401k Funds for 23 year just starting out

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Topic Author
JosephG
Posts: 16
Joined: Sat Apr 29, 2017 5:10 pm

401k Funds for 23 year just starting out

Post by JosephG »

Hi my child is 23 just got first corporate job out of college. 401k eligible with 50% match on first 12%. I have her reading William Bernstein’s “if you can” short book to introduce her to investing. He recommends a good starting point of 1/3 in each Total Stock, Total Intl, Total Bond.

I’m including her fund options below. My initial thought I’d recommend 100% vanguard life strategy growth to start. Don’t like the Ivy funds or most active options. That fund is 48% tsm 32% tot int and 20% total us/intl bond.

Does she need vanguard small cap or maybe 10-20% total bond in addition to ramp down the intl a little or is life strategy alone just fine

She has 0 invested. Just starting out. The Minnesota life fund is supposed to offer 3% guaranteed stable value.

Thanks - Joseph

Investment option
Minnesota Life Guaranteed Return Account
Metropolitan West Total Return Bd Admin
PIMCO Investment Grade Credit Bd Instl
Vanguard Total Bond Market Index Adm
Ivy Global Bond A
Advantus S&P 500® Index
Ivy Core Equity A
Ivy Large Cap Growth
Janus Opportunistic Growth
Dodge & Cox Stock
Ivy Mid Cap Growth Y
Vanguard Mid-Cap Growth Index Admiral Ivy Small Cap Core Y
Vanguard Small Cap Index Adm
Ivy Small Cap Growth
Ivy Emerging Markets Equity Y
Ivy Global Growth A
DFA International Small Company I
Dodge & Cox International Stock
T. Rowe Price Health Sciences
Ivy Natural Resources Y
Ivy Securian Real Estate Securities Y
Columbia Global Technology Growth
Vanguard Wellesley® Income AdmiralTM Vanguard LifeStrategy Growth Inv
tenkuky
Posts: 2624
Joined: Sun Dec 14, 2014 3:28 pm

Re: 401k Funds for 23 year just starting out

Post by tenkuky »

What are the expense ratios of these?
Of the top of my head, I would say 20% bonds is a tad conservative for a 23 year old who has 30+ years to ride out.
10% more likely but depends on your/her tolerance.
Freefallin
Posts: 31
Joined: Thu Oct 04, 2018 1:12 pm

Re: 401k Funds for 23 year just starting out

Post by Freefallin »

Go all in with Vanguard life strategy and contribute 12% to get free money. In 30 years, she'll be set.

https://investor.vanguard.com/mutual-fu ... view/VASGX
"Pain is the touchstone of all growth." - Bill W.
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jadd806
Posts: 267
Joined: Mon Aug 17, 2015 4:34 pm
Location: New England

Re: 401k Funds for 23 year just starting out

Post by jadd806 »

1/3 in bonds at 23 with no assets is far too conservative. I don't think young investors need to worry about bonds until they hit the threshold of 1-2x income invested.

My first recommendation was going to be just 50/50 US/international and no bonds, but it doesn't look like she has a decent international fund available.

I think your plan to recommend 100% Vanguard LifeStrategy Growth is a solid one. There's no need to dilute the international holdings of the fund further, it's already underweight at 32% (compared to roughly 50% in a balanced world equity portfolio).

Does she have any real interest in learning about investing, or was she just looking for advice on a set it and forget it option?
bloom2708
Posts: 9855
Joined: Wed Apr 02, 2014 2:08 pm

Re: 401k Funds for 23 year just starting out

Post by bloom2708 »

+1 for

Vanguard Wellesley® Income AdmiralTM Vanguard LifeStrategy Growth Inv

1 fund with 4 components.

Have her put in enough to max at $18,500 pre-tax (if she can). Match dollars do not count toward the $18,500 limit.

80/20 is just fine for someone just starting. One fund makes it easier to stay the course. No re-balancing or tinkering needed.
Topic Author
JosephG
Posts: 16
Joined: Sat Apr 29, 2017 5:10 pm

Re: 401k Funds for 23 year just starting out

Post by JosephG »

Thanks for the feedback so far. Yeah she is trying to learn more about investing. I like the life strategy growth because of the all in one component and reasonable .14 expense. Some of those Ivy funds expense ratio > 1 percent and subpar performance. Not many good international ones to choose from. Dodge andcox is okay not great. I would like Taylor’s and
Other opinions as well.
billfromct
Posts: 2046
Joined: Tue Dec 03, 2013 8:05 am

Re: 401k Funds for 23 year just starting out

Post by billfromct »

If this were my daughter, with 40-45 years until retirement, I would recommend 100% stocks, at least through her 20s into her 30s. In fact, my daughter, who is in her late 20s, is 100% stocks in her retirement accounts.

The Vanguard Life Strategy Growth Fund is 20% bonds. Depending on her tax bracket (if in the 12% tax bracket), she may want to look into a Roth 401k.

The Advantus S&P 500 Index (73%), the Vanguard Mid Cap Growth Index (18%) & the Vanguard Small Cap Index o(9%) may be a good proxy for the Total Stock Market Index.

She needs to build some tax diversity in her retirement accounts, especially while in her early 20s, with 40-45 years to grow tax free & can be taken out state & Federal tax free after age 59.5. I would even encourage starting a Roth IRA (if she doesn't already have one) & funding it instead of the 401k after she gets the 6% match (12% contribution).

bill
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ruralavalon
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Location: Illinois

Re: 401k Funds for 23 year just starting out

Post by ruralavalon »

Encourage her to set her contributions to her 401k as high as is practical for her. When young and just starting a high contribution rate is as important as almost anything else she can do in investing.

JosephG wrote: Mon Oct 15, 2018 11:00 am Hi my child is 23 just got first corporate job out of college. 401k eligible with 50% match on first 12%. I have her reading William Bernstein’s “if you can” short book to introduce her to investing. He recommends a good starting point of 1/3 in each Total Stock, Total Intl, Total Bond.

I’m including her fund options below. My initial thought I’d recommend 100% vanguard life strategy growth to start. Don’t like the Ivy funds or most active options. That fund is 48% tsm 32% tot int and 20% total us/intl bond.

Does she need vanguard small cap or maybe 10-20% total bond in addition to ramp down the intl a little or is life strategy alone just fine

She has 0 invested. Just starting out. The Minnesota life fund is supposed to offer 3% guaranteed stable value.

Thanks - Joseph

Investment option
Minnesota Life Guaranteed Return Account
Metropolitan West Total Return Bd Admin
PIMCO Investment Grade Credit Bd Instl
Vanguard Total Bond Market Index Adm
Ivy Global Bond A
Advantus S&P 500® Index
Ivy Core Equity A
Ivy Large Cap Growth
Janus Opportunistic Growth
Dodge & Cox Stock
Ivy Mid Cap Growth Y
Vanguard Mid-Cap Growth Index Admiral Ivy Small Cap Core Y
Vanguard Small Cap Index Adm
Ivy Small Cap Growth
Ivy Emerging Markets Equity Y
Ivy Global Growth A
DFA International Small Company I
Dodge & Cox International Stock
T. Rowe Price Health Sciences
Ivy Natural Resources Y
Ivy Securian Real Estate Securities Y
Columbia Global Technology Growth
Vanguard Wellesley® Income AdmiralTM Vanguard LifeStrategy Growth Inv

What are the expense ratios charged for the funds in her 401k? You can simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of her information is in one place.

In my opinion Vanguard LifeStrategy Growth Fund (VASGX) is a good idea as a simple way to start.


To use individual funds instead my suggestion would be:
1) 60%, Advantus S&P 500 Index Fund (81% of U.S. stock market);
3) 20%, Dodge & Cox International Stock Fund (both developed and emerging markets) (DODFX); and
2) 20%, Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX), (she could use The Minnesota Life Guaranteed Return Account, supposed to offer 3% guaranteed stable value, as part of the bond allocation).


At age 23 I suggest about 20 % in bonds. This is expected to substantially reduce portfolio volatility (risk), with only a relatively modest 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).

Asset allocation is a very personal decision. She must decide on an allocation that is comfortable for her based on her own ability, willingness and need to take risk.


For domestic stocks I suggest using a total stock market index fund where available; otherwise an S&P 500 index fund is good enough by itself for domestic stocks. "In a 401(k) plan with limited choices one might very well opt for an S&P 500 index fund to serve as the domestic stock component of a three-fund portfolio." Wiki article, Three-fund portfolio, "Other considerations".

An S&P 500 index fund covers 81% of the U.S. stock market investing in stocks of selected large-cap and mid-cap U.S. companies, and in the 26 years since the creation of the first total stock market index fund the total return of the two types of funds has been almost identical. Morningstar, "growth of $10k" graph, VTSAX vs VFIAX. In the first 10 years the S&P 500 fund did better, in the last 10 years the total market fund did better, and over the 26 years the total market fund gave a little more return (0.11% per year), but at the cost of a little more volatility (risk): nisiprius post, in the forum discussion "Exchanging the S&P 500 for the TSM". See also Allan Roth, CBS Moneywatch, "John C. Bogle on the S&P 500 vs. the Total Stock Market". So it seems that adding a little in mid/small cap stocks trying to mimic the holdings of a total stock market fund has historically made little difference in performance.

If she wants to add Vanguard Small Cap Index Adm fund, then an 82/18 mix of S&P 500 and small-cap will approximate the content of a total stock market index fund. Wiki article, "Approximating total stock market". In my opinion this is not necessary, it is optional if she prefers to do this.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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