stingray777 wrote: ↑
Tue Dec 10, 2019 10:09 pm
Planning to put $13000 next year before tax into 401k.
Being in the 22% tax bracket, with no pension, just starting in investing without a large traditional tax-advantaged account, I agree that traditional deductible contributions to your 401k plan are likely better than Roth contributions.
I suggest increasing contributions if practical. When just beginning at investing establishing a high contribution rate is the most important investing decision you can make. So contribute more if you can. The maximum annual employee contribution to a 401k is $19.5k.
At age 45, no debt or dependents, 20 years to retirement but just starting out with investing, 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). 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"
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.
stingray777 wrote: ↑
Tue Dec 10, 2019 10:09 pm
I've got a list today. Very limited:
Vanguard Federal Money Market Fund Inves
DFA Inflation-Protected Securities Portf
Vanguard Short-Term Inflation-Protected
DFA Five-Year Global Fixed Income Portfo
DFA International Real Estate Securities
DFA U.S. Large Cap Growth Portfolio Inst
DFA U.S. Small Cap Growth Portfolio Inst
Vanguard 500 Index Fund Admiral Shares
DFA U.S. Large Cap Value III Portfolio
DFA Emerging Markets Core Equity Portfol
DFA Large Cap International Portfolio In
DFA International Small Company Portfoli
Vanguard Mid-Cap Growth Index Fund Admir
Vanguard Real Estate Index Fund Admiral
DFA U.S. Targeted Value Portfolio Instit
I see a few Vanguards, but none that I wanted. How does it look? I cannot find where the overhead cost is. I cannot find expense ratio through my 401k. All I find is a link to MorningStar page for each fund. This is bad, isn't it?
The list is not very limited, you don't need a lot of different funds to be very diversified.
This is not bad at all, it is pretty good. Vanguard funds are good funds with low expense ratios. DFA funds are generally good funds with fairly low expense ratios.
In selecting funds strive for a combination of both 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"
3) Taylor Larimore post, "Articles recommending the three-fund portfolio"
In my opinion in your 401k the funds to consider using include:
1) Vanguard 500 Index Fund Admiral Shares (82% of U.S. stock market) (VFIAX) ER 0.04%;
2) DFA Large Cap International Portfolio Institutional (developed markets only) (DFALX) ER 0.23%; and
3) Vanguard Federal Money Market Fund Investor Shares (VMFXX) ER 0.11%, current SEC Yield = 1.71%.
I prefer intermediate-term, investment-grade bond funds with low expense ratios. I don't see a bond fund that I would recommend in your 401k plan at 20 years until retirement, so I suggest using the money market fund instead of a bond fund at this time. As you get near to retirement you could consider using Vanguard Short-Term Inflation-Protected Securities Index Fund Admiral Shares (VTAPX) ER 0.06% for your bond fund.
For domestic stocks I suggest using a total stock market index fund where available. "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 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 (total return with dividends reinvested) of the two types of funds has been almost identical. Morningstar, "growth of $10k" graph (1992 – 2019), VTSAX vs VFIAX
. 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.
1) Allan Roth, CBS Moneywatch (02/03/2010), "John C. Bogle on the S&P 500 vs. the Total Stock Market"
2) Wall Street Physician (01/17/2019), "Should You Invest in the S&P 500 or the Total Stock Market?"