401(k) rebalancing

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Minerva90
Posts: 9
Joined: Thu Apr 12, 2018 2:46 pm

401(k) rebalancing

Post by Minerva90 » Sun Aug 11, 2019 2:47 pm

Hello all,

I’m looking to solicit thoughts on rebalancing my wife’s 401(k). Here are some details/objectives to complete the picture:
• Years to retirement: 6 – 7
• Target stocks-to-bonds ratio: 70/30 (I’m open to alternative allocation suggestions). My plan is to marry future contributions to the updated
allocation.
• Current allocation: 76.4% stocks & 23.6% bonds
• Breakdown of current holdings:
­ Dodge & Cox Income Fund: 10.59%
­ TimesSquare Small Cap Growth Fund: 9.99%
­ Vanguard International Growth Fund (Admiral): 9.44%
­ Vanguard International Value Fund: 7.25%
­ Vanguard Short-Term Investment Grade Fund (Admiral): 13.06%
­ Vanguard U.S. Growth Fund (Admiral): 22.01%
­ Vanguard Value Index Fund (Institutional): 27.66%
*The only other fund available in the 401(k) program is the Vanguard Institutional Total Stock Market Index Trust. No dollars currently invested in this fund.

My thought is that this can be simplified and that there’s a good bit of overlap in the current allocation model. I’d welcome any thoughts on what an updated, simpler allocation would look like.

Many thanks.

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RickBoglehead
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Re: 401(k) rebalancing

Post by RickBoglehead » Sun Aug 11, 2019 2:54 pm

Allocate ALL your investments, not an account. One account could be 100% bonds to meet your overall AA.
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lakpr
Posts: 3039
Joined: Fri Mar 18, 2011 9:59 am

Re: 401(k) rebalancing

Post by lakpr » Sun Aug 11, 2019 7:02 pm

I usually recommend that you follow the 2-fund or 3-fund approach, but take your cue for the asset allocation ratios from the corresponding Target Date funds. If your retirement is in 6 to 7 years, then we should look at Target Date fund 2025 (VTTVX).

That fund’s composition is 37:23:40 domestic:international:fixed income.

So instead of 70:30, it seems to me that a more appropriate mix is 60:40 for your wife.

I would simplify all that mess in her portfolio, sell everything and simply invest 60:40 to Vanguard Total Stock Market Index fund and Dodge&Cox Income fund

Or if you do prefer international equities in your portfolio, I would invest
12% to International growth fund
11% to International value fund
37% to total Stock market Index fund
40% to DODIX (Dodge&Cox Income fund)

Edited to add: There is nothing wrong with a 70:30 allocation, if you want to stick with it. Just realize that you are being more aggressive than the corresponding Vanguard Target Date fund view. For what it is worth, the 70:30 is indeed the allocation ratio of Vanguard Target Retirement 2035 fund.

carmonkie
Posts: 146
Joined: Fri Jun 29, 2018 4:31 pm

Re: 401(k) rebalancing

Post by carmonkie » Mon Aug 12, 2019 2:16 pm

You got great advice on the fund allocation. I do not think there is anything wrong keeping her 401(k) as her account with her own funds as long as the AA matches the family portfolio. I believe this gives her some level of empowerment and independence and financial education and I think it even prevents some arguments. Would you be OK if your 401(k) ends-up with nothing but bonds for the sake of AA?

if possible, sit down with her and explain her why the fund placement and Asset Allocation. She might already know all this, but if she does not, it will teach her a new skill and allow her to make decisions should something happen to you..

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