Self-directed 401K: fund choices and lump-sum?

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davehica
Posts: 43
Joined: Sun May 18, 2014 3:07 pm

Self-directed 401K: fund choices and lump-sum?

Post by davehica »

Hello all -- The company my wife and I work for has finally given us a self-directed 401k option, meaning I now have access to the entire fund universe, including low-cost index funds. The offer is pretty simple: $75 annual fee, $25/trade, and $3 per dividend reinvestment. I am planning to roll our entire balances into this plan, turn off the dividend reinvestment, and buy into the proposed funds 2-4X/year (TBD) to minimize fees. Based on the expense ratios of the previous fund offerings, I expect this move to save us about $6K/year.

The questions I have are:

1) Any comments/concerns with the fund selections below?

2) Given the recent bull run, should I invest the full balances at once (they will be in a cash account once the transfer is complete)? Does it make more sense to put 50% in now and then additional lump-sums over time? I was thinking 25% in 2 lumps over the next 6-12 months.

3) How often should I plan to execute trades with new contributions? 2-4X/year? Other? My current contributions are ~1K/month and hers are ~$800. Would it make more sense to limit the reinvestments to a single fund and rotate between them to maintain the target allocations and further minimize expenses?

Here are some additional details on the planned allocations:

Ages: 40/45

His 401K = $391K
Vanguard S&P 500 Index Admiral (VFIAX) -- 40%
Vanguard Small Cap Index Admiral (VSMAX) -- 15%
Vanguard Total Intl Index Admiral (VTIAX) -- 20%
Vanguard Emerging Markets Index Admiral (VEMAX) -- 15%
Vanguard REIT Index Admiral (VGSLX) -- 5%
Vanguard Total Bond Market Index Admiral (VBTLX) -- 5%

Her 401K = $421K
Vanguard Total Stock Market Index Admiral (VTSAX) -- 50%
Vanguard Total Intl Index Admiral (VTIAX) -- 35%
Vanguard Total US Bond Admiral (VBTLX) -- 10%
Vanguard Total Intl Bond Admiral (VTABX) -- 5%

Thanks for the help!
lazylarry
Posts: 498
Joined: Sat Apr 04, 2015 10:35 pm
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Re: Self-directed 401K: fund choices and lump-sum?

Post by lazylarry »

1- It's ok as long as you are aware that this is pretty aggressive for someone at who is 20 years away from retirement. You're like 10% bonds. I'd probably bump that to at least 20%. Something in range of 40-60% is typical by retirement for bond allocation.

2- All the studies show that lump sum is better because of compounding and stock market likely to go up. You can split it though if it makes you sleep easier and it's not a big deal.

3 - If contributions are not charged a commission, then I'd just continue it as is, for simplicity sake. If contributions are charged a comission, then I think you'd have to calculate this out. I think that given the size of your 401ks, you'd benefit from at least 4x a year given that. And yes, I would minimize the times that you are doing this. However, I also know that there is a point at which periodic reinvesting such as DCA is optimized and I don't remember what that is. The other option you have is to maximize your contributions initially (e.g. go 18k at the start of year), and then don't contribute after that, as long match applied.
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Topic Author
davehica
Posts: 43
Joined: Sun May 18, 2014 3:07 pm

Re: Self-directed 401K: fund choices and lump-sum?

Post by davehica »

1- It's ok as long as you are aware that this is pretty aggressive for someone at who is 20 years away from retirement. You're like 10% bonds. I'd probably bump that to at least 20%. Something in range of 40-60% is typical by retirement for bond allocation.
Yes, I'm aware. We have separate company-funded retirement accounts with pretty significant balances, so I'm comfortable taking more risk here.
3 - If contributions are not charged a commission, then I'd just continue it as is, for simplicity sake. If contributions are charged a comission, then I think you'd have to calculate this out. I think that given the size of your 401ks, you'd benefit from at least 4x a year given that. And yes, I would minimize the times that you are doing this. However, I also know that there is a point at which periodic reinvesting such as DCA is optimized and I don't remember what that is. The other option you have is to maximize your contributions initially (e.g. go 18k at the start of year), and then don't contribute after that, as long match applied.
Each contribution to a fund (reinvestment or not) will incur a $25 trading fee. I'll do some more research on the optimum DCA timing. Thanks for your responses.
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