Need investment help for daughter

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KESP
Posts: 92
Joined: Sat May 07, 2016 8:24 pm

Need investment help for daughter

Post by KESP » Sat Jun 18, 2016 9:08 am

Trying to help with investment allocation in my daughter's 401K. Her employer previously only offered a 403b, then changed to 401K. The company plan is offered through Prudential. Strangely, the same offerings in each plan. She does get a match up to 5% of her contribution,

Emergency funds: 45K (saving for a house)
Debt: none
Tax filing: single
Age: 24
Desired allocation: ? not sure. At her age, she can afford a lot of risk

Choices:
Black Rock US Total Bond Index Instl BMOIX .15%
Metropolitan West Total Return Bond Plan MWTSX .40%
Templeton Global Bond R6 FBNRX .53%
There are various target funds, I will skip the ones that are not age appropriate for her.
T Rowe Price Retirement 2050 TRRMX .75% (plus some mention of up to .15% subaccount fee)
T Rowe Price Retirement 2055 TRRNX .75% (plus some mention of up to .15% subaccount fee)
Pioneer Flexible Opportunities PMYRX 1.05%
Fidelity Total Market Index Premium FSTVX .07%
JP Morgan Disciplined Equity R6 JDEUX .36%
Westwood SMidCap Plus Institutional WHGPX .91%
Dodge & Cox International Stock DODFX .64%
Lazard Emerging Markets Multi Asset Inst EMMIX 1.28%
Neuberger Berman Abs Ret Multi-Mgr Instl NABIX 2.73%

Her current allocation is:
Fidelity Total Market FSTVX 60%
Dodge & Cox International Stock DODFX 30%
Metropolitan West Total Return Bond MWTSX 10%

I was going to suggest upping the Fidelity Total Market to 70%, lowering the Dodge & Cox to 20%, and then 10% in the BlackRock Total Bonds? I'm a newbie as well, so any suggestions would be appreciated.

xenial
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Location: USA

Re: Need investment help for daughter

Post by xenial » Sat Jun 18, 2016 9:28 am

The high equity allocation is OK as long as you're sure your daughter won't sell when stocks decline sharply and prognosticators declare disaster is on the horizon. The change in bond fund is reasonable given the expense ratio difference.

Why do you want to make the change in domestic/international allocation? Are you responding to the recent underperformance of foreign stocks? You could certainly argue for the change based on the lower cost of the domestic alternative, but would you still be making that suggestion if foreign had outperformed domestic recently?

JCE66
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Re: Need investment help for daughter

Post by JCE66 » Sat Jun 18, 2016 9:33 am

KESP....I would make this stupendously simple, and go for the lowest cost.

Fidelity Total Market Index Premium: 80%
Black Rock US Total Bond Index Instl: 20%

Cost matters. A lot.

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Watty
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Re: Need investment help for daughter

Post by Watty » Sat Jun 18, 2016 9:38 am

KESP wrote:I was going to suggest upping the Fidelity Total Market to 70%, lowering the Dodge & Cox to 20%, and then 10% in the BlackRock Total Bonds? I'm a newbie as well, so any suggestions would be appreciated.


That sounds like reasonable choices but since she is just starting out the amounts in her account are likely pretty low so there would be nothing wrong with just going with the Target Date funds until she gets up to about $20,000 in the 401k. The fees are a bit higher but in dollar terms the simplicity may be worth it in order to get her comfortable with investing.

KESP
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Re: Need investment help for daughter

Post by KESP » Sat Jun 18, 2016 10:02 am

xenial- I just thought 30% in international stocks given the lack of consensus on this forum as to whether they are a good idea was a little high. With the excellent option that the Fidelity Total Stock market offers, I thought that would be a more solid way to go.

watty- between her 403b and her 401k, she has $15,000 already. She will hit $20,000 in no time. I had thought of that too, until I saw the Fidelity option. She is very disciplined and knows not to mess with things.

JCE66- I had thought of that too. I'm still leaning toward suggesting the 3 funds. She has so many years to invest I think she will be OK.

Thanks everyone! Some food for thought all around.

kenner
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Joined: Sat Mar 01, 2008 8:45 am

Re: Need investment help for daughter

Post by kenner » Sat Jun 18, 2016 10:10 am

KESP wrote:xenial- I just thought 30% in international stocks given the lack of consensus on this forum as to whether they are a good idea was a little high. With the excellent option that the Fidelity Total Stock market offers, I thought that would be a more solid way to go.

watty- between her 403b and her 401k, she has $15,000 already. She will hit $20,000 in no time. I had thought of that too, until I saw the Fidelity option. She is very disciplined and knows not to mess with things.

JCE66- I had thought of that too. I'm still leaning toward suggesting the 3 funds. She has so many years to invest I think she will be OK.

Thanks everyone! Some food for thought all around.


Your indicated selections are fine. The key is that your daughter consistently maintains the percentages in the selected investments over the long haul.

campy2010
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Re: Need investment help for daughter

Post by campy2010 » Sat Jun 18, 2016 10:14 am

JCE66 wrote:KESP....I would make this stupendously simple, and go for the lowest cost.

Fidelity Total Market Index Premium: 80%
Black Rock US Total Bond Index Instl: 20%

Cost matters. A lot.


Yup. Agree. Put the international in a Roth IRA.

kenner
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Joined: Sat Mar 01, 2008 8:45 am

Re: Need investment help for daughter

Post by kenner » Sat Jun 18, 2016 10:33 am

campy2010 wrote:
JCE66 wrote:KESP....I would make this stupendously simple, and go for the lowest cost.

Fidelity Total Market Index Premium: 80%
Black Rock US Total Bond Index Instl: 20%

Cost matters. A lot.


Yup. Agree. Put the international in a Roth IRA.


Sure. Not many 24-year olds have the financial wherewithal and discipline to do this year-in and year-out, but it would be great if attainable.

Vanguard's Total International funds are great choices.

BigJohn
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Re: Need investment help for daughter

Post by BigJohn » Sat Jun 18, 2016 10:40 am

Agree with recommendations for simple, low cost 2 fund approach. For someone just starting out I'd also suggest reading William Bernstein's "If You Can". It's written by a very well respected author, it's only 16 pages long and it's specifically written for people in their 20's. Best of all it's available for free here http://www.etf.com/docs/IfYouCan.pdf. All my children, nieces and nephews have a copy.

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Toons
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Re: Need investment help for daughter

Post by Toons » Sat Jun 18, 2016 10:50 am

JCE66 wrote:KESP....I would make this stupendously simple, and go for the lowest cost.

Fidelity Total Market Index Premium: 80%
Black Rock US Total Bond Index Instl: 20%

Cost matters. A lot.



+1
Ditto On Your Choices :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

Lobster
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Re: Need investment help for daughter

Post by Lobster » Sat Jun 18, 2016 10:56 am

Toons wrote:
JCE66 wrote:KESP....I would make this stupendously simple, and go for the lowest cost.

Fidelity Total Market Index Premium: 80%
Black Rock US Total Bond Index Instl: 20%

Cost matters. A lot.



+1
Ditto On Your Choices :happy


Another +1

The target date and international funds are too expensive.
Submit to the relentless rules of humble arithmetic and avoid the tyranny of compounding costs.

Fallible
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Re: Need investment help for daughter

Post by Fallible » Sat Jun 18, 2016 11:11 am

delete, repeated.
Last edited by Fallible on Sat Jun 18, 2016 11:24 am, edited 1 time in total.
Bogleheads® wiki | Investing Advice Inspired by Jack Bogle

Fallible
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Re: Need investment help for daughter

Post by Fallible » Sat Jun 18, 2016 11:24 am

KESP wrote:...

Emergency funds: 45K (saving for a house)
Debt: none
Tax filing: single
Age: 24
Desired allocation: ? not sure. At her age, she can afford a lot of risk

---
Her current allocation is:
Fidelity Total Market FSTVX 60%
Dodge & Cox International Stock DODFX 30%
Metropolitan West Total Return Bond MWTSX 10%

I was going to suggest upping the Fidelity Total Market to 70%, lowering the Dodge & Cox to 20%, and then 10% in the BlackRock Total Bonds? I'm a newbie as well, so any suggestions would be appreciated.


Emergency savings are for true emergencies such as losing a job, serious illness, or injury, etc. She should have at least six months of these savings, preferably more. See the wiki: https://www.bogleheads.org/wiki/Emergency_fund

Age alone does not necessarily determine how much risk she is able, or wants, to handle. In setting an allocation, she also wants to consider her overall goals, financial capacity, and emotional risk tolerance. The latter is something she should determine on her own as it is deeply personal. See the wiki's pages on "Risk Tolerance," and "Asset Allocation." They also will link to Larry Swedroe's three blogs on willingness (refers to risk tolerance), need, and ability to take risk. Since you are both newbies, check out Rick Ferri's book, All About Asset Allocation, 2nd ed., and she should add William Bernstein's free ebook for millennials, If You Can.

https://www.bogleheads.org/wiki/Risk_tolerance
https://www.bogleheads.org/wiki/Asset_allocation
https://www.etf.com/docs/IfYouCan.pdf

It's great that you are working with your daughter to get her off to a good start. You might also want to check out the wiki's "Getting Started." https://www.bogleheads.org/wiki/Getting_started[/quote]

I also agree with poster JCE66 on being "stupendously simple" for the lowest cost by going with:
Fidelity Total Market Index Premium: 80%
Black Rock US Total Bond Index Instl: 20%
Bogleheads® wiki | Investing Advice Inspired by Jack Bogle

KESP
Posts: 92
Joined: Sat May 07, 2016 8:24 pm

Re: Need investment help for daughter

Post by KESP » Sat Jun 18, 2016 11:33 am

Wow thanks everyone. Looks like there is a consensus. I will talk to her about a Roth as well.

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