AA mix vs paycheck mix percentages

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donkashane48
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AA mix vs paycheck mix percentages

Post by donkashane48 » Tue Jan 16, 2018 2:15 pm

I was just looking at my 401k thru vanguard and im able to set up my AA which i have, then i can setup the % of my paycheck to go to the funds I've selected. Wouldn't I want this % to be the same as the AA mix? I've looked and searched everywhere on here and can't seem to find anything. Thanks in advance

TOJ
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Re: AA mix vs paycheck mix percentages

Post by TOJ » Tue Jan 16, 2018 2:17 pm

Yes, but growth on the stock side (or a market crash) would mean you need to do periodic rebalancing to maintain your overall AA. For example, contributing 60:40 throughout a long bull market may end up looking like 80:20 by the end, due to stock growth.

kaudrey
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Re: AA mix vs paycheck mix percentages

Post by kaudrey » Tue Jan 16, 2018 2:18 pm

If your AA is where you want it, then yes.

Right now, because of the stock market run up, I put a higher % of my paycheck in bonds to do a slow rebalance, because my stock allocation is a little too high. But, not everyone does that; it's just my preference. I change it on occasion as needed.

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donkashane48
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Re: AA mix vs paycheck mix percentages

Post by donkashane48 » Tue Jan 16, 2018 2:54 pm

Okay I get it but just for the sake of it, if I'm AA looks like this

Vanguard 500 index: 48%
Vanguard Extended: 12%
Vanguard tot bond: 20%
Vanguard tot international: 20%

I would want the same % from paycheck to go to these funds, correct?

Ex: $100 from pay check 48% of that would go to the 500

rkhusky
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Re: AA mix vs paycheck mix percentages

Post by rkhusky » Tue Jan 16, 2018 4:24 pm

donkashane48 wrote:
Tue Jan 16, 2018 2:54 pm
Okay I get it but just for the sake of it, if I'm AA looks like this

Vanguard 500 index: 48%
Vanguard Extended: 12%
Vanguard tot bond: 20%
Vanguard tot international: 20%

I would want the same % from paycheck to go to these funds, correct?

Ex: $100 from pay check 48% of that would go to the 500
That's what I would do, although I would round to nearest 5 or 10% (i.e. 50%, 10%, 20%, 20%), even if my AA percentages had more significant digits.

And I prefer just buying/selling within my 401k in order to rebalance, rather than fiddling with paycheck allocations.

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grabiner
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Re: AA mix vs paycheck mix percentages

Post by grabiner » Tue Jan 16, 2018 8:40 pm

Are all your new investments coming from the paycheck? If not, then you should arrange for your total investments to match your asset allocation, to minimize rebalancing.

That's what I have long done. I hold all my bonds in my employer plan, but I also invest in a Roth IRA and a taxable account. When about half my investments came from my paycheck, and I held 10% bonds, I put 20% of my paycheck into a bond fund, knowing that this would be 10% of my total investments.

(Right now, my bond allocation from my paycheck is zero. I treat my mortgage as a negative bond in my asset allocation, and the amount that I want to increase my bond allocation is about the same as the amount I pay on the mortgage. Therefore, my net bond allocation increases over time by the right amount.)
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mega317
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Re: AA mix vs paycheck mix percentages

Post by mega317 » Wed Jan 17, 2018 12:49 am

I do as you're suggesting. My other investing (Roth IRA and taxable) comes in clumps. The Roth in January when I'm also rebalancing. The taxable is usually in amounts small enough compared to my total portfolio that it doesn't move the needle no matter what I buy.

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BrandonBogle
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Re: AA mix vs paycheck mix percentages

Post by BrandonBogle » Wed Jan 17, 2018 1:08 am

A couple years ago I added up all the asset additions from all sources I was making/getting for the year, multiplied that by my AA %s to get target $$ for the year, and then did the match on what breakdown to use from my 401k contributions to maintain that.

It has worked great for me so far.

The only few tweaks I've had to make, if you want to call them rebalancing are because:
- my 401k doesn't have a US Total Stock market and I have to replicate that with the S&P 500 + Russel 2000, so rebalancing between those two to approximate TSM
- my employer match and discretionary profit sharing are paid out in company stock, which I immediately sell and put into my total bond fund
- I had lower than expected expenses and added more to my muni holdings

The last two there are supposed to give me a glide path for age - 10 in bonds and have done so, but I'll probably have to rebalance into bonds at one point if the market repeats 2017.

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donkashane48
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Re: AA mix vs paycheck mix percentages

Post by donkashane48 » Thu Jan 18, 2018 9:29 am

Ok so to add to my previous question, I have another along the same lines. There is also a place on vanguard that you can change the asset mix of the money in each fund by % and change the fund balance.. What is that for? Maybe I'm overthinking to much

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BrandonBogle
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Re: AA mix vs paycheck mix percentages

Post by BrandonBogle » Thu Jan 18, 2018 9:48 am

donkashane48 wrote:
Thu Jan 18, 2018 9:29 am
Ok so to add to my previous question, I have another along the same lines. There is also a place on vanguard that you can change the asset mix of the money in each fund by % and change the fund balance.. What is that for? Maybe I'm overthinking to much
You may actually have to get more specific. In my Vanguard 401k, I get that view in multiple places. If I do that in the "Exchange Funds" screen, then I'm specifying % of balance (you can pick $ in the upper right instead) to move out of the listed fund and on the next screen specify where those funds go in, again by % or $. Then there is also a rebalancing screen where you specify the % of each fund you want and it would prepare transfer orders to get to that. They also have a screen where you specify %s for contributions, without changing any current balances. And all this is in the 401k space -- Vanguard then also has transfer funds screens outside of the 401k.

nolesrule
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Re: AA mix vs paycheck mix percentages

Post by nolesrule » Thu Jan 18, 2018 10:08 am

I determine contribution allocation for each account every year year based on my expected total contributions, target asset allocation and the optimal contributions to each account. I use a spreadsheet and play around wit hthe percentages to get as close as possible.

For example this year, my wife's 401k gets 59% US stock, 16% international, 25% bond, with the match in company stock. My 401k gets 50/50 US Stock/ Bond. Both of our Roth IRAs get 100% International. Our taxable gets 75% US Stock and 25% International.

Rebalancing is determined by the best account based on what needs to be rebalanced.

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donkashane48
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Re: AA mix vs paycheck mix percentages

Post by donkashane48 » Thu Jan 18, 2018 10:39 am

BrandonBogle wrote:
Thu Jan 18, 2018 9:48 am
donkashane48 wrote:
Thu Jan 18, 2018 9:29 am
Ok so to add to my previous question, I have another along the same lines. There is also a place on vanguard that you can change the asset mix of the money in each fund by % and change the fund balance.. What is that for? Maybe I'm overthinking to much
You may actually have to get more specific. In my Vanguard 401k, I get that view in multiple places. If I do that in the "Exchange Funds" screen, then I'm specifying % of balance (you can pick $ in the upper right instead) to move out of the listed fund and on the next screen specify where those funds go in, again by % or $. Then there is also a rebalancing screen where you specify the % of each fund you want and it would prepare transfer orders to get to that. They also have a screen where you specify %s for contributions, without changing any current balances. And all this is in the 401k space -- Vanguard then also has transfer funds screens outside of the 401k.
Yes that's how mine is "Exchange Funds" and then "Change current investment mix" tab, then there you designate a % to each fund which moves the monies that each fund currently has to whatever % you change it to. I guess my question is do you not touch that if you have already redid your AA and % contribution from paycheck. Or do you change the amount of monies in each fund to align with your new AA..

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BrandonBogle
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Re: AA mix vs paycheck mix percentages

Post by BrandonBogle » Thu Jan 18, 2018 10:52 am

donkashane48 wrote:
Thu Jan 18, 2018 10:39 am
Yes that's how mine is "Exchange Funds" and then "Change current investment mix" tab, then there you designate a % to each fund which moves the monies that each fund currently has to whatever % you change it to. I guess my question is do you not touch that if you have already redid your AA and % contribution from paycheck. Or do you change the amount of monies in each fund to align with your new AA..
“Exchange Funds” and “Change current investment mix” will alter the balance you already have in that account without making any changes to where new contributions go.

The answer to your question would be what you desire for your target AA. There is no tax harm in rearranging funds in your 401k, so if your 401k doesn’t meet your big picture AA, you may indeed want to change your current investment mix to meet your needs.

However, much of this will depend on what your “big picture” AA looks like. For instance, while my 401k offers Vanguard’s Total International, I do not invest in it there. Instead, my International holding is in my taxable and IRA.

So I would just go back to the first paragraph above and decide if the current mix of the 401k is meeting your desires. If not, make the necessary changes.

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