401k Help Picking Funds 25 Year Old

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hockeydawg
Posts: 2
Joined: Thu Jul 19, 2018 1:44 pm

401k Help Picking Funds 25 Year Old

Post by hockeydawg » Thu Jul 19, 2018 2:43 pm

Hi There! Been reading and lurking for a year or so now, need some advice picking 401k options now that I'm at a company that matches and has decent options. I am a 25 year old working in marketing. I have some investments I will detail shortly, I'm trying to figure out where to allocate my 401K since I don't want to miss out on the free money via the match. My company offers a 401(k) matching 50% of first 6% on either roth or traditional contributions.
I'm wanting to beef up my EF more, pay off my car as quickly as possible, and take advantage of the match. My plan now is to start with 6% roth contributions to at least get the match and work on my other goals. I'm budgeting and trying to cut non-essential costs. Salary in the mid 60k range before tax.


Basic Info
Debt: 5k car loan at 2.9% (used Toyota)
Tax Filing Status: single
Tax Rate: 22% Federal in 2018/19
No state income tax
Age: 25
Desired Asset allocation: 80/20 per Vanguard recommendation, my IRA is currently 90/10
EF: 1 month saved
17k in wealthfront trad IRA account w/ no fee's (rolled over from trad 401k from first job, second job had terrible 401k selection and no match so didn't roll it there. Might move to Vanguard not sure, it's doing well and no fee for mgmt right now)
10k in vanguard roth IRA in target retirement 2055 fund VFFVX (money inherited and moved from high fee Ameriprise account)


Available funds in 401k
Large Cap
MFS VALUE FUND R6 (MEIKX) (0.49%) Large Cap

Multi/Mid Cap
FRANKLIN GROWTH FUND R6 (FIFRX) (0.50%) Multi Cap
JOHN HANCOCK DISCIPLIND VAL R6 (JVMRX) (0.77%) Multi Cap
PGIM JENNISON MID CAP GR FD Z (PEGZX) (0.79%) Mid Cap

Small Cap
CARILLON EAGLE SML CAP GRTH R6 (HSRUX) (0.66%) Small Cap
GOLDMAN SACHS SMALL CAP VAL R6 (GSSUX) (0.96%) Small Cap
VANGUARD EXTENDED MKT INDX ADM (VEXAX) (0.08%) Small Cap

Index Fund
VANGUARD INSTITUTIONAL INDEX (VINIX) (0.03%) S&P 500 Index Objective

International
OPPENHEIMER INTL GRO I (OIGIX) (0.69%) Intl. Multi Cap
TEMPLETON FOREIGN FD R6 (FTFGX) (0.74%) Intl. Multi Cap
VANGUARD TOTAL INTL STOCK ADM (VTIAX) (0.11%) Intl. Multi Cap

Bond/Fixed Income
TCW CORE FIXED INCOME FUND I (TGCFX) (0.51%)
TEMPLETON GLOBAL BOND FUND R6 (FBNRX) (0.63%)
VANGUARD INFLATION PROTECTED (VAIPX) (0.10%)
VANGUARD TTL BD MRKT INDX ADM (VBTLX) (0.05%)

ALLOCATION FUNDS/Lifestyle Pre-Mix
AMERICAN 20xx TARGET DATE RETIREMENT FUND (RFKTX) (0.42%)
(CLASS R6 SHARES)

What funds would make more sense for the 401(k)? I'm leaning toward the Vanguard funds, primarily the VINIX but undecided on how much international to mix in, and which bond fund to pick. I think the target retirement funds have too high an expense ratio.

Thanks for any input on the 401k or goal prioritization!

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Duckie
Posts: 5805
Joined: Thu Mar 08, 2007 2:55 pm

Re: 401k Help Picking Funds 25 Year Old

Post by Duckie » Thu Jul 19, 2018 4:31 pm

hockeydawg, welcome to the forum.
hockeydawg wrote:Age: 25
Desired Asset allocation: 80/20 per Vanguard recommendation, my IRA is currently 90/10
80/20 is reasonable for your age. But that's 80/20 across all retirement assets, not just the 401k.
17k in wealthfront trad IRA account w/ no fee's (rolled over from trad 401k from first job, second job had terrible 401k selection and no match so didn't roll it there. Might move to Vanguard not sure, it's doing well and no fee for mgmt right now)
Wealthfront's default portfolio is a complicated mix of ETFs. It messes up your total AA. I recommend you either move this to a TIRA at Vanguard or roll it to your pre-tax 401k (if allowed) which has excellent options.
10k in vanguard roth IRA in target retirement 2055 fund VFFVX (money inherited and moved from high fee Ameriprise account)
Did you inherit this Roth IRA or did you inherit the money used to fund the Roth IRA?
Available funds in 401k
The best options are:
  • VANGUARD INSTITUTIONAL INDEX (VINIX) (0.03%) -- Large caps, 80% of US stocks
  • VANGUARD EXTENDED MKT INDEX (VEXAX) (0.08%) -- Mid/small caps, 20% of US stocks
  • VANGUARD TOTAL INTL STOCK INDEX (VTIAX) (0.11%) -- Complete international stocks
  • VANGUARD TOTAL BOND MKT INDEX (VBTLX) (0.05%) -- US bonds
What funds would make more sense for the 401(k)?
The above. What you choose here depends on your other two accounts. Find out if you can choose separate funds in the pre-tax vs Roth portions of the 401k. Meaning can you put just bonds in the pre-tax portion or do the two have to have the same AA.
I'm leaning toward the Vanguard funds, primarily the VINIX but undecided on how much international to mix in, and which bond fund to pick.
For bonds pick Total Bond Market. As for how much international, Vanguard has found between 20% and 40% of stocks in international to be the "sweet spot". See the Vanguard paper link and the discussion. I usually split the difference and recommend 30% of stocks. If you have an AA of 80% stocks, that means 56% US stocks and 24% international stocks. This AA is across all retirement assets meaning it includes your two IRAs.
I think the target retirement funds have too high an expense ratio.
They do.

hockeydawg
Posts: 2
Joined: Thu Jul 19, 2018 1:44 pm

Re: 401k Help Picking Funds 25 Year Old

Post by hockeydawg » Thu Jul 19, 2018 6:56 pm

Thanks for your input! I really appreciate it.
Duckie wrote:
Thu Jul 19, 2018 4:31 pm

Wealthfront's default portfolio is a complicated mix of ETFs. It messes up your total AA. I recommend you either move this to a TIRA at Vanguard or roll it to your pre-tax 401k (if allowed) which has excellent options.
I gave the 401k service rep a call and he said I can roll over my traditional IRA from Weathfront to the 401k and have both traditional and roth portions, but I can't designate different AA (IE have the pre-tax in all bonds and roth in stocks). Not sure if this means I should roll over to Vanguard traditional IRA instead of the 401k so I can select bonds for this type? Or am I still better off rolling it over to the 401k? Understood I should be thinking of 80/20 across all retirement assets, not just the 401k.
Did you inherit this Roth IRA or did you inherit the money used to fund the Roth IRA?
I inherited the money used to fund the Roth IRA, it was in a taxable account previously with outrageous fees. I picked the target retirement since I was contributing under 30k. Now trying to consolidate and be at 80/20 across retirement assets, so want to pick my 401k to be complimentary.

Thanks again!

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

Re: 401k Help Picking Funds 25 Year Old

Post by ExitStageLeft » Thu Jul 19, 2018 7:16 pm

Welcome to the forum! If you haven't read the wiki yet on Prioritizing Investments then give it a look. It offers suggestions on how to best invest your hard-earned income.

I think you've got a good plan to roll the traditional IRA into your 401k. You could roll it into an IRA at Vanguard but that would just be another account to keep track of. With nearly identical funds and expenses available to you with either option, go with the one that simplifies.

You're early enough in your career to benefit from maximizing your Roth IRA contributions. If you budget allows, you should contribute to the 401k to get the full match then contribute to the max in your Roth IRA. If there is still room in your monthly budget then keep shoveling money into the 401k.

The car loan is at a reasonably low interest rate. From a purely mathematical standpoint you would do better investing in your retirement account and paying off the loan on schedule. But if it's important to you to pay down that debt sooner it's a perfectly reasonable and responsible thing to do.

Living Free
Posts: 6
Joined: Thu Jul 19, 2018 7:31 pm

Re: 401k Help Picking Funds 25 Year Old

Post by Living Free » Thu Jul 19, 2018 8:15 pm

You have some excellent investment choices in your 401k as others have noted above. Honestly I'm getting jealous!

Does your 401k plan have any fees in addition to the mutual fund expense ratios? If so that might be further reason to start investing in an IRA after you get the match (then resume investing in the 401k if/when you've maxed out the annual contribution limit for the IRA)

averagedude
Posts: 173
Joined: Sun May 13, 2018 3:41 pm

Re: 401k Help Picking Funds 25 Year Old

Post by averagedude » Thu Jul 19, 2018 9:42 pm

Good fund choices. This is my recommendation for your 80/20 allication.
VINIX. 34% 500 index
VEXAX. 22% extended market
VTIAX. 24% total international
VBTLX. 20% total bond

This portfolio would give you 30% in international. Your domestic holdings will give you 60% in large companies and 40% in mid/small companies. Since you are 25 years old, this tilt to smaller companies in the domestic holdings should give you a slightly higher return over the long haul. Alot of people on this forum will argue this point, but if you did a survey among experts, the overwhelming majority would say small/mid will beat large over a 40 year period.

MichCPA
Posts: 109
Joined: Fri Jul 06, 2018 9:06 pm

Re: 401k Help Picking Funds 25 Year Old

Post by MichCPA » Thu Jul 19, 2018 9:56 pm

Prioritization:
1.) Temporarily go to traditional upto the match and use the savings to build your emergency fund to 3 months.The long term security of retirement accounts means nothing if you lack the short term security of an EF.
2.) After getting to three months you can increase your contribution rate or go roth.
3.) Make sure you are saving enough in taxable accounts to meet intermediate needs

Portfolio:
Use the Vanguard Index funds for S%P, Small cap, Int'l, and Bond.

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

Re: 401k Help Picking Funds 25 Year Old

Post by ExitStageLeft » Fri Jul 20, 2018 1:30 pm

MichCPA wrote:
Thu Jul 19, 2018 9:56 pm
Prioritization:
1.) Temporarily go to traditional upto the match and use the savings to build your emergency fund to 3 months.The long term security of retirement accounts means nothing if you lack the short term security of an EF.
2.) After getting to three months you can increase your contribution rate or go roth.
3.) Make sure you are saving enough in taxable accounts to meet intermediate needs

Portfolio:
Use the Vanguard Index funds for S%P, Small cap, Int'l, and Bond.
+1

I realized after posting that I hadn't addressed the emegency fund. I would build it up to at least three months worth.

On the question of whether Roth or traditional is best in the 401k, sometimes it can be real obvious. Other times it's not at all obvious and it gets fuzzier the further you are from retirement. Whether you contribute to Roth or tax-deferred, your employer match will be tax-deferred. Presumably you can change your contribution at any time by submitting the appropriate form. So at this stage whichever allows you to maximize your savings is the route I recommend you go with.

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Duckie
Posts: 5805
Joined: Thu Mar 08, 2007 2:55 pm

Re: 401k Help Picking Funds 25 Year Old

Post by Duckie » Fri Jul 20, 2018 7:06 pm

hockeydawg wrote:I gave the 401k service rep a call and he said I can roll over my traditional IRA from Weathfront to the 401k and have both traditional and roth portions, but I can't designate different AA (IE have the pre-tax in all bonds and roth in stocks). Not sure if this means I should roll over to Vanguard traditional IRA instead of the 401k so I can select bonds for this type? Or am I still better off rolling it over to the 401k?
In this case rolling the Wealthfront TIRA into the 401k is the better option. The index choices are excellent and having fewer accounts to track makes figuring easier.

---------------------

The following example has an AA of 56% US stocks, 24% international stocks, and 20% bonds. You could have:

401k -- $17K -- 63% <-- Includes rollover from Wealthfront TIRA.
15% (VINIX) Vanguard Institutional Index Fund Institutional Shares (0.035%)
4% (VEXAX) Vanguard Extended Market Index Fund Admiral Shares (0.08%)
24% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.11%)
20% (VBTLX) Vanguard Total Bond Market Index Fund Admiral Shares (0.05%)

Roth IRA at Vanguard -- $10K -- 37%
37% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)

MichCPA
Posts: 109
Joined: Fri Jul 06, 2018 9:06 pm

Re: 401k Help Picking Funds 25 Year Old

Post by MichCPA » Fri Jul 20, 2018 11:03 pm

ExitStageLeft wrote:
Fri Jul 20, 2018 1:30 pm
MichCPA wrote:
Thu Jul 19, 2018 9:56 pm
Prioritization:
1.) Temporarily go to traditional upto the match and use the savings to build your emergency fund to 3 months.The long term security of retirement accounts means nothing if you lack the short term security of an EF.
2.) After getting to three months you can increase your contribution rate or go roth.
3.) Make sure you are saving enough in taxable accounts to meet intermediate needs

Portfolio:
Use the Vanguard Index funds for S%P, Small cap, Int'l, and Bond.
+1

I realized after posting that I hadn't addressed the emegency fund. I would build it up to at least three months worth.

On the question of whether Roth or traditional is best in the 401k, sometimes it can be real obvious. Other times it's not at all obvious and it gets fuzzier the further you are from retirement. Whether you contribute to Roth or tax-deferred, your employer match will be tax-deferred. Presumably you can change your contribution at any time by submitting the appropriate form. So at this stage whichever allows you to maximize your savings is the route I recommend you go with.
Honestly, if you aren't maxing out all available savings vehicles, the choice is really an issue of whether your tax rate is higher or lower on withdrawal. At 26 I have no way of knowing that. I realize there are secular factors like the national debt, but we have a lower tax rate now than what we had when I started too. It isn't the worst idea to have some of both and switch which one you use based on conditions. IE when the market crashes and you have losses in other places pull out of traditional to arbitrage tax. People like to treat it like a question of which screwdriver is better, but I think its more like a hammer vs a screwdriver. They both have their place.

gostars
Posts: 326
Joined: Mon Oct 09, 2017 7:53 pm

Re: 401k Help Picking Funds 25 Year Old

Post by gostars » Fri Jul 20, 2018 11:11 pm

I would say Roth vs. traditional in the 401k would depend how far in to the 22% bracket you are. If you're low enough that traditional contributions can get you out of 22% entirely, then do exactly that much, and anything further in Roth. If you're way up in 22, then go all traditional and stick to Roth on the IRA side. My opinion being worth exactly as much as you paid to join this forum :mrgreen:.

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