Quick Thoughts on 403(b) Asset Allocation?

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AaronScott
Posts: 20
Joined: Mon May 23, 2016 5:02 pm

Quick Thoughts on 403(b) Asset Allocation?

Post by AaronScott » Sat Jun 17, 2017 10:35 am

Proposed by a CFP:

30% - VFINX - Vanguard 500 Index Inv
20% - VTRIX - Vanguard International Value Inv
20% - NAESX - Vanguard Small Cap Index INV
15% - VEIEX - Vanguard Emerging Mkts Stock Idx Inv
15% - VIMSX - Vanguard Mid Cap Index Inv

About a year ago I started down the investment rabbit hole, read a few books, realized by 403(b) was kinda junk, met with a CFP who helped set me up with the above portfolio. I've been revisiting the idea of asset allocation, and I think because I did not directly come up with this allocation I have some nagging doubts about it (even though I trust the guy who helped me). So I just want to throw this out there and see what people think.

Yes, I know there are no bonds. Is 100% stocks too risky or aggressive? I'm 26 so I have quite a ways to go until retirement.

If bonds should be included, which fund(s)? (I assume total bond market?). Are REITs worthwhile? Commodities? TIPS?

Thanks everyone!

BashDash
Posts: 366
Joined: Mon Nov 28, 2016 12:31 pm

Re: Quick Thoughts on 403(b) Asset Allocation?

Post by BashDash » Sat Jun 17, 2017 10:44 am

Looks low cost and relatively simple for your age. However, are you being charged an AUM ( asset under management fee ). If you are paying a 1% fee you will be losing a quarter of your return over 30 years. Google: vanguard and silent killer of fees to read the article.

retiredjg
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Joined: Thu Jan 10, 2008 12:56 pm

Re: Quick Thoughts on 403(b) Asset Allocation?

Post by retiredjg » Sat Jun 17, 2017 10:45 am

I'm a believer that a portfolio should have some bonds - minimum 20%, even for young people.

The portfolio you have now is tilted toward value (a little) and mid and small cap US stock (a lot). If you don't understand what that means, it's probably not the best choice for you although such portfolios are quite common around here.

Maybe you should tell us more? What else is available in your 403b? Or is this in your 403b at all? Your post could be read either way.

Do you have any IRAs? Any retirement money in a taxable account?

You paying any annual fee for this CFP?

AaronScott
Posts: 20
Joined: Mon May 23, 2016 5:02 pm

Re: Quick Thoughts on 403(b) Asset Allocation?

Post by AaronScott » Sat Jun 17, 2017 10:49 am

retiredjg wrote:I'm a believer that a portfolio should have some bonds - minimum 20%, even for young people.

The portfolio you have now is tilted toward value (a little) and mid and small cap US stock (a lot). If you don't understand what that means, it's probably not the best choice for you although such portfolios are quite common around here.

Maybe you should tell us more? What else is available in your 403b? Or is this in your 403b at all? Your post could be read either way.

Do you have any IRAs? Any retirement money in a taxable account?

You paying any annual fee for this CFP?


This is my current 403(b). I understand the tilt towards value and small cap, but since I myself did not come up with this I'd like to get other opinions. I'm afraid I tend to suffer from "analysis paralysis" and when it comes to finding the perfect asset allocation (which I know doesn't exist) I could keep learning and learning and never actually pull the trigger.

No IRAs right now, but I do have a pension (whether or not I'll actually see that or social security is a different story I guess).

All taxable accounts are for other goals (grad school, possible house downpayment, etc.)

retiredjg
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Joined: Thu Jan 10, 2008 12:56 pm

Re: Quick Thoughts on 403(b) Asset Allocation?

Post by retiredjg » Sat Jun 17, 2017 12:07 pm

AaronScott wrote:This is my current 403(b). I understand the tilt towards value and small cap, but since I myself did not come up with this I'd like to get other opinions. I'm afraid I tend to suffer from "analysis paralysis" and when it comes to finding the perfect asset allocation (which I know doesn't exist) I could keep learning and learning and never actually pull the trigger.

No IRAs right now, but I do have a pension (whether or not I'll actually see that or social security is a different story I guess).

All taxable accounts are for other goals (grad school, possible house downpayment, etc.)

It is possible the CFP chose international value because there was no low cost international blend fund available in the plan.

It is also possible the CFP added a bit extra mid and small cap to make up for the lack of small cap in the international fund. Even with that, I'd guess (without doing xray) there is still a bit of mid/small cap tilt. Certainly not enough to be overly alarmed about if you understand and accept the tilt.

One thing I didn't notice on first look is the overweight to emerging markets. The International Value fund already contains emerging markets (about 12%) so adding on a 15% slice of EM definitely tilts that way as well. As with the other tilts, this adds on a bit of risk.

All in all, I don't think the portfolio suggestion is a bad one at all, but I'm wondering if it actually suits you. You mention some "nagging doubts" and you wonder if it is too aggressive and you mention "analysis paralysis".....so I'm wondering if you might be a little more conservative than this portfolio actually is.

What are your thoughts on that? Is "toning down" a bit in order? It could be easily accomplished if you want.

    1) You could add a 20% slice of whatever good bond fund is available.

    2) You could exchange some (or all) of the emerging markets into something else.

    3) You could exchange all your international into a different fund such as total international if it is available.

    4) You could send a little less to small cap and mid cap.

    5) Some combination of the above.

    6) Exchange it all into a target fund and not wonder about this ever again.

AaronScott
Posts: 20
Joined: Mon May 23, 2016 5:02 pm

Re: Quick Thoughts on 403(b) Asset Allocation?

Post by AaronScott » Sat Jun 17, 2017 2:41 pm

retiredjg wrote:It is possible the CFP chose international value because there was no low cost international blend fund available in the plan.

It is also possible the CFP added a bit extra mid and small cap to make up for the lack of small cap in the international fund. Even with that, I'd guess (without doing xray) there is still a bit of mid/small cap tilt. Certainly not enough to be overly alarmed about if you understand and accept the tilt.

One thing I didn't notice on first look is the overweight to emerging markets. The International Value fund already contains emerging markets (about 12%) so adding on a 15% slice of EM definitely tilts that way as well. As with the other tilts, this adds on a bit of risk.

All in all, I don't think the portfolio suggestion is a bad one at all, but I'm wondering if it actually suits you. You mention some "nagging doubts" and you wonder if it is too aggressive and you mention "analysis paralysis".....so I'm wondering if you might be a little more conservative than this portfolio actually is.

What are your thoughts on that? Is "toning down" a bit in order? It could be easily accomplished if you want.

    1) You could add a 20% slice of whatever good bond fund is available.

    2) You could exchange some (or all) of the emerging markets into something else.

    3) You could exchange all your international into a different fund such as total international if it is available.

    4) You could send a little less to small cap and mid cap.

    5) Some combination of the above.

    6) Exchange it all into a target fund and not wonder about this ever again.


If anything, perhaps I'd add a bond fund. There are so many great recommendations on asset allocations out there and I think this looks pretty good. My nagging comes from this not being originally my idea - so I don't exactly have a game plan for when and how to change the asset allocation.

Vanguard target retirement funds intrigue me for this reason. Are they really that great?

retiredjg
Posts: 29808
Joined: Thu Jan 10, 2008 12:56 pm

Re: Quick Thoughts on 403(b) Asset Allocation?

Post by retiredjg » Sat Jun 17, 2017 3:33 pm

AaronScott wrote:Vanguard target retirement funds intrigue me for this reason. Are they really that great?

Most target funds are just fine if the cost is not too high. High cost is not a problem with Vanguard target funds.

They are essentially the "3 fund portfolio" you see discussed here except they add an additional small allocation to international bonds. If you want something close to market weights, the target funds are a good choice. If you want tilts, they are not such a great choice. It all depends on what you want.

Target funds may have a slightly higher cost than the individual funds, but not so much with the funds you are using because some are not rock bottom cost. The target funds could even be a little less costly than what you have.

One thing the target funds do is help prevent investor mistakes. Just add money and don't worry about anything else. With your "analysis paralysis", this could be a good thing. Also, you won't be deciding when to migrate to a less aggressive portfolio. They do that for you.

I think you should give it some thought, especially since they intrigue you.

MoonOrb
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Joined: Thu Jan 24, 2013 6:58 pm

Re: Quick Thoughts on 403(b) Asset Allocation?

Post by MoonOrb » Sat Jun 17, 2017 4:42 pm

You get better responses when you format your post in the way recommended under "Asking Portfolio Questions." The additional context that information provides yields answers that are more specific and actionable.

CyclingDuo
Posts: 589
Joined: Fri Jan 06, 2017 9:07 am

Re: Quick Thoughts on 403(b) Asset Allocation?

Post by CyclingDuo » Mon Jun 19, 2017 9:15 am

AaronScott wrote:Proposed by a CFP:

30% - VFINX - Vanguard 500 Index Inv
20% - VTRIX - Vanguard International Value Inv
20% - NAESX - Vanguard Small Cap Index INV
15% - VEIEX - Vanguard Emerging Mkts Stock Idx Inv
15% - VIMSX - Vanguard Mid Cap Index Inv

About a year ago I started down the investment rabbit hole, read a few books, realized by 403(b) was kinda junk, met with a CFP who helped set me up with the above portfolio. I've been revisiting the idea of asset allocation, and I think because I did not directly come up with this allocation I have some nagging doubts about it (even though I trust the guy who helped me). So I just want to throw this out there and see what people think.

Yes, I know there are no bonds. Is 100% stocks too risky or aggressive? I'm 26 so I have quite a ways to go until retirement.

If bonds should be included, which fund(s)? (I assume total bond market?). Are REITs worthwhile? Commodities? TIPS?

Thanks everyone!


Looks really solid!

As others have mentioned, 10, 15, or 20% in bonds wouldn't be a bad AA at some point down the road this year or next. At your age of 26, it makes sense to be as aggressive as you are. It wouldn't be too hard to change the allocation by trimming like say 2% off of each of your current 5 funds, and have that 10% go into a total bond fund at some point. That's pretty easy to change using either your online account, or through your plan's administrator where you work. No need to stress about it at the moment, but at least you easily have that option going forward.

We don't know the rest of the story though. Due to it being a 403b, are you in a career that also provides a pension (state worker, teacher, government, etc...)? Do you hold any investments outside of the 403b? Have you started a ROTH IRA yet?

TropikThunder
Posts: 502
Joined: Sun Apr 03, 2016 5:41 pm

Re: Quick Thoughts on 403(b) Asset Allocation?

Post by TropikThunder » Mon Jun 19, 2017 3:46 pm

AaronScott wrote:If anything, perhaps I'd add a bond fund. There are so many great recommendations on asset allocations out there and I think this looks pretty good. My nagging comes from this not being originally my idea - so I don't exactly have a game plan for when and how to change the asset allocation.

I honestly don't think the allocation is good at all (opinion). Obviously, it's your money, your choices, and reasonable people can have different opinions. Just have your eyes open and fully realized what the choice you are making really means. First, the allocation is 65% US, 35% Int'l. That's well within the generally accepted range for Int'l (well, one can present a case for anywhere from 0% to global market weight of ~45% but 20-40% of equity is well within "normal"). So, no concerns there as long as you are aware of the Int'l content and are satisfied with it. Let's look at the original allocations as US and Int'l separately.

US:
    30% - VFINX - Vanguard 500 Index Inv (i.e., 46% of the US stock)
    20% - NAESX - Vanguard Small Cap Index INV (i.e., 31% of the US stock)
    15% - VIMSX - Vanguard Mid Cap Index Inv (i.e., 23% of the US stock)
As others have mentioned, this is a significant Mid/Small tilt vs Total Stock:
Image
Now, whether you want that much tilt is up to you, but I don't see any threads advocating ~40% of US stock being in Midcaps, and the majority of the threads advocating a tilt to Small specify Small Value, not just all Small Caps.

Int'l:
    20% - VTRIX - Vanguard International Value Inv (i.e., 57% of the Int'l stock)
    15% - VEIEX - Vanguard Emerging Mkts Stock Idx Inv (i.e., 43% of the Int'l stock)
Here the difference is more subtle since Total Int'l has a bit of a Large Value tilt to start with but overweighting LV exaggerates it. On the other hand, this allocation significantly overweights EM:
Image
As before, whether you want half of your Int'l in EM is up to you, but again I don't see any threads advocating for that much of an EM tilt.

TL/DR: your money, your choices, just be fully aware of what that choice is, and when you deviate from Total Market (i.e., tilt) make sure it's on purpose. :twisted: I see too many threads where a poster asks for opinions on an allocation and it turns out they had no idea what their allocation really looked like [not saying you are clueless, just that you may not have crunched the numbers].

AaronScott
Posts: 20
Joined: Mon May 23, 2016 5:02 pm

Re: Quick Thoughts on 403(b) Asset Allocation?

Post by AaronScott » Mon Jun 19, 2017 6:44 pm

CyclingDuo wrote:We don't know the rest of the story though. Due to it being a 403b, are you in a career that also provides a pension (state worker, teacher, government, etc...)? Do you hold any investments outside of the 403b? Have you started a ROTH IRA yet?


Yes I am a New York state teacher with a pension. No ROTH IRA, and no other investments (unless you count graduate degrees, for which I am paying out of pocket and get a salary increase over time).

AaronScott
Posts: 20
Joined: Mon May 23, 2016 5:02 pm

Re: Quick Thoughts on 403(b) Asset Allocation?

Post by AaronScott » Mon Jun 19, 2017 6:50 pm

TropikThunder wrote:TL/DR: your money, your choices, just be fully aware of what that choice is, and when you deviate from Total Market (i.e., tilt) make sure it's on purpose. :twisted: I see too many threads where a poster asks for opinions on an allocation and it turns out they had no idea what their allocation really looked like [not saying you are clueless, just that you may not have crunched the numbers].


Thanks for the detailed analysis! I'm still new at this, so while I have a decent foundational understanding of all this, I never thought of the points you brought up. I'm wondering now if I should just come up with my own AA or trust the CFP (maybe meet with him again every few years and revisit all this?)

CyclingDuo
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Re: Quick Thoughts on 403(b) Asset Allocation?

Post by CyclingDuo » Sat Jun 24, 2017 10:03 am

AaronScott wrote:
TropikThunder wrote:TL/DR: your money, your choices, just be fully aware of what that choice is, and when you deviate from Total Market (i.e., tilt) make sure it's on purpose. :twisted: I see too many threads where a poster asks for opinions on an allocation and it turns out they had no idea what their allocation really looked like [not saying you are clueless, just that you may not have crunched the numbers].


Thanks for the detailed analysis! I'm still new at this, so while I have a decent foundational understanding of all this, I never thought of the points you brought up. I'm wondering now if I should just come up with my own AA or trust the CFP (maybe meet with him again every few years and revisit all this?)


Run your 403b through the free analysis at Blooom to get an idea how it measures up to what they would recommend. That way, you will see if the Blooom Robo recommendations are similar to how your CFP set you up.

EdLaFave
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Re: Quick Thoughts on 403(b) Asset Allocation?

Post by EdLaFave » Sun Jun 25, 2017 10:52 am

I think most of the main points have been covered here but I'll add two things:

1. You're considering trusting the CFP. Never trust anybody when it comes to your money. At the end of the day, nobody cares about your money the way you do...and you certainly don't have a conflict of interest.
2. You said this was in a 403(b). The fact that you have Vanguard funds is a good sign but be aware that the 403(b) world is wildly unethical and there is a chance you're getting hit with very high fees. Then you've added a CFP on top of that. Take the time to enumerate every fee you're paying.

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