Help picking funds

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Phcomstock81
Posts: 5
Joined: Tue Jun 05, 2018 12:02 am

Help picking funds

Post by Phcomstock81 » Tue Jun 05, 2018 9:04 am

I’m looking for some advice on my retirement fund picks. I’m 37, married, one toddler and another kid on the way.
I have a $402k mortgage with 28 years left and owe about $382k, with monthly payment about $2500. We also have 3 years left on a vehicle loan @ $600/Mo. No other debt.

I have $90k in a Roth IRA and $120k in a solo 401k. I also have 27k in a taxable account but I will be putting this into a money market so it can act as an emergency fund.

I just transferred the Roth over from Northwestern Mutual where I was paying a total of 2.31% between expense ratio and management fee. The Roth transferred as a cash holding and I want a 90/10 stock to bond asset allocation.

I’m considering, moving my solo 401k over but haven’t done so yet. It is setup under Paychex and uses Fidelity funds. There are no load charges. They are M class shares. Paychex charges an annual fee of $325. The current allocation is as follows:

FAIGX - $29,268 - 1.13% er
FAEGX - $27,257 - 1.26% er
FAGOX - $27,508 - 1.14% er
FITIX - $18,050 - 1.29% er
FNITX - $18,169 - 1.18% er

I know at a minimum I need to change the asset allocation but I’m most likely going to transfer the 401k to vanguard also. If I do I thought about putting the 401k in 2045 target date fund. Admiral shares aren’t available in vanguard 401k so it’s investor share er. It’s over 50k so I’ll have voyager status and the $20/ fund is waived.

Does that sound like a good 401k strategy? Would something else be better?

For the Roth, should I invest in the same funds or diversify a little. I’ll have admiral shares so I won’t do a target date fund because I can get a better er without. So I could choose the same funds that are in target date at lower er, or I could choose different funds like vanguard 500, a mid cap fund, a different bond fund etc.

What is a good protocol here?

ChinchillaWhiplash
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Re: Help picking funds

Post by ChinchillaWhiplash » Tue Jun 05, 2018 9:49 am

Those ERs are pretty high. I would move the solo 401k to get better choices. You would be much better off with Vanguard TDF as far as ER goes. As far as the Roth, you need to combine all your assets from each account to equal the allocation you want. If you use the TDF might be harder to balance everything out. You could use the 3 fund portfolio with Total stock market index fund, International Stock index fund, and US total bond index fund. You would have the lowest ER ratios by setting it up this way. Would need periodic balancing though to keep your AA in line.

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Tyler Aspect
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Re: Help picking funds

Post by Tyler Aspect » Tue Jun 05, 2018 10:51 am

Typical asst allocation for age 37 is 73% stock / 27% bond.

As you said Vanguard's Solo 401k does not support admiral shares. It seemed Target Retirement 2030 is the closest to the typical asset allocation.

Fidelity's Solo 401k has support for inexpensive pure index funds. Some people complained that it take a phone call to add money to Fidelity's Solo 401k account. No vendors are perfect.
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.

livesoft
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Re: Help picking funds

Post by livesoft » Tue Jun 05, 2018 10:59 am

Since you do not have a taxable account and all your accounts are tax-advantaged, have you considered just using Target Date funds of index funds in all your accounts? That way, each account could have one single fund in them. Vanguard and Fidelity have such funds with low expense ratios.
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ruralavalon
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Re: Help picking funds

Post by ruralavalon » Tue Jun 05, 2018 11:49 am

Welcome to the forum :) .

Phcomstock81 wrote:
Tue Jun 05, 2018 9:04 am
I’m looking for some advice on my retirement fund picks. I’m 37, married, one toddler and another kid on the way.
I have a $402k mortgage with 28 years left and owe about $382k, with monthly payment about $2500. We also have 3 years left on a vehicle loan @ $600/Mo. No other debt.

I have $90k in a Roth IRA and $120k in a solo 401k. I also have 27k in a taxable account but I will be putting this into a money market so it can act as an emergency fund.

I just transferred the Roth over from Northwestern Mutual where I was paying a total of 2.31% between expense ratio and management fee. The Roth transferred as a cash holding and I want a 90/10 stock to bond asset allocation.

I’m considering, moving my solo 401k over but haven’t done so yet. It is setup under Paychex and uses Fidelity funds. There are no load charges. They are M class shares. Paychex charges an annual fee of $325. The current allocation is as follows:

FAIGX - $29,268 - 1.13% er
FAEGX - $27,257 - 1.26% er
FAGOX - $27,508 - 1.14% er
FITIX - $18,050 - 1.29% er
FNITX - $18,169 - 1.18% er

I know at a minimum I need to change the asset allocation but I’m most likely going to transfer the 401k to vanguard also. If I do I thought about putting the 401k in 2045 target date fund. Admiral shares aren’t available in vanguard 401k so it’s investor share er. It’s over 50k so I’ll have voyager status and the $20/ fund is waived.

Does that sound like a good 401k strategy? Would something else be better?

For the Roth, should I invest in the same funds or diversify a little. I’ll have admiral shares so I won’t do a target date fund because I can get a better er without. So I could choose the same funds that are in target date at lower er, or I could choose different funds like vanguard 500, a mid cap fund, a different bond fund etc.

What is a good protocol here?
That was a good choice moving the Roth IRA away from Northeastern Mutual. The 2.31% in expenses was outrageous.

Where is the Roth IRA now located?

The expense ratios in your solo 401k are very high.(1.13-1.49%) are very high. It's a good idea to transfer that to a low cost provider like Vanguard or Fidelity.

What is the interest rate and balance on the car loan? You might consider paying that off with some of that $27k, if the interest rate is high or the balance is small.


livesoft wrote:
Tue Jun 05, 2018 10:59 am
Since you do not have a taxable account and all your accounts are tax-advantaged, have you considered just using Target Date funds of index funds in all your accounts? That way, each account could have one single fund in them. Vanguard and Fidelity have such funds with low expense ratios.
^^^ This.

Move your solo 401k to either Vanguard or Fidelity.

If you use a target retirement fund at Fidelity, then use a low expense ratio Fidelity Freedom Index Fund. The other Fidelity Freedom Funds have high expense ratios.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Doctor Rhythm
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Re: Help picking funds

Post by Doctor Rhythm » Tue Jun 05, 2018 3:39 pm

Typical asst allocation for age 37 is 73% stock / 27% bond.
While that's not an unreasonable allocation for a 37-year-old, it seems a bit conservative to be deemed "typical." Assuming an age 65 retirement, a 2045 target date fund might be appropriate. Many of these (including the ones from Vanguard, Schwab, Fidelity & TIAA-CREF) tend to have closer to 85-90% allocation to stock. Even the rather conservative 2045 fund offered by my state employer allocates 83% to equity presently. Vanguard's 2030 fund (aimed at people in early 50s) allocates a bit over 70% to equity.

And yeah, those ERs are just awful.

Phcomstock81
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Joined: Tue Jun 05, 2018 12:02 am

Re: Help picking funds

Post by Phcomstock81 » Thu Jun 07, 2018 2:43 pm

So my Roth officially transferred to vanguard. $91,227 in total.

Here’s what I was thinking... please let me know your thoughts.

$54k - total us stock admiral
$24k - total international stock admiral
$10,227 - total US bond
$3k - healthcare sector fund

That gives me close to 89% stock and 11% bond. I wanted to make sure I had admiral shares for the bond fund so it’s slightly higher than 10%.

I thought I would throw a bit at healthcare sector, because it seems to have done the best overall and over last 10 yrs., just to mix it up slightly.


The other question/slight concern I have is the return on these total index funds are lower than what it seems they would be with many other funds over same period of years. I understand the er is much lower, and that previous performance isn’t future performance but 6.69% for instance, of total us stock fund since 2000, seems kinda low.

Am I looking at this all wrong?
Does this asset allocation seem acceptable?

invst65
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Joined: Thu Nov 27, 2014 11:04 am

Re: Help picking funds

Post by invst65 » Thu Jun 07, 2018 2:52 pm

Maybe it's just me but I think ALL of those ER's are outrageous - and with another $325 yearly fee on top of it?

https://www.betterment.com/resources/tr ... nse-ratio/

I would move the 401k to either Fidelity or Vanguard.

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ruralavalon
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Location: Illinois

Re: Help picking funds

Post by ruralavalon » Thu Jun 07, 2018 4:15 pm

Phcomstock81 wrote:
Tue Jun 05, 2018 9:04 am
I’m 37, married, one toddler and another kid on the way.
Phcomstock81 wrote:
Thu Jun 07, 2018 2:43 pm
So my Roth officially transferred to vanguard. $91,227 in total.

Here’s what I was thinking... please let me know your thoughts.

$54k - total us stock admiral
$24k - total international stock admiral
$10,227 - total US bond
$3k - healthcare sector fund

That gives me close to 89% stock and 11% bond. I wanted to make sure I had admiral shares for the bond fund so it’s slightly higher than 10%.

I thought I would throw a bit at healthcare sector, because it seems to have done the best overall and over last 10 yrs., just to mix it up slightly.

. . . . .

Does this asset allocation seem acceptable?
Asset allocation.
At age 37 I suggest about 25-30% 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 ranging 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 25% bonds, 20% international stocks and 55% 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.

It is often better coordinate investments across all accounts, in other words treat all accounts together as a single unified portfolio, rather than view each account separately. Select just the better funds (most diversified + lower expense ratio) in the work-based account (solo 401k), where the choices offered are limited. Then complete the rest of the asset allocation using the nearly unlimited or choices available in a taxable account or any IRAs. This approach lets you avoid having to use sub-par funds often found in work-based accounts like 401ks.

So get that solo 401k situation resolved by transferring to a low cost provider like Vanguard or Fidelity, and coordinate the accounts.



Performance.
Phcomstock81 wrote:
Thu Jun 07, 2018 2:43 pm
The other question/slight concern I have is the return on these total index funds are lower than what it seems they would be with many other funds over same period of years. I understand the er is much lower, and that previous performance isn’t future performance but 6.69% for instance, of total us stock fund since 2000, seems kinda low.

Am I looking at this all wrong?
What other funds are you comparing the index funds to? Likely they invest much differently and carry much higher risk.

Past is not prologue, past performance does not predict future performance.

Short-term past performance is not a good predictor of future performance. Wiki article, "Callan periodic table of investment returns".That table shows annual returns for nine fund types ranked best to worst over the years 1999-2018. There is no pattern, it is random.

Low expense ratios are the best predictor of future performance. Morningstar, 8/9/10 . “If there's anything in the whole world of mutual funds that you can take to the bank, it's that expense ratios help you make a better decision. In every single time period and data point tested, low-cost funds beat high-cost funds.” “Investors should make expense ratios a primary test in fund selection. They are still the most dependable predictor of performance.”

"The expense ratio is the most proven predictor of future fund returns." "There are many other things to consider, but investors should make expense ratios their first or second screen." Morningstar, 5/5/18.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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