Asset allocation help for a newbie

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azidane
Posts: 2
Joined: Tue May 29, 2018 10:12 pm

Asset allocation help for a newbie

Post by azidane » Tue May 29, 2018 11:11 pm

Hello, I am new to the business of investing and to this forum as well, just finishing residency now and starting my new job in 2 months finally :) I am doing my homework and reading a lot of books, currently half through the boglehead's guide to investing, a bit confused about asset allocation and would appreciate any help regarding my 401k and taxable account.

I am 28 and single.
Goal for early retirement at 55-60.
Expected salary 271k+bonuses
state california
planning on saving 55k per year for retirement distributed as follows
Planning on maxing my 401k which has 100% match up to 3% of my salary and having a backdoor Roth IRA and a taxable account as well with vanguard.
Planning an 80/20 portfolio: total US stocks 50%; 30% foreign
401k plan is ok with max fees of 0.7-0.8% for vanguard funds, more for others. Below is a list of vanguard funds in my plan by asset type:

Int: Vngrd Ttl IntlStkIndx Adml (VTIAX)
small cap: Vngrd Sm Cap Indx Fd AS (VSMAX)
large cap:
Vngrd 500 Index Fd AS (VFIAX)
Vngrd Ttl StMkt Indx Fd AS (VTSAX)
Vngrd Divd Gr Inv (VDIGX)
Vngrd Eq Inc Adml (VEIRX)

Balanced: Vngrd Trgt Rtrmt 2020-2060

Bonds: Vngrd GNMA Adml (VFIJX

OK all the above is just fyi.
I have two questions:
1.shall I use a 2050 target fund in all my accounts(401k, roth, and taxable) and simplify my life?
2. or would it be better to pick these funds(VTIAX+VSMAX+VFIAX+ GNMA) for my 401k and basically do the same for the other accounts as well?

I think I want to match the 401k funds with the other accounts to make things easier for later to keep track of my allocations but at the same time I think I can find better funds in vanguard(and not provided in my 401k plan) especially when it comes to bonds fund.

I hope this was clear, again totally new and started to plan things out recently, still didn't invest a penny.
Thanks in advance for any help, really appreciate it.

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Tyler Aspect
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Location: California
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Re: Asset allocation help for a newbie

Post by Tyler Aspect » Tue May 29, 2018 11:59 pm

Welcome to Bogleheads.

You can use Target Retirement funds in your 401k accounts. However, select the target retirement fund close to your target asset allocation. Vanguard Target Retirement 2035 is 80% stock / 20% bond.

Target Retirement funds are not suitable for a taxable account. S&P 500 stock index funds are more tax efficient for taxable accounts.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

manedark
Posts: 242
Joined: Sun Apr 22, 2018 2:05 pm

Re: Asset allocation help for a newbie

Post by manedark » Wed May 30, 2018 12:40 am

azidane wrote:
Tue May 29, 2018 11:11 pm
401k plan is ok with max fees of 0.7-0.8% for vanguard funds, more for others. Below is a list of vanguard funds in my plan by asset type:
I think you may have got that off by a decimal point - e.g. ER for VTSAX is 0.04%.
azidane wrote:
Tue May 29, 2018 11:11 pm
Expected salary 271k+bonuses
state california
Your federal and state income tax bracket, certainly call for investing into National and CA tax exempt funds (munis) - since you might eventually want to hold some bond funds in a taxable account. You can make a mix of a CA Long Term Tax exempt and a National Limited Term Tax exempt to diversify and get a intermediate term exposure.
azidane wrote:
Tue May 29, 2018 11:11 pm
I have two questions:
1.shall I use a 2050 target fund in all my accounts(401k, roth, and taxable) and simplify my life?
2. or would it be better to pick these funds(VTIAX+VSMAX+VFIAX+ GNMA) for my 401k and basically do the same for the other accounts as well?
Better to do pickup stocks yourself and avoid paying the extra ER. VTSAX and VTIAX are both top quality index funds - you should use these for your stock portion - both in 401K and taxable and they will cover the entire US and International markets. But you dont have to hurry into it - if you need time to research start off with a Target Date fund (I did the same for the first year) and then rearrange it later. In a 01K you can make such rearrangements without creating a tax event.

azidane
Posts: 2
Joined: Tue May 29, 2018 10:12 pm

Re: Asset allocation help for a newbie

Post by azidane » Wed May 30, 2018 5:30 am

manedark wrote:
Wed May 30, 2018 12:40 am
azidane wrote:
Tue May 29, 2018 11:11 pm
401k plan is ok with max fees of 0.7-0.8% for vanguard funds, more for others. Below is a list of vanguard funds in my plan by asset type:
I think you may have got that off by a decimal point - e.g. ER for VTSAX is 0.04%.

I wish that was the case, there are extra fees in my 401k plan that brings the total annual operating expenses even higher that 1% with most funds except vanguard funds.

azidane wrote:
Tue May 29, 2018 11:11 pm
Expected salary 271k+bonuses
state california
Your federal and state income tax bracket, certainly call for investing into National and CA tax exempt funds (munis) - since you might eventually want to hold some bond funds in a taxable account. You can make a mix of a CA Long Term Tax exempt and a National Limited Term Tax exempt to diversify and get a intermediate term exposure.

Do you think these are better than the GNMA fund? or in other words would you skip on GNMA in the 401k and invest the bond portion with munis in my taxable account?
azidane wrote:
Tue May 29, 2018 11:11 pm
I have two questions:
1.shall I use a 2050 target fund in all my accounts(401k, roth, and taxable) and simplify my life?
2. or would it be better to pick these funds(VTIAX+VSMAX+VFIAX+ GNMA) for my 401k and basically do the same for the other accounts as well?
Better to do pickup stocks yourself and avoid paying the extra ER. VTSAX and VTIAX are both top quality index funds - you should use these for your stock portion - both in 401K and taxable and they will cover the entire US and International markets. But you dont have to hurry into it - if you need time to research start off with a Target Date fund (I did the same for the first year) and then rearrange it later. In a 01K you can make such rearrangements without creating a tax event.
Thanks again :)

rkhusky
Posts: 5711
Joined: Thu Aug 18, 2011 8:09 pm

Re: Asset allocation help for a newbie

Post by rkhusky » Wed May 30, 2018 6:10 am

manedark wrote:
Wed May 30, 2018 12:40 am
azidane wrote:
Tue May 29, 2018 11:11 pm
401k plan is ok with max fees of 0.7-0.8% for vanguard funds, more for others. Below is a list of vanguard funds in my plan by asset type:
I think you may have got that off by a decimal point - e.g. ER for VTSAX is 0.04%.
Many 401k plans tack on additional fees to cover admin costs.

You could also use a target date fund in 401k and IRA, with an earlier date (and lower stock allocation) and then use Total Stock and/or Total International in taxable.

You don't want GNMA as your only bond holding. Total Bond would be much better.

mega317
Posts: 2555
Joined: Tue Apr 19, 2016 10:55 am

Re: Asset allocation help for a newbie

Post by mega317 » Wed May 30, 2018 8:10 am

I would not hold taxable bonds in a taxable account, and if you start off with a target date fund in taxable it might be hard to unwind later.

Live like a resident for a while and save way more while also maintaining a simple life while you get your footing as an attending. How in the world does a single person spend 200k?

manedark
Posts: 242
Joined: Sun Apr 22, 2018 2:05 pm

Re: Asset allocation help for a newbie

Post by manedark » Wed May 30, 2018 9:44 am

azidane wrote:
Wed May 30, 2018 5:30 am
I wish that was the case, there are extra fees in my 401k plan that brings the total annual operating expenses even higher that 1% with most funds except vanguard funds.

Ok. In that case prefer Vanguard Index funds with lowest ER.

azidane wrote:
Wed May 30, 2018 5:30 am
Do you think these are better than the GNMA fund? or in other words would you skip on GNMA in the 401k and invest the bond portion with munis in my taxable account?

I don't know much details of GNMA except that its govt securities, so its secure like a treasury fund. That said, they cant be compared to Munis which are tax exempt at federal and/or state levels. To answer your question I won't skip on that to invest in Munis. Rather if my 401K is already full and can't take anymore bonds and I still have bond funds to invest in then I will consider Muni funds in my taxable account. Do checkout wiki about tax efficiency of funds on the wiki - generally you should prefer to put tax inefficient bonds in 401K and stocks and tax exempt bonds in taxable account.

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