Help selecting new 401(k) options

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Humboldt55
Posts: 5
Joined: Tue Jul 17, 2018 8:52 am

Help selecting new 401(k) options

Post by Humboldt55 » Mon Sep 09, 2019 1:24 pm

Emergency funds: Six months of expenses

Debt: No debt.

Tax Filing Status: Single

Tax Rate: 24% Federal, 9.3% State

State of Residence: CA

Age: 32

Desired Asset allocation: 85% stocks / 15% bonds
Desired International allocation: 15% of stocks

As a recent immigrant to the US, I'm fairly behind in terms of investing. Total investments currently just shy of $100k so would love some suggestions on how to optimize my current portfolio as I start to build out. Currently everything is with Vanguard but have just started a new position which requires me to keep my new 401(k) with Wells Fargo. Would prefer to not rollover as much prefer Vanguard options.

Current retirement assets

Taxable (13%)
0% cash (for investing – do not include emergency funds)
100% VTSAX (expense ratio: ‎0.04%)

Previous 401k at Vanguard (63%)
100% VTRLX (expense ratio: 0.09%)

New 401k at Wells Fargo
No Contributions Yet // No Company Match

Roth IRA at Vanguard (16%)
100% VFIFX (expense ratio: 0.15%)

Trad IRA at Vanguard (8%)

100% VFIFX (expense ratio: 0.15%)

_______________________________________________________________

Available funds

Funds available in NEW Wells Fargo 401(k)
Wells Fargo Stable Return I Money Market/Stable (Expense Ratio: 0.3730%)
Vanguard Total Bond Market Index I VBTIX Bond (Expense Ratio: 0.0400%)
Oakmark Equity & Income Investor OAKBX Balanced/LifeStyle (Expense Ratio: 0.7800%)
Fidelity Freedom Income FFFAX Target Maturity (Expense Ratio: 0.4700%)
Fidelity Freedom 2010 FFFCX Target Maturity (Expense Ratio: 0.5300% )
Fidelity Freedom 2020 FFFDX Target Maturity (Expense Ratio: 0.6100% )
Fidelity Freedom 2030 FFFEX Target Maturity (Expense Ratio: 0.7000%)
Fidelity Freedom 2040 FFFFX Target Maturity (Expense Ratio: 0.7500%)
Fidelity Freedom 2050 FFFHX Target Maturity (Expense Ratio: 0.7500%)
Fidelity Freedom 2060 FDKVX Target Maturity (Expense Ratio: 0.7500%)
American Beacon Small Cap Value R6 AASRX Domestic Stock (Expense Ratio: 0.8100%)
Dodge & Cox Stock DODGX Domestic Stock (Expense Ratio: 0.5200%)
Fidelity Contrafund K6 FLCNX Domestic Stock (Expense Ratio: 0.4500%)
Invesco Growth and Income R5 ACGQX Domestic Stock (Expense Ratio: 0.4800%)
JPMorgan Large Cap Growth R6 JLGMX Domestic Stock (Expense Ratio: 0.4400%)
JPMorgan Small Cap Equity R5 JSERX Domestic Stock (Expense Ratio: 0.8000%)
Vanguard Mid Cap Growth Inv VMGRX Domestic Stock (Expense Ratio: 0.3600%)
Vanguard Selected Value Inv VASVX Domestic Stock (Expense Ratio: 0.3900%)
WF/BlackRock S&P 500 Index CIT N Domestic Stock (Expense Ratio: 0.0340%)
Fidelity Diversified Intl K6 FKIDX International Stock (Expense Ratio: 0.6000%)
Vanguard Total Intl Stock Index Admiral VTIAX International Stock (Expense Ratio: 0.1100%)


Funds available in OLD Vanguard Fargo 401(k)

Vanguard Institutional Target Retirement Income Fund - VITRX (Expense Ratio: 0.09%)
Vanguard Institutional Target Retirement 2015 Fund - VITVX (Expense Ratio: 0.09%)
Vanguard Institutional Target Retirement 2020 Fund - VITWX (Expense Ratio: 0.09%)
Vanguard Institutional Target Retirement 2025 Fund - VRIVX (Expense Ratio: 0.09%)
Vanguard Institutional Target Retirement 2030 Fund - VTTWX (Expense Ratio: 0.09%)
Vanguard Institutional Target Retirement 2035 Fund - VITFX (Expense Ratio: 0.09%)
Vanguard Institutional Target Retirement 2040 Fund - VIRSX (Expense Ratio: 0.09%)
Vanguard Institutional Target Retirement 2045 Fund - VITLX (Expense Ratio: 0.09%)
Vanguard Institutional Target Retirement 2055 Fund - VIVLX (Expense Ratio: 0.09%)
Vanguard Institutional Target Retirement 2060 Fund - VILVX (Expense Ratio: 0.09%)
Vanguard Institutional Target Retirement 2065 Fund - VSXFX (Expense Ratio: 0.09%)
Vanguard Total Bond Market Index Fund Admiral Shares - VBTLX (Expense Ratio: 0.05%)
BlackRock Equity Dividend Fund K Shares - MKDVX (Expense Ratio: 0.58%)
Federated MDT Small Cap Core Fund Class R6 - QLSCX (Expense Ratio: 0.88%)
MFS Growth Fund Class R6 - MFEKX (Expense Ratio: 0.58%)
Vanguard Extended Market Index Fund Admiral Shares - VEXAX (Expense Ratio: 0.07%)
Vanguard FTSE Social Index Fund Admiral Shares - VFTAX (Expense Ratio: 0.14%)
Vanguard Institutional Index Fund Institutional Shares - VINIX (Expense Ratio: 0.035 %)
American Funds EuroPacific Growth Fund® Class R-6 - RERGX (Expense Ratio: 0.49%)
American Funds New Perspective Fund® Class R-6 - RNPGX (Expense Ratio: 0.45%)
Vanguard Developed Markets Index Fund Admiral Shares - VTMGX (Expense Ratio: 0.07%)
Vanguard Emerging Markets Stock Index Fund Admiral Shares - VEMAX (Expense Ratio: 0.14%)
Vanguard Federal Money Market Fund - VMFXX (Expense Ratio: 0.11%)
Vanguard Real Estate Index Fund Admiral Shares - VGSLX (Expense Ratio: 0.26%)


Questions:
1. First question pertains to the Wells Fargo 401(k) options. Would love some recommendations on which funds to choose.

2. As I said earlier, I'm still fairly new to investing but thinking it makes sense to move away from the Vanguard Target date funds in the IRA and Vanguard 401(k) accounts and move to a three fund portfolio. Would love some suggestions or recommendations here too

Thank you so much in advance, this community has been invaluable for me and I am so appreciative!

skthota
Posts: 1
Joined: Mon May 14, 2018 2:31 pm

Re: Help selecting new 401(k) options

Post by skthota » Mon Sep 09, 2019 2:20 pm

These would be my picks...the percentages are to the total amounts in those respective accounts.

1.NEW Wells Fargo 401(k)
WF/BlackRock S&P 500 Index CIT N Domestic Stock (Expense Ratio: 0.0340%)-72%
Vanguard Total Intl Stock Index Admiral VTIAX International Stock (Expense Ratio: 0.1100%)-13%
Vanguard Total Bond Market Index I VBTIX Bond (Expense Ratio: 0.0400%)-15%

2.OLD Vanguard Fargo 401(k)
Vanguard Institutional Index Fund Institutional Shares - VINIX (Expense Ratio: 0.035 %)-65%
Vanguard Extended Market Index Fund Admiral Shares - VEXAX (Expense Ratio: 0.07%)-7%
Vanguard Developed Markets Index Fund Admiral Shares - VTMGX (Expense Ratio: 0.07%)-7%
Vanguard Emerging Markets Stock Index Fund Admiral Shares - VEMAX (Expense Ratio: 0.14%)-6%
Vanguard Total Bond Market Index Fund Admiral Shares - VBTLX (Expense Ratio: 0.05%)-15%

NeophyteCA
Posts: 10
Joined: Sat Jan 09, 2016 7:29 pm

Re: Help selecting new 401(k) options

Post by NeophyteCA » Mon Sep 09, 2019 2:21 pm

Your setup and ideal portfolio looks a lot like ours, so here's my attempt at things. I like 1 account = 1 investment, so you only have to mess with rebalancing in the Previous 401k.

15% Total Bond Market
13% International
72% Total US

Taxable (13%)
0% cash (for investing – do not include emergency funds)
100% Total US (VTSAX)

Previous 401k at Vanguard (63%)
35% of whole portfolio Total US Vanguard Institutional Index Fund Institutional Shares (VINIX)
15% of whole portfolio Total Bond Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX)
13% of whole portfolio in International, either all in Vanguard Developed Markets Index Fund Admiral Shares (VTMGX) or split with 10% of whole portfolio in that fund and 3% of whole portfolio in Vanguard Emerging Markets Stock Index Fund Admiral Shares (VEMAX).

(I've decided that I don't want to keep track of anything <10% of the whole portfolio, so mine would be all Developed Markets.)

New 401k at Wells Fargo
100% Vanguard Total Intl Stock Index Admiral (VTIAX)

(As this grows, you can keep this 100% International and just rebalance away from Intl in the Previous 401k.)

Roth IRA at Vanguard (16%)
100% Total US (VTSAX)

Trad IRA at Vanguard (8%)
100% Total US (VTSAX)

Topic Author
Humboldt55
Posts: 5
Joined: Tue Jul 17, 2018 8:52 am

Re: Help selecting new 401(k) options

Post by Humboldt55 » Tue Sep 10, 2019 12:12 pm

Wonderful, thanks so much @NeophyteCA and @skthota — both look like great options. I definitely like the idea of the 1 account = 1 investment approach — definitely simplifies the process for me.

Thanks again!

User avatar
ruralavalon
Posts: 16220
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Help selecting new 401(k) options

Post by ruralavalon » Tue Sep 10, 2019 2:29 pm

It is great to see that you are debt free, staring young and interested in low expense, very diversified index funds. You are off to a good start.

You don't mention how much you will be contributing annually to these accounts. The most important investing decision at age 32 is to establish a substantial contribution rate.


Asset allocation.
Humboldt55 wrote:
Mon Sep 09, 2019 1:24 pm
Age: 32

Desired Asset allocation: 85% stocks / 15% bonds
Desired International allocation: 15% of stocks
In my opinion your desired asset allocation is within the range of what is reasonable, although I usually suggest a little more in bonds at age 32, and a little more in international stocks. My usual suggestion is 20% bonds, 20% international stocks, and 60% domestic stocks.

Your desired asset allocation works out to about 15% bonds, 10-15% international stocks. and 70- 75% in domestic stocks.


Consolidate accounts.
You have some excellent funds offered in both 401ks, very diversified with very low expense ratios. You are very fortunate.

To simplify I suggest that you rollover your old 401k into your new 401k plan. This gives you one less account to keep track of and manage.



Fund selection and placement.
In selecting funds strive for a combination of broad diversification (to reduce risk) and low expense ratios (to increase your net return). To simply and easily achieve those two goals I suggest choosing funds to simulate the very well diversified, low expense ratio "three-fund portfolio". Please see:
1) Wiki article "Three-fund portfolio";
2) Forum discussion, "The Three-Fund Portfolio"; and
3) Taylor Larimore post, "Articles recommending the three-fund portfolio".

It is often better to coordinate investments across all accounts, in other words treat all accounts together as a single unified portfolio, rather than view each account separately. Select just one or two of the better funds (most diversified + lower expense ratio) in the work-based account (401k, 403b, 457, SIMPLE IRA, TSP etc.), where the choices offered are limited. Then complete the rest of the asset allocation using the nearly unlimited choices available in a taxable account or any IRAs.


This approach llows for better tax-efficiency if you use taxable account too. Wiki article, "Tax-efficient Fund Placement". Do not try to put all components of the asset allocation in every account.

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".

In my opinion in a plan that lacks a total stock market index fund, a S&P 500 index fund (such as BlackRock S&P 500 Index CIT in your new 401k) is good enough by itself for a domestic stock allocation. A S&P 500 index fund covers 82% 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. Morningstar, "growth of $10k" graph (1992 – 2019), VTSAX vs VFIAX. In the first 10 years the S&P 500 fund did better, in the last 10 years the they have been about the same (on a $10,000 investment the difference was $13 a year), and over the 27 years the total market fund gave a little more return. 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.

See also:
1) Allan Roth, CBS Moneywatch (02/03/2010), "John C. Bogle on the S&P 500 vs. the Total Stock Market"; and
2) Wall Street Physician (01/17/2019), "Should You Invest in the S&P 500 or the Total Stock Market?".

In a taxable account use very tax-efficient stock index funds. Wiki article "Tax-efficient fund placement". At Vanguard I suggest using Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04%. Stock index funds are also well suited to any type of account.

Bond funds are not very tax-efficient. Ordinarily a bond fund should be placed in a tax-advantaged account, preferably a tax-deferred account like a traditional 401k. Wiki article "Tax-efficient fund placement". .

To make portfolio management and rebalancing easy it is often better to have at least one large tax-advantaged account which contains all three basic asset types (bonds, international stocks, and domestic stocks). Don’t try to put all components of the asset allocation in every account.




Example portfolio.
Here is an example portfolio that you could consider. This is a three-fund type portfolio, modified as necessary to accommodate the fund offerings in your new 401k. The asset allocation is: 15 bonds; 15% international stocks; and 70% domestic stocks. The percentages given are percentages of the total portfolio, not of a given account. The suggestion is to switch both the existing balances and the new contributions to the funds indicated.

Taxable account @ Vanguard (13% of total))
13%, Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04%

New 401k with Wells Fargo, includes rollover of old 401k (63% of to6al)
33, WF/BlackRock S&P 500 Index CIT N Domestic Stock (Expense Ratio: 0.0340%)-72%
15%, Vanguard Total Intl Stock Index Admiral VTIAX International Stock (Expense Ratio: 0.1100%)-13%
15, Vanguard Total Bond Market Index I VBTIX Bond (Expense Ratio: 0.0400%)-15%

Roth IRA @ Vanguard (16% of total)
16%, Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04%

Trad IRA @ Vanguard (08% of total)
08%, Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04%

Rebalancing.
Because the funds will grow at different and unpredictable rates, it may be necessary every few years to rebalance in order to maintain the desired asset allocation. Wiki article, "Rebalancing". You can easily adjust the asset allocation by exchanging between funds inside the new 401k.

. . . . .

I suggest that you read one or two books on investing. Wiki article, "Books: recommendations and reviews". When I first stated managing my own investments, I found this tutorial very helpful in learning investing terminology/jargon and some of the investing basics. Morningstar, "Investing Classroom". Also take a look at the Boglehead’s wiki, the "getting started" link I give below.

If you have any questions just ask.

I hope that this helps.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Topic Author
Humboldt55
Posts: 5
Joined: Tue Jul 17, 2018 8:52 am

Re: Help selecting new 401(k) options

Post by Humboldt55 » Wed Sep 11, 2019 12:08 pm

This is wonderful thank you @ruralavalon!

I will definitely be taking your input onboard. Will look at slightly increasing my bond and international stock allocation. Thank you so much!

User avatar
ruralavalon
Posts: 16220
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Help selecting new 401(k) options

Post by ruralavalon » Thu Sep 12, 2019 3:15 pm

Humboldt55 wrote:
Wed Sep 11, 2019 12:08 pm
This is wonderful thank you @ruralavalon!

I will definitely be taking your input onboard. Will look at slightly increasing my bond and international stock allocation. Thank you so much!
Your desired asset allocation is very close to what I suggest, don't fall into the trap of believing that small differences in asset allocation have great importance. They don't. Don't spend much time needlessly agonizing over this, and get into analysis paralysis.

Here are the resources about asset allocation to which I usually refer relatively new investors. At age 32 I suggest about 20% in bonds or other fixed income investments (like CDs, savings accounts, money market fund). 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:
1) Wiki article Bogleheads® investment philosophy, part 3 "Never bear too much or too little risk";
2) Wiki article, "Asset allocation"; and
3) Morningstar (8/10/2019), "The Best Diversifiers for Your Equity Portfolio".


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. You must decide on an allocation that is comfortable for you based on your own ability, willingness and need to take risk.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Post Reply