Help simplifying 401k

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cf_murph
Posts: 9
Joined: Sat Apr 07, 2018 7:10 pm

Help simplifying 401k

Post by cf_murph » Sun May 13, 2018 10:50 pm

*UPDATED MY 401k, NEED ADVICE ON HERS*

Emergency funds: Roughly 3 months fixed expenses at Betterment in conservative investment
Debt: ~30k revolving debt (10%) and student loans (2.5%) being paid off aggressively right now. Paying 5-6k per month until debt free later this year (disregarding house)
Tax Filing Status: Married filing joint with 2 dependent children
Tax Rate: 33%
State of Residence: IA
Age: 36
Desired Asset allocation: 85% stocks / 15% bonds
Desired International allocation: 20% to 25% of stocks
Current retirement assets his 190k, hers 150k

Contributions

New annual Contributions
His 401k planned $18,500 + roughly 9,000 employer match
Her 401k planned $18,500 + roughly 12,000 employer match

No other investing at the moment. Will max Roth's next year hopefully and then look toward maxing HSA.

I added emerging markets to both of our plans, even though the ER is higher than I would like, I want some exposure to that market.

His 401k Current Allocation-

Code: Select all

Investment Name				Allocation	ER
STATE STREET U.S. BOND INDEX		15%		0.02
STATE STREET S&P 500 INDEX		65%		0.01
STATE STREET INTERNATIONAL INDEX	15%		0.04
EMERGING MARKETS EQUITY			5%		0.89
Her proposed 401k allocation

Code: Select all

Investment Name								Allocation	ER
Vanguard Institutional 500 Index Trust 					65%		0.01
Vanguard Institutional Total International Stock Market Index		15%		0.06
Vanguard Institutional Total Bond Market Index Trust			15%		0.03
DFA Emerging Markets Core Equity Portfolio Institutional Class		5%		0.53
His Available Funds - 6% match

Code: Select all

Investment						Current Total 	Percent	ER	
EMERGING MARKETS EQUITY					 $21,982.17 	12.39%	0.89% 	
INTERNATIONAL EQUITY					 $8,069.97 	4.55%	0.54% 	
LARGE CAP GROWTH					 $1,655.88 	0.93%	0.38% 	
LARGE CAP VALUE						 $25,040.06 	14.12%	0.38% 	
SMALL CAP						 $8,453.88 	4.77%	0.58% 	
STATE STREET INTERNATIONAL INDEX			 $29,340.41 	16.54%	0.04%	
STATE STREET NASDAQ 100 INDEX				 $16,713.83 	9.42%	0.05%	
STATE STREET RUSSELL SMALL CAP INDEX			 $11,840.18 	6.67%	0.04%	
STATE STREET S&P 500 INDEX				 $24,168.88 	13.62%	0.01%	
STATE STREET S&P MIDCAP INDEX				 $1,604.89 	0.90%	??	
WELLS FARGO ESOPWFC					 $16,325.80 	9.20%	0.00%	
WELLS FARGO/STATE STREET TARGET TODAYCIT		$12,203.26 	6.88%	0.085
GLOBAL BOND						$- 		0.00%	0.62% 	
STATE STREET U.S. BOND INDEX				 $- 		0.00%	0.02%	
WELLS FARGO 100% TREASURY MONEY MARKET	 $- 			0.00%	0.20%	
WELLS FARGO Non-ESOPWFC				 	$- 		0.00%	0.00%	
WELLS FARGO STABLE VALUE				 $- 			0.00%	0.23%	
WELLS FARGO/STATE STREET TARGET 2010 CIT	 $- 			0.00%	0.085	
WELLS FARGO/STATE STREET TARGET 2015 CIT	 $- 			0.00%	0.085	
WELLS FARGO/STATE STREET TARGET 2020 CIT	 $- 			0.00%	0.085	
WELLS FARGO/STATE STREET TARGET 2025 CIT	 $- 			0.00%	0.085	
WELLS FARGO/STATE STREET TARGET 2030 CIT	 $- 			0.00%	0.085	
WELLS FARGO/STATE STREET TARGET 2035 CIT	 $- 			0.00%	0.085	
WELLS FARGO/STATE STREET TARGET 2040 CIT	 $- 			0.00%	0.085	
WELLS FARGO/STATE STREET TARGET 2045 CIT	 $- 			0.00%	0.085	
WELLS FARGO/STATE STREET TARGET 2050 CIT	 $- 			0.00%	0.085	
WELLS FARGO/STATE STREET TARGET 2055 CIT	 $- 			0.00%	0.085	
WELLS FARGO/STATE STREET TARGET 2060 CIT	 $- 			0.00%	0.085
Her available funds- 150% of your contributions between 1 and 4%, then 50% of your contributions up to 6%.

Code: Select all

Fund								Current Total	Percent	ER
DFA Emerging Markets Core Equity Portfolio Institutional Class	$15,744.06 	10.05%	0.53%
Dodge & Cox Stock Fund						$15,437.59 	9.85%	0.52%
Fidelity Growth Company Commingled Pool				$26,569.73 	16.95%	0.43%
Principal Diversified Real Asset Tier 1				$13,191.10 	8.42%	0.74%
Target Retirement 2060 Trust Plus				$14,696.44 	9.38%	0.06%
Vanguard Institutional Total International Stock Market Index	$14,743.05 	9.41%	0.06%
Vanguard PRIMECAP Fund Admiral Shares				$32,825.81 	20.95%	0.32%
Vanguard Small-Cap Growth Index Fund Institutional Shares	$23,505.00 	15.00%	0.06%
Vanguard Federal Money Mkt Fund					$0.00  		0.00%	0.11%
Vanguard Institutional Total Bond Market Index Trust		$0.00  		0.00%	0.03%
Target Retire Income Trust Plus					$0.00  		0.00%	0.06%
Target Retire 2015 Trust Plus					$0.00  		0.00%	0.06%
Target Retire 2020 Trust Plus					$0.00  		0.00%	0.06%
Target Retire 2025 Trust Plus					$0.00  		0.00%	0.06%
Target Retire 2030 Trust Plus					$0.00  		0.00%	0.06%
Target Retire 2035 Trust Plus					$0.00  		0.00%	0.06%
Target Retire 2040 Trust Plus					$0.00  		0.00%	0.06%
Target Retire 2045 Trust Plus					$0.00  		0.00%	0.06%
Target Retire 2050 Trust Plus					$0.00  		0.00%	0.06%
Target Retire 2055 Trust Plus					$0.00  		0.00%	0.06%
Target Retire 2060 Trust Plus					$0.00  		0.00%	0.06%
Target Retire 2065 Trust Plus					$0.00  		0.00%	0.06%
Vanguard Institutional 500 Index Trust				$0.00  		0.00%	0.01%
Vanguard Small-Cap Value Index Fund Institutional Shares	$0.00  		0.00%	0.06%
Last edited by cf_murph on Wed May 23, 2018 10:35 am, edited 3 times in total.

deltaneutral83
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Re: Help simplifying 401k

Post by deltaneutral83 » Mon May 14, 2018 11:15 am

Those State Street index funds for the S&P/Intl/Bonds seems to be fine for a 3F. If you want to build out the Total US you can also use the State Street S&P 75%/Mid-15%/Russell 10% or something close to that by mixing and matching.

MotoTrojan
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Re: Help simplifying 401k

Post by MotoTrojan » Mon May 14, 2018 11:21 am

deltaneutral83 wrote:
Mon May 14, 2018 11:15 am
Those State Street index funds for the S&P/Intl/Bonds seems to be fine for a 3F. If you want to build out the Total US you can also use the State Street S&P 75%/Mid-15%/Russell 10% or something close to that by mixing and matching.
OP; Do you have substantial assets elsewhere (Roth/IRA/Taxable) which should be factored in for most tax-efficient placement?

If you really want to replicate the Total US (I feel S&P 500 is more than sufficient), I'd simplify and ignore the mid-cap and just go 80/20 S&P500/Russell2K. This will be as close as you'd ever need to be, simpler, and the ER is VERY low (not sure what your MidCap is).

You should also consider a Target Retirement fund, which I assume is pretty similar to the 3F and has a reasonable ER. Would allow for truly hands-free investing. This would be an especially strong consideration if you don't manage substantial accounts outside the 401k.

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ruralavalon
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Location: Illinois

Re: Help simplifying 401k

Post by ruralavalon » Mon May 14, 2018 11:31 am

You have excellent low expense ratio funds offered in your 401k, you are fortunate.

I suggest these funds in your 401k:
State Street S&P 500 Index Fund, ER 0.01%
State Street International Index Fund, ER 0.04%
State Street U.S. Bond Index Fund, ER 0.02%

Do you have other accounts, like IRAs or taxable accounts? Does your spouse have any accounts? It's often better to coordinate investments among all accounts to take advantage of only the very best funds in each account, rather than invest each account individually.

cf_murph
Posts: 9
Joined: Sat Apr 07, 2018 7:10 pm

Re: Help simplifying 401k

Post by cf_murph » Mon May 14, 2018 4:00 pm

We don’t have any significant accounts other than our 401k’s currently. We plan on maxing Roth’s and the HSA starting in a few month (paying down some debt currently). My main focus is to simplify these 401ks and start minimizing our taxes. We did not plan this last year very well and come tax time we paid for it by way of unnecessary taxes.

Her 401k is at Vanguard. I will edit the original post to follow the typical format and include hers as well tonight when I get a chance to sit down for the night.

I appreciate it!

cf_murph
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Joined: Sat Apr 07, 2018 7:10 pm

Re: Help simplifying 401k

Post by cf_murph » Mon May 14, 2018 10:21 pm

Edited original post with more information, thanks!

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ruralavalon
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Location: Illinois

Re: Help simplifying 401k

Post by ruralavalon » Tue May 15, 2018 12:05 pm

cf_murph wrote:
Mon May 14, 2018 4:00 pm
We don’t have any significant accounts other than our 401k’s currently. We plan on maxing Roth’s and the HSA starting in a few month (paying down some debt currently). My main focus is to simplify these 401ks and start minimizing our taxes. We did not plan this last year very well and come tax time we paid for it by way of unnecessary taxes.

Her 401k is at Vanguard. I will edit the original post to follow the typical format and include hers as well tonight when I get a chance to sit down for the night.

I appreciate it!
cf_murph wrote:
Mon May 14, 2018 10:21 pm
Edited original post with more information, thanks!
What funds is she using in her 401k? What funds are offered in her 401k? Please give fund names, tickers and expense ratios.

What are the relative sizes of the two 401ks? In other words what percentage of the total portfolio is in each account?

You can simply add this to your original post using the edit button, it helps a lot if all of your information is in one place.

It's good to see that you are aggressively attacking the debts, and are making maximum contributions to your tax-advantaged accounts.


cf_murph wrote:
Sun May 13, 2018 10:50 pm
Tax Filing Status: Married filing joint with 2 dependent children
Tax Rate: Do not recall. 30-ish? (Combined income at or over 300k, depending on the year)
Here are calculators you can use to estimate your federal tax bracket. First estimate your "taxable income". money chimp, "Tax Calculator". Then use your "taxable income" estimate your "tax bracket". Moneychimp, "Federal Tax Brackets".


cf_murph wrote:
Sun May 13, 2018 10:50 pm
Age: 36
Desired Asset allocation: 85% stocks / 15% bonds (or 80/20, I’m open to discussion, but lean towards being more aggressive given my longer timeframe)
Desired International allocation: 20% to 25% of stocks (or whatever is recommended)
Your desired bond allocation is very nearly what I would suggest. At age 36 I suggest about 20 - 25% in bonds. This is expected to substantially reduce volatility (risk), with only a relatively slight decrease in return. Graph, "An Efficient Frontier: the power of diversification". Please see the wiki articles Bogleheads® investment philosophy, part 3 "Never bear too much or too little risk", and "Asset allocation".

In my opinion your 20-25% of stocks in international stocks is within the range of what is reasonable. Vanguard paper (March 2012), "Considerations for investing in non-U.S. equities". Historically, allocating 20% of an equity portfolio to non-U.S. stocks would have captured about 84% of the maximum possible diversification benefit, and allocating 30% of an equity portfolio to non-U.S. stocks would have captured about 99% of the maximum possible diversification benefit (p. 6).
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

cf_murph
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Joined: Sat Apr 07, 2018 7:10 pm

Re: Help simplifying 401k

Post by cf_murph » Tue May 15, 2018 3:09 pm

Updated with accurate tax bracket and spouse 401k. All the requested info should be there now. Thanks!

cf_murph
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Joined: Sat Apr 07, 2018 7:10 pm

Re: Help simplifying 401k

Post by cf_murph » Wed May 23, 2018 10:36 am

Updated with my new portfolio selections. Just need advice on my proposed elections for the wife's 401k.

Thanks!

terran
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Re: Help simplifying 401k

Post by terran » Wed May 23, 2018 11:29 am

Vanguard Total international already includes emerging markets. Why not just put your international allocation in your wife's 401(k) so you don't have to worry about emerging markets? I'd be more concerned with getting mid and small cap US exposure to even out your S&P 500 holdings than emerging markets, but if you don't want to bother then that's fine too.

I'd also think about reducing your 401(k) contributions until you can knock out that $30k 10% loan. That's a high interest rate. Could you get rid of that quickly then up your 401k again to max it out by the end of the year?

cf_murph
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Joined: Sat Apr 07, 2018 7:10 pm

Re: Help simplifying 401k

Post by cf_murph » Wed May 23, 2018 11:50 am

terran wrote:
Wed May 23, 2018 11:29 am
Vanguard Total international already includes emerging markets. Why not just put your international allocation in your wife's 401(k) so you don't have to worry about emerging markets? I'd be more concerned with getting mid and small cap US exposure to even out your S&P 500 holdings than emerging markets, but if you don't want to bother then that's fine too.

I'd also think about reducing your 401(k) contributions until you can knock out that $30k 10% loan. That's a high interest rate. Could you get rid of that quickly then up your 401k again to max it out by the end of the year?
That's some good advice, thank you. I hadn't realized that it had exposure to emerging markets already, but after reading the profile, it has 21% in emerging markets, so I agree that having the extra is not worth it.

Based off the funds in my original post, what would you consider a good allocation to gain that better exposure to mid and small?

As for reducing contributions, we actually are doing that currently. We have reduced our contributions for the time being to the minimum to get the match, so that we can get rid of the debt. We will still be able to max out the 401k's over the remainder of the year once its gone. I just paid this month's payment to the overall debt, so we have about 4 months left then it will be gone and we will be left with just the house and a small amount on my car left.

Thanks!

terran
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Joined: Sat Jan 10, 2015 10:50 pm

Re: Help simplifying 401k

Post by terran » Wed May 23, 2018 12:04 pm

Great, sounds like you're on a good path!

You'd have to look more closely at what's actually in the funds you have available. This should give you a place to start (by looking at things with similar names to those suggested here) https://www.bogleheads.org/wiki/Approxi ... ock_market

You could also just wait until you get some money in IRAs and use an extended market fund as suggested at that link. Only having exposure to the US market through the S&P 500 isn't the end of the world -- it's like 80% of the market anyway.

ETadvisor
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Re: Help simplifying 401k

Post by ETadvisor » Wed May 23, 2018 12:31 pm

I have very similar 401k options as yours. I sold the Emerging Market because of the High ER and purchased it in my Wife's Roth. I was at 13% in my 401k but now closer to 5% overall and I will increase with new money. I also would add some small cap and mid cap within your 65% domestic equity AA by decreasing large cap with tilts to MC & SC as you desire.

Your wife has an excellent 401k and I would add small cap value by also decreasing the large cap. Eliminate the EM as it is in Total International.

To me, exact sub allocations are not as important as maintaining your overall Equity/Fixed income allocation. I think 85/15 is fine based on your age and size of your portfolio. Rather than age, I use portfolio growth as measuring stick to change allocation. For example, when reaches $500,000 or $xxx,xxx, I will change from 85/15 to 80/20 or 75/25.

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ruralavalon
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Re: Help simplifying 401k

Post by ruralavalon » Wed May 23, 2018 4:44 pm

Age: 36
Desired Asset allocation: 85% stocks / 15% bonds
Desired International allocation: 20% to 25% of stocks
Current retirement assets his 190k, hers 150k

Contributions

New annual Contributions
His 401k planned $18,500 + roughly 9,000 employer match
Her 401k planned $18,500 + roughly 12,000 employer match
Your desired asset allocation works out to about 15% bonds, 20% international stocks, and 65% domestic stocks.

Total portfolio= $340k, 56% in his 401k, 44% in her 401k.

New annual contributions = $58k, 47% to his 401k, 53% to her 401k.


Fund selection.
In selecting funds strive for a combination of broad diversification (to reduce risk) and low expense ratios (to increase your net gain). To simply and easily achieve those two goals I suggest choosing funds to simulate the very well diversified, low expense ratio "three-fund portfolio". Wiki article "Three-fund portfolio". Forum discussion, "The Three-Fund Portfolio".

For domestic stocks I suggest using a total stock market index fund where available; otherwise an S&P 500 index fund is good enough by itself for domestic stocks. "In a 401(k) plan with limited choices one might very well opt for an S&P 500 index fund to serve as the domestic stock component of a three-fund portfolio." Wiki article, Three-fund portfolio, "Other considerations".

An S&P 500 index fund covers 81% of the U.S. stock market investing in stocks of selected large-cap and mid-cap U.S. companies, and in the 26 years since the creation of the first total stock market index fund the total return of the two types of funds has been almost identical. Morningstar, "growth of $10k" graph, VTSAX vs VFIAX. In the first 10 years the S&P 500 fund did better, in the last 10 years the total market fund did better, and over the 26 years the total market fund gave a little more return (0.11% per year), but at the cost of a little more volatility (risk): nisiprius post, in the forum discussion "Exchanging the S&P 500 for the TSM". See also Allan Roth, CBS Moneywatch, "John C. Bogle on the S&P 500 vs. the Total Stock Market". So it seems that adding a little in mid/small cap stocks trying to mimic the holdings of a total stock market fund has historically made little difference in performance.

If you want to add any small-cap or mid-cap index funds, then an here are the allocations to consider in order to approximate the content of a total stock market index fund. Wiki article, "Approximating total stock market". In my opinion this is not necessary, it is optional if you prefer to do this.

1) The S&P 500 index funds in each 401k are equivalent, both using the same index.

2) The bond index funds in each 401k are equivalent, both using a version of the Bloomberg Barclays U.S. Aggregate Bond Index. They are both total bond market index funds.

3) The Vanguard Institutional Total International Stock Index on her 401k is more diversified, covering both emerging markets and developed markets, including Canada and smaller companies. I believe that State Street International Index Fund uses the MSCI EAFE index (see this pdf), which omits emerging markets, stocks of small companies, and stocks of Canadian companies. In my opinion the omissions of emerging markets and Canada are both likely to be serious omissions.



Example portfolio.
Here is an example portfolio that you could consider. This is a three-fund type portfolio, modified as necessary to accommodate the fund offerings in your 401k. Current portfolio size = $340k. New annual contributions = about $58k. The asset allocation is: 15% bonds; 20% international stocks; and 65% domestic stocks. The percentages given are percentages of the total portfolio, not of a given account. The suggestion is to switch both the existing balances and the new contributions to the funds indicated. All percentages are rounded off, so may not add up exactly. Sometimes I state 00% to indicate funds you might want to add in the future.

His 401k (56% of current total; 47% of new annual contributions)
46%, State Street S&P 500 Index Fund, ER 0.01%
00%, State Street International Index Fund, ER 0.04%
10%, State Street U.S. Bond Index Fund, ER 0.02%

Her 401k (44% of current total; 47% of new annual contributions)
19%, Vanguard 500 Institutional Index Trust, ER 0.01%
20%, Vanguard Institutional Total International Stock Index, ER 0.06%
05%, Vanguard Institutional Total Bond Market Index Trust, ER 0.03%



Rebalancing.
Because the funds will grow at different and unpredictable rates, it may be necessary every year or two to rebalance in order to maintain the desired asset allocation. Wiki article, "Rebalancing". You can easily adjust the asset allocation by exchanging between funds inside her 401k.

. . . . .

I suggest that you read one or two books on general investing. Wiki article, "Books: recommendations and reviews". When I first stated managing my own investments, I found this tutorial very helpful in learning investing terminology/jargon and some of the investing basics. Morningstar, "Investing Classroom". Also take a look at the Boglehead’s wiki, the "getting started" link I give below.

If you have any questions just ask.

I hope that this helps.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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