Company 401k - is this optimal?

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mech_tower
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Company 401k - is this optimal?

Post by mech_tower » Mon Jan 15, 2018 8:54 am

Hi all,

I joined a new company last week. They offer 401k through Vanguard, but no company match, though. The following are the options. The ones with the CURRENT % are the ones I selected. I can change them anytime. I have 2 questions -

1. is my allocation optimal?
2. is 18k the maximum I can contribute, or can I contribute more but get the tax deduction for only 18k?

My allocation:

INVESTMENT CURRENT %
Vanguard 500 Index Adm VFIAX 14%
Vanguard Balanced Index Fund Adm VBIAX 14%
Vanguard Emerging Mkt Stk Index Adm VEMAX 0%
Vanguard Growth Index Adm VIGAX 15%
Vanguard Mid Cap Index Adm VIMAX 0%
Vanguard Prime Money Market Inv VMMXX 0%
Vanguard REIT Index Adm VGSLX 0%
Vanguard Small Cap Index Adm VSMAX 0%
Vanguard Small-Cap Growth Index Adm VSGAX 0%
Vanguard Small-Cap Value Index Adm VSIAX 0%
Vanguard Target Retirement 2015 Inv VTXVX 0%
Vanguard Target Retirement 2020 Inv VTWNX 0%
Vanguard Target Retirement 2025 Inv VTTVX 0%
Vanguard Target Retirement 2030 Inv VTHRX 0%
Vanguard Target Retirement 2035 Inv VTTHX 0%
Vanguard Target Retirement 2040 Inv VFORX 15%
Vanguard Target Retirement 2045 Inv VTIVX 0%
Vanguard Target Retirement 2050 Inv VFIFX 0%
Vanguard Target Retirement 2055 Inv VFFVX 0%
Vanguard Target Retirement 2060 Inv VTTSX 0%
Vanguard Target Retirement 2065 Inv VLXVX 0%
Vanguard Target Retirement Income Inv VTINX 0%
Vanguard Total Bond Market Index Adm VBTLX 14%
Vanguard Total Intl Stock Index Adm VTIAX 14%
Vanguard Value Index Adm VVIAX 14%

Thank you in advance for your inputs and guidance.

MT

Life Is Good
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Re: Company 401k - is this optimal?

Post by Life Is Good » Mon Jan 15, 2018 9:09 am

Your allocation will largely depend upon your other holdings, if any, in IRAs or taxable accounts. The choices are very good for a 401k, and what you have chosen seems appropriate, but you have a lot of overlap. VBIAX is 60/40 stocks/bonds, Value and Growth funds are mostly (but not all) in the S&P 500 already. And Target Retirement is a blend of everything.

If it were me, I'd be looking to approximate the Three Fund Portfolio, the equivalent for the domestic portion can be seen here: https://www.bogleheads.org/wiki/Approxi ... ock_market

So I would have VFIAX VIMAX and VSMAX set to equal your percentage desired for Domestic. VTIAX for International. VBTLX for Bonds. That's it. That way you can figure out exactly what your stock/bond ratio is, and rebalancing is a little easier. Additionally I think it lowers fees just a minuscule amount.

$18,500 is the highest you can contribute to your 401k in 2018, unless you are over 50 (guessing not by your target retirement date!) Nothing more. Too bad about the no company match.

Good luck!

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dwickenh
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Re: Company 401k - is this optimal?

Post by dwickenh » Mon Jan 15, 2018 9:11 am

Depending on your age, you could simplify by just using the target retirement 2040 which is 85% stocks and 15% bonds. You are complicating things by using the target date with a balanced fund and numerous index funds. Do you know what Asset Allocation you would like. This information in the WIKI may help you decide. https://www.bogleheads.org/wiki/Asset_allocation

Once you determine the asset allocation for you, you could just use the target date fund that matches it, or buy 3 funds(US equities index, International equities index, and total bond index) to get to the allocation you desire.

There is no one optimal Asset Allocation, it is personal to you and your ability to take risk.

Depending on you income, you could also contribute 5500 to a Roth IRA or Traditional IRA for you and your Spouse(if you have one)

18500 is the limit for your 401K for 2018. Some companies allow additional non-deductible contributions to the 401K, but I would do the Roth IRA first.

Best to you,

Dan
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

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Watty
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Re: Company 401k - is this optimal?

Post by Watty » Mon Jan 15, 2018 9:19 am

dwickenh wrote:
Mon Jan 15, 2018 9:11 am
Depending on your age, you could simplify by just using the target retirement 2040 which is 85% stocks and 15% bonds. You are complicating things by using the target date with a balanced fund and numerous index funds.
+1

The main reason not to a target date fund is if you also have retirement money that is invested in other accounts and they are taxable so you need to optimize the taxes, or the other accounts don't have a good target date fund.

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ruralavalon
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Re: Company 401k - is this optimal?

Post by ruralavalon » Mon Jan 15, 2018 11:58 am

mech_tower wrote:
Mon Jan 15, 2018 8:54 am
Hi all,

Is $18.5k. I joined a new company last week. They offer 401k through Vanguard, but no company match, though. The following are the options. The ones with the CURRENT % are the ones I selected. I can change them anytime. I have 2 questions -

1. is my allocation optimal?
I impossible to guess if this is "optlmal" without knowing what you currently have in your rollover IRA, taxable account, and any other accounts.

Do you and your wife still keep your finances separate?

It would be very useful if you amended your original post here to follow the format in "asking portfolio questions".


mech_tower wrote:2. is 18k the maximum I can contribute, or can I contribute more but get the tax deduction for only 18k?
Starting in 2018 the maximum deductible employee contribution is $18.5k annually.

You might be able to make non-deductible contributions beyond that, depending on what your 401k plan provides.

. . . . .

Based in your investing preferences as stated in your prior posts in late 2014 when you were 34 years of age, in your 401k the funds to consider using include:
Vanguard 500 Index Fund (VFIAX);
Vanguard Total International Stock Index Fund (VTIAX);
Vanguard Emerging Markets Stock Index Fund (VEMAX);
Vanguard REIT Index Fund (VGSLX); and
Vanguard Total Bond Market Index Fund (VBTLX).

At 37 years of age, I believe that more than 14% in bonds is appropriate.

You hold equal amounts of Vanguard Growth Index Fund (VIGAX) and Vanguard Value Index Fund (VVIAX). That serves no purpose, the growth tilt and value tilt just cancel each other out.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

mech_tower
Posts: 84
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Re: Company 401k - is this optimal?

Post by mech_tower » Tue Jan 16, 2018 1:16 pm

Hi Everyone,

Thanks for your inputs. :happy I will include my updated portfolio in the subsequent reply.

MT

mech_tower
Posts: 84
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Re: Company 401k - is this optimal?

Post by mech_tower » Tue Jan 16, 2018 1:28 pm

Hi ruralavalon, reponses to your questions below:
ruralavalon wrote:
Mon Jan 15, 2018 11:58 am
I impossible to guess if this is "optlmal" without knowing what you currently have in your rollover IRA, taxable account, and any other accounts.

Do you and your wife still keep your finances separate?

It would be very useful if you amended your original post here to follow the format in "asking portfolio questions".

Yes, my wife's and my finances are separate.

My updated portfolio profile below. Please let me know if I missed anything.

Taxable
xx% cash (for investing – do not include emergency funds)  15%
xx% fund name (ticker symbol) (expense ratio)  xx% Fund Name Ticker E/R
17.94% Vanguard Developed Markets Index Fund Admiral Shares  VTMGX 0.0007
10.01% Vanguard Emerging Markets Stock Index Fund Investor Shares   VEIEX 0.0032
9.42% Vanguard LifeStrategy Growth Fund Investor Shares  VASGX 0.0015
0.00% Vanguard Prime Money Market Fund  VMMXX 0.0016
52.32% Vanguard Total Stock Market Index Fund Admiral Shares  VTSAX 0.0004
ETFs
3.34% VANGUARD TOTAL BOND MARKET ETF  BND 0.0005
1.40% VANGUARD TOTAL INTL BOND INDEX ETF  BNDX 0.0012
2.29% VANGUARD TOTAL INTL STOCK INDEX FUND ETF  VXUS 0.0011
3.27% VANGUARD TOTAL STOCK MARKET ETF  VTI 0.0004

xx% stock company name (ticker symbol) xx% Stock company name Ticker
4.15% ALTABA INC AABA
19.52% APPLE INC AAPL
3.22% CSX CORP CSX
9.56% EXXON MOBIL CORP XOM
5.91% MICROSOFT CORP MSFT
37.52% TESLA INC TSLA
15.24% TOYOTA MOTOR CORP SPONS ADR TYO
4.87% WASTE MANAGEMENT INC WM

I still have about $13,000 of un-cashed company stock from previous employment stock options plan.

His 401k
xx% fund name (ticker symbol) (expense ratio) 
Company match? NO
14.00% Vanguard 500 Index Adm VFIAX
14.00% Vanguard Balanced Index Fund Adm VBIAX
15.00% Vanguard Growth Index Adm VIGAX
15.00% Vanguard Target Retirement 2040 Inv VFORX
14.00% Vanguard Total Bond Market Index Adm VBTLX
14.00% Vanguard Total Intl Stock Index Adm VTIAX
14.00% Vanguard Value Index Adm VVIAX
0 Vanguard Emerging Mkt Stk Index Adm VEMAX
0 Vanguard Mid Cap Index Adm VIMAX
0 Vanguard Prime Money Market Inv VMMXX
0 Vanguard REIT Index Adm VGSLX
0 Vanguard Small Cap Index Adm VSMAX
0 Vanguard Small-Cap Growth Index Adm VSGAX
0 Vanguard Small-Cap Value Index Adm VSIAX
0 Vanguard Target Retirement 2015 Inv VTXVX
0 Vanguard Target Retirement 2020 Inv VTWNX
0 Vanguard Target Retirement 2025 Inv VTTVX
0 Vanguard Target Retirement 2030 Inv VTHRX
0 Vanguard Target Retirement 2035 Inv VTTHX
0 Vanguard Target Retirement 2045 Inv VTIVX
0 Vanguard Target Retirement 2050 Inv VFIFX
0 Vanguard Target Retirement 2055 Inv VFFVX
0 Vanguard Target Retirement 2060 Inv VTTSX
0 Vanguard Target Retirement 2065 Inv VLXVX
0 Vanguard Target Retirement Income Inv VTINX

His Traditional IRA at Vanguard xx% Fund Name Ticker E/R
27.42% Vanguard Intermediate-Term Investment-Grade Fund Investor Shares  VFICX 0.20%
0.00% Vanguard Prime Money Market Fund  VMMXX 0.16%
13.04% Vanguard REIT Index Fund Investor Shares  VGSIX 0.26%
26.77% Vanguard Total Bond Market Index Fund Admiral Shares  VBTLX 0.05%
32.76% Vanguard Total Stock Market Index Fund Admiral Shares  VTSAX 0.04%

His Rollover IRA at Schwab N/A
xx% fund name (ticker symbol) (expense ratio)

Her 403b  N/A
xx% fund name (ticker symbol) (expense ratio) 
Company match? 

Her SIMPLE IRA at Fidelity N/A
xx% fund name (ticker symbol) (expense ratio) 

Her Traditional IRA at Vanguard N/A
xx% fund name (ticker symbol) (expense ratio) 

I got rid of the NWM term life insurance (lost about $3k).

1. Is my overall portfolio well balanced?
2. As stated earlier, what would be a good 401k options to choose from the list above, under HIS 401k?

Thanks again in advance for your help. :happy

MT

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ruralavalon
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Location: Illinois

Re: Company 401k - is this optimal?

Post by ruralavalon » Tue Jan 16, 2018 2:07 pm

What are the relative sizes of the accounts? Like this:
Taxable account @ (name of fund firm), xx%
His 401k, yy%
His traditional IRA @ Vanguard, zz%
Total = 100%
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

mech_tower
Posts: 84
Joined: Thu Sep 04, 2014 2:30 pm

Re: Company 401k - is this optimal?

Post by mech_tower » Tue Jan 16, 2018 11:46 pm

Hi ruralavalon,

Please find details you requested below -
ruralavalon wrote:
Tue Jan 16, 2018 2:07 pm
What are the relative sizes of the accounts? Like this:
Taxable account @ (name of fund firm), xx% - 62.61% (all at Vanguard)
His 401k, yy% - new 401k at new job (list of available options in my portfolio info above). Old job's 401k rolled into traditional IRA (below)
His traditional IRA @ Vanguard, zz% - 37.39%
Total = 100%
Thank you.

mech_tower
Posts: 84
Joined: Thu Sep 04, 2014 2:30 pm

Re: Company 401k - is this optimal?

Post by mech_tower » Mon Jan 22, 2018 11:13 am

Hello, any thoughts?

Appreciate any and all thoughts.

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ruralavalon
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Location: Illinois

Re: Company 401k - is this optimal?

Post by ruralavalon » Mon Jan 22, 2018 1:56 pm

mech_tower wrote:
Mon Jan 22, 2018 11:13 am
Hello, any thoughts?

Appreciate any and all thoughts.
Is the taxable account at Vanguard?

In your taxable account the stocks you listed add up to 100%, and the funds and ETFs you listed also add up to 100% for a total of 200%. But the taxable account is just 63% of the total portfolio.

Is there more than one taxable account?

In the taxable account or accounts, what percentage of the total portfolio (all together) is each fund, ETF or stock?

As mentioned before please see the post "asking portfolio questions". Please just use the edit button to amend your prior post outlining the funds and accounts.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

mech_tower
Posts: 84
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Re: Company 401k - is this optimal?

Post by mech_tower » Thu Feb 15, 2018 11:30 pm

Hi ruralavalon, I have posted my updated portfolio as you mentioned here - viewtopic.php?f=1&t=241761

Thank you for your kind help.

MT

Lafder
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Re: Company 401k - is this optimal?

Post by Lafder » Fri Feb 16, 2018 12:39 am

Change your percents so they add up to 100% for all accounts (tax advantaged and taxable, NOT including your emergency fund). This will really help you calculate your AA and see how tiny some accounts are, and help you see how much to move where to rebalance. Otherwise 5% in a large account can be a larger $ amount than 80% of a tiny account which makes it confusing. Make the % consistent with each other :)

I think you have some confusion about what the holdings are so let me try to explain as I think of them. You are mixing all in one funds, meant to be held as your only holding, with the subfunds that make them up and some specialty funds. Pick all in one or subfunds, not both. Bogleheads rec the total market index vs Value or Growth. But there are some people that prefer those subcategories. It makes sense to me that is stock picking so best to just buy the market and the total index.


14.00% Vanguard 500 Index Adm VFIAX ((500 Index = Large Cap = biggest big huge companies))

14.00% Vanguard Balanced Index Fund Adm VBIAX ((All in one fund 60% total US stock index, 40% total bond Index))

15.00% Vanguard Growth Index Adm VIGAX ((Selected for growth potential = picking stocks))

15.00% Vanguard Target Retirement 2040 Inv VFORX ((All in one fund made up of 4 funds: US stock Index, International stock Index, US bond index, International bond index. As a target date fund, it will rebalance for you and increase bonds over the years. Same with all Vanguard Target Date Vanguard funds. (Simplicity of 4 fund holdings are not the same with all company's target date holdings so check holdings if through a different company in the future)))

14.00% Vanguard Total Bond Market Index Adm VBTLX ((This is in the above all in one funds))

14.00% Vanguard Total Intl Stock Index Adm VTIAX ((This is in the target date all in one fund above))

14.00% Vanguard Value Index Adm VVIAX ((Stock picking "value" versus buying total stock market))

0 Vanguard Emerging Mkt Stk Index Adm VEMAX ((Specific International holdings, read description for details))

0 Vanguard Mid Cap Index Adm VIMAX ((Mid cap = Medium sized of the giant companies, still very big. Total stock market = about 85% large cap, 15% mid and small cap))

0 Vanguard Prime Money Market Inv VMMXX

0 Vanguard REIT Index Adm VGSLX ((Note total stock market may have some % of REITS already))

0 Vanguard Small Cap Index Adm VSMAX ((Smaller of the huge companies))

0 Vanguard Small-Cap Growth Index Adm VSGAX ((Smaller of the big, stock picked for "growth" ))

0 Vanguard Small-Cap Value Index Adm VSIAX ((Smaller of the big, stock picked for "value"))

How wonderful you are getting this all figured out now! In the next months it will all make much more sense and not be such a new vocabulary.

lafder

**edit Read your company policy on 401k to see if you are allowed post tax contributions, which are different than Roth 401k. Roth 401k if available counts towards your employee max and I do prefer using that space for pretax. Note employer plus employee pretax plus post tax can be 54,000$ (plus $6000 after age 50). If your company allows post tax, it might be worth it. If yes, check if they allow a mega back door Roth. If you are allowed post tax, but not a mega backdoor Roth, it may be worth maxing it and later (possibly not allowed until after you leave that employer, rolling the post tax to a Roth)) Sorry if this is confusing. I am too tired to write it out more simply.........

mech_tower
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Re: Company 401k - is this optimal?

Post by mech_tower » Fri Feb 16, 2018 11:47 am

Lafder wrote:
Fri Feb 16, 2018 12:39 am
Change your percents so they add up to 100% for all accounts (tax advantaged and taxable, NOT including your emergency fund). This will really help you calculate your AA and see how tiny some accounts are, and help you see how much to move where to rebalance. Otherwise 5% in a large account can be a larger $ amount than 80% of a tiny account which makes it confusing. Make the % consistent with each other :)

I think you have some confusion about what the holdings are so let me try to explain as I think of them. You are mixing all in one funds, meant to be held as your only holding, with the subfunds that make them up and some specialty funds. Pick all in one or subfunds, not both. Bogleheads rec the total market index vs Value or Growth. But there are some people that prefer those subcategories. It makes sense to me that is stock picking so best to just buy the market and the total index.


14.00% Vanguard 500 Index Adm VFIAX ((500 Index = Large Cap = biggest big huge companies))

14.00% Vanguard Balanced Index Fund Adm VBIAX ((All in one fund 60% total US stock index, 40% total bond Index))

15.00% Vanguard Growth Index Adm VIGAX ((Selected for growth potential = picking stocks))

15.00% Vanguard Target Retirement 2040 Inv VFORX ((All in one fund made up of 4 funds: US stock Index, International stock Index, US bond index, International bond index. As a target date fund, it will rebalance for you and increase bonds over the years. Same with all Vanguard Target Date Vanguard funds. (Simplicity of 4 fund holdings are not the same with all company's target date holdings so check holdings if through a different company in the future)))

14.00% Vanguard Total Bond Market Index Adm VBTLX ((This is in the above all in one funds))

14.00% Vanguard Total Intl Stock Index Adm VTIAX ((This is in the target date all in one fund above))

14.00% Vanguard Value Index Adm VVIAX ((Stock picking "value" versus buying total stock market))

0 Vanguard Emerging Mkt Stk Index Adm VEMAX ((Specific International holdings, read description for details))

0 Vanguard Mid Cap Index Adm VIMAX ((Mid cap = Medium sized of the giant companies, still very big. Total stock market = about 85% large cap, 15% mid and small cap))

0 Vanguard Prime Money Market Inv VMMXX

0 Vanguard REIT Index Adm VGSLX ((Note total stock market may have some % of REITS already))

0 Vanguard Small Cap Index Adm VSMAX ((Smaller of the huge companies))

0 Vanguard Small-Cap Growth Index Adm VSGAX ((Smaller of the big, stock picked for "growth" ))

0 Vanguard Small-Cap Value Index Adm VSIAX ((Smaller of the big, stock picked for "value"))

How wonderful you are getting this all figured out now! In the next months it will all make much more sense and not be such a new vocabulary.

lafder

**edit Read your company policy on 401k to see if you are allowed post tax contributions, which are different than Roth 401k. Roth 401k if available counts towards your employee max and I do prefer using that space for pretax. Note employer plus employee pretax plus post tax can be 54,000$ (plus $6000 after age 50). If your company allows post tax, it might be worth it. If yes, check if they allow a mega back door Roth. If you are allowed post tax, but not a mega backdoor Roth, it may be worth maxing it and later (possibly not allowed until after you leave that employer, rolling the post tax to a Roth)) Sorry if this is confusing. I am too tired to write it out more simply.........
Wow! Thanks so much for your detailed response. I am at work now and will go home and sit down at my spreadsheet to go over this. I also posted my entire portfolio last night. Will update it with more clarity later tonight. Do take a look when you get the chance.

Thank you once again. :happy

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