New ADP 401k just dropped. Which funds? Portfolio shuffle?

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NorCalGaal
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New ADP 401k just dropped. Which funds? Portfolio shuffle?

Post by NorCalGaal » Tue Jun 04, 2019 10:19 pm

Thanks for opening this! Mr. NorCal's employer is switching from Dimensional Fund Advisors to ADP's 401k on July 1. We're trying to figure out which funds to go with, and whether we're in for a full portfolio shuffle. Our preference is to keep things simple, with good quality overall, even if it means paying a bit more in the end. We like index funds, and are buy and holders.

If this was your portfolio, which new ADP 401k funds would you choose? And would you shuffle anything anywhere? Thanks so much for your input!

Emergency Fund: $47k in Schwab High Yield Savings
Debt: None
Tax Filing Status: MFJ. No kids/dependents.
Tax Rate: 2018 22% Fed (effective 13.3%), 9.3% State (effective 4.3%)
State of Residence: CA
Age: Mr. 56, Mrs. 51
Desired AA: 60/40. Currently 57/43
Desired International allocation: Around 20%. At 9% now.
Current Portfolio Size (excluding Emergency Fund): $630k
Average Annual Savings Rate (last 3 years): 53% of net income

As of 6/1/2019:
Taxable account @ Schwab (21% of portfolio)
56% Schwab Total Stock Market Index (SWTSX) ER 0.03%
44% Schwab International Index Fund (SWISX) ER 0.06%

His current 401k @ Dimensional Fund Advisors (25% of portfolio)
This will be moving to new ADP 401k funds July 1. ADP funds to follow below.
49% DFA US Core Equity 1 (DFEOX) ER 0.19%.
51% DFA Investment Grade Bond (DFAPX) ER 0.22%

His Roth IRA @ Vanguard (28% of portfolio)
54% Vanguard Total Stock Market Index Fund Admiral (VTSAX) ER 0.04%
46% Vanguard Intermediate-Term Bond Index Fund Admiral (VBILX) ER 0.07%

His traditional IRA @ Vanguard (1% of portfolio)
100% Vanguard Intermediate-Term Bond Index Investor (VBIIX) ER 0.15%

Her Roth IRA @ Vanguard (17% of portfolio)
49% Vanguard Total Stock Market Index Fund Admiral (VTSAX) ER 0.04%
51% Vanguard Intermediate-Term Bond Index Admiral (VBILX) ER 0.07%

Her traditional IRA @ Vanguard (4% of portfolio)
100% Vanguard Intermediate-Term Bond Index Admiral (VBILX) ER 0.07%

His HSA (family) @ TD Ameritrade (4% of portfolio)
100% Vanguard Intermediate-Term Bond Index Fund ETF (BIV) ER 0.07%

Contributions for 2019
$31k total to His 401k (our $25k plus $6,000 employer match). Right now we have the 401k set to have 100% of contributions go to DFA Investment Grade Bond (DFAPX).
$7,000 to His Roth IRA, done in January. Per His income no tIRA deduction. 100% to VBILX.
$7,000 to Her Roth IRA, done in January. 100% to VBILX.
Not eligible to contribute to HSA this year as employer changed health plans to a non-HDHP.

Total projected contributions to tax advantaged accounts for 2019: $45k (our contributions $39k).
Total anticipated contributions to taxable or savings for 2019: $12k or more. $9,300 already contributed to savings.

Available Funds

Funds available in his new 401k as of 7/1/2019
Fidelity 500 Index Fund (FXAIX) ER 0.02% This is what the old DFA US Core Equity 1 (DFEOX, ER 0.19) fund will automatically roll over to, if we don't change it
AB Large Cap Growth Fund Class Z Large Growth (APGZX) ER 0.57%
Fidelity Small Cap Index Fund (FSSNX) ER 0.03%
Fidelity Mid Cap Index Fund (FSMDX) ER 0.03%
Blackrock Mid Cap Growth Equity Fund Class K (BMGKX) ER 0.75%
Fidelity International Index Fund (FSPSX) ER 0.05%
American Funds New Perspective Fund Class R6 World Stock (RNPGX) ER 0.45%
Vanguard Real Estate Index Fund Admiral (VGSLX) ER 0.12%
Janus Henderson Global Technology Fund Class N (JATNX) 0.69%

Voya Intermediate Bond Fund Class R6 (IIBZX) ER 0.31% This is what the old DFA Investment Grade Bond (DFAPX, ER 0.22) fund will automatically roll over to, if we don't change it, but the ER seems high-?
Ivy High Income Fund High Yield Bond Class N (IHIFX) ER 0.57%

TIAA-CREF Lifecycle Index Institutional Class:
2015 (TLFIX) Net ER 0.10%, Gross ER 0.23%
2020 (TLWIX) Net ER 0.10%, Gross ER 0.21%
2025 (TLQIX) Net ER 0.10%, Gross ER 0.20%
2030 (TLHIX) Net ER 0.10%, Gross ER 0.20%
2035 (TLYIX) Net ER 0.10%, Gross ER 0.19%
2040 (TLZIX) Net ER 0.10%, Gross ER 0.19%
2045 (TLXIX) Net ER 0.10%, Gross ER 0.20%
2050 (TLLIX) Net ER 0.10%, Gross ER 0.20%
2055 (TTIIX) Net ER 0.10%, Gross ER 0.24%
2060 (TVIIX) Net ER 0.10%, Gross ER 0.48%

2060 ER range 0.19-0.48
MetLife Wilmington Stable Value Fund Series 25554 Class J. Benchmark: US Treasury T-Bill Constant Maturity Rate 3 year ER 0.49%

Low fee funds available in IRAs:
All appropriate Vanguard funds

Low fee funds available in Taxable:
All appropriate Schwab funds

Low fee funds available in HSA:
All appropriate TD Ameritrade funds
Last edited by NorCalGaal on Thu Jun 06, 2019 7:11 pm, edited 2 times in total.

lakpr
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Re: New ADP 401k just dropped. Which funds? Portfolio shuffle?

Post by lakpr » Wed Jun 05, 2019 5:06 am

Can you expand on the lifecycle fund expense ratios and tickers? There might be a lifecycle fund in there with a very high allocation to bonds that you may be able to use as a proxy bond fund.

one thing I noticed is that you are carrying bonds in Roth IRAs. Try shifting those bonds into the 401k plan instead

blackholescion
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Re: New ADP 401k just dropped. Which funds? Portfolio shuffle?

Post by blackholescion » Wed Jun 05, 2019 5:47 am

As lakpr said, move those bonds in Roth to equities and buy an equivalent amount of bonds in your 401k to maintain your AA. Since your returns aren’t taxed, you want to maximize them and therefore the bonds are keeping your total returns suppressed. Meanwhile in your 401k, more bonds means a lower balance which means less RMD and taxes.

The funds that are defaulted are honestly good. You can easily just stick to them and check back at retirement age.

If you want to approximate total market, buy small cap at a 4:1 ratio of 500 fund to small cap (4 shares of 500 to 1 share of small cap).

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NorCalGaal
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Re: New ADP 401k just dropped. Which funds? Portfolio shuffle?

Post by NorCalGaal » Thu Jun 06, 2019 7:42 pm

Thanks for the feedback, lakpr and blackholescion!

The Roth bond catch is useful. One thought is that the Voya Intermediate Bond Fund Class R6 (IIBZX) has an ER of 0.31%, vs. the Vanguard Intermediate-Term Bond Index Fund Admiral (VBILX) ER of 0.07%. If we convert VBILX to Vanguard Total Stock Market Index Fund Admiral (VTSAX) or a VG international equities index in Roth and buy an equivalent amount of those bonds in the 401k as Voya (IIBZX), is there a way to reasonably forecast a better return in the end? If this is obvious, or obviously not forecastable given too many variables, please forgive me. Thanks.

Lakpr: Lifecycle fund ERs and tickers added to the OP. Not sure if one makes sense as a bond proxy, vs. the Voya Intermediate Bond Fund Class R6 (IIBZX, ER 0.31%). We will look at them and see if we can make sense of this, but if you have any feedback, it would be much appreciated!

blackholescion
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Re: New ADP 401k just dropped. Which funds? Portfolio shuffle?

Post by blackholescion » Thu Jun 06, 2019 8:42 pm

There isn’t really a way to forecast a better return. You can look at the past history and approximate a guess at future returns. I suspect the return is similar to the vanguard fund without looking things up.

Adding up all your old and new expense ratios (converted funds gives you a .17 better ratio in the 500 index but .09 worse on the bonds for example), you are at a net loss of .16 expense ratio when converting your bonds over to the 401k (.31-.07-.08 where .07 is vanguard current expense and .08 is gain in expense ratio if you did nothing and let your fund convert, .17-.09).

In practice, this money should come back to you in the form of tax savings. Your Roth will be a bigger tax free balance than it otherwise would have been and therefore you will end up paying less taxes in the future (won’t have to take RMD, can choose when to tap the Roth money vs 401k vs IRA).

Alternately, instead of buying more bonds in the 401k, you can slowly buy more bonds in the traditional IRA while converting the Roth bonds. This will mean slower conversion but less fees.

Finally, a third approach is to convert once now, then focus on bond allocation in your traditional Ira and move money out of the 401k bonds slowly to maintain asset allocation.

Now let’s actually look at the fees paid.

You’re talking $1.60 in extra expenses per $1000 invested at your difference of .16. I believe you have around 139k in bonds in your Roth’s. This is <$250 a year in extra fees. I’m sure you can find $250 in tax savings per retirement year when the time comes. Even if you didn’t do this calculation and get to .16 difference net, .24 (.31-.07) is $2.40 per 1k or $337 a year. I bet these numbers are a lot less daunting when you actually calculate the total dollar value! :)

You’re also probably overlooking rolling your 401k into a rollover IRA at retirement. If retirement is in 10 years, you’re out $2500-3400 in fees total. After that you convert over to a vanguard rollover IRA and go reap those dollars in tax savings.

RetiredAL
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Re: New ADP 401k just dropped. Which funds? Portfolio shuffle?

Post by RetiredAL » Thu Jun 06, 2019 9:58 pm

NorCalGaal wrote:
Tue Jun 04, 2019 10:19 pm
Thanks for opening this! Mr. NorCal's employer is switching from Dimensional Fund Advisors to ADP's 401k on July 1. We're trying to figure out which funds to go with, and whether we're in for a full portfolio shuffle. Our preference is to keep things simple, with good quality overall, even if it means paying a bit more in the end. We like index funds, and are buy and holders.
Mr Norcal needs to ask his work if this is a closing the old plan and moving everyone to a new plan. This is quite different than just changing who the plan is through. Closing means you should be able to roll-over all or part of the closing plan dollars to an IRA, thus you could create a roll-over IRA to just hold better cost bond funds/ETFs.

Years ago when my company went from an internal 401K to a Fidelity 401K, they were not forthcoming about the ability to do a roll-over, but several years later it became common knowledge via the grape vine that Fidelity had the old plan's $ in a separate bucket and that it could be withdrawn or rolled over at any time. I rolled mine. A withdrawal would have been a taxable event.

Lafder
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Re: New ADP 401k just dropped. Which funds? Portfolio shuffle?

Post by Lafder » Thu Jun 06, 2019 11:24 pm

It will be easier to calculate your AA and see the effects of the new 401k if you change all % to percent of total rather than % of account. It is an easy change since you already list % of total right there. Just change the listed % for each holding to show % of total, not adding to 100% for each account.

Then you will more easily be able to see what % holdings to move the 401k to in order to hit your desired AA and International allocation.

You can go back and edit your post above.

There are some nice low cost options offered :)

lafder

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Taz
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Re: New ADP 401k just dropped. Which funds? Portfolio shuffle?

Post by Taz » Fri Jun 07, 2019 8:24 pm

Our small company is switching out of ADP because our fund selection was terrible and the ERs/12-b1 fees were too high. Best fund was a 0.57 State Street Index 500. Only 4 index funds offered. When I had the initial notification talk with ADP today I was asked what they could do to keep us there. My response was pretty clear that the high cost and lack of index funds was a fiduciary concern.

OP, do you have an advisor attached?

Taz
The destination matters.

lakpr
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Re: New ADP 401k just dropped. Which funds? Portfolio shuffle?

Post by lakpr » Fri Jun 07, 2019 9:01 pm

NorCalGaal wrote:
Thu Jun 06, 2019 7:42 pm
Lakpr: Lifecycle fund ERs and tickers added to the OP. Not sure if one makes sense as a bond proxy, vs. the Voya Intermediate Bond Fund Class R6 (IIBZX, ER 0.31%). We will look at them and see if we can make sense of this, but if you have any feedback, it would be much appreciated!
NorCalGaal,

I see the new funds now. But there is a problem ...

You said you have $51k available to invest every year ($25k 401k contribution + $7k * 2 Roth IRA + $12k approximately in taxable).
I am deliberately not including the company match in this.

If your desired stocks to bonds ratio is 60:40, then 0.4 * $51k = $20.4k needs to be in bonds, the rest in stocks.
Tax efficient placement says that the bonds should be held in 401k plan, and stocks in Roth IRA and taxable.
So if $20.4 k needs to go into 401k plan every year, your husband's contribution to 401k should be directed as $20.4k to a bond fund, and $4.6k to a stock fund.
Let's round this, and call it a 20:80 ratio between stocks and bonds ($5k to stocks and $20k to bonds).

Trying to go the route of using a target date fund as a proxy for bonds: the earliest life cycle fund is the 2015 fund.
I looked it up, and it has 53% bonds and 47% stocks.
Obviously, I cannot use this fund exclusively for loading up on bonds in the 401k plan. I will have to use the IIBZX anyway.

If we allot 50% of the contribution to LifeCycle 2015 fund, you get 53% * 50% = 26.5% of your allocation in bonds through this fund; the rest 74% of the allocation has to be made directly to the bonds. But you have only 50% left ...

If we allot 40% of the contribution to LifeCycle 2015 fund, you get 53% * 40% = 21.2% of your allocation in bonds through this fund, and you allot the remaining 60% to IIBZX you do get to 81.2%. Slightly higher than our 80:20 allocation, but reachable.

The cumulative expense ratio of this split = 0.31% * 60% (from IIBZX) + 0.23% * 40% (from TLFIX) = .166%

If you instead contribute 80% directly to IIBZX and 20% directly to FXAIX, your effective expense ratio = 80% * 0.31% (from IIBZX allocation) + 20% * .02% = 0.25%. You save 0.08% in fees approximately per year splitting your contribution 40% to TLFIX and 60% to IIBZX.

======================================

If I do include the employer contribution into the equation, your total annual investable assets are $57k per year, 40% of this amount = 22.8k in bonds, so within the 401k contribution that makes up 90% of the allocation to bonds. I simply don't have any way of meeting that goal using the target date funds. The contribution to stocks and bonds have to made directly to the respective funds.

The expense ratio of 90% allocation to IIBZX and 10% to FXAIX = 90% * 0.31% + 10% * 0.02% = 0.28% effective expense ratio on your annual contributions.

======================================

You need to decide if you want to go with the alternatives I presented above (40:60 between TLFIX:IIBZX, or 20:80 between FXAIX:IIBZX or 10:90 between FXAIX:IIBZX). Or, decide if you will be comfortable with a higher stocks allocation, say 70:30 or even 75:25. We can make the numbers work.

If you aren't comfortable increasing the stocks allocation in your overall portfolio, then the other alternative would be to shift the bonds to the extent you can to your taxable account. In other words, since you want $21k or $22k into bonds annually per your asset allocation, the $12k you allotted for taxable investments all go to bonds VBLTX.

Once you have done that, you will be left with trying to fill up $9k or $10k of the $25k annual contribution in 401k to bonds. Let's take the $9k figure, that's 36% of the contribution you want to see in bonds.

You can either direct 100% of the contribution to the Lifecycle 2025 fund which has 39% allotted to bonds (your effective ER = 0.20%)
OR
you can allott 36% to IIBZX and 64% to FXAIX (your effective ER = 64% * 0.02% + 36% * 0.31% = 0.12%)

The big decision you need to make is whether you want all your taxable investments are all going to VBLTX (Total Bond Market Index fund at Vanguard), and pay ordinary income taxes on the annual interest paid. If I assume a 2% yield, that's $240 of annual interest = $78 of additional taxes the first year (estimated 22% Fed and 7.5% state), $156 additional taxes the second year, and so on ...

I will leave it at this, it's already become a very long post.

** One thing I want to emphasize: NEVER bonds in Roth accounts **

Lafder
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Re: New ADP 401k just dropped. Which funds? Portfolio shuffle?

Post by Lafder » Sat Jun 08, 2019 11:50 am

((I am editing so # are percent of portfolio, not per account))

Emergency Fund: $47k in Schwab High Yield Savings ((Ok. Do not count this in your AA))
Debt: None ((Terrific))

Desired AA: 60/40. Currently 57/43
((Why are you directing new purchases to bonds when your AA is over your desired in bonds? :)))

Desired International allocation: Around 20%. At 9% now. ((It is usually said as % of stocks. Do you want 20% International of your 60% stocks, which is 12% of total, or do you mean 20% of total which would be 30% of stocks are International? Either is ok. And either way you would need more International stocks))

Average Annual Savings Rate (last 3 years): 53% of net income ((Wow, terrific!))

As of 6/1/2019:
Taxable account @ Schwab (21% of portfolio) ((Nice low ERs, reasonable holdings. I would leave it as is))
11.76% Schwab Total Stock Market Index (SWTSX) ER 0.03%
9.24% Schwab International Index Fund (SWISX) ER 0.06%

His current 401k @ Dimensional Fund Advisors (25% of portfolio)
This will be moving to new ADP 401k funds July 1. ADP funds to follow below.
12.25% DFA US Core Equity 1 (DFEOX) ER 0.19%.
12.75% DFA Investment Grade Bond (DFAPX) ER 0.22%

His Roth IRA @ Vanguard (28% of portfolio)
15.12% Vanguard Total Stock Market Index Fund Admiral (VTSAX) ER 0.04%
12.88% Vanguard Intermediate-Term Bond Index Fund Admiral (VBILX) ER 0.07%

His traditional IRA @ Vanguard (1% of portfolio)
1% Vanguard Intermediate-Term Bond Index Investor (VBIIX) ER 0.15%

Her Roth IRA @ Vanguard (17% of portfolio)
8.33% Vanguard Total Stock Market Index Fund Admiral (VTSAX) ER 0.04%
8.67% Vanguard Intermediate-Term Bond Index Admiral (VBILX) ER 0.07%

Her traditional IRA @ Vanguard (4% of portfolio)
4% Vanguard Intermediate-Term Bond Index Admiral (VBILX) ER 0.07%

His HSA (family) @ TD Ameritrade (4% of portfolio)
4% Vanguard Intermediate-Term Bond Index Fund ETF (BIV) ER 0.07%

Contributions for 2019
$31k total to His 401k (our $25k plus $6,000 employer match). Right now we have the 401k set to have 100% of contributions go to DFA Investment Grade Bond (DFAPX).


Total projected contributions to tax advantaged accounts for 2019: $45k (our contributions $39k).
Total anticipated contributions to taxable or savings for 2019: $12k or more. $9,300 already contributed to savings.

Available Funds

Funds available in his new 401k as of 7/1/2019 ((I edited down to the ones I would use. Either the individual or the all in one))
Fidelity 500 Index Fund (FXAIX) ER 0.02% ((Ok to just use large cap. But I left small and mid cap in case you want them))
Fidelity Small Cap Index Fund (FSSNX) ER 0.03%
Fidelity Mid Cap Index Fund (FSMDX) ER 0.03%
Fidelity International Index Fund (FSPSX) ER 0.05% ((This is great for your international))
Voya Intermediate Bond Fund Class R6 (IIBZX) ER 0.31% ((frustrating ER is so high, perhaps reason to hold more bonds in other accounts to not pay fees :)))

TIAA-CREF Lifecycle Index Institutional Class:
2030 (TLHIX) Net ER 0.10%, Gross ER 0.20% ((This seems reasonable, 30% bonds, and 30%International if you want an all in one))
2035 (TLYIX) Net ER 0.10%, Gross ER 0.19% ((Or this one. The all in one will rebalance and add bonds with age))
2040 (TLZIX) Net ER 0.10%, Gross ER 0.19% ((Or this one depending on how aggressive you want to be))

XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Below is my writing so my edits don't get lost aboveXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

Current Portfolio
(21% Taxable Schwab) ((Ok leave this alone :)))
11.76 Total stock
9.24 Total International Stock

(25% His 401k)
12.25 US core equity ((Move to SP 500 stock option, perhaps buy % more stocks when you make the change to hit your 60/40))
12.75 bond
((Start adding International stock here with future purchases))

(28% His Roth)
15.12 Total Stock
12.88 VG bond ((Consider changing some/all bond to International stocks here, or make future purchases stock/Interntl stock))

(1% His IRA )
1 VG bond

(17% Her Roth)
8.33 VG total Stock
8.67 VG bond ((Consider changing some/all bond to International stocks or make future purchases))

(4% Her IRA)
4 VG bond

(4% HSA)
4 VG bond

It is a mind scramble to try to adjust all to make it work.
I have bonds in our Roths. Otherwise I do not like the HIGH % bonds in our 401ks.

Hopefully something I said helped. Do check all of my math!
lafder

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ruralavalon
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Re: New ADP 401k just dropped. Which funds? Portfolio shuffle?

Post by ruralavalon » Sat Jun 08, 2019 2:38 pm

blackholescion wrote:
Wed Jun 05, 2019 5:47 am
. . . . .
The funds that are defaulted are honestly good. You can easily just stick to them and check back at retirement age.

If you want to approximate total market, buy small cap at a 4:1 ratio of 500 fund to small cap (4 shares of 500 to 1 share of small cap).
+ 1, the funds you are defaulted to are fine.

Fidelity 500 Index Fund (FXAIX) ER 0.015% is an excellent fund to use.

I would not bother to add a small-cap fund, although the 4:1 ratio suggested is reasonable if you want to add some Fidelity Small Cap Index Fund (FSSNX) ER 0.03%.

Voya Intermediate Bond R6 (IIBZX) is a good intermediate-term investment-grade bond fund, the expense rato of 0.31% is not high, its really moderate.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Re: New ADP 401k just dropped. Which funds? Portfolio shuffle?

Post by welderwannabe » Sat Jun 08, 2019 5:16 pm

NorCalGaal wrote:
Tue Jun 04, 2019 10:19 pm
MetLife Wilmington Stable Value Fund Series 25554 Class J. Benchmark: US Treasury T-Bill Constant Maturity Rate 3 year ER 0.49%
Any detail on what the Stable Value is paying now? ERs on a stable value arent super important.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

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NorCalGaal
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Re: New ADP 401k just dropped. Which funds? Portfolio shuffle?

Post by NorCalGaal » Sat Jun 08, 2019 9:52 pm

WOW. You all are amazing. Thank you. My head is about to explode (let's just say I was not in line when the number crunching gene was being passed out). If any of you find yourselves in the North Bay Area and want a free Redwoods hiking tour from a born and raised local, just say the word! 8-)

RetiredAL:
NorCalGaal wrote: Mr. NorCal's employer is switching from Dimensional Fund Advisors to ADP's 401k on July 1.
RetiredAL wrote: Mr Norcal needs to ask his work if this is a closing the old plan and moving everyone to a new plan. This is quite different than just changing who the plan is through. Closing means you should be able to roll-over all or part of the closing plan dollars to an IRA, thus you could create a roll-over IRA to just hold better cost bond funds/ETFs.
Thanks for thinking of this, RetiredAL! We have an email in to the new ADP plan brokers as well as HR. It will be good to know what our options are. I'll report back.

Taz:
Taz wrote: Our small company is switching out of ADP because our fund selection was terrible and the ERs/12-b1 fees were too high. Best fund was a 0.57 State Street Index 500. Only 4 index funds offered. When I had the initial notification talk with ADP today I was asked what they could do to keep us there. My response was pretty clear that the high cost and lack of index funds was a fiduciary concern. OP, do you have an advisor attached?
The Beverly Hills Millennium Group/Morgan Stanley.

blackholescion:
blackholescion wrote: Alternately, instead of buying more bonds in the 401k, you can slowly buy more bonds in the traditional IRA while converting the Roth bonds. This will mean slower conversion but less fees.
Thanks for all of your time on our behalf, blackholescion! Quick question, and please forgive me if the answer is obvious: how would we buy more bonds in the tIRAs if 1) they're both already maxed out on bonds, 2) Mr. NorCal can't contribute to his tIRA per income limits, and 3) for various reasons we've decided Roth for me is better than a partial tIRA contribution?

lakpr:
Thanks so much for taking the time to lay out what you did. Really appreciate it!

In keeping with our preference to 1) KISS (keep it simple sweeties :D ), even if that means paying a tad more, and 2) stay around 60/40 vs. going more aggressive, sticking with Fidelity 500 Index Fund (FXAIX, ER 0.02%) and Voya Intermediate Bond Fund Class R6 (IIBZX, ER 0.31%) in the 401k looks better than mixing in a Target fund. Thank you VERY much for the time you spent sorting this out.

As for putting bonds in taxable, our taxable is at Schwab, so we'd have to pay for Vanguard Total or Intermediate bond index. And at last check (which admittedly was a couple of years ago), Schwab didn't have a bond index option as good as VG. Which is why we've held VG bond in the Roths.

We realize we could move taxable over to VG, but my understanding is we'd need to open a separate high yield savings account or the like for the emergency fund as VG only offers MM and CDs. Hence, given KISS, we've stayed at Schwab. Guess we're back to needing to research bond options for the Schwab taxable again, or look again at the cash options at VG :-?

Lafder:
Debt: None ((Terrific)) Average Annual Savings Rate (last 3 years): 53% of net income ((Wow, terrific!))
Thank you! We've been working hard at this. Not a small challenge given where we live :moneybag :moneybag
Desired AA: 60/40. Currently 57/43 ((Why are you directing new purchases to bonds when your AA is over your desired in bonds? :)))
Because the AA only just recently went to this. It's been closer to 60/40 for most of the year.
Desired International allocation: Around 20%. At 9% now. ((It is usually said as % of stocks. Do you want 20% International of your 60% stocks, which is 12% of total, or do you mean 20% of total which would be 30% of stocks are International? Either is ok. And either way you would need more International stocks)) Fidelity International Index Fund (FSPSX) ER 0.05% ((This is great for your international))
Agreed, we need to bump international stocks. 12% of total / 20% of our 60% stocks would be the goal. Thanks for reinforcing the FSPSX option in the 401k. So we have that and Schwab International Index Fund (SWISX) ER 0.06% in our taxable at Schwab for international. :beer
Below is my writing so my edits don't get lost above
That section is really helpful. Thanks for including it!
It is a mind scramble to try to adjust all to make it work.
You and me both! :sharebeer

ruralavalon:
So nice to hear from you again! You may not remember, but you were the sole Boglehead who hung in there with us when we submitted our first post/portfolio in 2016. Your patience, willingness to meet us where we were, and skillful offers of direction helped set us on course. Thank you so very much for that. As for your input here, very helpful and much appreciated, again!

welderwannabe:
NorCalGaal wrote: MetLife Wilmington Stable Value Fund Series 25554 Class J. Benchmark: US Treasury T-Bill Constant Maturity Rate 3 year ER 0.49% welderwannabe wrote: Any detail on what the Stable Value is paying now? ERs on a stable value arent super important.
The info we have from Mr. NorCal's employer has the average annual total return as of 3/31/19 as follows:
1yr 2.47%
5yr 2.29%
10yr NA
Since inception 2.39%

RetiredAL
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Re: New ADP 401k just dropped. Which funds? Portfolio shuffle?

Post by RetiredAL » Sat Jun 08, 2019 11:56 pm

NorCalGaal wrote:
Sat Jun 08, 2019 9:52 pm


As for putting bonds in taxable, our taxable is at Schwab, so we'd have to pay for Vanguard Total or Intermediate bond index. And at last check (which admittedly was a couple of years ago), Schwab didn't have a bond index option as good as VG. Which is why we've held VG bond in the Roths.

We realize we could move taxable over to VG, but my understanding is we'd need to open a separate high yield savings account or the like for the emergency fund as VG only offers MM and CDs. Hence, given KISS, we've stayed at Schwab. Guess we're back to needing to research bond options for the Schwab taxable again, or look again at the cash options at VG :-?
Schwab now has SWAXG, U.S. Aggregate Bond Index Fund, ER = .04%, or you could buy VG's BND ETF at a minimal cost.

blackholescion
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Re: New ADP 401k just dropped. Which funds? Portfolio shuffle?

Post by blackholescion » Sun Jun 09, 2019 5:43 am

NorCalGaal wrote:
Sat Jun 08, 2019 9:52 pm

blackholescion:
blackholescion wrote: Alternately, instead of buying more bonds in the 401k, you can slowly buy more bonds in the traditional IRA while converting the Roth bonds. This will mean slower conversion but less fees.
Thanks for all of your time on our behalf, blackholescion! Quick question, and please forgive me if the answer is obvious: how would we buy more bonds in the tIRAs if 1) they're both already maxed out on bonds, 2) Mr. NorCal can't contribute to his tIRA per income limits, and 3) for various reasons we've decided Roth for me is better than a partial tIRA contribution?
You would buy more bonds via regular contributions. See below.

There aren’t income limits to contributing to traditional IRAs, only limits to whether or not you can deduct the contributions on your taxes. So, while it gives you almost no benefit, you can still contribute to the traditional IRA for both. Usually in these instances it’s better to do a back door roth since the benefit of contributing to a traditional IRA is gone and you’re putting in money “post tax” anyway (contribute to IRA then convert to Roth IRA). However, for you, this has tax implications since you already have a traditional IRA and therefore would have to do pro rated conversions on new contributions. https://www.bogleheads.org/wiki/Backdoor_Roth

It may be worth looking into the tax implications of converting the balance in His traditional IRA one time, paying the associated taxes, and then being able to backdoor Roth moving forward since it’s only 1% of the portfolio.

If you do this, though, then I’m disproving my own statements about “just contribute more to your tIRA and buy bonds”. :). So in that case, the .31 expense ration bonds in 401k aren’t really all that bad when you add the numbers and remains my #1 recommendation for where to park all your bonds.

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welderwannabe
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Re: New ADP 401k just dropped. Which funds? Portfolio shuffle?

Post by welderwannabe » Sun Jun 09, 2019 10:50 am

NorCalGaal wrote:
Sat Jun 08, 2019 9:52 pm
welderwannabe:
NorCalGaal wrote: MetLife Wilmington Stable Value Fund Series 25554 Class J. Benchmark: US Treasury T-Bill Constant Maturity Rate 3 year ER 0.49% welderwannabe wrote: Any detail on what the Stable Value is paying now? ERs on a stable value arent super important.
The info we have from Mr. NorCal's employer has the average annual total return as of 3/31/19 as follows:
1yr 2.47%
5yr 2.29%
10yr NA
Since inception 2.39%
That doesn't look like a bad stable value. I would consider taking advantage of it. Allocate a portion of your bond allocation to the stable value. I like easy numbers, so I split mine in half...I do half in my 401Ks bond fund, and the other half in the stable value.

Stable values are unique instruments generally only found in workplace retirement plans. They usually keep a stable principal value (hence the name) even in a rising interest rate environment...unlike a bond fund.

The Voya Intermediate Bond Fund Class R6 (IIBZX) ER isn't horrible either. Maybe do 50/50 in that and the stable value.

Overall your new 401k has some decent choices.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

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NorCalGaal
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Re: New ADP 401k just dropped. Which funds? Portfolio shuffle?

Post by NorCalGaal » Sun Jun 23, 2019 8:03 pm

Apologies for the delayed reply: out of town without technology. Thank you again taking the time to offer feedback. Much appreciated!

Digesting everything above, here's what seems like a good game plan at this point:

1) Let our holdings in the current DFA 401k default at changeover to ADP's Fidelity 500 Index Fund (FXAIX, ER 0.02%) and Voya Intermediate Bond Fund Class R6 (IIBZX, ER 0.31%).

(As an aside, we found out that the 401k is changing over to ADP, not closing, so no way to roll to tIRA - which we would probably not have done given advantages of 401k, but was a good thing to check. Thanks, RetiredAL!)

2) After the 401k changeover blackout period, check that the pre and post balances match, etc., and run new asset allocation numbers.

3) Roll up my sleeves and prepare for some portfolio shuffling :shock:
  • Focus on holding more bonds in the 401k.
  • Reduce bonds in Roth and increase international equities overall by 1) swapping bond for VG Total International Stock Index Fund (VTIAX) in Roth and 2) allocating new purchases in Schwab taxable to Schwab International Index Fund (SWISX, ER 0.06%). Fidelity International Index Fund (FSPSX, ER 0.05%) in the new 401k is another option if we need it.
c) If we run out of bond space in tax deferred, look at SWAXG (U.S. Aggregate Bond Index Fund, ER .04%) or BND ETF at a minimal cost in Schwab taxable.

Oof. I already know I'm going to need a numbers check once I take a stab at this. I hope y'all might be game for another round! Thanks again for being there, Bogleheads!

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