401k & Roth Rebalancing advice

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lionthens
Posts: 37
Joined: Tue Mar 12, 2013 6:23 am

401k & Roth Rebalancing advice

Post by lionthens » Sat Jan 06, 2018 4:28 pm

Edit: Didn't receive replies so I removed and consolidated questions.
1/15/2018 Edit: Found out no company contribution until beginning of 3rd year with company.

Emergency funds: 6 months living expenses in high interest savings account
Debt: None!
Tax Filing Status: Single
Tax Rate: 25% Federal, 5.15% State
State of Residence: Massachusetts
Age: 29
Desired Asset allocation: ~70% stocks / ~30% bonds
Desired International allocation: No idea

Total portfolio size ~$20,000

Current retirement assets

Taxable
None

His 401k
80% Fidelity® 500 Index Fund - Institutional Class (FXSIX) (0.03%)
20% Fidelity® Extended Market Index Fund - Premium Class (FSEVX) (0.07%)
60% total portfolio

Company match? No. 8% of salary annually contributed by company at beginning of 3rd year. 3 years to fully vest.

His Roth IRA at Vanguard
100% Vanguard Target Retirement 2030 Fund Investor Shares (VTHRX) (0.15%)
40% total portfolio

Contributions

New annual Contributions
15% of salary his 401k (No match. 8% of salary deposited annually at beginning of 3rd year with company. 3yr vest)
$5500 Roth IRA dollar cost averaged throughout year
$0 taxable (for retirement, not short term goals)

Available funds

Funds available in his 401(k). Considering bolded ones.
American Century In Retirement Trust I (0.38%)
American Century Retirement Date 2020 Trust I (0.38%)
American Century Retirement Date 2025 Trust I (0.38%)
American Century Retirement Date 2030 Trust I (0.38%)
American Century Retirement Date 2035 Trust I (0.38%)
American Century Retirement Date 2040 Trust I (0.38%)
American Century Retirement Date 2045 Trust I (0.38%)
American Century Retirement Date 2050 Trust I (0.38%)
American Century Retirement Date 2055 Trust I (0.38%)
American Century Retirement Date 2060 Trust I (0.38%)
Fidelity® Balanced Fund - Class K (FBAKX) (0.46%)
Stable Value Fund (0.24%) ~1.47% return over 1,3, and 5yrs.
JPMorgan Core Plus Bond Fund Class R6 (JCPUX) (0.40%)
American Funds Fundamental Investors® Class R-6 (RFNGX) (0.31%)
Columbia Large Cap Growth Fund Institutional Class (GEGTX) (0.83%)
Fidelity® 500 Index Fund - Institutional Class (FXSIX) (0.03%)
The Hartford Dividend and Growth Fund Class Y (HDGYX) (0.71%)
Fidelity® Extended Market Index Fund - Premium Class (FSEVX) (0.07%)
Fidelity® Low-Priced Stock Fund - Class K (FLPKX) (0.58%)
Lord Abbett Value Opportunities Fund Class I (LVOYX) (0.90%)
Franklin Small Cap Growth Fund Class R6 (FSMLX) (0.63%)
Vanguard Small-Cap Value Index Fund Institutional Shares (VSIIX) (0.06%)
American Funds EuroPacific Growth Fund® Class R-6 (RERGX) (0.50%)
Oppenheimer Developing Markets Fund Class Y (ODVYX) (1.07%)
Vanguard REIT Index Fund Admiral Shares (VGSLX) (0.12%)

Questions:
What do you think of the allocation below? Given the expense ratios and fund performance, does it make more sense to put the bonds and international funds in my Roth and use an 80/20 split of FXSIX and FSEVX in the 401k?

Fund Name (Ticker) (Expense Ratio) (% of total portfolio)

Roth
Vanguard Total Stock Market Index Fund Investor Shares (VTSMX) (0.15%) (12%)
Vanguard Total International Stock Index Fund (VGTSX) (0.18%) (31%)
Vanguard Total Bond Market Index Fund Investor Shares (VBMFX) (0.15%) (08%)

401k
JPMorgan Core Plus Bond Fund Class R6 (JCPUX) (0.40%) (22%)
Fidelity® 500 Index Fund - Institutional Class (FXSIX) (0.03%) (20%)
Fidelity® Extended Market Index Fund - Premium Class (FSEVX) (06%)

Total %s: Bond: 30%, International: 31%, Domestic Stock: 39%
Last edited by lionthens on Mon Jan 15, 2018 11:18 am, edited 4 times in total.

lionthens
Posts: 37
Joined: Tue Mar 12, 2013 6:23 am

Re: 401k & Roth Reallocation advice

Post by lionthens » Sat Jan 13, 2018 8:52 am

Bump. Edited the original post and removed the other questions.

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Watty
Posts: 13054
Joined: Wed Oct 10, 2007 3:55 pm

Re: 401k & Roth Rebalancing advice

Post by Watty » Sat Jan 13, 2018 8:23 pm

The bond fund in your 401k has a higher expense ratio so I would just have your overall bond asset allocation in a low cost bond fund in the Roth.

lionthens
Posts: 37
Joined: Tue Mar 12, 2013 6:23 am

Re: 401k & Roth Rebalancing advice

Post by lionthens » Sun Jan 14, 2018 12:56 pm

Thank you for your reply. I've read elsewhere that it's generally better to put funds with high anticipated growth (stocks) in Roth. Your response encouraged me to the do the math out. Am I making any incorrect assumptions in the figures below? After doing it out it looks like Bonds in 401k + Stocks in Roth results in greater return for me, even with the high expense ratio for the Fidelity bond fund.

I found and downloaded the Savings / Withdrawals over Time calculator on the Boglehead Wiki to compare bonds in 401k vs. roth. Next I did the same exercise with high growth funds in 401k vs. roth. Finally I took the combination of bonds in roth and high growth in 401k vs bonds in 401k and high growth in roth to compare. The results:

Inputs: $10,000 initial assets, 6% average gross return (stocks), 2.5% average gross return (bonds), $5,000 annual contribution. I used the expense ratios for each fund in my roth and 401k. 35 year investment.

Bonds in Roth: $232,000
Bonds in 401k: $144,000 before taxes. Assumed a simplified 25% federal and state tax. $108,000 after tax.
High Growth Funds in Roth: $647,000
High Growth Funds in 401k: $624,000 before taxes. Assumed same 25% taxes. $468,000 after tax.

Bonds in Roth + High Growth Funds in 401k = $700,000
Bonds in 401k + High Growth Funds in Roth = $755,000

Mors
Posts: 165
Joined: Wed Aug 16, 2017 10:06 am

Re: 401k & Roth Rebalancing advice

Post by Mors » Sun Jan 14, 2018 3:31 pm

I see that you considered using a cheaper bond fund in IRA and decided against it. Fine by me.

Consider using your IRA for your international allocation. This way you avoid the relatively expensive international fund from your 401k, which also happens to be a growth fund so it has the potential for big tracking error.

If you do not mind the small added complexity, consider an allocation of VSIIX and VGSLX in your portfolio. 5% or 10% each is a fine allocation, both funded from your US stock allocation. I am especially fond of the small cap value since it is institutional class and you cannot invest in it through your IRA.

lionthens
Posts: 37
Joined: Tue Mar 12, 2013 6:23 am

Re: 401k & Roth Rebalancing advice

Post by lionthens » Mon Jan 15, 2018 11:13 am

Thank you! Here's what I'm considering now.

Roth
Vanguard Total Stock Market Index Fund Investor Shares (VTSMX) (0.15%) (13%)
Vanguard Total International Stock Index Fund (VGTSX) (0.18%) (30%)

401k
JPMorgan Core Plus Bond Fund Class R6 (JCPUX) (0.40%) (30%)
Fidelity® 500 Index Fund - Institutional Class (FXSIX) (0.03%) (14%)
Fidelity® Extended Market Index Fund - Premium Class (FSEVX) (0.07%) (03%)
Vanguard REIT Index Fund Admiral Shares (VGSLX) (0.12%) (05%)
Vanguard Small-Cap Value Index Fund Institutional Shares (VSIIX) (0.06%) (05%)

Overall: Bond 30%, International 30%, Domestic 40%.

Questions:
1. Some searches I came across on here suggested REITs aren't included in the S&P500 or Total Stock Market indexes. In that case, I agree and think it makes sense to add some.
2. I was trying to figure out the advantage of adding VSIIX. I think I understand now. It looks like FSEVX includes 37% of it's holdings as small cap, but it's only 4% of my portfolio so in reality small caps are only ~1.5% of my overall portfolio. Adding VSIIX, which is over 60% small and micro cap raises that % of small and micro cap.
3. Should I consider mixing in the Fidelity stable value fund with the bonds? The ER is lower (0.24% vs (0.40%) but it's yield is <1.5% and there isn't much info on them. This thread made me question how safe an investment they are.

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