Help choosing 401k funds

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
ososnilknarf
Posts: 95
Joined: Mon Feb 18, 2019 7:08 pm

Help choosing 401k funds

Post by ososnilknarf »

Hello,
This is my first post here. I am 49 and have been investing for 10+ years entirely in retirement accounts (401k's, IRAs, Roths). I'm currently in a mix of funds and individual stocks, split between my wife's accounts and my accounts.
I've been tracking my returns closely for over 10 years now, and I find that I've slightly lagged the S&P returns when including dividends (you can look that up for any time period with this nifty online calculator: https://dqydj.com/sp-500-return-calculator/).
So, given that fact, I've finally come to accept that it isn't worth the effort of managing a portfolio of individual stocks when I'm not even going to beat the index.
And as I'm turning 49 this month, I figure maybe its time I added at least some bonds to my portfolio. I'm comfortable with being fairly aggressive, maybe an 80/20 mix.

Hence, I'm here to ask for help from the bogleheads! :)


Current retirement assets

His 401k at Merrill Lynch
$117k Pre-tax
$21k Roth

His Rollover IRA at Ally
$85k

His Rollover IRA(2) at Ally
$27k

His Roth IRA at Ally
$43k

Her Roth IRA at Ally
$23k

Her SIMPLE 5305 IRA at Fidelity
$9k

Total of All Accounts:
$325k

Contributions

New annual Contributions
$6000 his Roth
$6000 her Roth
$18k his 401k employee contribution
$5k his 401k employer match
$7200 her SIMPLE IRA employee contribution
$3600 her SIMPLE IRA employer match


Funds available in his 401(k)

Equity/Stock
American Beacon Small Cap Value R6 AASRX 0.81
American Funds Growth Fund of Amer R6 RGAGX 0.33
American Funds Washington Mutual R6 RWMGX 0.29
Baron Growth Instl BGRIX 1.04
BlackRock Equity Indx Fund Non-Lending O 0.13
DFA Global Real Estate Securities Port DFGEX 0.37
Hartford International Opportunities R5 IHOTX 0.83
Invesco Equity and Income R6 IEIFX 0.40
MFS International New Discovery R6 MIDLX 0.95
Oakmark Investor OAKMX 0.90
Vanguard Mid Cap Index Institutional VMCIX 0.04
Vanguard Small Cap Index I VSCIX 0.04
Vanguard Total International Bond Index Fund (Class I Shares) VTIFX 0.07
Vanguard Total Intl Stock Index I VTSNX 0.09

Bond/Fixed Income
Fidelity® US Bond Index FXNAX 0.03
Frost Total Return Bond Inst FIJEX 0.48
Goldman Sachs High Yield Instl GSHIX 0.75
Vanguard Inflation-Protected Secs I VIPIX 0.07

Allocation Funds
BlackRock Global Allocation Instl MALOX 0.91

Stable Value Fund
Invesco Stable Value Retirement Fund CL1 0.36



Funds available in her SIMPLE IRA at Fidelity

There are far too many to list here, so here is a link to a pdf of the application form that has all of them:
https://drive.google.com/file/d/1rPEAsJ ... sp=sharing


Questions:
1) I'd like some help trying to pick the best funds for a 3-fund portfolio in the ML 401k. As you can see it does have some Vanguard funds available, but not the S&P index, or total stock market index.

2) I'd also like some helpful suggestions as to how to allocate the various funds across the accounts. Should I try to build a complete 3-fund portfolio in each account? Or would it be better to try to put all of one asset in one account, all of another in others, etc. What method do others tend to use? I'm guessing there are trade-offs between efficiency in terms of costs vs ease of management and rebalancing?
Last edited by ososnilknarf on Thu Feb 21, 2019 12:40 pm, edited 2 times in total.
lakpr
Posts: 6733
Joined: Fri Mar 18, 2011 9:59 am

Re: Help choosing 401k funds

Post by lakpr »

The Blackrock Equity Index Fund available in your 401k tracks the largest 500 companies, I believe they do not want to use the S&P name but it is essentially the same thing. It is slightly more expensive at 0.13% expense ratio than Vanguard funds.

Given that you are 49, I would suggest you keep at least 35% to 40% in bonds. I am a believer in "Age-10 in bonds" philosophy. "Age-15" if you are more adventurous type.

His 401k
===========
* 40% in Blackrock Equity Index fund
* 10% in Vanguard Small Cap Index VSCIX
* 10% in Vanguard Total Intl Stock Index VTSNX
* 40% in Fidelity US Bond Index FXNAX

I included international stocks in there, but that is a decision you want to take yourself. It is perfectly fine if you want to omit international stocks, you would add to Blackrock fund instead.

Roll your rollover IRAs into ML 401k into the same proportions as above. You should not have any traditional or Rollover IRAs, if there will be need in the future to do backdoor Roth IRAs. Or, convert them to Roth IRAs instead if you can absorb the tax hit.

All your Roth accounts should be invested in 100% stock funds to have the greatest potential for growth. See the wiki article on Tax Efficient Placement of funds.

Regarding your wife, is this her own business? Instead of a Simple IRA, can she open a Solo 401k instead, and roll all her funds into there? The objective again, is to clear the decks for future backdoor Roths, should the need arise.
Thecallofduty
Posts: 90
Joined: Sat Jan 19, 2019 10:59 am

Re: Help choosing 401k funds

Post by Thecallofduty »

In regards to your second question. For example you dont want to put 80% stocks 20% bonds in each seperate account. The cmulative total of all accounts should add up to 80% stocks and 20% bonds. Hope that helps
-thecallofduty
User avatar
ruralavalon
Posts: 20201
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Help choosing 401k funds

Post by ruralavalon »

In each of your four IRAs at Ally what investments do you have, CDs or something else? If in CDs, what maturities and interest rates? If savings accounts, what interest rates?

Is Fidelity the custodian for her SIMPLE IRA?

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 your information is in one place.

CDs can be your fixed income investment, your fixed income allocation does not necessarily have to be in a bond fund.

At age 49 my suggestion would be around 30-35% in fixed income.

In your 401k plan the better funds to consider using are:
1) BlackRock Equity Index Fund Non-lending (a S&P 500 index fund) ER 0.13%;
2) Vanguard Total International Stock Index Fund Institutional (VTIFX) ER 0.07%; and
3) Fidelity U.S. Bond Index Fund (FXNAX) ER 0.03%.

It's often better to coordinate investments among all accounts, treating all accounts together as a single unified portfolio, rather than try to put all elements of your investing plan in each account.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
User avatar
mhadden1
Posts: 729
Joined: Tue Mar 25, 2014 8:14 pm
Location: North Alabama

Re: Help choosing 401k funds

Post by mhadden1 »

Regarding asset allocation, a data point of interest might be the Vanguard 2035 target date fund, which appears to be right around 22% bonds.
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.
Topic Author
ososnilknarf
Posts: 95
Joined: Mon Feb 18, 2019 7:08 pm

Re: Help choosing 401k funds

Post by ososnilknarf »

Thank to everyone for your replies!

This has given me a lot to think about. I was thinking, "okay, nice and simple, I'll just pick some funds and keep them in tax advantaged accounts, and all I need to worry about is which funds and allocation amounts". But now you've got me thinking about back-door Roth conversions, something totally new to me, and converting IRAs to Roths, etc. Also, I hadn't considered putting as much of the stock funds into the Roths since they will likely grow the most.

I've got a bunch more questions now, but no time to write them right now. I'll come back later with some more detailed questions, and edit the top post with more detailed info.

Thanks again.
Topic Author
ososnilknarf
Posts: 95
Joined: Mon Feb 18, 2019 7:08 pm

Re: Help choosing 401k funds

Post by ososnilknarf »

Okay, I've edited the original post to include some important info:
My wife's SIMPLE is at Fidelity, and there are tons of funds to choose from, so I just put a link to the plan document.
There is a Roth 401k option in my Merrill Lynch 401k plan. I added the amount currently invested there.
ruralavalon wrote: Tue Feb 19, 2019 10:14 am In each of your four IRAs at Ally what investments do you have, CDs or something else? If in CDs, what maturities and interest rates? If savings accounts, what interest rates?
No, I don't have any CD's, I'm currently 100% in individual stocks and stock funds. (I want to switch to 100% boglehead portfolio)
ruralavalon wrote: Tue Feb 19, 2019 10:14 am Is Fidelity the custodian for her SIMPLE IRA?
Yes, it is. There are a ton of funds to choose from and I could use some guidance there.
ruralavalon wrote: Tue Feb 19, 2019 10:14 am In your 401k plan the better funds to consider using are:
1) BlackRock Equity Index Fund Non-lending (a S&P 500 index fund) ER 0.13%;
2) Vanguard Total International Stock Index Fund Institutional (VTIFX) ER 0.07%; and
3) Fidelity U.S. Bond Index Fund (FXNAX) ER 0.03%.
Thank you for the fund suggestions. Those look like solid choices.
Would you recommend adding either the Vanguard Mid or Small Cap index funds to balance out the BlackRock large caps? If I wanted to try to replicate a total US stock fund, what percentages would I use for each of those 3 (Black Rock, VG Mid, VG Small)?
ruralavalon wrote: Tue Feb 19, 2019 10:14 am It's often better to coordinate investments among all accounts, treating all accounts together as a single unified portfolio, rather than try to put all elements of your investing plan in each account.
The part about this that seems very difficult is that I'll be making contributions to all of the different accounts at different rates, and to keep the balance correct sounds like a challenge. I'd be interested in hearing about how others approach this problem?

Again thanks for the replies. I'm very grateful for the help.
User avatar
ruralavalon
Posts: 20201
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Help choosing 401k funds

Post by ruralavalon »

Her SIMPLE IRA.
Is is disappointing to see only high expense, actively managed Fidelity Advisor funds offered on her SIMPLE IRA enrollment form, with no inexpensive Fidelity index funds.

Is her SIMPLE IRA a 5304 plan or a 5305 plan? How long has she been contributing to the plan? It may be best to transfer her account to some other provider.


IRAs at Ally Bank.
I am not familiar with Ally IRAs. Per their website Ally Bank offers 12,000 funds in their IRAs, but there is a fee of $9.95 per trade on mutual funds.

Are there traditional mutual funds or Exchange Traded Funds (ETFs) which can be used with no transaction fees?

Is there some benefit to you for using an IRA with Ally Bank?


His 401k.
I prefer a total stock market index fund where available. Otherwise a S&P 500 index fund such as offered in his 401k is good enough 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 27 years since the creation of the first total stock market index fund the performance of the two types of funds has been almost identical.

If you wanted to add some Vanguard Small-cap Index Fund Institutional (VSCIX) then an 82/18 mix of S&P 500/small-cap would mimic the content of a total stock market index fund. Please see the wiki article "Approximating Total Stock Market". In my opinion it is not necessary to add the small-cap fund, it is optional if you wish to do that.


Maintaining asset allocation.
Maintaining the desired asset allocation over several accounts seems difficult in the abstract but is often simple in practice. Many people find it necessary to rebalance just once per year, or even less frequently. Please see the wiki article"Rebalancing".

I often suggest that at least one large tax-advantaged account which recieves large contributions contain all three basic asset classes (bonds, domestic stocks, and international stocks), in your case that could be his 401k. That way the desired asset allocation can be maintained simply by exchanging between funds inside that one account.

It's also possible to set up automatic contributions in a way which tends to keep the asset allocation on target.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
Topic Author
ososnilknarf
Posts: 95
Joined: Mon Feb 18, 2019 7:08 pm

Re: Help choosing 401k funds

Post by ososnilknarf »

ruralavalon wrote: Wed Feb 20, 2019 10:48 am Her SIMPLE IRA.
Is is disappointing to see only high expense, actively managed Fidelity Advisor funds offered on her SIMPLE IRA enrollment form, with no inexpensive Fidelity index funds.

Is her SIMPLE IRA a 5304 plan or a 5305 plan? How long has she been contributing to the plan? It may be best to transfer her account to some other provider.
I've been trying to find answers to your question about 5304, 5305 but not having much success. I'm pretty in the dark about what a SIMPLE IRA is. She works for a small company, and this is the retirement plan they offered. They have a company match (3% I think) so it makes sense to at least contribute that much to it.
I guess the question is does it make sense to contribute above the company match, seeing as it is still in a tax advantaged account? Or does it make more sense instead to put after-tax money in a low-fee index fund in a taxable account?
ruralavalon wrote: Wed Feb 20, 2019 10:48 am IRAs at Ally Bank.
I am not familiar with Ally IRAs. Per their website Ally Bank offers 12,000 funds in their IRAs, but there is a fee of $9.95 per trade on mutual funds.

Are there traditional mutual funds or Exchange Traded Funds (ETFs) which can be used with no transaction fees?

Is there some benefit to you for using an IRA with Ally Bank?
The only reason I have Ally is because I had these accounts at TradeKing, and Ally Invest bought TradeKing. They didn't really change anything when they bought it. It is just a discount online brokerage (in fact when I log into my account the url still switches to tradeking even though the page content has been rebranded). They do have just about any Vanguard index fund or ETF I've searched for. Their commision fee for equities and ETFs is $3.95 per trade.
They have a pretty weak selection of commision free ETFs: https://www.ally.com/invest/self-direct ... d-ic-panel
I have no particular reason to stay there, and that brings another question:
Now that I'll only be buying mutual funds, does it make sense to keep my money at Ally, or transfer my accounts to Vanguard or Fidelity?
ruralavalon wrote: Wed Feb 20, 2019 10:48 am Maintaining asset allocation.
Maintaining the desired asset allocation over several accounts seems difficult in the abstract but is often simple in practice. Many people find it necessary to rebalance just once per year, or even less frequently. Please see the wiki article"Rebalancing".

I often suggest that at least one large tax-advantaged account which recieves large contributions contain all three basic asset classes (bonds, domestic stocks, and international stocks), in your case that could be his 401k. That way the desired asset allocation can be maintained simply by exchanging between funds inside that one account.

It's also possible to set up automatic contributions in a way which tends to keep the asset allocation on target.
Thanks that helps quite a bit when I think about it. If stocks are my largest asset, I could just put stocks in all of the other accounts, then do all of the balancing in the largest 401k account. That makes sense.
lakpr
Posts: 6733
Joined: Fri Mar 18, 2011 9:59 am

Re: Help choosing 401k funds

Post by lakpr »

ososnilknarf wrote: Wed Feb 20, 2019 1:56 pm The only reason I have Ally is because I had these accounts at TradeKing, and Ally Invest bought TradeKing. They didn't really change anything when they bought it. It is just a discount online brokerage (in fact when I log into my account the url still switches to tradeking even though the page content has been rebranded). They do have just about any Vanguard index fund or ETF I've searched for. Their commision fee for equities and ETFs is $3.95 per trade.
They have a pretty weak selection of commision free ETFs: https://www.ally.com/invest/self-direct ... d-ic-panel
I have no particular reason to stay there, and that brings another question:
Now that I'll only be buying mutual funds, does it make sense to keep my money at Ally, or transfer my accounts to Vanguard or Fidelity?
I'd suggest Merrill Edge, they not only have a bonus for bringing in money from other brokerages, but you can buy ETFs for no fee. There is no reason to get hung up on Mutual Funds vs. ETFs, they serve the same end purpose. With Merrill Edge, you will qualify for their Platinum Honors status, and if you get the Bank of America Cash Rewards card, you have a card with an excellent cash rewards structure: 5.25% gas, 3.5% groceries, 1.75% on everything else.
User avatar
ruralavalon
Posts: 20201
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Help choosing 401k funds

Post by ruralavalon »

Her SIMPLE IRA.
How and when she switches to a new provider depends on whether her SIMPLE IRA is 5304 plan or a 5305 plan. Please see the wiki article "SIMPLE IRA".

It's going to be worthwhile to contribute more to her SIMPLE IRA.

Contributions to a tax-deferred account will almost always better than to a taxable account.


IRAs
I suggest rolling the IRAs over to IRAs at Vanguard. It does not make sense to keep your IRAs at Ally Bank. There is no need to pay any transaction fees.

Vanguard offers far the largest selection of low expense mutual funds offered anywhere. Vanguard also offers the largest selection of ETFs with no transaction fees. I also like Vanguard's mutual structure, reducing or eliminating conflicts of interest.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
Topic Author
ososnilknarf
Posts: 95
Joined: Mon Feb 18, 2019 7:08 pm

Re: Help choosing 401k funds

Post by ososnilknarf »

Okay, just found out it is a 5305. That is sill meaningless to me, so I'll go read up on that article you mentioned.
Topic Author
ososnilknarf
Posts: 95
Joined: Mon Feb 18, 2019 7:08 pm

Re: Help choosing 401k funds

Post by ososnilknarf »

Okay, I read it. Looks like she's stuck in that Fidelity SIMPLE IRA account with the crappy managed funds.
So, I guess the next question is which fund(s) to hold in that account from among the expensive managed options.
Topic Author
ososnilknarf
Posts: 95
Joined: Mon Feb 18, 2019 7:08 pm

Re: Help choosing 401k funds

Post by ososnilknarf »

lakpr wrote: Mon Feb 18, 2019 9:57 pm The Blackrock Equity Index Fund available in your 401k tracks the largest 500 companies, I believe they do not want to use the S&P name but it is essentially the same thing. It is slightly more expensive at 0.13% expense ratio than Vanguard funds.

Given that you are 49, I would suggest you keep at least 35% to 40% in bonds. I am a believer in "Age-10 in bonds" philosophy. "Age-15" if you are more adventurous type.

His 401k
===========
* 40% in Blackrock Equity Index fund
* 10% in Vanguard Small Cap Index VSCIX
* 10% in Vanguard Total Intl Stock Index VTSNX
* 40% in Fidelity US Bond Index FXNAX

I included international stocks in there, but that is a decision you want to take yourself. It is perfectly fine if you want to omit international stocks, you would add to Blackrock fund instead.

Roll your rollover IRAs into ML 401k into the same proportions as above. You should not have any traditional or Rollover IRAs, if there will be need in the future to do backdoor Roth IRAs. Or, convert them to Roth IRAs instead if you can absorb the tax hit.

All your Roth accounts should be invested in 100% stock funds to have the greatest potential for growth. See the wiki article on Tax Efficient Placement of funds.

Regarding your wife, is this her own business? Instead of a Simple IRA, can she open a Solo 401k instead, and roll all her funds into there? The objective again, is to clear the decks for future backdoor Roths, should the need arise.
Okay, so I had to go read a lot of stuff about backdoor Roths as this was all new to me. Thank you for pointing me to this as its been completely off my radar.
Let me explain my understanding of my situation based on what I've learned and hopefully you can correct any misconceptions, if any.

We have been starting to bump up against the income limits for contributing to our Roths, so I think this is something I need to start considering. During the last part of 2018 I started to realize our AGI was going to be in the range to start phasing out the allowed Roth contribution. So for the last part of the year I cranked up my 401k contributions to keep the AGI low enough to make the max Roth contributions in both his and her Roths.

Now, as I understand it the purpose of the backdoor Roth is to allow me to continue making a contribution to a Roth by first making an after-tax tIRA contribution, then converting it to a Roth contribution. But in order to do this without having to deal with the complex pro-rata tax situation, I want to be rid of any other pre-tax IRA accounts. This is why you are suggesting transferring them to my 401k account.

So I contacted Merrill Lynch to confirm that they accept IRA transfers into their 401k, and they do so it looks like I can take advantage of this.

Does it sound like I have the right idea with respect to this?
lakpr
Posts: 6733
Joined: Fri Mar 18, 2011 9:59 am

Re: Help choosing 401k funds

Post by lakpr »

Yes you got it perfectly!
Post Reply