k also allow for elective "after-tax" contributions? (Not the same as a Roth 401k option.)
3. Please share your perspective on the following: In one place you indicate a desire of International to be 20% of stocks, but later you post 10% out of an 80% stock portfolio, which is 12.5% of stocks. Let's at least have them at 20%, with some flexibility for a couple reasons: the simplest portfolio will come from be flexible with your international allocation. In fact, research supports having more versus less and it won't alter your portfolio dynamics very much. International diversification is important, but it takes a back seat to the most important decision: your stock-bond ratio. That said, if you are deathly terrified of investing internationally, a more strict, lower allocation is justifiable and reasonable.
Last edited by pingo on Sun Nov 22, 2015 4:25 pm, edited 6 times in total.

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Re: Scared to take the BH jump (30yr old) (portfolio)

Post by paperstaples » Sat Oct 31, 2015 8:21 pm

Ill check the details of the Guaranteed Income Fund.

1. There is a small pension but I don't want to consider it.
2. I'll have to check into after tax contributions
3. The % of international stocks doesn't matter too much for me. 10 or 20% I could live with.

I'm surprised that nobody has said move my money to vanguard yet. Why should I keep my money in the 401k funds? Why should I keep money in American Funds, because I paid upfront commission? I'd rather have the majority of my money in 1 or 2 accounts. I'll settle for keeping my money spread out across the universe if there is a good reason.

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Re: Scared to take the BH jump (30yr old) (portfolio)

Post by pingo » Sat Oct 31, 2015 11:11 pm

paperstaples wrote:Why should I keep money in American Funds, because I paid upfront commission?
Even though upfront commissions are a "sunk cost" (that money isn't coming back), the answer to the last part is "no" and the answer to the first part is that keeping the expensive American Funds is not and will not be suggested.
paperstaples wrote:I'm surprised that nobody has said move my money to vanguard yet.
Not after calling us salesmen of the financial industry! :D

In all seriousness, we all know the suggestion is coming, but first things first.
paperstaples wrote:There is a small pension but I don't want to consider it.
That's fine, but how small? The bigger the pension, the more compelling the case for emphasizing Roth contributions because a pension has tax implications in your retirement. The smaller the pension, the less compelling the case because it will be easier to remain in a lower bracket in retirement than is yours currently (which means more money for you to keep in the long run). So far, I think circumstances may slightly favor Traditional contributions, but the case is not clear cut.
paperstaples wrote:Why should I keep my money in the 401k funds? […] I'd rather have the majority of my money in 1 or 2 accounts. I'll settle for keeping my money spread out across the universe if there is a good reason.
That's the right approach. Fewer accounts is preferable, however one of those old 401ks gives you access to a 0.13% ER target fund (a rare find, indeed), which also means you probably have access to other funds with even lower ERs. Rolling that 401k (or both 401ks) into your current plan would increase your portfolio costs and might limit your options, whereas keeping the old 401k might mean lower costs and simplifying your options. (I can't explain how having the extra account might help simplify your portfolio right now, but I'll point it out to you later if it can.) If someday it becomes necessary or beneficial to roll the account into your current 401k, we can cross that bridge then.

If you ask me, advising to keep assets in an old 401k (which might happen in this case) helps us build a case that we're not Vanguard salesmen. 8-)

For some people whose income level disallows direct Roth IRA contributions, they can do what we affectionately call The Backdoor Roth so they can continue to build post-tax, tax-advantaged tax-free investments. For it to be a tax-efficient exercise, there should be no traditional IRA assets. Having Traditional 401k assets does not prevent one from doing the Backdoor Roth.
paperstaples wrote:I'll have to check into after tax contributions
Good. Not that you're in a position to do so now, but we're trying to also keep our eye on the horizon. That feature might allow what we affectionately call The Mega Backdoor Roth. (Again, this is for future reference, but now's a good time to find out since you're already going through the present hassles to see where we lead you.) When you look into after-tax contributions, check to see if your plan also allows regular in-service distributions/withdrawals of after-tax savings. If the answer is yes, rather than taking in-service distributions, you could roll the money directly into a Roth IRA account and it would grow tax-free forever after while helping to keep total/weighted portfolio costs to a minimum.



4. So, what does a small pension look like? IOW how big is small?
5. Do you expect to phase out of direct Roth IRA contributions in the foreseeable future?
6. Will you please list the available funds, tickers and ERs of Old 401k #1?
Last edited by pingo on Tue Nov 03, 2015 12:29 am, edited 2 times in total.

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Re: Scared to take the BH jump (30yr old) (portfolio)

Post by ruralavalon » Sun Nov 01, 2015 9:05 am

Welcome to the forum :) .

It's good to see that you are debt free other than the mortgage note.
paperstaples wrote:Age:30
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 20% of stocks
In my opinion your desired asset allocation is within the range of what is reasonable.

paperstaples wrote:Questions
1. Should I open vanguard accounts for 2 Roths and 1 Rollover IRA? Move all existing money to vanguard?
Yes, open those accounts at Vanguard.

But what are the funds (fund names, tickers & expense ratios)" offered in "His old 401K #1"? You might want to keep that account where it is if the funds offered are exceptional, such as funds offering very low ER institutional shares.

paperstaples wrote:2. Should I contribute to my 401k as Roth or Traditional? I’m in the 25% tax bracket. Even if I did traditional, I would hit the 25% bracket.
I suggest traditional 401k contributions unless the pension is significant. TFB blog post, "The Case Against Roth 401(k)". "I think for most people the majority, if not 100%, of the contribution should go to a Traditional 401(k). "

The exception would be if you have a good pension coming. What is the pension expected to be?

paperstaples wrote:3. How to allocate my new 401k? They have Vanguard 500 index admiral (VFIAX) but nothing else jumps off the page.
Grt2bOutdoors has it right. Use Vanguard 500 Index Admiral (VFIAX) ER 0.05% for your domestic stocks. Use Dodge & Cox International Stock (DODFX) ER 0.64% for your international stocks. Use the Guaranteed Income Fund as a bond substitute if the interest rate paid is decent.

What is the interest rate in the Guaranteed Income Fund?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Re: Scared to take the BH jump (30yr old) (portfolio)

Post by ruralavalon » Sun Nov 01, 2015 9:10 am

Welcome to the forum :) .

It's good to see that you are debt free other than the mortgage note.
paperstaples wrote:Age:30
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 20% of stocks
In my opinion your desired asset allocation is within the range of what is reasonable.

paperstaples wrote:Questions
1. Should I open vanguard accounts for 2 Roths and 1 Rollover IRA? Move all existing money to vanguard?
Yes, open those accounts at Vanguard.

But what are the funds (fund names, tickers & expense ratios)" offered in "His old 401K #1"? You might want to keep that account where it is if the funds offered are exceptional, such as funds offering very low ER institutional shares.

paperstaples wrote:2. Should I contribute to my 401k as Roth or Traditional? I’m in the 25% tax bracket. Even if I did traditional, I would hit the 25% bracket.
I suggest traditional 401k contributions unless the pension is significant. TFB blog post, "The Case Against Roth 401(k)". "I think for most people the majority, if not 100%, of the contribution should go to a Traditional 401(k). "

The exception would be if you have a good pension coming. What is the pension expected to be?

paperstaples wrote:3. How to allocate my new 401k? They have Vanguard 500 index admiral (VFIAX) but nothing else jumps off the page.
Grt2bOutdoors has it right. Use Vanguard 500 Index Admiral (VFIAX) ER 0.05% for your domestic stocks. Use Dodge & Cox International Stock (DODFX) ER 0.64% for your international stocks. Use the Guaranteed Income Fund as a bond substitute if the interest rate paid is decent.

What is the interest rate in the Guaranteed Income Fund?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Re: Scared to take the BH jump (30yr old) (portfolio)

Post by ruralavalon » Sun Nov 01, 2015 9:13 am

Is the "BH jump" a new dance craze that I'm not aware of? :?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Re: Scared to take the BH jump (30yr old) (portfolio)

Post by BL » Sun Nov 01, 2015 12:58 pm

I am amazed at the good advice being given here! Just looking at the last two, you are being given, free of charge, what at least $X,XXX might buy you with no guarantee that it would be as good or without conflict of interest such as the carefully contemplated advice given here. On top of that, these people may not even know each other, and certainly have no conflict of interest. They are willing to give this advice, making it available for others to comment, criticize, or disagree, and have been doing so for several years. I don't know them, either, but would and do listen carefully to their advice.

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Re: Scared to take the BH jump (30yr old) (portfolio)

Post by Christine_NM » Sun Nov 01, 2015 1:33 pm

ruralavalon said:
Grt2bOutdoors has it right. Use Vanguard 500 Index Admiral (VFIAX) ER 0.05% for your domestic stocks. Use Dodge & Cox International Stock (DODFX) ER 0.64% for your international stocks. Use the Guaranteed Income Fund as a bond substitute if the interest rate paid is decent.
:thumbsup OP, this was exactly what I thought when I first saw your update (right after you posted it). I did not bother to recommend it because I knew others would. It's pretty obvious, or it should be.
17% cash 47% stock 36% bond. Retired, w/d rate 2.85%

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Re: Scared to take the BH jump (30yr old) (portfolio)

Post by pingo » Sun Nov 01, 2015 5:18 pm

While we wait to hear your answers to questions by Grt2bOutdoors, ruralavalon and myself, here are a few more points of consideration:

Tax Rate: 25% Federal, NC 5.75%

Based on being taxed 30.75% you can actually afford to save $16,173/yr pre-tax in your 401k without it affecting your take home pay. That would give us the following contribution possibilities:

New Contributions
$5500 His Roth IRA
$5500 Her Roth IRA
$7000 His 401K Traditional (employer match)
$11200 His 401K Roth or $16,173 pre-tax Traditional 401k contributions based on 25% federal + 5.75% state tax

As an argument for making personal contributions to your money in the Traditional 401k, I'll point out that you want to have assets that will be taxed in retirement. In fact given your current situation you probably want most of your assets to be taxed as income in retirement. By saving pre-tax now, you avoid a flat 25% federal tax now (or 30.75% marginal, if you end up retiring to a no income tax state). In retirement, you'd withdraw all of your retirement money from pre-tax assets first at the 0%, 10% and 15% brackets. Any money you withdraw inside of the 25% tax bracket (which you may not even have to do), is no better or worse off than from a Roth account,; in the event you retire to a no income tax state, pre-tax does come out ahead of the Roth because of the 5.75% state tax you avoided by deferring taxes in the Traditional 401k.

The reason we should know about the pension is to roughly know what impact it would have on filling the lower tax brackets first. For example, my pension will push us well into the 15% tax bracket before we ever withdraw money from pre-tax assets. Since we currently reside inside the 15% tax bracket before and after deductions, there is much less benefit for us to prefer pre-tax over Roth.

Assuming you keep the same lifestyle as today, you'll never break out of the 25% bracket, which means you may never have to touch the Roth accounts until/unless you actually run out of money in the pre-tax accounts.

If you retire with mostly Roth accounts, you'll have paid higher taxes now, which is the same as paying higher taxes later.
Last edited by pingo on Mon Nov 02, 2015 2:09 am, edited 3 times in total.

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Re: Scared to take the BH jump (30yr old)

Post by ghudson » Sun Nov 01, 2015 6:18 pm

paperstaples wrote:My hesitation with BH investing is that everyone in the financial industry is a salesman.
This just isn't logical. Bogleheads aren't selling you anything. We get nothing for our advise to you. On top of that, the funds that are recommended are the lowest cost funds on Earth, so if Bogleheads are acting as salesmen for the index fund companies we're doing a pretty terrible job of it.

In my eyes you've got it backwards. Bogleheads are clearly _not_ salesmen, which is why I tend to listen to them over other sources of information (though don't take anything I hear at face value without my own cross-referencing and examining etc etc)

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Re: Scared to take the BH jump (30yr old) (portfolio)

Post by David Jay » Mon Nov 02, 2015 12:29 am

ruralavalon wrote:Is the "BH jump" a new dance craze that I'm not aware of? :?
Yup - we're trendy (see above)
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Re: Scared to take the BH jump (30yr old) (portfolio)

Post by Dandy » Mon Nov 02, 2015 7:07 am

1. Should I open vanguard accounts for 2 Roths and 1 Rollover IRA? Move all existing money to vanguard?

Yes, nice to have all accounts under one roof - a low cost provider with many investment options.

2. Should I contribute to my 401k as Roth or Traditional? I’m in the 25% tax bracket. Even if I did traditional, I would hit the 25% bracket.

TIRA can offer an attractive tax deduction now. That was the only option I had in my 401k. Now at age 67 I have "too much" in my TIRA and my RMDs will likely well exceed my needs but will increase my taxes/tax bracket for the rest of my retirement. I would suggest trying to have about equal amounts in Roth and TIRA/T401k.

3. How to allocate my new 401k? They have Vanguard 500 index admiral (VFIAX) but nothing else jumps off the page.

You will get a lot of allocation suggestions. I would say keep it relatively simple. Total Stock and Total International Stock cover most of the world's equities really cheaply. Total Bond is pretty good for covering the US bond market and I would supplement that with either CDs or some short term bond funds e.g. Short Term Bond Index and/or Short Term Corporate. Balanced Index Fund and Tax Managed Balanced are nice low cost funds that cover the US fairly well. You could supplement that with another fund or two and get the overall allocation you want.

You say you are worried about jumping into index funds -- actually the worry should be staying in high priced active funds. The lure is that wise portfolio managers can outperform the market. Long odds of that happening over a 30 year period.

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Re: Scared to take the BH jump (30yr old) (portfolio)

Post by paperstaples » Tue Nov 03, 2015 2:20 pm

4. So, what does a small pension look like? IOW how big is small?
$5500/year for me only. There are options to take less in order for wife to get money after I pass.

5. Do you expect to phase out of direct Roth IRA contributions in the foreseeable future?
I don't expect to phase out of Roth IRA contributions in the short term. Perhaps in 6 years if wife returns to work. My current salary won't grow exponentially.

6. Will you please list the available funds, tickers and ERs of Old 401k #1?
Edited original post. Not much information available. I think most of the funds are passively managed (hence low ERs).

Re: 401K Traditional vs Roth
I can max out 401K as either traditional or Roth (while still maxing Roth IRAs). I don't expect my income to increase at a drastic rate, even when wife works again. We'll stay in the 25/28% brackets. Does this change anyone's opinion? I read some blog posts linked, where the author recommend traditional unless you were going to max out retirement accounts.

Re: Guaranteed Income Current 401K
Not much performance information. 1 YR return is 1.35% with no information for 5YR and 10YR
ISSUER: Prudential Retirement
Insurance and Annuity Company
INVESTMENT ADVISER: Prudential Investment
Management, Inc.
FUND CATEGORY: Stable Value
NET ASSETS: $19,070 Million
INCEPTION DATE: January 1, 1981

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Re: Scared to take the BH jump (30yr old) (portfolio)

Post by pingo » Tue Nov 03, 2015 6:59 pm

I recognize the Old 401k #1 funds because of a friend of mine. They are all index funds and index fund-structured balanced/target funds--as if the low costs didn't already give that away!
paperstaples wrote:His old 401k #1 Funds
Equity Funds
U.S. Equity Fund 0.07% <--S&P 500.
International Equity Fund 0.10% <--Developed Markets only.
Small Cap Fund 0.08% <--Russell 2000.
Emerging Markets Equity Fund 0.12%
Bond Fund
U.S. Fixed Income Fund 0.07% <--Appears to currently be Barclay's Aggregate index. I believe it used to be an intermediate investment grade bond index fund.
Other
Stable Value Fund 0.36%
Balanced Fund 0.08% <--45% US / 25% EAFE /35% Bonds.
Target Retirement Path Fund 0.12%
2020 Retirement Path Fund 0.12%
2025 Retirement Path Fund 0.12%
...
2060 Retirement Path Fund 0.12%
For the benefit of other posters, those Retirement Path target funds at your Old 401k#1 are built from index funds. BlackRock manages them, which means they are similar to BlackRock's LifePath Index Fund portfolios (except the literature would suggest that commodities are not included in OP's Retirement Path options.) Retirement Path portfolios do overweight REITs. For example, the Retirement Path 2045 Fund is closest to OP's desired 80/20 asset allocation and is composed as follows:

47% U.S. Large, Mid, Small Cap stocks
25% Developed & Emerging Markets
10% REITs
16% U.S. Fixed Income (Barclay's Aggregate)
02% TIPS

The Old 401k #1 used to be comprised of actively-managed funds. It moved to an all index fund-approach after the 2008-2009 crisis. The literature reflects a complete Boglehead philosophy. Hopefully OP follows suit.

:D
Last edited by pingo on Sat Nov 28, 2015 10:36 am, edited 3 times in total.

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Re: Scared to take the BH jump (30yr old) (portfolio)

Post by paperstaples » Wed Nov 04, 2015 8:18 am

I still don't see a reason to keep any of the old 401ks or IRAs. Sure my old 401k #1 has target funds with low ERs but not as low as vanguards total indexes (VTSAX, VBTLX).

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Re: Scared to take the BH jump (30yr old) (portfolio)

Post by ruralavalon » Wed Nov 04, 2015 11:01 am

Asset allocation.
paperstaples wrote:Age:30
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 20% of stocks
In my opinion your desired asset allocation is within the range of what is reasonable. That works out to about: 20% bonds; 15% international stocks; and 65% domestic stocks.


Accounts.
paperstaples wrote:Questions
1. Should I open vanguard accounts for 2 Roths and 1 Rollover IRA? Move all existing money to vanguard?
Yes, open those accounts at Vanguard.
paperstaples wrote:I still don't see a reason to keep any of the old 401ks or IRAs. Sure my old 401k #1 has target funds with low ERs but not as low as vanguards total indexes (VTSAX, VBTLX).
I agree, you might as well rollover 401k #1 into an IRA at Vanguard. .

paperstaples wrote:2. Should I contribute to my 401k as Roth or Traditional? I’m in the 25% tax bracket. Even if I did traditional, I would hit the 25% bracket.
Since the expected pension is small ($5.5k/yr for you only), I suggest traditional 401k contributions. TFB blog post, "The Case Against Roth 401(k)". "I think for most people the majority, if not 100%, of the contribution should go to a Traditional 401(k). "


Fund selection & location.
paperstaples wrote:3. How to allocate my new 401k? They have Vanguard 500 index admiral (VFIAX) but nothing else jumps off the page.
Grt2bOutdoors has it right. Use Vanguard 500 Index Admiral (VFIAX) ER 0.05% for your domestic stocks. Use Dodge & Cox International Stock (DODFX) ER 0.64% for your international stocks. Use the Guaranteed Income Fund as a bond substitute (interest rate 1.35%).

Treat all accounts together as a single unified portfolio, rather than try to achieve your whole asset allocation in each individual account.

Initially just use Vanguard 500 Index Admiral (VFIAX) ER 0.05% in the new 401k. Add the other two funds later if needed to keep the desired asset allocation

Use Vanguard Extended Market Index Fund Admiral Shares (VEXAX) ER 0.10% in one of the IRAs to supplement the S&P 500 fund. Using the S&P 500 and Extended Market funds in a 4 to 1 ratio will approximate a domestic total stock market fund. Wiki article, "Approximating total stock market".

Place the bond fund in one of the traditional rollover IRAs. In general bond funds are preferably placed in traditional tax-deferred accounts. Because withdrawals from the Roths will be tax free you want the funds which will appreciate more in the Roths, and stock funds are generally expected to appreciate more. Therefore you want stock funds in the Roths and the bond fund in traditional. "If all else is equal (and it often isn't because of limited 401(k) options), it is slightly better to put assets with higher expected returns in the Roth." Wiki, Tax-adjusted asset allocation, "Asset location".

Since his rollover IRA (ex-2 old 401ks) will be the largest account, I suggest placing some of each fund type in that account to make for easy portfolio management and rebalancing. Wiki article, "Rebalancing".


Example portfolio.
Here is an example portfolio for your consideration. The asset allocation is: 20% bonds; 15% international stocks; and 65% domestic stocks. Total portfolio = $248.6k. New annual contributions = $29.2k. This is a "three-fund" portfolio. The percentages are rounded off.

His current 401K (00%; $00; adds $11.2k/yr + $7k/yr employer match = $18.2k/yr = 62% of new annual contributions)
00%, Vanguard 500 Index Admiral (VFIAX) ER 0.05%, <= all 401k contributions here initially
00%, Dodge & Cox International Stock (DODFX) ER 0.64%, <= add later if needed to keep the desired asset allocation
00%, Guaranteed Income Fund as a bond substitute (interest rate 1.35%), <= add later if needed to keep the desired asset allocation

His Roth IRA@ Vanguard, ex-American Funds (13% of total; $33.5k; adds $5.5k/yr = 19% of new annual contributions)
08%, Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) er 0.05%
05%, Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) ER 0.14%

Her Roth IRA @ Vanguard, ex-American Funds (13%; $31.2k; adds $5.5k/yr = 19% of new annual contributions)
08%, Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) er 0.05%
05%, Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) ER 0.14%

Her IRA Rollover @ Vanguard, ex-American Funds (07%; $17.8k)
07%, Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) er 0.05%

His rollover IRA @ Vanguard, ex- 2 old 401ks (67%; $166.2k)
42%, Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) er 0.05%
05%, Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) ER 0.14%
20%, Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) ER 0.07%
00%, Vanguard Extended Market Index Fund Admiral Shares (VEXAX) ER 0.10%, <= add later, to augment S&P 500 in the current 401k

. . . . .

Any necessary rebalancing can be done by exchanging between funds inside his rollover IRA.

I suggest that you read one or two general investing books from this list.

If you have any questions just ask.

I hope that this helpsa.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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

Re: Scared to take the BH jump (30yr old) (portfolio)

Post by pingo » Wed Nov 04, 2015 8:39 pm

Edits.

I pretty much agree with ruralavalon and Grt2bOutdoors, but out of sheer compulsion I will first suggest the simplicity of using the Vanguard LifeStrategy Growth Fund (VASGX) in each non-401k account.

VASGX is a complete, all-in-one growth portfolio--a fund of funds with 80% stocks and 20% bonds. VASGX is identical to the Vanguard Target Retirement 2035 Fund (VTTHX), except that VASGX's 80/20 asset allocation is static while VTTHX will slowly increase its bond allocation over the years. I realize a Lifestrategy portfolio (or for that matter, a Target Retirement portfolio) does not meet OP's suggestion of a low international allocation, however it would be consistent with OP's portfolio thus far and is worth considering for simplicity's sake:


New Contributions
$5500 His Roth IRA
$5500 Her Roth IRA
$7000 His 401K Traditional (employer match)
$11200 His 401K Roth or $16,173 pre-tax Traditional 401k contributions based on 25% federal + 5.75% state tax


His Rollover IRA @ Vanguard (66.83% or $166,237.53)
67% Vanguard LifeStrategy Growth Fund (VASGX) 0.15%

His Roth IRA @ Vanguard (13.45% or $33,453)
13% Vanguard LifeStrategy Growth Fund (VASGX) 0.15% <--$5,500/yr.

Her Roth IRA @ Vanguard (12.54% or $31,197)
13% Vanguard LifeStrategy Growth Fund (VASGX) 0.15% <--$5,500/yr.

Her IRA Rollover @ Vanguard (7.16% or $17,813)
07% Vanguard LifeStrategy Growth Fund (VASGX) 0.15%

Traditional 401K (0% or $0)
00% Guaranteed Income Fund (interest rate 1.35%) <--23,173/yr.


Weighted ER = 0.15%.

Contributing only to the Guaranteed Income Fund in the 401k would slowly make the portfolio more conservative over time, which might be a good thing since 80/20 is "age minus 10" in bonds and OP won't be 30 forever.

To lower the international allocation per OP's suggested preference, an equally simple alternative is to use VASGX as above, but to have 80% of His 401k in the Vanguard 500 Fund and 20% in the Guaranteed Income Fund. That keeps the portfolio static at 80/20 while ever-so-slowly reducing the international allocation.

I realize that normally we do not advise mixing all-in-one funds with individual funds because it can create unnecessary confusion or complexity. However, this is a case where it simplifies portfolio management. Regardless, I'll also suggest a configuration of individual funds:
paperstaples wrote:Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 20% of stocks
Translation: 50% S&P 500 / 15% Extended Mkt / 15% International / 20% Bonds


His Rollover IRA @ Vanguard (67% or $166,237.53)
50% Vanguard 500 Index Fund - Adm (VFIAX) 0.05%
02% Vanguard Extended Market Index Fund - Inv (VEXMX) 0.23%
02% Vanguard Total International Index Fund - Inv (VGTSX) 0.22%
13% Vanguard Total Bond Index Fund - Adm (VTBLX) 0.07%

His Roth IRA @ Vanguard (13% or $33,453)
13% Vanguard Extended Market Index Fund - Adm (VEXAX) 0.10% <--$5,500/yr.

Her Roth IRA @ Vanguard (13% or $31,197)
13% Vanguard Total International Index Fund - Adm (VTIAX) 0.14% <--$5,500/yr.

Her Rollover IRA @ Vanguard (7% or $17,813)
07% Vanguard Total Bond Index Fund - Adm (VTBLX) 0.07%

Traditional 401K (0% or $0) <--23,173/yr.
00% Vanguard 500 Index Fund -Adm (VFIAX) 0.05% <--$16,221/yr or 70% of 401k contributions.
00% Guaranteed Income Fund <--$6,952/yr or 30% of 401k contributions.

Weighted ER = 0.07%

Rebalancing can be performed through fund exchanges in His Rollover IRA account.
[url=https://www.bogleheads.org/forum/viewtopic.php?f=1&t=176665#p2673854]In this post[/url], pingo wrote:All else being equal (or very close, anyway), the portfolio with the lowest costs wins. That said, if we can get your portfolio costs low enough, simplicity and peace of mind are worth spending a few more basis points. In other words, cutting expenses in half from 1% to 0.50% can have a huge long-term impact on returns, whereas dropping from ER 0.15% to ER 0.075% is nearly meaningless.
Whoa! I just realized how close my earlier example comes to the actual weighted ERs suggested.

All the best!

:beer

paperstaples
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Joined: Wed Oct 28, 2015 3:18 pm

Re: Scared to take the BH jump (30yr old) (portfolio)

Post by paperstaples » Fri Nov 27, 2015 4:07 pm

I'm in the process of moving my assets to vanguard. My question is for my Roth IRAs ($30K each), should I use ETFs or Funds? Am I reading Vanguard's fee schedule correctly: https://personal.vanguard.com/us/whatwe ... ommissions? ETF trades are commission free while Mutal Fund purchases are $7 (less than $50K in account)? For a single Roth IRA, if i buy $458 monthly (5500 yearly), I''ll pay 7*12=$84 in commission, which is 84/5500=1.52%.

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Aptenodytes
Posts: 3751
Joined: Tue Feb 08, 2011 8:39 pm

Re: Scared to take the BH jump (30yr old) (portfolio)

Post by Aptenodytes » Fri Nov 27, 2015 4:21 pm

paperstaples wrote:I'm in the process of moving my assets to vanguard. My question is for my Roth IRAs ($30K each), should I use ETFs or Funds? Am I reading Vanguard's fee schedule correctly: https://personal.vanguard.com/us/whatwe ... ommissions? ETF trades are commission free while Mutal Fund purchases are $7 (less than $50K in account)? For a single Roth IRA, if i buy $458 monthly (5500 yearly), I''ll pay 7*12=$84 in commission, which is 84/5500=1.52%.
You not quite reading it correctly. Those fees apply to purchases in the Vanguard brokerage account, which is distinct from your core Vanguard account. I don't actually know what term they use for the non-brokerage account but I'll call it "core" here. In your core account you buy Vanguard mutual funds, and for most of the funds you would want to buy there are no commissions (maybe all the funds are commission-free but I can't guarantee that). If you want to own something other than a Vanguard mutual fund in your Vanguard account, you have to do that in your brokerage account. And for anything but a Vanguard ETF you have to pay fees.

So the good news is, no fees for Vanguard funds, but the bad news is you have to choose between ETFs and mutual funds because the fees no longer dominate.

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