Neophyte Boglehead Humbly Requests 403(b) Allocation Input

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Neophyte Boglehead Humbly Requests 403(b) Allocation Input

Postby wjthornberry » Fri Apr 21, 2017 12:32 am

Hello, dear Bogleheads,

I'm looking for help with the allocation of my—very new—403(b) account. I'm relatively new to investing, am halfway through Graham's classic, have familiarized myself on a very basic level with this amazing website and am looking forward to really digging into it in the coming weeks, months, and years to learn as much as I can; for the moment, though, I'd like to request some pointers to get my portfolio in shape. But before I begin, I'd like to offer my sincere thanks to Laura for those helpful, well-written, and warm welcome posts, as well as the book recommendations, which were duly noted and promptly added to my library list. Update: I'd also like to thank retiredjg, ruralavalon, and aristotelian for their thoughtful feedback.

What follows is my current and, per Boglehead guidelines, pertinent information:

    Emergency funds: Current: $1K; Goal: $6K (update: per feedback, I'll put this toward paying down my first priority, credit card debt)

      $7K credit at 19.99%, $3K at 0% (balance transfer) — currently applying “avalanche” method; on-track to pay off Aug. 2018 (this is my first priority)
      $20K student loans at 2.65%—6.88%; on-track to pay off Aug. 2020* (update: will apply the "avalanche" method to these debts, as well, by tackling the highest-rate loans first)
      *New job in November 2017 will significantly lower both of the above target dates to 2018 year end.
    Tax Filing Status: Single
    Tax Rate: 15% Federal*, State: 3.75%
    *New job in November 2017 will place me in 25% Federal, State: 3.75%
    State of Residence: IL
    Age: 32
    Desired Asset allocation: 70% equity:30% bonds
    Desired International allocation: 40% of equity

My 403(b) allows me to chose Fidelity and/or TIAA-CREF and both offer nearly the same funds:

My employer's 403(b) contributions:

    -Unmatched contributions: 5% of eligible earnings; funded entirely by my employer
    -Matched contributions: 1%-5%. I am currently contributing 5% in order to receive full match

    So, 15% total.

    Update: I am contributing 5% to get the full match but retiring my credit card debt as quickly as possible is my top fiscal priority; I will be able to retire this debt in August, 2018, at which point I'll:

      - Max out my emergency fund
      -Continue contributing to 403(b) up to my company's match
      -Open a Roth and max contributions
      -Max out 403(b)
      -Anything leftover will go to taxable investing (need to do more homework here - any pointers/links?)

After researching my employer's fund options on Morningstar and incorporating the much-appreciated feedback I've received so far from retiredjg, ruralavalon, and aristotelian, here is my second portfolio draft. Cliff’s Notes: The elegance of simplicity speaks to me, so a 3- or 4-fund lazy portfolio is my current goal (changed from a Swensen-model. I'm of the mindset to get something right done the first time, which will allow me to leave well enough alone, aside from rebalancing, etc. I also have the option to go through Fidelity to access all of their funds (per this page, it seems a few of their funds offer lower fees than Vanguard -- thoughts?) so, although I'm not necessarily limited by these, I would assume the ones offered in my 401(b) would be the best ones to start with.

Portfolio Draft v2 (Update: took out TIPS and REIT from v1 thanks to feedback)

    70% Equity

      70% Domestic

        80% Large cap - 34% of portfolio
        VINIX (Vanguard Institutional Index Fund Institutional; ER 0.04)

        20 % Mid cap - 8% of portfolio
        VIEIX (Vanguard Extended Market Index Instl; ER 0.06%)

      30% International

        International developed equity - 28% of portfolio
        VTSNX (Vanguard Total International Stock Index Fund Institutional Shares; ER 0.09%)

    30% Bonds

        U.S. Treasury Securities
        VBTIX (Vanguard Total Market Bond Market Index I; ER 0.04%)

Current total portfolio: low four-figures (began in January, 2017). Currently only have a 403(b) but will open a Roth IRA after credit card debt is paid off (Aug 2018).


    1. What’s the best piece of investing advice you’ve ever been given?

    My best piece of advice was given to me by my dear and belated cousin, who had been a stockbroker in NYC for most of his life. He told me (when I was about 18 and had just started reading about investing) to only invest what you can stand to lose. Now, in retrospect, I’m leaning towards the idea that he meant speculating, but I’m sure any investor who has gone through a major crash might disagree.

    2. What are your thoughts on roboadvisors? I've read up on Betterment, Wealthfront, Wisebanyan, etc., but wanted to check in with the pros. 8-)

Thank you, all, in advance for your time and great help with this. I sincerely appreciate it and look forward to one day being able to pass on my knowledge to others. :)

All the best,
Last edited by wjthornberry on Fri Apr 21, 2017 4:17 pm, edited 4 times in total.

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Re: Neophyte Boglehead Humbly Requests 403(b) Allocation Input

Postby retiredjg » Fri Apr 21, 2017 7:57 am

Welcome to the forum!

You've obviously done a lot of reading and planning. I think your proposed stock to bond ratio of 80/20 is reasonable. I see no need for putting part of your allocation in actively managed funds and I doubt you will find a lot of support for that here.

The thorn in the rose bush (as you already know) is the $10k credit at 19.99%. I would not contribute anything to your 403b - above what is necessary to get the match - until that debt is retired. Also do not open a Roth IRA while you still have that debt. It makes no sense to be paying out 19.99% on your debts when you are not going to get anything close to that on investments. I see this is pretty much your plan already.

The same should apply to the higher rate school loans - the ones in the 6% region. The lower interest rate loans can be paid on a more relaxed schedule.

Will you actually be in the 25% bracket in 2017 or just after 2017?

If you feel like you just must have a bit of something actively managed....use a 5% slice of the Primecap because the cost is relatively low. Consider it "fun money". Skip the others.

You do not need the emerging markets fund because those stocks are already included in the Vanguard Total International.

Current total portfolio: low four-figures

With only $4k or so invested, I think you should consider using far fewer funds than you are considering. That kind of complexity is going to have no benefit and possibly much aggravation.

1. What’s the best piece of advice you’ve ever been given (investing or otherwise?)

Pay yourself first. Don't save the extra money every month because there won't be any. Managed to live on what is left over after putting some in savings.

2. Is my 70:30 passive:active split in US equity downright stupid?

I would not call it downright stupid. Unnecessary perhaps.

3. I have two medium-term goals: purchase a car (used, cash) and save up for a down payment on a house; I ask: how might this impact my long-term investment strategy?

There will be some years when you save more for one than the other. Set your priorities and don't worry about it because all of that moves you in the direction you want to go.

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Re: Neophyte Boglehead Humbly Requests 403(b) Allocation Input

Postby ruralavalon » Fri Apr 21, 2017 8:26 am

32 I do not suffest a TIPS fund, your inflation protection isyour earning capacity and aelatively high stock allocation. Welcome to the forum :) .

Yo have obviously given this a lot of thought, and have many things right.

wjthornberry wrote:Age: 32
Desired Asset allocation: 70% equity / 20% bonds / 10% real estate
Desired International allocation: 30% of equity

In my opinion yopur desired asset allocation is within the range of what is reasonable.

wjthornberry wrote: Debt:

$10K credit at 19.99% — currently applying “avalanche” method; on-track to pay off Aug. 2018
$20K student loans at 2.65%—6.88%; on-track to pay off Aug. 2020*
*New job in November 2017 will lower this significantly to 2018 year end.Tax Filing Status: Single
. . . . . .
My employer allows:

Unmatched contributions: 5% of eligible earnings; funded entirely by my employer;
Matched contributions: 1%-5% of eligible earnings; my employer matches my contributions, which are 5%
So, 15% total

I suggest that you contribute just enough to your 403b to get the full employer match each year, and put anything else you have available toward paying off the debt. Please see the wiki article "Prioritizing investments".

wjthornberry wrote:2. Is my 70:30 passive:active split in US equity downright stupid? Somewhat reasonable? I’m aiming to keep my expense ratios as low as possible so I should probably nix the actively-managed funds—I suppose I just answered my own question—but I was just curious to see whether there was, perhaps, any method to my madness.

I suggest sticking to the index funds.

In my opinion you have focused on the correct index funds to use:
VINIX (Vanguard Institutional Index Fund Institutional; ER 0.04)
VIEIX (Vanguard Extended Market Index Instl; ER 0.06%)
VTSNX (Vanguard Total International Stock Index Fund Institutional Shares; ER 0.09%) (includes both developed and emerging markets)
VBTIX (Vanguard Total Market Bond Market Index I; ER 0.04%) (includes corporate, asset backed, and treasury bonds)

At age 32 I do not suggest using a TIPS fund. Your inflation protection is your earning capacity and a relatively high stock allocation.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Re: Neophyte Boglehead Humbly Requests 403(b) Allocation Input

Postby aristotelian » Fri Apr 21, 2017 8:41 am

I would contribute 5% up to the match since 100% return > 20% interest on credit card debt.

Above the 5%, everything should go to the credit card debt. I would even liquidate the emergency account down to $100 or so -- your credit card debt is the emergency right now. If you have another emergency the worst case scenario is more credit card debt, so better to just pay off as much as you can now.

As far as your fund choices go - get rid of the active and the emerging markets and real estate (which are also active). You are just throwing away money to investment managers who may or may not beat the market. If they do not beat the market, you will be doubly hit by underperforming and paying extra. (The only person guaranteed to win is the investment manager). I would rather own the market with the lowest expenses. If you must own an active fund, go with PRIMECAP and see how it does, just remember that past performance does not guarantee future performance.

Overall you have too many slices. The more slices you have, the more they start canceling one another out. You are best off with one total market fund, one total bond fund, and an international fund just for simplicity. Especially starting out, having $1000 here or there is not going to make any difference.

For your bond fund, I would suggest 100% Total Bond Market. TIPS are generally for people near retirement who want inflation protection but they are not going to return higher than inflation long term. Total Bond Market will generally outperform TIPS long term, as well as produce positive returns during a bear market, which is what you want from bonds.(Total Bond = +5% in 2008 vs TIPS = -2%).

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