401k Fund Selection Help

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bewareofduck
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Joined: Sun Mar 19, 2017 11:45 am

401k Fund Selection Help

Postby bewareofduck » Sun Mar 19, 2017 11:49 am

My spouse is 32 and wants to contribute up to the company match in a Roth 401K. We're currently in the 15% tax bracket at 75K/yr income which will jump once we go from single income to dual income household next year. We'd prefer to be fairly aggressive.

Investment Fund Ticker Expense Ratio
Vanguard Mid-Cap Growth ETF-Mid Cap VOT 0.08
Royce Opportunity Fund-Small Cap OPP 0.97
DFA US Fund-Small Cap Blend SCP 0.37
Vanguard Growth Index Fund- Small Cap VSG 0.08
International Small Cap Fund ISF 0.57
Oppenheimer Developing Markets Fund DMK 0.82
Fundamental Large Cap Value Fund EQI 0.21
John Hancock Disciplined Value Fund DVA 0.25
The Investment Company of America-Large Cap Blend ICA 0.29
Blue Chip Growth Fund- Large Cap BCF 0.37
Fidelity Contra Fund- Large Cap CON 0.46
JPMorgan Mid Cap Value Fund MID 0.65
EuroPacific Growth Fund EPG 0.49
Oppenheimer Global Fund WWF 0.64
Strategic Income Opportunities Fund-Bond Fund SIM 0.25
Federated Institutional High Yield Bond Fund FHY 0.45
Templeton Global Bond Fund TGB 0.43
International Equity Index Fund IIF 0.12
Small Cap Index Fund SCI 0.08
Financial Industries Fund FSF 0.57
Real Estate Securities Fund REF 0.29
Vanguard Energy Fund VEN 0.31
500 Index Fund IND 0.03
Mid Cap Index Fund MCI 0.06
BlackRock Flobal Allocation Fund BGA 0.62
Utilities Fund ULT 0.62
Total Bond Market Fund BIF 0.06
JH Retirement to 2060 CZL 0.18
JH Retirement to 2055 CZK 0.19
JH Retirement to 2050 CZI 0.19

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Duckie
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Re: 401k Fund Selection Help

Postby Duckie » Sun Mar 19, 2017 8:19 pm

bewareofduck, welcome to the forum.

bewareofduck wrote:My spouse is 32 and wants to contribute up to the company match in a Roth 401K.

The best options are:
  • 500 Index Fund 0.03 -- Large caps, 80% of US stocks
  • Mid Cap Index Fund 0.06 -- Mid caps, 6% of US stocks
  • Small Cap Index Fund 0.08 -- Small caps, 14% of US stocks
  • International Equity Index Fund 0.12 -- International stocks, probably only developed markets
  • Total Bond Market Fund 0.06 -- US bonds
  • or one of the JH Retirement funds (you choose a target-date fund by the AA inside, not the date in the title)
What your spouse chooses depends on your joint Asset allocation and your other retirement assets.
Last edited by Duckie on Mon Mar 20, 2017 2:37 pm, edited 1 time in total.

LeeMKE
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Re: 401k Fund Selection Help

Postby LeeMKE » Mon Mar 20, 2017 12:06 am

Hilarious: bewareofduck getting advice from Duckie

+1 Duckie.

Since she is starting out, I'd choose the lowest cost index fund and not split up the contributions for the time being. The 500 Index fund at .03 would be my choice. Then take some time to read about asset allocation. Be ready to split the investment into several funds by the time she has $20,000 in the account.

Welcome! It's great to get folks here when they have some time to help their savings compound!
The mightiest Oak is just a nut who stayed the course.

bewareofduck
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Re: 401k Fund Selection Help

Postby bewareofduck » Mon Mar 20, 2017 9:28 am

Since she is starting out, I'd choose the lowest cost index fund and not split up the contributions for the time being. The 500 Index fund at .03 would be my choice.


I've gotten another recommendation to do 70% 500 Index fund, 20% Mid Cap Index Fund, and 10% Small Cap Index Fund. Is there any advantage to that approach over 100% in 500 Index fund? The lower expense ratio on straight 500 Index Fund is appealing. We'll definitely be looking at allocations again next year when this rolls around again, and probably changing from Roth to Traditional 401k once our tax bracket increases.

What she chooses depends on your joint Asset allocation and your other retirement assets.


We each have <3K in an employee trust fund from a previous job, and one ~11K Roth IRA 100% in T. Rowe Price Target Date 2055 fund. Also ~10K in BTC managed by a family member who's a big fish in the bitcoin community. Not counting on that, but it's come in handy on occasion for paying tuition at half price etc and can be cashed out with a week's notice. We're definitely behind on retirement savings but hopefully will be able to catch up after adding a new CPA's salary to the mix while keeping expenses the same.

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oldcomputerguy
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Re: 401k Fund Selection Help

Postby oldcomputerguy » Mon Mar 20, 2017 9:48 am

bewareofduck wrote:
Since she is starting out, I'd choose the lowest cost index fund and not split up the contributions for the time being. The 500 Index fund at .03 would be my choice.


I've gotten another recommendation to do 70% 500 Index fund, 20% Mid Cap Index Fund, and 10% Small Cap Index Fund. Is there any advantage to that approach over 100% in 500 Index fund? The lower expense ratio on straight 500 Index Fund is appealing. We'll definitely be looking at allocations again next year when this rolls around again, and probably changing from Roth to Traditional 401k once our tax bracket increases.


The combination S&P 500 / Mid-cap / Small-cap more closely covers the entire market as opposed to just S&P 500. There have been times when mid-cap or small-cap outperformed large-cap, but nobody knows when those times will be in the future, so one approach is just to "buy the whole market". However, in the short term (say one or two years), the difference between S&P 500 and whole-market will likely be negligible.

Personally I'd recommend a combination of 80% equity (which could be all in S&P 500 if you wish) and 20% fixed-income (+1 on Duckie's suggestion of Total Bond). Some research shows that such a combination has generally the same return as 100% equity while slightly lower risk, plus it allows an avenue for rebalancing if when a market downturn happens. Then, after you've had time to do some reading and can come up with an asset allocation that you'll be comfortable with (and can stick with during market downturns), you can reallocate.

In any case, the vast majority of your fund growth at this stage of your investing career will come from your contributing new money, rather than returns from investments, so it's not quite as important at this point to have "the perfect plan" in place (which doesn't exist, by the way) as it is just to get into the game.
Anybody know why there's a 20-pound frozen turkey up in the light grid?

bewareofduck
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Re: 401k Fund Selection Help

Postby bewareofduck » Mon Mar 20, 2017 10:19 am

Personally I'd recommend a combination of 80% equity (which could be all in S&P 500 if you wish) and 20% fixed-income (+1 on Duckie's suggestion of Total Bond). Some research shows that such a combination has generally the same return as 100% equity while slightly lower risk, plus it allows an avenue for rebalancing if when a market downturn happens. Then, after you've had time to do some reading and can come up with an asset allocation that you'll be comfortable with (and can stick with during market downturns), you can reallocate.


Thank you! Would your recommendation of 80% equity/20% Total Bond Fund change to a higher percentage of equities if I have a track record of not touching/changing investments with market fluctuations? I started contributing to my Roth IRA at eighteen and have never made a withdrawal or changed course based on the market in over ten years other than occasionally contributing more when share prices were down.

I'm the 'she' and CPA student in this situation and handle all our finances (newly married) if it's relevant. The 401k is for my husband who's had the 4% matching option for 7 years and not taken advantage of it. It's a little embarrassing that personal finance isn't covered in the curriculum, despite public perception. I've made over 6K in 2017 just from working the banking and credit card system to my advantage, but don't have much clue with investing.

LeeMKE
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Re: 401k Fund Selection Help

Postby LeeMKE » Mon Mar 20, 2017 10:52 am

The only reason to allocate some to bonds at this stage is to have a pot ready to buy stocks if/when there is a downturn. However, just starting out, and with the barrier of a likely time lag to reallocate within a 401k (only sometimes set up in a manner that is easy to manage) I'd recommend getting going on contributions is by far the most profitable course of action right now. Once you have more assets, and some experience, you'll probably do as I did, use other accounts for rebalancing, and keep the 401k simply stocks.

As soon as possible, you need to get more aggressive in saving. Consider filling up every available tax deferred account, and maybe also start filling a regular savings account. If the rule of thumb is 15% since career beginning, you can see you have some catching up to do that is quite easy now, and much more difficult a few years later.
The mightiest Oak is just a nut who stayed the course.

bewareofduck
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Re: 401k Fund Selection Help

Postby bewareofduck » Mon Mar 20, 2017 11:17 am

As soon as possible, you need to get more aggressive in saving. Consider filling up every available tax deferred account, and maybe also start filling a regular savings account. If the rule of thumb is 15% since career beginning, you can see you have some catching up to do that is quite easy now, and much more difficult a few years later.


That's the goal. When we got married a few months ago I moved my husband's 13K credit card debt at 13% to a balance transfer in my name and took over handling finances. At least $1K per month plus whatever I come up with from bank/cc bonuses has been going toward payoff. We're making pre-tax HSA contributions only up to the estimate of yearly qualified health expenses right now. I'm using my state 529 plan as a pass-through account up to the 2,500 state tax deduction. I regret paying off my student loans from undergrad a few years after graduating. Should have left the lower interest loans and put more money toward retirement. At the moment I thought it was smart to only contribute to his 401K up to the company match until the cc balance is knocked out.

LeeMKE
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Re: 401k Fund Selection Help

Postby LeeMKE » Mon Mar 20, 2017 11:30 am

Yup. You do what you can do and watch for any opportunity to move the needle farther along.

If you can get spending under control so credit cards are not used as loans, and a second income is coming soon, you'll be able to catch up in a few years.

Raises can be a good way to snag cash for the catch up plan. If you need some outside assistance to get DH on board, set up a retirement calculator (Quicken, Fidelity, and lots of others you can find discussed on these forums and in the wiki). Seeing your own numbers in a chart that shows you will be left with very little for retirement can help startle folks into getting serious about their real money. And as you know, saving and keeping expenses low is more important than the investment return at this stage.

Once you have over $200,000, it becomes worthwhile to consider slicing and dicing your savings. But by then, like me, you may discover that keeping it simple has more virtue than having something to talk about at the neighbor's barbecue.

Keep going!
The mightiest Oak is just a nut who stayed the course.

bewareofduck
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Joined: Sun Mar 19, 2017 11:45 am

Re: 401k Fund Selection Help

Postby bewareofduck » Mon Mar 20, 2017 11:58 am

If you need some outside assistance to get DH on board, set up a retirement calculator (Quicken, Fidelity, and lots of others you can find discussed on these forums and in the wiki). Seeing your own numbers in a chart that shows you will be left with very little for retirement can help startle folks into getting serious about their real money.


DH is stubbornly convinced he's going to die of an intestinal cancer before reaching retirement age based on family history, even though his parents are in their 70s. He doesn't have any enthusiasm for retirement savings but is fine with me making savings/investment decisions as long as he doesn't have to deal with it. I show him the overall change in our financial spreadsheets monthly, but as long as things are moving in the right direction he doesn't care about the details. It's better than having to argue over money.

It sounds like with some careful planning we won't necessarily be as screwed as I thought we were.

LeeMKE
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Re: 401k Fund Selection Help

Postby LeeMKE » Mon Mar 20, 2017 12:12 pm

Been there done that. I always thought I'd die about age 27. I have no idea where that idea came from, but I harbored it for decades.

However, I never used that as an excuse not to plan for retirement. Hunches, intuition and guesses are fine for card games, but better to be prepared in case that doesn't turn out to be the case. I still don't think I'll live a long life, but my portfolio is designed to carry me to age 92 - 95, and if I live another decade, it may get extended out a bit farther, to whatever is prudent for planning purposes, not what I intuit is my lifespan.
The mightiest Oak is just a nut who stayed the course.

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ruralavalon
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Re: 401k Fund Selection Help

Postby ruralavalon » Mon Mar 20, 2017 12:33 pm

Welcome to the forum :) .

At age 32 an asset allocation of 80/20 stocks/bonds is reasonable in my opinion.

I am a bit confused. The three letter designations you give do not seem to be ticker symbols for any fund or ETF.

If there are no ticker symbols these may instead by Commingled Investment Trusts (CITs) or Separate Accounts.

These are funds that seem likely to be ones to use:
500 Index Fund IND 0.03
International Equity Index Fund IIF 0.12
Total Bond Market Fund BIF 0.06

In my opinion it's OK to use an S&P 500 index fund by itself for your domestic stocks, if no total stock market index fund is offered. An S&P 500 index fund covers about 80% of the domestic stock market, and over the 25 years since the creation of the first total stock market index fund the two types of funds have had almost identical performance.

Could you link the fact sheets for each of those funds? If these are mutual funds or ETFs, can you give us the ticker symbols? Can you tell us the company which manages each fund? Can you tell us the index used by the international fund?

You can simply add this to your original post using the edit button, so that all of your information is in one place.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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oldcomputerguy
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Re: 401k Fund Selection Help

Postby oldcomputerguy » Mon Mar 20, 2017 3:46 pm

LeeMKE wrote:Been there done that. I always thought I'd die about age 27. I have no idea where that idea came from, but I harbored it for decades.


When I turned 40, I was convinced I wouldn't make it to 50. In four months I hit 62. Sure wish I'd taken better care of myself. :twisted:
Anybody know why there's a 20-pound frozen turkey up in the light grid?


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