401k Investment options

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Topic Author
Aku09
Posts: 64
Joined: Wed Jan 09, 2019 11:29 am

401k Investment options

Post by Aku09 »

Emergency funds: Yes
Debt: Mortgage 300k @ 3.25%; Student loans 108k @ 4.125%; Vehicles (1. I owe 12k @ 3.5%, 2. a lease @ $505 a month)
Tax Filing Status: Married Filing Jointly
Tax Rate: 24% Federal, 5% State, 2% City
State of Residence: KY
Age: 33 (34 in a couple weeks)
Desired Asset allocation: 80% stocks / 20% bonds (honestly I'm open to this, what my current 401k TR is invested at)
Desired International allocation: % of stocks


Current retirement assets
His 401k
100% JPMorgan SmartRetirement 2050 R5 0.59 JTSIX
HSA account a little over 10k


Contributions

New annual Contributions
$6k his 401k (approximately $13,800 from employer per year)
HSA $7k


Available funds
30k in 401k
10k in HSA


Introduction:
So I'm new to investing and have been reading bogleheads for the past couple weeks and know I need to start getting my butt in gear for retirement. Got out of graduate school about 2.5 years ago and had no savings before that point. Graduated with 150k student loans and have been paying extra on them and should have them done in roughly 4.5 more years at my current rate. Wife has been a stay at home mom for several years and has just went back to work a couple months ago as a school teacher. After daycare expenses, gas from work, etc. she brings in about 1k extra a month. She only has the school pension that she is working on for retirement which if she works 20 years she would get like $1800 a month (and doesn't get social security). I make roughly 170k a year. Pay will be somewhat stagnant for the rest of my career. I have not contributed to retirement other than maxing out my HSA (have 3 kids), but plan to start putting back $500 a month in my 401k this year and will increase this amount to have it maxed no later than student loans being paid off but hopefully much sooner.


Questions:
1.These are my available funds for my 401k plan which recently changed. I have been on a TR fund and after reading bogleheads I realize I could do much better. The traditional Vanguard total stock/bond markets are not available and I would like some input on which funds would do best as a substitute. I realize I have some catching up to do in my retirement account and don't mind risk as I have many years to go. If anyone has any other recommendations for retirement please feel free to add. Thanks in advance for your help.

BlackRock Global Allocation Instl 0.84 MALOX
Key Guaranteed Portfolio Fund Fixed N/A / N/A
American Funds EuroPacific Gr R6. 0.49 RERGX
American Funds New World R6. 0.62 RNWGX
BlackRock High Yield Bond Instl 0.63 BHYIX
American Funds Growth Fund of Amer R6 0.33 RGAGX
DFA US Targeted Value I 0.37 DFFVX
BlackRock Equity Dividend Instl 0.73 MADVX
Vanguard Balanced Index Adm 0.07 VBIAX
Voya Global Real Estate W 1.01 IRGWX
Ivy Mid Cap Growth I 0.79 IYMIX
JHancock Disciplined Value Mid Cap I 0.85 JVMIX
JHancock Global Absolute Rtrn Strats I. 1.34 JHAIX
First Eagle Overseas A 1.15 SGOVX
Vanguard Mid Cap Index Fund - Admiral 0.05 VIMAX
JPMorgan Core Bond R6 0.35 JCBUX
Ivy Asset Strategy I 0.84 IVAEX
Victory Sycamore Established Value I 0.62 VEVIX
Vanguard Small Cap Index Adm 0.05 VSMAX
Virtus KAR Small-Cap Core I 1.07 PKSFX
JPMorgan Large Cap Growth R6 0.44 JLGMX
JPMorgan SmartRetirement Income R5 0.52 JSIIX
JPMorgan SmartRetirement 2020 R5 0.55 JTTIX
JPMorgan SmartRetirement 2025 R5 0.57 JNSIX
JPMorgan SmartRetirement 2030 R5 0.58 JSMIX
JPMorgan SmartRetirement 2035 R5 0.58 SRJIX
JPMorgan SmartRetirement 2040 R5 0.59 SMTIX
JPMorgan SmartRetirement 2045 R5 0.60 JSAIX
JPMorgan SmartRetirement 2050 R5 0.59 JTSIX
JPMorgan SmartRetirement 2055 R5 0.59 JFFIX
PIMCO Long-Term Real Return Inst. 1.29 PRAIX
PIMCO Total Return Instl 0.55 PTTRX
TCW Emerging Markets Income I 0.87 TGEIX
Templeton Global Bond Adv 0.71 TGBAX
Principal Equity Income Inst 0.52 PEIIX
Vanguard Emerging Mkts Stock Idx Adm 0.14 VEMAX
Vanguard Developed Markets Index Inv 0.17 VDVIX
Vanguard Interm-Term Bond Index Adm 0.07 VBILX
Vanguard Long-Term Bond Index Inv 0.15 VBLTX
Virtus Newfleet Low Duration Income I. 0.51 HIBIX
Vanguard 500 Index Admiral 0.04 VFIAX
AMG Yacktman Focused N 1.27 YAFFX
Last edited by Aku09 on Mon Oct 07, 2019 5:55 pm, edited 1 time in total.
mighty72
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Re: 401k Investment options

Post by mighty72 »

If you want to keep it simple then you could just invest in VBIAX and get 60/40 split. If you want more stock then do 80% in VBIAX and 20% in of the following:
1. VFIAX for more large cap
2. VSMAX for small cap
This would give you 32% in bonds and rest in stock.

A few others things which will be pointed out:
1. You should max out your 401k as you are high tax bracket
2. 1k per month for cars seems to be a lot given your current savings rate. Can you reduce this expense?
3. Great that you are paying your student loan quickly looks like you will pay about 20k each year for next 4 years. After that try not to spend the money and invest it
4. It would be helpful to know your current savings rate
Flyer24
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Re: 401k Investment options

Post by Flyer24 »

I hope you get rid of that expensive car lease.
lakpr
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Joined: Fri Mar 18, 2011 9:59 am

Re: 401k Investment options

Post by lakpr »

Does your wife have any 403b plans available at her work? You should be looking to sock away her "$1k per month" in her workplace plan, to reduce your taxes. You are in a 22% bracket, and with a 7.5% state tax bracket that is an instant shelter of nearly 30% on that contribution. Even otherwise, I would advise to max her Spousal IRA for $6000 per year.
lifeisinmirrors
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Joined: Fri Jul 06, 2018 6:15 pm

Re: 401k Investment options

Post by lifeisinmirrors »

Decreasing your car expenses will be more important than your fund selection, but I'd get to 80% stock with half in Vanguard Balanced Index, half in Vanguard 500 Index. With that income you should really be saving more.
averagedude
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Joined: Sun May 13, 2018 3:41 pm

Re: 401k Investment options

Post by averagedude »

Many ways to slice and dice, but my recommendations are to use these 6 funds. This would be a boglehead type portfolio with 20% bonds and a 60/40 split between US and International.

33% VFIAX Vanguard 500 index fund. 0.04%
10% VIMAX Vanguard mid cap index. 0.05
5% VSMAX Vanguard small cap index. 0.05
25% VDVIX Vanguard developed index 0.17
7% VEMAX Vanguard emerging index. 0.14
20% VBILX Vanguard intermediate term index. 0.07

You would have to do the math if you wanted less or more in International stocks, or if you wanted to tilt your portfolio to asset classes that you believe will outperform over your long time horizon since you are 33 years old.
Topic Author
Aku09
Posts: 64
Joined: Wed Jan 09, 2019 11:29 am

Re: 401k Investment options

Post by Aku09 »

Thanks everyone for the replies. My wife doesn’t have any retirement options available to her as far as she knows (started about 4 months ago). There has been contract disputes with the union and the school district about pay (not enough) so she doesn’t even have a contract with work. I will look into a spousal IRA for her. Would that be more beneficial than me maxing my 401k first?

I realize car expenses are high. The financed vehicle will be paid off in about 2.5 years and the lease is pretty much brand new (3 years). I do realize it is over what I need. No way to get rid of or reduce the amount.

I currently pay nearly $2300 a month towards the student loans. Those have been my priority for a while. All of our extra money has gone towards those. Started with nearly 150k and down to 108 within 2-2.5 years. As such we don’t have any savings other than 3 months worth of expenses for emergencies. Since her job is so new we haven’t allocated what her extra income goes toward. Starting off at $500 a month in retirement to see how our overall budget is effected. Would probably put more towards student loans after that point since it is a guranteed 4+% return.

Thanks for your recommendations for 401k allocation. I will look into those options more closely.
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telemark
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Re: 401k Investment options

Post by telemark »

When I see a long list of 401K options I like to start by sorting them by expense ratios, because sometimes good funds get overlooked in the scrum. In this case this produces

Code: Select all

Key Guaranteed Portfolio Fund Fixed N/A / N/A
Vanguard 500 Index Admiral 0.04 VFIAX
Vanguard Mid Cap Index Fund - Admiral 0.05 VIMAX
Vanguard Small Cap Index Adm 0.05 VSMAX
Vanguard Balanced Index Adm 0.07 VBIAX
Vanguard Interm-Term Bond Index Adm 0.07 VBILX
Vanguard Emerging Mkts Stock Idx Adm 0.14 VEMAX
Vanguard Long-Term Bond Index Inv 0.15 VBLTX
Vanguard Developed Markets Index Inv 0.17 VDVIX
American Funds Growth Fund of Amer R6 0.33 RGAGX
JPMorgan Core Bond R6 0.35 JCBUX
DFA US Targeted Value I 0.37 DFFVX
JPMorgan Large Cap Growth R6 0.44 JLGMX
American Funds EuroPacific Gr R6. 0.49 RERGX
Virtus Newfleet Low Duration Income I. 0.51 HIBIX
JPMorgan SmartRetirement Income R5 0.52 JSIIX
Principal Equity Income Inst 0.52 PEIIX
JPMorgan SmartRetirement 2020 R5 0.55 JTTIX
PIMCO Total Return Instl 0.55 PTTRX
JPMorgan SmartRetirement 2025 R5 0.57 JNSIX
JPMorgan SmartRetirement 2030 R5 0.58 JSMIX
JPMorgan SmartRetirement 2035 R5 0.58 SRJIX
JPMorgan SmartRetirement 2040 R5 0.59 SMTIX
JPMorgan SmartRetirement 2050 R5 0.59 JTSIX
JPMorgan SmartRetirement 2055 R5 0.59 JFFIX
JPMorgan SmartRetirement 2045 R5 0.60 JSAIX
American Funds New World R6. 0.62 RNWGX
Victory Sycamore Established Value I 0.62 VEVIX
BlackRock High Yield Bond Instl 0.63 BHYIX
Templeton Global Bond Adv 0.71 TGBAX
BlackRock Equity Dividend Instl 0.73 MADVX
Ivy Mid Cap Growth I 0.79 IYMIX
BlackRock Global Allocation Instl 0.84 MALOX
Ivy Asset Strategy I 0.84 IVAEX
JHancock Disciplined Value Mid Cap I 0.85 JVMIX
TCW Emerging Markets Income I 0.87 TGEIX
Voya Global Real Estate W 1.01 IRGWX
Virtus KAR Small-Cap Core I 1.07 PKSFX
First Eagle Overseas A 1.15 SGOVX
AMG Yacktman Focused N 1.27 YAFFX
PIMCO Long-Term Real Return Inst. 1.29 PRAIX
JHancock Global Absolute Rtrn Strats I. 1.34 JHAIX
leading to a clear conclusion: stick to the Vanguard funds. The two best ways to do that have already been suggested.

Personally, I like a slice of REIT but I would not recommend that here: the only fund is too expensive to bother with.
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ruralavalon
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Location: Illinois

Re: 401k Investment options

Post by ruralavalon »

Welcome to the forum :) .

There are some excellent funds offered in your 401k, and that's a very good employer contribution. You are fortunate.


Asset allocation.
At age 33/34 a 20% bond allocation is within the range of what is reasonable in my opinion.

I suggest around 20-30% of stocks in international stocks. Historically 30% of stocks in international stocks would have captured about 99% of the maximum diversification benefit, and 20% of stocks in international stocks would have captured about 85% of the benefit. Please Google the Vanguard paper "Considerations for Investing in Non-U.S. Equities", see p.6.

That works out to about 20% bonds, 20% international stocks, and 60% domestic stocks. Asset allocation is a very personal decision which you must make based on your own personal ability willingness and need to take risk.


Priority.
I think you are right to place a high priority on paying off the student debt. Please see the wiki article "Prioritizing Investments".

Her extra $1k per month could be used
1) to pay off student debt more rapidly,
2) to pay family living expenses in order to enable you to contribute more to your 401k (in 2019 the annual maximum employee contribution permitted is $19k),
3) to start an IRA for her at a low cost provider like Vanguard ($6k annual maximum), or
4) some combination of the above.
(For what it's worth, my own personal choice would be # 2. The annual 401k limit is on a use-it-or-lose-it basis, you can't make it up in a later year if you don't use it all this year.)


Fund selection.
In your 401k I suggest using:
1) 60%, Vanguard 500 Index Fund Admiral Shares (VFIAX) ER 0.04%;
2) 15%, Vanguard Developed Markets Index Fund Investor Shares (VDVIX) ER 0.17%;
3) 05%, Vanguard Emerging Markets Index Fund Admiral Shares (VEMAX) ER 0.14%; and
4) 20%, Vanguard Intermediate-term Bond Index Fund Admiral Shares (VBILX) ER 0.07%.

I suggest a total stock market index fund for domestic stocks whenever available.

A S&P 500 index fund is reasonable by itself for investing in domestic stocks. A 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. In the 26 years since the creation of the first total stock market index fund the two types of funds have had almost identical performance.

A 3/1 ratio of developed/emerging markets will mimic a total international stock index fund.

In my opinion Vanguard Intermediate-term Bond Index Fund is a suitable bond fund for a three-fund type portfolio. (For what it's worth, that is the bond fund we use for our bond allocation.)
Last edited by ruralavalon on Sun Jan 13, 2019 3:45 pm, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
Topic Author
Aku09
Posts: 64
Joined: Wed Jan 09, 2019 11:29 am

Re: 401k Investment options

Post by Aku09 »

Thank you very much everyone. I appreciate all of the input. Ive been researching the recommendations given so far and will be putting serious thought into my portfolio over the next week or two before switching into vanguard funds. I think an 80/20 allocation is good for me at this point in my life. Still debating on international stock percentages and have been reading past threads for wisdom.
Topic Author
Aku09
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Joined: Wed Jan 09, 2019 11:29 am

Re: 401k Investment options

Post by Aku09 »

Just an update. I looked at all the different options everyone posted and ended up going with ruralavalons suggestion. Personally I’m not 100% sold on international stocks although several readings give them merit. I figure 20% gives me sufficient exposure to them.

I changed my 401k contribution online and then when I emailed my contact person for my job I was told we can only decrease/increase contribution amount once a quarter which I was unaware of. I missed it by 2 weeks. So it will be April’s paycheck before I can contribute extra to my 401k. I will take the contributions that I would have made and pay towards my student loans until then.

Thanks to everyone for you comments and advice.
Topic Author
Aku09
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Joined: Wed Jan 09, 2019 11:29 am

Re: 401k Investment options

Post by Aku09 »

I always like to read updates from people asking questions so I thought I would post one at the year mark. Things have changed dramatically at work and we have lost several people and have been unable to find more full timers to take the job so we got a considerable raise in the fall. I now make 200k salary w2 and we are able to work in our vacation or off days for $105 an hour. I added an extra 15k to my salary by working extra this year. Unfortunately it’s been a lot more hours overall because of the loss of people and I don’t see it changing for 6-9 months at the earliest. Starting to get a bit burned out, but I can continue for awhile at this pace.

I did contribute the max to my HSA and with the raise we got in the fall I started maxing out my 401k. Unfortunately my wife had surgery last year and has already had pneumonia this year ($2600 out of pocket this year for an ER visit) so my HSA balance hasn’t grown much. I have actually paid 3k out of pocket and have saved the receipts to get a payment if an emergency arises.

Current totals:
HSA 14k
401k 63k

We actually started contributing to her schools retirement after talking to an American Fidelity rep who lied repeatedly we found out after the fact. Every fund had huge load fees and ERs along with annual maintenance fees. After seeing the prospectus about a month after starting we cashed out and are just paying down debt instead.

We managed to pay off her vehicle in September and currently have a balance of 78.5k on my student loans. Should be done with my student loans by the end of 2021. We have also cash flowed 4 classes for my wife working on her masters.

Insurance costs have gone up again at work and I now pay over $1200 a month for a 6k deductible. It drives me nuts and I work in healthcare.

I check the website and read the forums multiple times a day and wanted to thank everyone for their advice. Not quite as thrifty as I could be, but have made advancements this year.
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ruralavalon
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Re: 401k Investment options

Post by ruralavalon »

Debt: Mortgage 300k @ 3.25%; Student loans 108k @ 4.125%; Vehicles (1. I owe 12k @ 3.5%, 2. a lease @ $505 a month)
We managed to pay off her vehicle in September and currently have a balance of 78.5k on my student loans. Should be done with my student loans by the end of 2021. We have also cash flowed 4 classes for my wife working on her masters.
Congratulations :) :) on paying off a lot of that student debt @ 4.125% and the car loan @3.5%.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
lakpr
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Re: 401k Investment options

Post by lakpr »

+1

Paying off $42k in debt while maxing out the 401k AND cash flowing your wife's classes AND paying off health expenses for surgery .... at the bare minimum that is a reduction in debt that is existing and that could have accrued, of $50k. All, on a single income. The word IMPRESSIVE does not even begin to describe your accomplishment. Bravo sir, take a bow
Topic Author
Aku09
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Joined: Wed Jan 09, 2019 11:29 am

Re: 401k Investment options

Post by Aku09 »

Thanks for the encouragement.

I did manage to refinance my student loans twice more in 2019. First time was in July for a 3.39% 5 year fixed. Second time was at the end of October on a 5 year variable which is currently 1.81%. I figured with my accelerated payoff pattern of 2 years or so that I should save a significant amount in interest even if rates jump up a year from now. Rates have been 2.01-1.71% since I refinanced to the variable.

Goals for this year are to continue to max my 401k and HSA and pay down as much towards my student loans that I can. Continue to cash flow my wife’s graduate school classes.

Things that aren’t as boglehead as they could be.
1. We hired someone to help clean our home (an older lady I work with). She comes once a week and we pay $75 for 4-5 hours. With my schedule getting more hectic and my wife going back to teaching it was becoming a sticking point and this was the best solution.
2. I have a few expensive vacations this year. I told my kids when they turn 10 they get to pick the vacation. Last year my daughter picked Universal Orlando and we did that. This year my son has picked a Disney Cruise. For a family of 5 going in the summer it’s a tad over $7k for a 4 night cruise. We are also going to the beach for spring break. While the cruise is more than I would like to spend I feel it’s important to uphold my word. I can cash flow it so I won’t have to go in debt for it.
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