457b/401a Diversification?

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il0kin
Posts: 96
Joined: Mon Feb 26, 2018 8:19 pm

457b/401a Diversification?

Post by il0kin » Mon Apr 16, 2018 1:28 pm

Hello all!

I am a 29 y/o married with kids guy considering a diversification for my pre-tax accounts in order to gain broader exposure to small/mid cap and international indexes. Fortunately, my employer is all-aboard the Vanguard train and offers great fund selection, though no US Total at this time (I requested it, but it is a yearly review process).

I currently hold:
80% VINIX (S&P 500) ER 0.035%
20% VBTLX (Barclays US Aggregate, intermediate-term bonds) ER 0.05%

Available Funds:
VTSNX (Total Int’l FTSE Global All Cap) ER 0.09%
VIEIX (S&P Completion, aka US small and mid cap) ER 0.06%

My thought is to change to:
50% VINIX
15% VTSNX
15% VIEIX
20% VBTLX

No real reason on the equity allocation other than I am comfortable at my 80/20 and 50/15/15 seems to be a comfortable position for me - I feel the most comfortable with large cap US companies, but understand that further diversification would be wise. Input from those more experienced and smarter than me would be very much appreciated!

ThriftyPhD
Posts: 653
Joined: Mon Jul 31, 2017 10:43 am

Re: 457b/401a Diversification?

Post by ThriftyPhD » Mon Apr 16, 2018 1:49 pm

You mentioned you wanted US Total at the start. Note that your proposed 50:15 VINIX:VIEIX is a slight tilt towards small cap: you'll have a 77:23 ratio, while I believe it should be 81:19 for market cap weight. Regardless, the tilt is tiny and trying to maintain 52.65:12:35 would be a pain, I would go with 50:15 as well, just be aware that the slight tilt does exist. I think you'll do fine regardless of small tweaks to the allocations, as long as you choose one and stick with it.

Overall your plan makes sense to me. Good luck!

il0kin
Posts: 96
Joined: Mon Feb 26, 2018 8:19 pm

Re: 457b/401a Diversification?

Post by il0kin » Mon Apr 16, 2018 2:05 pm

ThriftyPhD wrote:
Mon Apr 16, 2018 1:49 pm
You mentioned you wanted US Total at the start. Note that your proposed 50:15 VINIX:VIEIX is a slight tilt towards small cap: you'll have a 77:23 ratio, while I believe it should be 81:19 for market cap weight. Regardless, the tilt is tiny and trying to maintain 52.65:12:35 would be a pain, I would go with 50:15 as well, just be aware that the slight tilt does exist. I think you'll do fine regardless of small tweaks to the allocations, as long as you choose one and stick with it.

Overall your plan makes sense to me. Good luck!
That is a great insight; I hadn't considered overall market cap when thinking about what % to allocate each fund. Simplicity is what I'm seeking - I don't even really like having 4 funds, but know it's important to put US mid/small cap and international exposure under my umbrella.

I'll consider myself a wild risk taker with my ~2.5% mid/small cap tilt :)

ThriftyPhD
Posts: 653
Joined: Mon Jul 31, 2017 10:43 am

Re: 457b/401a Diversification?

Post by ThriftyPhD » Mon Apr 16, 2018 3:19 pm

Yeah, it's not enough of a tilt to skew things, but thought I would point it out.
il0kin wrote:
Mon Apr 16, 2018 1:28 pm
No real reason on the equity allocation other than I am comfortable at my 80/20 and 50/15/15 seems to be a comfortable position for me
Do you have an Investment policy statement? It's probably a good idea to write down why you chose what you chose, how you plan to rebalance, and what would cause you to change the allocation. For example, if Total US is added to your available fund list next year, would you want to sell all VINIX/VIEIX to get VTSAX? Better to make that decision ahead of time so you're thinking 'well gee, VIEIX has done quite well the past year, maybe I do want that tilt...'.

Basically, if things go sideways you want a document to look at to know you have a plan.

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CyclingDuo
Posts: 1526
Joined: Fri Jan 06, 2017 9:07 am

Re: 457b/401a Diversification?

Post by CyclingDuo » Mon Apr 16, 2018 9:04 pm

il0kin wrote:
Mon Apr 16, 2018 2:05 pm
ThriftyPhD wrote:
Mon Apr 16, 2018 1:49 pm
You mentioned you wanted US Total at the start. Note that your proposed 50:15 VINIX:VIEIX is a slight tilt towards small cap: you'll have a 77:23 ratio, while I believe it should be 81:19 for market cap weight. Regardless, the tilt is tiny and trying to maintain 52.65:12:35 would be a pain, I would go with 50:15 as well, just be aware that the slight tilt does exist. I think you'll do fine regardless of small tweaks to the allocations, as long as you choose one and stick with it.

Overall your plan makes sense to me. Good luck!
That is a great insight; I hadn't considered overall market cap when thinking about what % to allocate each fund. Simplicity is what I'm seeking - I don't even really like having 4 funds, but know it's important to put US mid/small cap and international exposure under my umbrella.

I'll consider myself a wild risk taker with my ~2.5% mid/small cap tilt :)
The Boglehead Wiki page on how to approximate the Total Stock Marked Index explains it all right here: https://www.bogleheads.org/wiki/Approxi ... ock_market

The extended market fund, in conjunction with the S&P 500 Fund, as pointed out above would be 19% VIEIX, and 81% of the S&P 500 fund for the domestic equity portion to approximate the Total Stock Market Fund.

I personally use those two funds for the domestic portion of equities in my 403b
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