Preparing To Adjust 401k To Three-Fund Portfolio

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sansc
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Joined: Sat Sep 09, 2017 5:57 pm

Preparing To Adjust 401k To Three-Fund Portfolio

Post by sansc » Sat Sep 09, 2017 6:15 pm

Hi everyone,

New to the forums here but been putting in the research for a while now. I wanted to adjust my 401k portfolio into something a bit more conservative as all my assets are US stocks. As of now, I'm looking to adjust to the three-fund portfolio (70% stocks [40% international]/30% bonds). Below are some details of myself and my 401k options.

Age: 28
Filing Status: Married filing jointly
Federal Tax: 28%
State Tax: 9.3% [California]
Debt: $0
Emergency fund: ~3 months
401k: $4500 [I know I need to up my contributions...been saving for house]
**CURRENT FUND HOLDINGS**
--(ASCG2) @ 14.37%, ER=1.23
--(TAGG) @ 23.10%, ER =1.10
--(TEIF) @ 32.04%, ER=0.90
--(TMCV) @ 30.49%, ER = 1.21

**OTHER AVAILABLE FUNDS I'M CONSIDERING IN ADJUSTING Bolded are current holdings)**
Invesco Small Cap Growth Inv Opt (ASCG2) [ER=1.23]
Morgan Stanley Growth Ret Opt (TAGG), [ER =1.10]
SSgA S&P 500 Index Ret Opt (TEIF), [ER=0.90]
Transamerica Partners Mid Value Ret Opt (TMCV), [ER = 1.21]
Templeton Foreign Ret Opt (TFORN), [ER = 1.40]
Transamerica Partners Core Bond Ret Opt (TCB), [ER= 0.93]
Transamerica Partners High Yield Bond Ret Opt (THYB), [ER = 1.61]
WMC Core Equity Ret Opt (TVAL), [ER = 1.05]
WMC Quality Growth Equity Ret Opt (TVAL), [ER = 1.10]
AEGON Balanced Ret Op (TBAL) [ER = 0.70]
AEGON Cash Management Ret Opt (TCMF) [ER = 0.65]
FIDELITY ADVISOR Equity Income Inv Opt (FAEI2) [ER = 1.23]
FRANKLIN Balance Sheet Investment Opt (FBSI2) [ER = 0.96]
Morgan Stanley Growth Opportunities Ret Opt (TSMCO) [ER = 1.10]
Transamerica Asset Allocation Intermediate Horizon Ret Opt (TIH) [ER = 1.16]
Transamerica Asset Allocation Intermediate/long Horizon Ret Opt (TILH) [ER = 1.22]
Transamerica Asset Allocation Long Horizon Ret Opt (TLH) [ER =1.28]
Transamerica Asset Allocation Short Horizon Ret Opt (TSH) [ER = 1.06]
Transamerica Asset Allocation Short/intermediate Horizon Ret Opt (TSIH) [ER= 1.11]

I don't feel I have the best 401k which is through Transamerica Retirement Solutions, but I'd like to make the most of it. Employer matches up to 3% of my contributions. Any insight is appreciated!
Last edited by sansc on Sat Sep 09, 2017 11:37 pm, edited 1 time in total.

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BolderBoy
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Re: Preparing To Adjust 401k To Three-Fund Portfolio

Post by BolderBoy » Sat Sep 09, 2017 10:14 pm

Any chance of finding some fund options with MUCH lower expense ratios. Those are pretty horrible.

And I'd bump up your emergency fund size while you are at it: 6-12 months is safer.
“Where you stand, depends on where you sit” - Rufus Miles | "Never underestimate one's capacity to overestimate one's abilities"

sansc
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Joined: Sat Sep 09, 2017 5:57 pm

Re: Preparing To Adjust 401k To Three-Fund Portfolio

Post by sansc » Sat Sep 09, 2017 10:59 pm

Hi BolderBoy:

Thanks for the tip on the emergency fund. I believe we'll start to allocate a % of monthly income to continue to grow it.

As for lower expense ratios, I'm afraid none of them look very pretty. Aside from individual funds within the 401k, I have three options for their "asset allocation - Horizon" funds which are a mix of bonds, cash and stocks...variable to your choosable risk/length of investing.

Those being:
Transamerica Asset Allocation Intermediate Horizon Ret Opt (TIH) [ER = 1.16]
Transamerica Asset Allocation Intermediate/long Horizon Ret Opt (TILH) [ER = 1.22]
Transamerica Asset Allocation Long Horizon Ret Opt (TLH) [ER =1.28]
Transamerica Asset Allocation Short Horizon Ret Opt (TSH) [ER = 1.06]
Transamerica Asset Allocation Short/intermediate Horizon Ret Opt (TSIH) [ER= 1.11]

any thoughts on those?

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BL
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Re: Preparing To Adjust 401k To Three-Fund Portfolio

Post by BL » Sat Sep 09, 2017 11:15 pm

Going from 0% to 30% bonds is pretty extreme and quite conservative. I might consider 20-25% to start, while researching the subject.

Do they have anything offered below 0.5% ER?
Do they have any S&P500 index funds?
Look for the word index in the name.
Also, many don't know tickers, so name as well as ER would get more folks to pay attention to this thread. No need for many to have to look up each, when you can do it for all.
Editing can be done using the "pencil" in upper right of your thread.

sansc
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Re: Preparing To Adjust 401k To Three-Fund Portfolio

Post by sansc » Sat Sep 09, 2017 11:35 pm

Here is my full list of fund options (also updated initial posting).

Invesco Small Cap Growth Inv Opt (ASCG2) [ER=1.23]
Morgan Stanley Growth Ret Opt (TAGG), [ER =1.10]
SSgA S&P 500 Index Ret Opt (TEIF), [ER=0.90]
Transamerica Partners Mid Value Ret Opt (TMCV), [ER = 1.21]
Templeton Foreign Ret Opt (TFORN), [ER = 1.40]
Transamerica Partners Core Bond Ret Opt (TCB), [ER= 0.93]
Transamerica Partners High Yield Bond Ret Opt (THYB), [ER = 1.61]
WMC Core Equity Ret Opt (TVAL), [ER = 1.05]
WMC Quality Growth Equity Ret Opt (TVAL), [ER = 1.10]
AEGON Balanced Ret Op (TBAL) [ER = 0.70]
AEGON Cash Management Ret Opt (TCMF) [ER = 0.65]
FIDELITY ADVISOR Equity Income Inv Opt (FAEI2) [ER = 1.23]
FRANKLIN Balance Sheet Investment Opt (FBSI2) [ER = 0.96]
Morgan Stanley Growth Opportunities Ret Opt (TSMCO) [ER = 1.10]
Transamerica Asset Allocation Intermediate Horizon Ret Opt (TIH) [ER = 1.16]
Transamerica Asset Allocation Intermediate/long Horizon Ret Opt (TILH) [ER = 1.22]
Transamerica Asset Allocation Long Horizon Ret Opt (TLH) [ER =1.28]
Transamerica Asset Allocation Short Horizon Ret Opt (TSH) [ER = 1.06]
Transamerica Asset Allocation Short/intermediate Horizon Ret Opt (TSIH) [ER= 1.11]

JBTX
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Re: Preparing To Adjust 401k To Three-Fund Portfolio

Post by JBTX » Sun Sep 10, 2017 2:42 am

Pretty crappy choices.

I'd probably put half in the S&P fund. Then the balance spread between an international and small cap fund.

Hopefully you can start contributing to an individual Roth asap also.

With only $4500 total and your age and that crappy list of choices I wouldn't get too hung up on your bond allocation. With intermediate bond rates just over 2.0% and a 1.0+% expense ratio it's rather pointless. I'd say put it all in stocks and make sure you have an ample cash reserve emergency fund.

selters
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Re: Preparing To Adjust 401k To Three-Fund Portfolio

Post by selters » Sun Sep 10, 2017 7:29 am

Just go 100% SSgA S&P 500 Index Ret Opt (TEIF), [ER=0.90]. Contribute up to the match in the 401k and then supplement with international (or bonds, if desired) in an IRA to get to your desired asset allocation. If there's money left over after that, max your 401k or save more for your house. When you have a mortgage or when you are saving for a down payment, the need for bonds in the retirement portfolio is largely an artifical one.

Since contributions will dwarf the expense ratio early in your accumulation phase, the pretty high expense ratio is nothing to worry about yet. The 0.90% expense ratio will only be significant a drag on your portfolio when your portfolio is 10-20 (or more) times the size of your annual contributions. A 0.90% TER is not very good, but it's not "crappy". It would be crappy if you had to pay 1.50% for an actively managed fund that very likely would underperform the index even before costs. With an index fund you don't have manager risk. SSgA is one of the largest index fund asset managers in the world, so you can be sure that this is a well run index fund.

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BL
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Re: Preparing To Adjust 401k To Three-Fund Portfolio

Post by BL » Sun Sep 10, 2017 8:00 am

I wanted to adjust my 401k portfolio into something a bit more conservative as all my assets are US stocks.
Does this mean you have other investments? All of your portfolio should be considered together for AA, starting by using the best in 401k and filling in elsewhere with what else is needed. If you used S&P 500 here, and have other places for international and bonds, that would work fine.

Do you have a Roth IRA? You could do a second tier of emergency funds here by adding mostly bonds while you are saving up. The Contributions (not gains) could be withdrawn tax-free in a real emergency. Then switch back to mostly equities.

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badbreath
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Re: Preparing To Adjust 401k To Three-Fund Portfolio

Post by badbreath » Sun Sep 10, 2017 8:12 am

I would be using

SSgA S&P 500 Index Ret Opt (TEIF), [ER=0.90] 80%
Transamerica Partners Core Bond Ret Opt (TCB), [ER= 0.93] 20%

Very high ERs but the best of what you got. Sometimes you have to hold your nose and invest.
“While money can’t buy happiness, it certainly lets you choose your own form of misery.” Groucho Marx

cherijoh
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Re: Preparing To Adjust 401k To Three-Fund Portfolio

Post by cherijoh » Sun Sep 10, 2017 8:39 am

It looks like the 2 low ER funds from Aegon are collective trusts (i.e., private mutual funds) - one says "balanced" and the other says "cash management". I would look at those holdings and see if they might work. The "cash management" fund could be a stable value fund which could act as a fixed income substitute that could be paired with the S&P option.

With crappy choices like the ones you've got, I'd recommend investing enough to get any match then max out your Roth IRA. If you can afford to invest more than that, you would have to decide whether to continue to add to your 401k or start making taxable investments. If there is a chance that you will be changing jobs within a few years then putting up with the high fees and socking away as much as possible in the 401k would make sense. But otherwise investing in VG index funds in taxable might be the way to go. You can get a tax credit for foreign taxes on international funds when they are in taxable but not a retirement account.

Do you work for a very small company? I would start lobbying for better choices for your plan - there are much better options out there.

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BolderBoy
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Re: Preparing To Adjust 401k To Three-Fund Portfolio

Post by BolderBoy » Sun Sep 10, 2017 9:15 am

cherijoh wrote:
Sun Sep 10, 2017 8:39 am
Do you work for a very small company? I would start lobbying for better choices for your plan - there are much better options out there.
Agree with this. Be sure to use the phrase, "fiduciary responsibility", when you talk with them.
“Where you stand, depends on where you sit” - Rufus Miles | "Never underestimate one's capacity to overestimate one's abilities"

sansc
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Re: Preparing To Adjust 401k To Three-Fund Portfolio

Post by sansc » Sun Sep 10, 2017 1:55 pm

Appreciate everyone chiming in here. Collectively, it seems most folks are leaning to the SSGA S&P Index (ER = 0.90) as the best fund option out of the bunch. Also, to what some have mentioned, opening a Roth IRA in the very near future is something I certainly want to do. Ideally, I'd like to do with Vanguard.
cherijoh wrote:
Sun Sep 10, 2017 8:39 am
Do you work for a very small company? I would start lobbying for better choices for your plan - there are much better options out there.
Yes, is is a very small company about 10 employees. Not sure I'll be there longer than another year or two...so not sure my lobbying efforts with be worth it (they're VERY set in their ways).

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