~~ Help Choosing 401K Allocation ~~

[dmmoroney614]

Hi everyone! Looking forward to getting your help here!

I'm somewhat torn between just going with the Blackrock Lifepath Fund or choosing my own funds. I'm wondering, is it a good idea to do both?

What if I do this (or some variation of it):

65% - Blackrock Lifepath 2060 (I'm 35, but I want to go further out for a more aggressive allocation)
20% - VIIIX (Vanguard Institutional Index Fund Institutional Plus Shares)
10% - VEMPX (Vanguard Extended Market Index Fund Institutional Plus Shares)
5% - VDIPX (Vanguard Developed Markets Index Fund Institutional Plus Shares)

Expense Ratios (Same order):
.12% - Lifepath
.02% - VIIIX
.05% - VEMPX
.06% - VDIPX


The other funds available to me are:

Boston Partners Large Cap Value Equity Fund (Large U.S. Equity) .40% Expense Ratio
Jennison Large Cap Growth Separate Account (Large U.S. Equity) .38% Expense Ratio
Victory Sycamore Small Company Opportunity Fund (Small U.S. Equity) .82% Expense Ratio
Lord Abbett Developing Growth Fund (Small Cap Stock) .60% Expense Ratio
Harding Loevner International Equity CIT (International) .63% Expense Ratio

Thank you all in advance!!!

Dave

[AtlasShrugged?]

dmmoroney614.....Cost matters a lot, and you have chosen the lowest cost funds. The allocation looks fine.

Can you stay the course? After cost, this is what ultimately matters.

[golfallday]

Welcome to the forum! You came to the right place for advice. Here's my 2 bits. First come up with an asset allocation you are comfortable with that includes equities and bonds. That Blackrock target date fund is one stop shopping; it includes a mix of equities and bonds that becomes more conservative with the passage of time. If you like that Blackrock fund, you don't need anything else. If you want to construct a portfolio of individual funds,VIIIX must be included as it is impossible to beat with that .02% expense ratio. If you pair VIIIX with VEMPX you get the Total US Stock Market Index (approximately). Keep in mind it's not a 50/50 split between the 2. If one looks at the market cap value of the entire US stock universe, approximately 80% of the value of the market belongs to SP500 and approximately 20% of the market is encompassed by the Extended Index. You will have to give some thought as to whether you want to invest in an international fund and what percentage of your equity allocation it will be (keep in mind the SP500 and Extended Index have a substantial international footprint). Finally, you need to consider a bond allocation for ballast even though you are young. You did not include available bond funds in your post. All sorts of great info on asset allocation on this forum. Indeed many contributors on this forum have published books on asset allocation. Best wishes.

[ruralavalon]

Welcome to the forum .

You have some very nice funds offered in your 401k, you are fortunate.


Do you have any other accounts or investments? It's usually best to coordinate investments over all of your accounts as a single unified whole, rather than focus only on each account individually.

Hi everyone! Looking forward to getting your help here!

I'm somewhat torn between just going with the Blackrock Lifepath Fund or choosing my own funds. I'm wondering, is it a good idea to do both?

No, don't do both. That just makes it harder to keep track of your asset allocation and harder to manage and rebalance. Do one or the other.

What if I do this (or some variation of it):

65% - Blackrock Lifepath 2060 (I'm 35, but I want to go further out for a more aggressive allocation)
20% - VIIIX (Vanguard Institutional Index Fund Institutional Plus Shares)
10% - VEMPX (Vanguard Extended Market Index Fund Institutional Plus Shares)
5% - VDIPX (Vanguard Developed Markets Index Fund Institutional Plus Shares)

Expense Ratios (Same order):
.12% - Lifepath
.02% - VIIIX Vanguard Institutional Index Fund Institutional Plus
.05% - VEMPX Vanguard Extended Market Index Fund Institutional Plus
.06% - VDIPX Vanguard Developed Markets Index Fund Institutional Plus

At age 35, even if you want to be aggressive, use a good bond fund in addition to those three stock index funds.

The other funds available to me are:

Boston Partners Large Cap Value Equity Fund (Large U.S. Equity) .40% Expense Ratio
Jennison Large Cap Growth Separate Account (Large U.S. Equity) .38% Expense Ratio
Victory Sycamore Small Company Opportunity Fund (Small U.S. Equity) .82% Expense Ratio
Lord Abbett Developing Growth Fund (Small Cap Stock) .60% Expense Ratio
Harding Loevner International Equity CIT (International) .63% Expense Ratio

What bond funds are available?

Since you have good low ER stock index funds offered, I would not suggest using any of the higher expense managed stock funds.

[Lou354]

You're undecided between a target date fund vs choosing your own funds, so you're thinking of splitting the baby by doing both. What feature(s) of the target date fund is(are) most attractive to you? If it's the simplicity of having a single fund that automatically rebalances, well then it's a bad idea to do both because you'll wind up with more funds than either alternative alone. If it's some other reason, then I don't see any harm or benefit in combining both approaches.

You didn't ask, but I recommend including some bonds in your portfolio.

[dmmoroney614]

Thanks for the great replies everyone! I will post the other available funds tomorrow. I wasn't thinking too much of bonds.

If I were to stick with the 3 Vanguard funds, what split should I do? 65, 30, 15?

[LadyGeek]

dmmoroney614, Welcome! Lou354 is providing some excellent advice.

You're asking about the 401(k), but do you have any significant investments elsewhere? The point is to consider everything you have as a single portfolio, then decide on the overall asset allocation.

Try posting what you have in the Asking Portfolio Questions format. It will make you think about the "big picture" while giving us the information we need to point you in the right direction.

If I were to stick with the 3 Vanguard funds, what split should I do? 65, 30, 15?

A good approach is "whatever you fell comfortable with", but what do you want as for a total stock % / bond % ratio? Generally, 80 % stocks / 20 % bonds is the most aggressive you should go.

Once you arrive at a top level stock / bond ratio, we can figure out the 3-fund ratios. The way to do this is to follow the pros - the fund managers who build the target date retirement funds. See the wiki: How to build a lazy portfolio, then Approximating Vanguard target date funds.

That being said, there's nothing wrong with using a single target date fund as Lou354 points out. Remember that you can change your mind at any time without tax penalties in a retirement account. Start with a single target fund and see how it goes for 6 months. Then, decide if you want to take on the complexity of managing additional funds yourself.

[dmmoroney614]

Here's the complete list of options for me:

"Employee Investment Elections"

LifePath 2020 Fund
LifePath 2025 Fund
LifePath 2030 Fund
LifePath 2035 Fund
LifePath 2040 Fund
LifePath 2045 Fund
LifePath 2050 Fund
LifePath 2055 Fund
LifePath 2060 Fund
LifePath Retirement Fund

CORE FUNDS
Money Market
-Fed Govt Obl Fund Inst Shares
GIC/Stable Value
-KeyBank EB MaGIC Fund
Bond
-Vanguard Total Bond Markets Index Fund
-PIMCO Total Return Fund Inst
Real Assets
-PIMCO Diversified Real Asset
Large U.S. Equity
-Boston Partners Large Cap Value Equity Fund
-Vanguard Institutional Index Fund, Inst. Plus Shares
-Jennison Large Cap Growth
Mid U.S. Equity
-Vanguard Extended Market Index Fund, Inst. Plus Shares
Small U.S. Equity
-Victory Sycamore Sm Cmpy Opp
Small Cap Stock
-Lord Abbett Instl Dev Growth
International
-Dodge & Cox International
-Harding Loevner International
-Vanguard Developed Market Index Fund, Inst. Plus Shares

[dmmoroney614]

I ended up doing the 3 Vanguard funds, no bonds, 60/30/10 allocation.

I chose to have automatic rebalancing every 6 months. There were also choices for quarterly & annually.

[ruralavalon]

I ended up doing the 3 Vanguard funds, no bonds, 60/30/10 allocation.

I chose to have automatic rebalancing every 6 months. There were also choices for quarterly & annually.

My suggestion would be:
50%, Vanguard Institutional Index Fund Institutional Plus
15%, Vanguard Extended Market Index Fund Institutional Plus
15%, Vanguard Total International Stock Market Index Fund Institutional Plus
20%, Vanguard Total Bond Market Index Fund Institutional Plus

[dmmoroney614]

You think at 35 20% bonds is a good idea? I'm not conservative Syu all, I'm super aggressive.

[ruralavalon]

You think at 35 20% bonds is a good idea? I'm not conservative Syu all, I'm super aggressive.

Since you are 35, you probably had little money in the market in 2008, so have no real experience with how you will react in a market crisis.

At 35 I suggest about 20-25% in bonds, that is fairly aggressive. This is expected to substantially reduce volatility (risk), with only a relatively slight decrease in return. Graph, "An Efficient Frontier: the power of diversification". Please see also William Bernstein, "The Rebalancing Bonus".

[dmmoroney614]

You certainly were on two ends of the spectrum with the simplicity of that material, lol. It does seem I should have some bonds, but that article didn't give too much of a direct answer on rebalancing. Quarterly did seem to outweigh annually, so maybe I'll stick with bi-annually and see how it goes.

[Lafder]

This is a great bond fund : Vanguard Total Bond Markets Index Fund

Yes I rec 20% bonds at any age.

Bonds buffer drops much more than they slow down returns.

A 50% stock market drop requires a 100% gain to get back to where it started.

Look at tables with % stock/bonds over years. The ups are closer together than the downs.

If 100% stocks was always best everyone would do it. Some % bonds is generally better. But the specific % depends on the market which is unpredictable. So there will be endless arguments as to the best %

Another advantage of holding a % bonds is that in stock market drops, bonds would be sold and the $ used to buy stocks on sale to rebalance back to your desired AA. And it looks like your plan automatically rebalances for you.

((That is unusual for a plan to rebalance for you. Are you sure it is doing that? A plan that rebalances your individual holdings to your preset % is basically acting as if it is an all in one target date fund. Usually such rebalancing comes with a fee if available. Often the % you choose are just for where your ongoing contributions are going))

You are young, and there will be others who support your 100% stock portfolio. An important piece will be not panicking and selling to cash or bonds in market drops. That is the time to hang in there and ride it out. Your portfolio is wonderfully simple and low cost and better than most folks retirement account choices. So only add bonds if it feels right to you Even 10% would give you some rebalancing space.

lafder

[Lou354]

. . . . And it looks like your plan automatically rebalances for you.

((That is unusual for a plan to rebalance for you. Are you sure it is doing that? A plan that rebalances your individual holdings to your preset % is basically acting as if it is an all in one target date fund. Usually such rebalancing comes with a fee if available. Often the % you choose are just for where your ongoing contributions are going.

My 401k plan also offers automatic rebalancing, at no additional charge. Or to put it another way, it's a service that plan participants are paying for as part of the advisory fee whether we use it or not.

[dmmoroney614]

My plan is through AON Hewitt. When I go through the process of changing allocations, I can choose existing AND going forward, or one or the other. After that selection is the option to have my 401k rebalanced automatically, and those options are quarterly, bi-annually and annually.