Asset Allocation Advice for 23Yr old? Roth IRA

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kamikaze205
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Joined: Tue Dec 27, 2016 2:08 pm

Asset Allocation Advice for 23Yr old? Roth IRA

Post by kamikaze205 »

Hello all,

I am 23 years old and just graduated from college. I'd like to start saving for retirement early to capitalize on compounding. Would someone be able to help me with my asset allocation? I've heard some good things about ETFs but i'm not sure which one to pick (VTI,VOO, etc). Since i'm young and I have a very long time horizon, should I be investing in 90% stock and 10% bonds? If someone could recommend a good asset allocation that would be great! I've opened up a Roth IRA account with Vanguard. My low amount in 401k is due to researching this very late. I wish I could have contributed more and been near the max for this year :(.

Emergency funds: Six months
Debt: $0 Debt
Tax Filing Status: Single
Tax Rate: 28% Federal, 0% State
State of Residence: WA
Age: 23

Current retirement assets

$2400 in 401k
100% allocated to VTTSX

$5500 in Roth IRA with Vanguard
100% Cash and have not invested yet.

401k Options
VBTLX VANGUARD TOTAL BOND MARKET INDEX ADMIRAL 0.06
MWTIX METROPOLITAN WEST TOTAL RETURN BOND I 0.43

VTINX VANGUARD TARGET RETIREMENT INCOME INV 0.14
VTENX VANGUARD TARGET RETIREMENT 2010 INV 0.14
VTXVX VANGUARD TARGET RETIREMENT 2015 INV 0.14
VTWNX VANGUARD TARGET RETIREMENT 2020 INV 0.14
VTTVX VANGUARD TARGET RETIREMENT 2025 INV 0.15
VTHRX VANGUARD TARGET RETIREMENT 2030 INV 0.15
VTTHX VANGUARD TARGET RETIREMENT 2035 INV 0.15
VFORX VANGUARD TARGET RETIREMENT 2040 INV 0.16
VTIVX VANGUARD TARGET RETIREMENT 2045 INV 0.16
VFIFX VANGUARD TARGET RETIREMENT 2050 INV 0.16
VFFVX VANGUARD TARGET RETIREMENT 2055 INV 0.16
VTTSX VANGUARD TARGET RETIREMENT 2060 INV 0.16

JDVWX JHANCOCK DISCIPLINED VALUE R6 0.72
VFIAX VANGUARD 500 INDEX ADMIRAL 0.05
HACAX HARBOR CAPITAL APPRECIATION INST 0.64
MVCKX MFS MID CAP VALUE R6 0.77
VEXAX VANGUARD EXTENDED MARKET IDX ADM 0.09
HRAUX EAGLE MID CAP GROWTH R6 0.74
GSSIX GOLDMAN SACHS SMALL CAP VALUE INST 0.99
PJSQX PRUDENTIAL JENNISON SMALL COMPANY Q 0.69
VTIAX VANGUARD TOTAL INTL STOCK INDEX ADMIRAL 0.12
MINJX MFS INTERNATIONAL VALUE R6 0.74
RERGX AMERICAN FUNDS EUROPACIFIC GROWTH R6 0.5

Questions:
1. Please recommend an asset allocation for 23yr old beginner investor.
2. Please recommend which ETF or Bond I should go with.

Thanks in advance!
Last edited by kamikaze205 on Tue Dec 27, 2016 8:42 pm, edited 3 times in total.
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Duckie
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Re: Asset Allocation Advice for 23Yr old? Roth IRA

Post by Duckie »

kamikaze205, welcome to the forum.
kamikaze205 wrote:Please recommend an asset allocation for 23yr old beginner investor.
I recommend an AA of 80% stocks, 20% bonds, with 30% of stocks in international. That breaks down to 56% US stocks, 24% international stocks, and 20% bonds. Since you are using a Vanguard target-date fund in your 401k you'll have 40% of stocks in international because that's how Vanguard sets up its target-date funds. That's not my preference but is acceptable. To make things simple at this stage you could put the same fund in your Roth IRA.

Where is your Roth IRA held? What custodian?

VTTSX has an AA of 90% stocks, 10% bonds. I think that is too aggressive. I'd go with (VTTHX) Vanguard Target Retirement 2035 Fund. You pick a target-date fund by the AA inside, not the date in the title.
Please recommend which ETF or Bond I should go with.
List all the options in your 401k plan (fund names, ticker symbols if available, and plan expense ratios) so we can see the possibilities.
rkhusky
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Re: Asset Allocation Advice for 23Yr old? Roth IRA

Post by rkhusky »

Vanguard Target Retirement 2060 is fine. At this point it doesn't matter much, since you can easily switch to something else 5 or 10 years from now, if it turns out to not be exactly what you want. You could also go with TR 2050 if you wanted to be a little more conservative. They have about the same AA now, but the 2050 will start to get more conservative about 10 years earlier.
bantam222
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Re: Asset Allocation Advice for 23Yr old? Roth IRA

Post by bantam222 »

I am 25 and I am 100 stock / 0 bonds.

40 years is a long time, I would like to maximize my returns

The amount I have saved at this point is also small with respect to my target portfolio for retirement. If half of my funds disappear now it will have small impact. I don't see any reason to own bonds in retirement accounts at this age.
Topic Author
kamikaze205
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Joined: Tue Dec 27, 2016 2:08 pm

Re: Asset Allocation Advice for 23Yr old? Roth IRA

Post by kamikaze205 »

Hey Guys,

Really appreciate the responses so far! Here is a list of the options in my 401k plan that I can switch to. My Roth IRA is currently held at Vanguard. I've also edited my post to include my 401k options.

1.Would you recommend me to reallocate my current funds in the 401k to VTTHX? Or should I just defer all future contributions to it?
2.Is it better to go 80% stock and 20% bonds? I thought that the younger I am the better it is to go with more stocks.
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Duckie
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Re: Asset Allocation Advice for 23Yr old? Roth IRA

Post by Duckie »

kamikaze205 wrote:Here is a list of the options in my 401k plan that I can switch to.
What are your plan expense ratios (not retail rates) for the following:
  • VANGUARD 500 INDEX ADMIRAL VFIAX -- Large caps, 80% of US stocks
  • VANGUARD EXTENDED MARKET IDX ADM VEXAX -- Mid/small caps, 20% of US stocks
  • VANGUARD TOTAL INTL STOCK INDEX ADMIRAL VTIAX -- Complete international stocks
  • VANGUARD TOTAL BOND MARKET INDEX ADMIRAL VBTLX -- US bonds
  • VANGUARD TARGET RETIREMENT 2060 INV VTTSX
make_a_better_world
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Re: Asset Allocation Advice for 23Yr old? Roth IRA

Post by make_a_better_world »

Many might disagree with me, but you are so young and interest rates are so low that I would go 100% stocks and forgo the bonds for now.

The Vanguard funds you listed are primarily admiral shares, which require a 10k investment so I do not think you will qualify for those. You should be able to go into the comparable funds at Van Guard in the investor class. It's basically the same fund with slightly higher cost. If that is true, I would go 60% US mid/large cap, 20% US small cap, and 20% total international. The closest funds you listed are these:

VANGUARD 500 INDEX ADMIRAL VFIAX
VANGUARD EXTENDED MARKET IDX ADM VEXAX
VANGUARD TOTAL INTL STOCK INDEX ADMIRAL VTIAX
Topic Author
kamikaze205
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Joined: Tue Dec 27, 2016 2:08 pm

Re: Asset Allocation Advice for 23Yr old? Roth IRA

Post by kamikaze205 »

Duckie wrote:
kamikaze205 wrote:Here is a list of the options in my 401k plan that I can switch to.
What are your plan expense ratios (not retail rates) for the following:
  • VANGUARD 500 INDEX ADMIRAL VFIAX -- Large caps, 80% of US stocks
  • VANGUARD EXTENDED MARKET IDX ADM VEXAX -- Mid/small caps, 20% of US stocks
  • VANGUARD TOTAL INTL STOCK INDEX ADMIRAL VTIAX -- Complete international stocks
  • VANGUARD TOTAL BOND MARKET INDEX ADMIRAL VBTLX -- US bonds
  • VANGUARD TARGET RETIREMENT 2060 INV VTTSX
Here are the plan rates. I updated them in my original post as well.
VFIAX 0.05
VEXAX 0.09
VTIAX 0.12
VBTLX 0.06
VTTSX 0.16
MorningstarFan
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Re: Asset Allocation Advice for 23Yr old? Roth IRA

Post by MorningstarFan »

First, great job for starting early. I am currently 26 years old but I had no investment knowledge when I was 23!

For a starter, I recommend VTTSX Vanguard Retirement 2066 Fund in your 401K. The price is low and your portfolio is well-diversified. Here is another great deal - this fund automatically re-balances your portfolio so that all of your bonds and stocks (US and international) are set back to the target allocation. This is a powerful long-term investment strategy!

Also, I am jealous that your employers offers Vanguard funds! :)
Topic Author
kamikaze205
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Joined: Tue Dec 27, 2016 2:08 pm

Re: Asset Allocation Advice for 23Yr old? Roth IRA

Post by kamikaze205 »

Thanks haha! What index funds do you recommend for my Roth IRA at Vanguard? If i'm not planning on making any withdrawals any time soon, I should be good with going with mostly stock right? I'm still not certain whether to go 90% stock 10% bonds or just 100% stock. Any thoughts?
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powermega
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Re: Asset Allocation Advice for 23Yr old? Roth IRA

Post by powermega »

Put it all into one of the Vanguard Target funds, like the 2055 fund, etc. Buy the same fund in your Roth IRA. What is far more important than the asset allocation to you right now is the fact that you're saving the money in the first place. Your contributions to the 401k and IRA are bigger than the investment returns you'll see from any diversified allocation.

We're big fans of the Vanguard Target funds. The 2035 fund, or its components, make up over 80% of our entire portfolio.
Even a stopped clock is right twice a day.
Topic Author
kamikaze205
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Re: Asset Allocation Advice for 23Yr old? Roth IRA

Post by kamikaze205 »

powermega wrote:Put it all into one of the Vanguard Target funds, like the 2055 fund, etc. Buy the same fund in your Roth IRA. What is far more important than the asset allocation to you right now is the fact that you're saving the money in the first place. Your contributions to the 401k and IRA are bigger than the investment returns you'll see from any diversified allocation.

We're big fans of the Vanguard Target funds. The 2035 fund, or its components, make up over 80% of our entire portfolio.
Sweet! I'll choose a Vanguard Target fund for my Roth IRA as well then. What if I wanted to switch to a different Target fund along the way? Do I just sell the shares and buy the new Target fund? Would I incur any fees for doing that?
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powermega
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Re: Asset Allocation Advice for 23Yr old? Roth IRA

Post by powermega »

kamikaze205 wrote:Sweet! I'll choose a Vanguard Target fund for my Roth IRA as well then. What if I wanted to switch to a different Target fund along the way? Do I just sell the shares and buy the new Target fund? Would I incur any fees for doing that?
You can swap to another Vanguard fund whenever you want without any fees or commissions. All of the Target funds have the same underlying allocation until they are about 20 years away from the Target date. In other words, the 2040, 2045, 2050, etc funds all have the same current allocation.

The Vanguard Target funds are a very diversified balanced fund. I like these single funds that are a nice diversified portfolio in one convenient fund.
Even a stopped clock is right twice a day.
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1030danielle
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Re: Asset Allocation Advice for 23Yr old? Roth IRA

Post by 1030danielle »

I've gotten some help making asset allocation (percentage of stocks vs. bonds) decisions from Paul Merriman, who has a comprehensive table (Fine Tuning Table, he calls it) of returns of 40 years: http://paulmerriman.com/fine-tuning-ass ... ions-2016/
I also had the belief that the younger I am, the more I should be invested in stocks (100%). However, what interested me about the tables Merriman presents is that when the market goes down, it goes down BIG when you're only in stocks, leaving a larger hole to climb out of. Bonds offset that loss. Even Vanguard's Target Date Retirement funds are roughly 90% stocks /10% bonds for years 2040-2060 (which some may consider too aggressive). Merriman also makes a good point about standard deviation -- something else you might want to read up on. (The lower the SD, the better = less volatility.) It's all about minimizing volatility.

There's also the info about risk in the Bogelheads Philosophy post on the wiki: https://www.bogleheads.org/wiki/Boglehe ... philosophy
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