401k long term strategy

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long_term_investor
Posts: 4
Joined: Mon Nov 13, 2017 5:25 pm

401k long term strategy

Post by long_term_investor » Mon Nov 13, 2017 5:58 pm

Hello Bogleheads,

I am a new member here. I discovered this amazing Bogleheads wiki through Reddit. I have spent a few weekends reading and understanding the information on the wiki. I would like your valuable advice on my investment situation.

I am a 35 year old single guy earning 150k in salary/bonus. I bought a house last year with 20% down. I have 300k in my 401k. I have 75k in my savings/CDs. No debts other that the mortgage.

My investment plan is very simple:
1. Max out 401k. Use 401k to invest in stock market index funds. I dont plan to use this for another 35 years (until I am 70).
2. Save at least 20% of my after tax paycheck. Use accumulated savings to buy rental real estate properties. I don't plan to buy any stocks with my after-tax money.
3. At some point in the future, try to roll my 401k into Roth IRA. This will executed during low income years (early retirement/a couple of years off to stay with my future kids etc)
4. Evaluate finances once a year.

Now that you have my background, I need your advice on my retirement investments. Until I was ~30, I put all my 401k in 2045 target date fund. I have 150k in this fund now. At 30, I started taking retirement planning seriously. Since then, I max out my 401k. I also made some changes to the investments and started putting all the new cash in US Total Stock Market Index fund. I have another 150k in it now (Thanks to good stock markets and employer contributions). Since this is all tax deferred, tax efficiency of the investments is of no concern.

I discovered Bogleheads a couple of weekends ago. I like the Three fund portfolio strategy. I plan to rebalance my 401k along those lines. However, since I am looking at very long term (35 years), I dont know if the strategy needs to be modified. I am thinking 85% in stocks (Domestic two-thirds, International one-thirds) and 15% in bonds. All of these are total market index funds with expense ratios between 0.01-0.06%.

Here are my questions:
1. Does age minus 10 in bonds still apply since I have a very long term investment? Or I can take more risk for more potential reward? I am thinking along the lines of age minus 20 or 25 in bonds.
2. Having a target date fund in additional to other investments is considered sub-optimal by many. Should I liquidate it and move to the simple three fund portfolio? Or leave it and invest all the new money in three fund portfolio?

I understand that there will be different opinions on how to go about this. How would you rebalance the 401k if you were me?

Thanks in advance for your time. Your advise is much appreciated.

Sincerely,
Long Term Investor.

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badbreath
Posts: 587
Joined: Mon Jul 18, 2016 7:50 pm

Re: 401k long term strategy

Post by badbreath » Mon Nov 13, 2017 9:05 pm

I would just keep on investing in the Target Date and keep reading till you feel comfortable with the 3 Fund and your asset allocation.

Your doing fine for now.
“While money can’t buy happiness, it certainly lets you choose your own form of misery.” Groucho Marx

delamer
Posts: 3105
Joined: Tue Feb 08, 2011 6:13 pm

Re: 401k long term strategy

Post by delamer » Mon Nov 13, 2017 9:54 pm

Nothing wrong with an 85% stock allocation at your age and with your time line.

The unknown is how you will react when the inevitable decline in the stock market comes. Many people like the idea of an aggressive portfolio in theory. But then there is a 50% drop in the market and they panic and sell because they can't handle the (temporary) loss.

You can't know how you'll respond to a severe decline until you've been through one, and the drag of having a 80% or 75% stock allocation is not that large (relative to 85%).

So some food for thought.

I'd use the individual funds to achieve your allocation rather than have a combination of target date and individual funds. If one target date meets your needs great, but why complicate things with both types?

long_term_investor
Posts: 4
Joined: Mon Nov 13, 2017 5:25 pm

Re: 401k long term strategy

Post by long_term_investor » Tue Nov 14, 2017 12:32 am

delamer wrote:
Mon Nov 13, 2017 9:54 pm
The unknown is how you will react when the inevitable decline in the stock market comes. Many people like the idea of an aggressive portfolio in theory. But then there is a 50% drop in the market and they panic and sell because they can't handle the (temporary) loss.

You can't know how you'll respond to a severe decline until you've been through one, and the drag of having a 80% or 75% stock allocation is not that large (relative to 85%).
Agreed, I haven't really been through a big crash. Had less than 10k investments before 2008 market & since then the market has only gone up. I don't plan to touch the 401k except for rebalancing once a year or two. I actually haven't sold anything in the last 10 years.

delamer wrote:
Mon Nov 13, 2017 9:54 pm
I'd use the individual funds to achieve your allocation rather than have a combination of target date and individual funds. If one target date meets your needs great, but why complicate things with both types?
Noted. Thank you.

long_term_investor
Posts: 4
Joined: Mon Nov 13, 2017 5:25 pm

Re: 401k long term strategy

Post by long_term_investor » Tue Nov 14, 2017 12:33 am

badbreath wrote:
Mon Nov 13, 2017 9:05 pm
I would just keep on investing in the Target Date and keep reading till you feel comfortable with the 3 Fund and your asset allocation.

Your doing fine for now.
Thanks!

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Tyler Aspect
Posts: 479
Joined: Mon Mar 20, 2017 10:27 pm
Location: California
Contact:

Re: 401k long term strategy

Post by Tyler Aspect » Tue Nov 14, 2017 3:00 am

long_term_investor wrote:
Mon Nov 13, 2017 5:58 pm
Hello Bogleheads,

I am a new member here. I discovered this amazing Bogleheads wiki through Reddit. I have spent a few weekends reading and understanding the information on the wiki. I would like your valuable advice on my investment situation.

I am a 35 year old single guy earning 150k in salary/bonus. I bought a house last year with 20% down. I have 300k in my 401k. I have 75k in my savings/CDs. No debts other that the mortgage.
Welcome to Bogleheads.

My investment plan is very simple:
1. Max out 401k. Use 401k to invest in stock market index funds. I dont plan to use this for another 35 years (until I am 70).
2. Save at least 20% of my after tax paycheck. Use accumulated savings to buy rental real estate properties. I don't plan to buy any stocks with my after-tax money.
Try renting one room out of your house to get some practice on being a landlord. Not advisable diving into rental without prior experience. Usually I am considered on the anti-rental side.

3. At some point in the future, try to roll my 401k into Roth IRA. This will executed during low income years (early retirement/a couple of years off to stay with my future kids etc)
4. Evaluate finances once a year.

Now that you have my background, I need your advice on my retirement investments. Until I was ~30, I put all my 401k in 2045 target date fund. I have 150k in this fund now. At 30, I started taking retirement planning seriously. Since then, I max out my 401k. I also made some changes to the investments and started putting all the new cash in US Total Stock Market Index fund. I have another 150k in it now (Thanks to good stock markets and employer contributions). Since this is all tax deferred, tax efficiency of the investments is of no concern.

I discovered Bogleheads a couple of weekends ago. I like the Three fund portfolio strategy. I plan to rebalance my 401k along those lines. However, since I am looking at very long term (35 years), I dont know if the strategy needs to be modified. I am thinking 85% in stocks (Domestic two-thirds, International one-thirds) and 15% in bonds. All of these are total market index funds with expense ratios between 0.01-0.06%.

Here are my questions:
1. Does age minus 10 in bonds still apply since I have a very long term investment? Or I can take more risk for more potential reward? I am thinking along the lines of age minus 20 or 25 in bonds.
Age minus 10 in bonds work well. I think you should stay on it until you have proven your risk tolerance by not selling through the next recession.

2. Having a target date fund in additional to other investments is considered sub-optimal by many. Should I liquidate it and move to the simple three fund portfolio? Or leave it and invest all the new money in three fund portfolio?
I prefer the 3 funds portfolio. I view Target Retirement funds as choice for raw beginners who does not know about 3 funds portfolio.
I understand that there will be different opinions on how to go about this. How would you rebalance the 401k if you were me?
25% bond
55% US stock
20% International Stock


Thanks in advance for your time. Your advise is much appreciated.

Sincerely,
Long Term Investor.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

long_term_investor
Posts: 4
Joined: Mon Nov 13, 2017 5:25 pm

Re: 401k long term strategy

Post by long_term_investor » Tue Nov 14, 2017 8:57 pm

Thanks Tyler. Noted on the rental. Yes, I need to learn to be a landlord first. I live in California too, so will take a few years before I can save up a downpayment for second mortgage :)

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