401k Suggestions

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
dotdotloop
Posts: 27
Joined: Sun Aug 05, 2018 3:52 pm

401k Suggestions

Post by dotdotloop » Wed Aug 08, 2018 3:08 pm

I'm looking at reallocating the assets in my husband's 401K. There's only $2,800 in the account and he's contributing the minimum amount to receive the full employer match, which ends up being $111/month. He's 31 and we contribute an additional 15% of our income to our Roths, which is our preferred retirement savings. However, I want to be wise with his 401k. Here's the link for the fund choices: https://drive.google.com/file/d/0B18eUx ... sp=sharing

Right now, I'm looking at:
VFFVX: 85%
DODIX: 10%
REREX: 5%

Does that seem wise? I'm new to taking the investing into my own hands, but have really been trying to learn. In using the Portfolio Visualizer, that seems to give us a wide range of exposures, but is it too few funds?

User avatar
vineviz
Posts: 1198
Joined: Tue May 15, 2018 1:55 pm

Re: 401k Suggestions

Post by vineviz » Wed Aug 08, 2018 3:13 pm

dotdotloop wrote:
Wed Aug 08, 2018 3:08 pm
Right now, I'm looking at:
VFFVX: 85%
DODIX: 10%
REREX: 5%

Does that seem wise? I'm new to taking the investing into my own hands, but have really been trying to learn. In using the Portfolio Visualizer, that seems to give us a wide range of exposures, but is it too few funds?
To be honest, it's two funds too many.

For a balance this small, and an investor this young, Vanguard Target Retirement 2055 Fund (VFFVX) is definitely the only fund you need in that account.

DODIX and REREX are not only redundant, but unnecessarily expensive.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

User avatar
ruralavalon
Posts: 13697
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: 401k Suggestions

Post by ruralavalon » Wed Aug 08, 2018 3:32 pm

dotdotloop wrote:
Wed Aug 08, 2018 3:08 pm
I'm looking at reallocating the assets in my husband's 401K. There's only $2,800 in the account and he's contributing the minimum amount to receive the full employer match, which ends up being $111/month. He's 31 and we contribute an additional 15% of our income to our Roths, which is our preferred retirement savings. However, I want to be wise with his 401k. Here's the link for the fund choices: https://drive.google.com/file/d/0B18eUx ... sp=sharing

Right now, I'm looking at:
VFFVX: 85%
DODIX: 10%
REREX: 5%

Does that seem wise? I'm new to taking the investing into my own hands, but have really been trying to learn. In using the Portfolio Visualizer, that seems to give us a wide range of exposures, but is it too few funds?
What funds are you using in the Roth IRAs? It's often better to coordinate investments among all accounts, rather than focus on any one account in isolation.

In his 401k one of the Target Date fund could be a good choice.

Otherwise I suggest that he consider using:
1) 60%, Vanguard 500 Index Fund Admiral Shares (VFIAX) ER 0.04%;
2) 20%,Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) ER 0.11%; and
3) 20%, Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) 0.05%.

American Funds EuroPacific Growth Fund R4 (REREX) ER 0.85% is an actively managed, diversified, international stock fund, investing in both developed and emerging markets, but has a high expense ratio. I prefer an index fund, with a much lower expense ratio.

Dodge & Cox Income Fund (DODIX) ER 0.43% is a good actively managed, intermediate-term bond fund with a moderate expense ratio. I prefer a good index fund over a good actively managed fund, so suggest Vanguard Total Bond Market Index Fund which is more diversified and has a much lower expense ratio.
Last edited by ruralavalon on Wed Aug 08, 2018 3:40 pm, edited 3 times in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

User avatar
oldcomputerguy
Posts: 3219
Joined: Sun Nov 22, 2015 6:50 am
Location: In the middle of five acres of woods

Re: 401k Suggestions

Post by oldcomputerguy » Wed Aug 08, 2018 3:33 pm

Morningstar shows that this portfolio is basically an 80/20 stock-to-bond mix, with equity split approximately 60/40. That's not the worst mix in the world for a 31-year-old. I would suggest that you could do the same thing with a mix of the Vanguard S&P500 Admiral Shares, Vanguard Total International, and Vanguard Total Bond funds. Your proposed mix will cost $5.93 in fund expenses (0.21% of the 401k holding value) extracted from his 401k each year. You can get the same exposure more efficiently with a mix of 45% Vanguard S&P500 (VFIAX), 35% Vanguard Total International (VTIAX), and 20% Vanguard Total Bond (VBTLX), and it'll cost you $1.86 per year (0.07%, one-third of the amount of your suggestion) in expenses.

The only advantage your mix has over the one I quoted is that it will (mostly) rebalance itself going forward due to the 85% concentration in the target date fund. But you can do that yourself and save that expense.

ETA: vineviz made a good suggestion in suggesting holding just the VFFVX target-date fund at this point. It's simple, easy to manage, has an appropriate asset allocation, and a reasonable expense ratio (0.15%). You are adding needless complexity by adding the other two funds.
Last edited by oldcomputerguy on Wed Aug 08, 2018 3:35 pm, edited 1 time in total.
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

User avatar
Peter Foley
Posts: 4493
Joined: Fri Nov 23, 2007 10:34 am
Location: Lake Wobegon

Re: 401k Suggestions

Post by Peter Foley » Wed Aug 08, 2018 3:33 pm

My opinion is that until you have multiple years worth of contributions in a retirement account there is not much reason to diversify. The reason to diversify is to protect somewhat against loss. When that loss can be made up by buying additional shares over a couple years time, I see no reason to diversify. The current account value is about 25 times the monthly contribution. I agree that one could use a Target Retirement Fund and leave it at that. I personally would use a total bond fund as a diversifier to my Roth.

dotdotloop
Posts: 27
Joined: Sun Aug 05, 2018 3:52 pm

Re: 401k Suggestions

Post by dotdotloop » Wed Aug 08, 2018 3:57 pm

Thank you all so much for your suggestions! This is exactly what I needed to hear. Like I mentioned, we've been relying on advisors to assist us in the past, but I'm just now taking the steps to educate myself and move forward with handling our money on our own. In reviewing VFFVX, I knew it allocated assets exactly where we need them right now, but, for some reason, I felt compelled to add more . . . even though it's definitely redundant. We have an additional $42k in Roths, $65k in my teacher retirement, $32k in more conservative funds to keep it fairly liquid in hopes of putting into a down payment in a few years, $27k in a MM as an emergency fund, and $23k in checking earmarked for cars/insurance/repairs/etc. I wanted to start with my husband's 401k and then work my way through the rest b/c I'll be dealing with larger amounts of money. With our Roths, I will definitely be doing Vanguard index funds.

Thank you all so much!
Jessica

User avatar
vineviz
Posts: 1198
Joined: Tue May 15, 2018 1:55 pm

Re: 401k Suggestions

Post by vineviz » Wed Aug 08, 2018 4:02 pm

dotdotloop wrote:
Wed Aug 08, 2018 3:57 pm
Thank you all so much for your suggestions! This is exactly what I needed to hear. Like I mentioned, we've been relying on advisors to assist us in the past, but I'm just now taking the steps to educate myself and move forward with handling our money on our own. In reviewing VFFVX, I knew it allocated assets exactly where we need them right now, but, for some reason, I felt compelled to add more . . . even though it's definitely redundant. We have an additional $42k in Roths, $65k in my teacher retirement, $32k in more conservative funds to keep it fairly liquid in hopes of putting into a down payment in a few years, $27k in a MM as an emergency fund, and $23k in checking earmarked for cars/insurance/repairs/etc. I wanted to start with my husband's 401k and then work my way through the rest b/c I'll be dealing with larger amounts of money. With our Roths, I will definitely be doing Vanguard index funds.

Thank you all so much!
Jessica
Good luck.

To be honest, I'd consider using the same/similar target date fund in you Roth and retirement plans at least for the next few years. The taxable accounts are the places where fund selection will possibly need the most fine tuning
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

User avatar
ruralavalon
Posts: 13697
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: 401k Suggestions

Post by ruralavalon » Wed Aug 08, 2018 6:10 pm

dotdotloop wrote:
Wed Aug 08, 2018 3:57 pm
Thank you all so much for your suggestions! This is exactly what I needed to hear. Like I mentioned, we've been relying on advisors to assist us in the past, but I'm just now taking the steps to educate myself and move forward with handling our money on our own. In reviewing VFFVX, I knew it allocated assets exactly where we need them right now, but, for some reason, I felt compelled to add more . . . even though it's definitely redundant. We have an additional $42k in Roths, $65k in my teacher retirement, $32k in more conservative funds to keep it fairly liquid in hopes of putting into a down payment in a few years, $27k in a MM as an emergency fund, and $23k in checking earmarked for cars/insurance/repairs/etc. I wanted to start with my husband's 401k and then work my way through the rest b/c I'll be dealing with larger amounts of money. With our Roths, I will definitely be doing Vanguard index funds.

Thank you all so much!
Jessica
If you will be using a target date fund in his 401k, then I suggest using the same target date fund in the Roth IRAs or any other account intended for long-term/retirement investing.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

dotdotloop
Posts: 27
Joined: Sun Aug 05, 2018 3:52 pm

Re: 401k Suggestions

Post by dotdotloop » Thu Aug 09, 2018 1:34 pm

ruralavalon wrote:
Wed Aug 08, 2018 6:10 pm
dotdotloop wrote:
Wed Aug 08, 2018 3:57 pm
Thank you all so much for your suggestions! This is exactly what I needed to hear. Like I mentioned, we've been relying on advisors to assist us in the past, but I'm just now taking the steps to educate myself and move forward with handling our money on our own. In reviewing VFFVX, I knew it allocated assets exactly where we need them right now, but, for some reason, I felt compelled to add more . . . even though it's definitely redundant. We have an additional $42k in Roths, $65k in my teacher retirement, $32k in more conservative funds to keep it fairly liquid in hopes of putting into a down payment in a few years, $27k in a MM as an emergency fund, and $23k in checking earmarked for cars/insurance/repairs/etc. I wanted to start with my husband's 401k and then work my way through the rest b/c I'll be dealing with larger amounts of money. With our Roths, I will definitely be doing Vanguard index funds.

Thank you all so much!
Jessica
If you will be using a target date fund in his 401k, then I suggest using the same target date fund in the Roth IRAs or any other account intended for long-term/retirement investing.
This is an excellent suggestion! Thank you! I wanted to start with reallocating my husband's 401k bc it's start a small amount and then move onto our personal Roths.

dotdotloop
Posts: 27
Joined: Sun Aug 05, 2018 3:52 pm

Re: 401k Suggestions

Post by dotdotloop » Thu Aug 09, 2018 1:36 pm

vineviz wrote:
Wed Aug 08, 2018 4:02 pm
dotdotloop wrote:
Wed Aug 08, 2018 3:57 pm
Thank you all so much for your suggestions! This is exactly what I needed to hear. Like I mentioned, we've been relying on advisors to assist us in the past, but I'm just now taking the steps to educate myself and move forward with handling our money on our own. In reviewing VFFVX, I knew it allocated assets exactly where we need them right now, but, for some reason, I felt compelled to add more . . . even though it's definitely redundant. We have an additional $42k in Roths, $65k in my teacher retirement, $32k in more conservative funds to keep it fairly liquid in hopes of putting into a down payment in a few years, $27k in a MM as an emergency fund, and $23k in checking earmarked for cars/insurance/repairs/etc. I wanted to start with my husband's 401k and then work my way through the rest b/c I'll be dealing with larger amounts of money. With our Roths, I will definitely be doing Vanguard index funds.

Thank you all so much!
Jessica
Good luck.

To be honest, I'd consider using the same/similar target date fund in you Roth and retirement plans at least for the next few years. The taxable accounts are the places where fund selection will possibly need the most fine tuning
Great idea! I I believe I will do that. Two questions- if you don't mind me asking.

1. How do the fees from a target date retirement fund compare to the total fees for investing in the indexes within the fund? I hope that makes sense. Is there a calculator to use or how would I go about assessing that?

2. When you mentioned being more cautious of taxable accounts, what exactly would that be? Anything outside of a Roth?

User avatar
vineviz
Posts: 1198
Joined: Tue May 15, 2018 1:55 pm

Re: 401k Suggestions

Post by vineviz » Thu Aug 09, 2018 3:31 pm

dotdotloop wrote:
Thu Aug 09, 2018 1:36 pm
1. How do the fees from a target date retirement fund compare to the total fees for investing in the indexes within the fund? I hope that makes sense. Is there a calculator to use or how would I go about assessing that?
Generally I find them to be comparable for most fund families. Vanguard doesn't charge any additional fee for target date maturity funds, just the expense of the funds they own (which are the same ones you'd own). The only caveat is that at some places, including Vanguard, if you have more than than a certain amount invested in a particular fund you might qualify for reduced expenses. In my opinion this isn't a big deal until you exceed $100,000 in assets in an account, and even then the money you save is pretty minimal compared to the complexity of balancing the funds periodically and making sure your contributions are split correctly. That's my opinion, anyway.
dotdotloop wrote:
Thu Aug 09, 2018 1:36 pm
2. When you mentioned being more cautious of taxable accounts, what exactly would that be? Anything outside of a Roth?
Yes, basically any account that is not an IRA (Roth or Traditional) or 401(k). You can read about tax-efficient fund placement in the wiki section of this site.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

dotdotloop
Posts: 27
Joined: Sun Aug 05, 2018 3:52 pm

Re: 401k Suggestions

Post by dotdotloop » Thu Aug 09, 2018 3:42 pm

vineviz wrote:
Thu Aug 09, 2018 3:31 pm
dotdotloop wrote:
Thu Aug 09, 2018 1:36 pm
1. How do the fees from a target date retirement fund compare to the total fees for investing in the indexes within the fund? I hope that makes sense. Is there a calculator to use or how would I go about assessing that?
Generally I find them to be comparable for most fund families. Vanguard doesn't charge any additional fee for target date maturity funds, just the expense of the funds they own (which are the same ones you'd own). The only caveat is that at some places, including Vanguard, if you have more than than a certain amount invested in a particular fund you might qualify for reduced expenses. In my opinion this isn't a big deal until you exceed $100,000 in assets in an account, and even then the money you save is pretty minimal compared to the complexity of balancing the funds periodically and making sure your contributions are split correctly. That's my opinion, anyway.
dotdotloop wrote:
Thu Aug 09, 2018 1:36 pm
2. When you mentioned being more cautious of taxable accounts, what exactly would that be? Anything outside of a Roth?
Yes, basically any account that is not an IRA (Roth or Traditional) or 401(k). You can read about tax-efficient fund placement in the wiki section of this site.
Thank you! Okay- I'll go ahead and move forward with the Target-date fund then. I really like the idea of monthly contributions being divided appropriately amongst the funds within the fund.

Excellent! I've started to dig into that portion of the wiki and I definitely have some learning to do. :)

Post Reply