Help with asset allocation

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emPA
Posts: 4
Joined: Tue May 22, 2018 6:51 am

Help with asset allocation

Post by emPA » Tue May 22, 2018 7:41 am

Updated with information suggested by ruralavalon and magicat:

Age: 32
Years until retirement: 25-30+
Federal Tax Bracket: 25%, married filling jointly

Other accounts
CD: $20,000
CD #2: $10,000
Money Market: ~$85,000
Checking Account: ~$9,000
IRA: ~$8,000
USAA Mutual Fund Cornerstone Moderate (USBSX): $6,000
USAA Mutual Fund T Rowe Price Balanced (RPBAX): $18,000
Military TSP: $27,000 with breakdown of 90% C Fund and 10% S Fund, expense ratio 0.03

Debts
Mortgage: ~$320,000

I'm looking for assistance with asset allocation of my employer 403b with current value of approximately $200,000. I'm currently allocated 90% stocks(FXSIX only) and 10% bonds (VBTIX). Trying to learn about/reap benefits of diversification so I looked into the fund options of my employer 403b with the below 11 options:

ARISTOTLE VALUE EQ, (large cap), expense ratio 0.39
FID 500 INDEX INST (FXSIX), (large cap), expense ratio 0.03
TRP BLUE CHIP GRTH (TRBCX), (large cap), expense ratio 0.7
-----------------
FID EXT MKT IDX PR (FSEVX), (mid-cap), expense ratio 0.07
----------------
DFA US SMALL CAP I (DFSTX), (small cap), expense ratio 0.37
----------------
AF EUROPAC GROWTH R5 (RERFX), (International), expense ratio 0.54
DODGE & COX INTL STK (DODFX), (International), expense ratio 0.63
VANG TOT INTL STK AD (VTIAX), (International), expense ratio 0.11
----------------
WF STABLE FUND C, (bond), expense ratio 0.54
PIM TOTAL RT INST (PTTRX), expense ratio 0.51
VANG TOT BD MKT INST (VBTIX), expense ratio 0.04

I realize the importance of diversification and need to consider allocation outside of FXSIX only. From the above 403b options, do you have suggestions on allocations?

~~With this edit, I'm noticing the importance of considering all funds rather than individual accounts. With the military TSP, I do have small cap but this doesn't account for much when looking at the total asset allocation when combined with my civilian 403b.

I'm not sure how to think of the mutual funds in this grand scheme of asset allocation. I wasn't necessarily planning these for retirement but figured I'd likely tap into them for future expenses.

Help please! I appreciate the feedback and links, I'll continue to read and work on educating myself.
Last edited by emPA on Tue May 22, 2018 11:36 pm, edited 1 time in total.

magicrat
Posts: 413
Joined: Sat Nov 29, 2014 7:04 pm

Re: Help with asset allocation

Post by magicrat » Tue May 22, 2018 8:24 am

Add VTIAX. Also, if you have other accounts make sure you are looking at your AA as a whole, not by account.

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ruralavalon
Posts: 13967
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Help with asset allocation

Post by ruralavalon » Tue May 22, 2018 9:09 am

Welcome to the forum :) .

You have excellent fund choices offered in your 403b plan, you are fortunate.

emPA wrote:
Tue May 22, 2018 7:41 am
Hello, I'm looking for assistance with asset allocation of my employer 403b with current value of approximately $200,000. I'm currently allocated 90% stocks and 10% bonds (VBTIX). At this time, my allocation of stocks is completely in FID 500 INDEX INST (FXSIX). I'm looking for suggestions of how to re-allocated to diversify.

Suggestions based upon the below options from employer 403b?

ARISTOTLE VALUE EQ, (large cap), expense ratio 0.39
FID 500 INDEX INST (FXSIX), (large cap), expense ratio 0.03
TRP BLUE CHIP GRTH (TRBCX), (large cap), expense ratio 0.7
-----------------
FID EXT MKT IDX PR (FSEVX), (mid-cap), expense ratio 0.07
----------------
DFA US SMALL CAP I (DFSTX), (small cap), expense ratio 0.37
----------------
AF EUROPAC GROWTH R5 (RERFX), (International), expense ratio 0.54
DODGE & COX INTL STK (DODFX), (International), expense ratio 0.63
VANG TOT INTL STK AD (VTIAX), (International), expense ratio 0.11
----------------
WF STABLE FUND C, (bond), expense ratio 0.54
PIM TOTAL RT INST (PTTRX), expense ratio 0.51
VANG TOT BD MKT INST (VBTIX), expense ratio 0.04

I realize the importance of diversification and need to consider allocation outside of FXSIX only. From the above 403b options, do you have suggestions on allocations?

Thanks!
A little more information might be helpful in answering your question.

What is your age?

About how many years until retirement?

What is your tax bracket, both federal and state?

What is your tax filing status?

Do you have any other accounts like IRAs, or brokerage accounts? (It's often better to coordinate investments among all accounts, as a single unified portfolio, rather than treat each account separately.)

Please simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.

. . . . .

In general I would suggest adding some Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) ER 0.11%.

I suggest around 20 - 30% of stocks in international stocks. 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). (You can find lots of debate here on international allocation, opinions rangeing all the way from 00% to 50% of stocks in international stocks. If you want more viewpoints on international stocks please try the Google search box (upper right, this page).

. . . . .

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 Fidelity Extended Market Index Fund Premium Class (FSEVX) ER 0.07, then an 81/19 mix of S&P 500 and extended market will 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.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

emPA
Posts: 4
Joined: Tue May 22, 2018 6:51 am

Re: Help with asset allocation

Post by emPA » Tue May 22, 2018 11:43 pm

Thanks for the support ruralavalon and magicrat, I've provided additional information in my original post and would like your continued thoughts.

Thanks for the links!
-emPA

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ruralavalon
Posts: 13967
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Help with asset allocation

Post by ruralavalon » Thu May 24, 2018 9:13 am

emPA wrote:
Tue May 22, 2018 7:41 am
Updated with information suggested by ruralavalon and magicat:

Age: 32
Years until retirement: 25-30+
At age 32 I suggest about 20 - 25% in bonds. This is expected to substantially reduce portfolio volatility (risk), with only a relatively slight decrease in portfolio 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".

I suggest around 20 - 30% of stocks in international stocks. 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). (You can find lots of debate here on international allocation, opinions rangeing all the way from 00% to 50% of stocks in international stocks. If you want more viewpoints on international stocks please try the Google search box (upper right, this page).

That works out to about 20% bonds, 20% international tocks, and 60% domestic stocks. Asset allocation is a very personal decision. You must decide on an allocation that is comfortable for you based on your own ability, willingness and need to take risk.


emPA wrote:
Tue May 22, 2018 7:41 am
Federal Tax Bracket: 25%, married filling jointly
Does your spouse have any work-based account(s) like 401k, 403b, 457, SIMPLE IRA, TSP, etc.?

Does your spouse have an IRA?

emPA wrote:
Tue May 22, 2018 7:41 am
Other accounts
CD: $20,000
CD #2: $10,000
Money Market: ~$85,000
Checking Account: ~$9,000
IRA: ~$8,000
USAA Mutual Fund Cornerstone Moderate (USBSX): $6,000
USAA Mutual Fund T Rowe Price Balanced (RPBAX): $18,000
Military TSP: $27,000 with breakdown of 90% C Fund and 10% S Fund, expense ratio 0.03
emPA wrote:
Tue May 22, 2018 7:41 am
~~With this edit, I'm noticing the importance of considering all funds rather than individual accounts. With the military TSP, I do have small cap but this doesn't account for much when looking at the total asset allocation when combined with my civilian 403b.

I'm not sure how to think of the mutual funds in this grand scheme of asset allocation. I wasn't necessarily planning these for retirement but figured I'd likely tap into them for future expenses.
Do you have an emergency fund to cover 3-6 months of basic living expenses.

Please tell us more about the above accounts/investments. Are the CDs and USAA mutual funds for any specific purpose at a particular time, or generally for long-term/retirement investing? (If not for a specific purpose at a particular time, then I suggest investing "as if" for retirement.)

What investments are in the IRA? What investments are in any account your spouse has?

What are the relative sizes of all accounts? In other words what percentage of the total portfolio is in each account?

Again please simply add this to your original post using the edit button, so that all of your information is in one place.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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