Consolidating funds in 401k portfolio

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
WaffleCone
Posts: 89
Joined: Fri Oct 23, 2015 11:48 pm

Consolidating funds in 401k portfolio

Post by WaffleCone » Tue Jun 05, 2018 5:34 pm

Me: Age 45, married with 4 young kids. Occupation: Software/Engineering. Stable job.
Spouse: Age 40, stay at home mom. College educated.

Emergency Fund: 12k of higher yielding I-bonds circa 2000. I would only use these if absolutely necessary. We keep very good credit and would use HELOC or 0% cards or even pay low CC interest before touching those bonds.
Debt: $1550/month PITI mortgage, no car payments but need new vehicles soon as ours are 10+ years old. No other debt.
Insurance (yearly): $2000 life (1M me/500K wife, 30 year term) + $900 auto.
Tax bracket for 2018: 22%

Wife has no 401k and a very tiny pension that's going insolvent. My retirement savings have to carry us both until she starts working again (5 yrs).
My pension is: final base x (5% + 1.4x the number of years employed). Been here about 15 years and can retire early at 60.

My 401k at Vanguard: $128,000 (25% of total). YTD 4.15%
- Vanguard 500 Index Fund Admiral Shares (VFIAX) 15% ER: 0.04%
- Vanguard Extended Market Index Fund Admiral (VEXAX) 3% ER: 0.08%
- Vanguard Explorer Fund Investor Shares (VEXPX) 3% ER: 0.44%
- Vanguard Total International Stock Index Admiral (VTIAX) 2% ER: 0.11%
- Vanguard Total Bond Market Index Fund Investor (VBMFX) 2% ER: 0.15%

My 401k at Fidelity: $390,000 (75% of total, actively contributing). YTD 5.14%
- FID 500 INDEX INST (FXSIX) 29% ER: 0.03%
- FID CONTRAFUND K (FCNKX) 18% ER: 0.65%
- FID EXT MKT IDX PR (FSEVX) 11% ER: 0.07%
- ABF SM CAP VAL INST (AVFIX) 8% ER: 0.83%
- VANG INFL PROT ADM (VAIPX) 5% ER: 0.10%
- VANG TOT BD MKT ADM (VBTLX) 2% ER: 0.05%
- FID INTERMED BOND (FTHRX) 1% ER: 0.45%
- 7 DAY BOND 1% ER: 0.57%

My Contributions: 7% roth 401k, 7% pretax 401k, 5% employer match. I max out each year.
80% goes to FID 500 INDEX INST
10% to FID CONTRAFUND K
10% to FID EXT MKT IDX PR

Choices:
ABF LG CAP VAL INST (AADEX) 0.60%
FID 500 INDEX INST (FXSIX) 0.03%
FID CONTRAFUND K (FCNKX) 0.65%
FID GROWTH CO K (FGCKX) 0.75%
FID EXT MKT IDX PR (FSEVX) 0.07%
FID LOW PRICED STK K (FLPKX) 0.58%
ABF SM CAP VAL INST (AVFIX) 0.83%
WF SM CO GROWTH IS (WSCGX) 1%
AF EUROPAC GROWTH R6 (RERGX) 0.5%
FID GLB XUS IDX PR (FSGDX) 0.1%
FID WORLDWIDE (FWWFX) 0.81%
FID FDM IDX INC INV (FIKFX) 0.17%
FID PURITAN K (FPUKX) 0.46%
MIP CL 2 0.57%
FID INTERMED BOND (FTHRX) 0.45%
VANG TOT BD MKT ADM (VBTLX) 0.05%
VANG INFL PROT ADM (VAIPX) 0.01%
Various retirement year blended investmentsm 2010-2060 0.18% or 0.19%

Questions
Last year I consolidated my new investments to three funds (80% FID 500, 10% ContraFund, 10% Extended Market). I'm considering taking that down to two: FID 500 plus one other but which one?

I'd like to consolidate my smaller holdings that are under 10%, both on Vanguard and Fidelity.

I'm not sure if ContraFund is a good value with it's high expense ratio. How do I calculate an equivalent return for, say, FID 500 with ER 0.03% vs. ContraFund with ER 0.65%.

I don't want everything in S&P500, would like some diversity in bonds and smaller companies.

We are considering taking a $25k loan next year from the 401k for a much needed renovation. It's much cheaper than moving and we don't want to be cash poor be using all our other savings and HELOC. Reno is at least six months off, can cross that bridge later. Just bringing it up as a possibility.

Thoughts on what I can do better with my allocation?

livesoft
Posts: 61944
Joined: Thu Mar 01, 2007 8:00 pm

Re: Consolidating funds in 401k portfolio

Post by livesoft » Tue Jun 05, 2018 6:15 pm

Since you do not appear to have any taxable account, I don't see why you don't just put all your money in a Target Retirement / Target Date fund of your desired asset allocation as long as the selected fund(s) use passively-managed, low-expense ratio index funds. Why are you trying to make this complicated?
Wiki This signature message sponsored by sscritic: Learn to fish.

ExitStageLeft
Posts: 723
Joined: Sat Jan 20, 2018 4:02 pm

Re: Consolidating funds in 401k portfolio

Post by ExitStageLeft » Tue Jun 05, 2018 6:16 pm

I am sold on the Boglehead philosophy of total market indexed funds. I would settle on a lazy three fund portfolio with a bond portion appropriate to your risk tolerance. You are right now in a 89/11 allocation which is generally considered to be a risky position for someone in the middle of their earning years. Conventional wisdom holds for your age as a percentage of bonds in your portfolio, or perhaps (age-10).

Your pension will provide 47% of your final base if you work another 15 years. Some people would consider that as equivalent to a bond holding and would adjust their allocation accordingly. I am one of those people. I am 55 and within a few years of retirement with an 80/20 allocation. I'll re-allocate over the next few years to a 60/40 distribution.

You maximize your diversification with the total market funds, and get low expenses with the indexed funds. If you are investing for the long haul, you can opt for the lazy three-fund (or two-fund) portfolio and get almost the same returns but without near the sector concentration risk that you have today.

I would suggest simplifying to three funds: Vanguard Total Stock Market (VTSAX), Vanguard Total International (VTIAX), and Vanguard Total Bond (VBTLX). Schwab and Fidelity offer their own indexed total market funds that work just as well. Then figure out what you want your equity allocation to be, and of that how much in international stocks.

bloom2708
Posts: 4469
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Consolidating funds in 401k portfolio

Post by bloom2708 » Tue Jun 05, 2018 6:22 pm

70/30 or 80/20 seem reasonable. 90/10 seems risky for your age.

For your stock allocation, 80% 500 index and 20% Extended Market is a reasonable approximation of the Total US Stock market.

You have the Total US Bond index for the 20 or 30% of your bond allocation. Missing International. Those 3 funds would give you a nice, low cost 2 fund portfolio.

I too would probably pick the Target Date fund that matches your desired mix of Stocks/Bonds. 2035 would be ~70/30. They typically step in 5% increments. 2040 ~75/25. etc.

The Target Date fund would add International stocks and bonds. No re-balancing, adjusting as you age. Often, less is more.

I see no Roth IRAs mentioned. In the 22% bracket, you should be doing $5,500 x 2 into each of your Roth IRA each year.

Max your 401k with pre-tax dollars and put the tax savings in your Roth IRA.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

ExitStageLeft
Posts: 723
Joined: Sat Jan 20, 2018 4:02 pm

Re: Consolidating funds in 401k portfolio

Post by ExitStageLeft » Wed Jun 06, 2018 2:50 pm

if you are comfortable with a 20% bond position, you could pivot to a three-fund portfolio based on S&P 500 indexed fund, total international, and total bond. I would treat the Vanguard and Fidelity 500 index funds as interchangeable. So you could simplify greatly by going to:

401k at Vanguard: $128,000 (25% of total)
25% Vanguard Total International Stock Index Admiral (VTIAX) 2% ER: 0.11%

401k at Fidelity: $390,000 (75% of total, actively contributing)
55% Fidelity 500 Index Fund Institutional (FXSIX) ER: 0.03%
20% Vanguard Total Bond Market Admiral (VBTLX) ER: 0.05%

That's an 80/20 portfolio with 31.25% of equities in international and an overall ER of 0.054%.

User avatar
ruralavalon
Posts: 13503
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Consolidating funds in 401k portfolio

Post by ruralavalon » Wed Jun 06, 2018 5:30 pm

It's good to see that you are debt free, other than the mortgage note, and are contributing the annual maximum to your 401k.


1) Is the Vanguard 401k from a former employer? Will the Fidelity 401k accept an incoming rollover of the old 401k?

The Fidelity 401k offers excellent fund choices. For greater simplification you could consider a rollover of the Vanguard 401k into the Fidelity 401k if that is permitted.


2) As already mentioned, using a single low expense ratio target date fund could be a good choice.


3) If you want a simple portfolio of just three index funds, then you could consider these in the Fidelity 401k:
Fidelity 500 Index Fund Institutional (FXSIX) ER 0.03%;
Fidelity Global Ex-U.S. Index Fund Premium Class (FSGDX) ER 0.10%; and
Vanguard Total Bond Market Index Fund Admiral Share (VBTLX) ER 0.05%.

Those funds you very broad diversification (to decrease your risk), with very low expense ratios (to increase your net return).


4) Fidelity Contrafund (FCNTX) ER 0.65% is a good actively managed domestic stock fund, my personal preference is a good index fund over a good actively managed fund. There is no way to know in advance whether Fidelity Contrafund (FCNTX) will in the future outperform a S&P 500 fund by enough to cancel out the higher expense ratio.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

megabad
Posts: 362
Joined: Fri Jun 01, 2018 4:00 pm

Re: Consolidating funds in 401k portfolio

Post by megabad » Wed Jun 06, 2018 8:55 pm

I think you already have some good discussion re: allocations, but I would just like to point out that you listed a great deal of short term expenses (multiple cars, home remodel, etc). However, you have not listed significant savings outside of retirement accounts. This leads me to believe you may acquire significant additional debt in the near future. I would recommend you ease back on retirement savings (down to the match) and fill the short term coffers to avoid some of this debt. A 401k loan typically carries a risk of opportunity costs, "call risk", and additional taxes (compared to a tax deductible HELOC/mortgage). Car loans are about 4% for short term loans. I would be less inclined to take on all this until wife is for sure back in job market and gainfully employed.

WaffleCone
Posts: 89
Joined: Fri Oct 23, 2015 11:48 pm

Re: Consolidating funds in 401k portfolio

Post by WaffleCone » Tue Jun 12, 2018 5:43 pm

OP back. Sorry, got swamped with family stuff the past week.

I have about $50k in non-retirement accounts. It's a mish-mash between Vanguard, Dodge and Cox, and some individual stocks (XOM primarily). I won't be able to increase that savings anytime soon and I'm more comfortable keeping it "out of sight, out of mind" unless there's something major. I will use $10k as a down payment on our home reno but don't want to use it (or 401k money) for car payments. HELOC and maybe 401k will fund the rest. Car down payment will have to come from my yearly bonus. I'm OK with paying up to about 5% interest for some things in exchange for keeping that cushion. I work the credit card game pretty good and can usually get free financing by redirecting spending and 1-2% return on most other spending. So if I have to take on a car payment, I'll try to offset the interest as much as possible.

I will make my 401k fully tax deferred and use the savings for the 5,500 x 2 Roth IRAs. Excellent suggestion!

I'm surprised about recommending the international allocation, as I view that as more risky than the 500 or total US index. I would think there is enough foreign exposure in the 500 anyway, that they wouldn't move in opposite directions. I was thinking something more towards the mid-cap or mid-large value side. Hmm. International is something to think about.

At first the 0.18% ER sounded high for the auto-adjusting retirement year funds, but I guess not.

It's good to hear that we have a good fun selection in our employer plan. Thanks.

ExitStageLeft
Posts: 723
Joined: Sat Jan 20, 2018 4:02 pm

Re: Consolidating funds in 401k portfolio

Post by ExitStageLeft » Tue Jun 12, 2018 6:14 pm

Investing in international stock funds does increase your diversification by expanding your overall market, whereas tilting towards mid or small cap concentrates your risk in a smaller portion of the market. They are not mutually exclusive in a portfolio.

https://www.portfoliovisualizer.com/bac ... yNotes2=20

Post Reply