What to invest my 401K in instead of target date funds?

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betterdays15
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Joined: Sun Jan 12, 2020 10:54 pm

What to invest my 401K in instead of target date funds?

Post by betterdays15 » Sun Jan 12, 2020 11:38 pm

Hello,
I'd like to be a little more involved in managing my retirement accounts than simply parking everything in a target-date fund. I'm currently 32 years old and decided to put my IRA into Vanguard and my 401K into Fidelity. I don't like having all my eggs in one basket so I decided to split them into two different accounts. The split is almost equal, 45% in Vanguard, 55% in Fidelity. What I don't like is everything is in target-date funds right now. I found out about the VTSMX but when I tried to invest in it, it said they're not taking new investors at the moment. I'm going to call Vanguard tomorrow to see if they have anything else that's similar. I'm going to call Fidelity too but I'd like to have an idea of how to best split up my portfolio? This is what I have in mind right now:

40% into an S&P 500 Index fund
40% into a foreign stock market index fund
10% into a REIT
10% into bonds

Any thoughts? Are there better alternatives to bonds? I'm not a big fan of them for some reason.

tenkuky
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Re: What to invest my 401K in instead of target date funds?

Post by tenkuky » Mon Jan 13, 2020 8:16 am

Is your IRA a Traditional or Roth?
Reason is: put equities in Roth, bonds in 401K or Trad IRA.
Consider your portfolio as a whole and balance accordingly.
You are not going to be able to keep that "balance" for long as 401K contribution limits are 3:1 or more than IRA ones, and there is no need to split like that anyway.
You don't have to do bonds due to your age and long time line, but some people like that they provide stability.

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RickBoglehead
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Re: What to invest my 401K in instead of target date funds?

Post by RickBoglehead » Mon Jan 13, 2020 8:19 am

betterdays15 wrote:
Sun Jan 12, 2020 11:38 pm
I found out about the VTSMX but when I tried to invest in it, it said they're not taking new investors at the moment. I'm going to call Vanguard tomorrow to see if they have anything else that's similar. I'm going to call Fidelity too but I'd like to have an idea of how to best split up my portfolio? This is what I have in mind right now:

40% into an S&P 500 Index fund
40% into a foreign stock market index fund
10% into a REIT
10% into bonds

Any thoughts? Are there better alternatives to bonds? I'm not a big fan of them for some reason.
VTSMX is no longer in existence because VTSAX took it's place. Vanguard eliminated a bunch of Investor Shares and replaced them with the previously higher minimum balance Admiral Shares.

You have a very high foreign stock waiting, much higher than almost anyone would recommend.

I wouldn't put a dime in REITs, but that's me.
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.

Living Free
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Re: What to invest my 401K in instead of target date funds?

Post by Living Free » Mon Jan 13, 2020 9:06 am

I'd do a total US stock market fund instead of the S&P500 fund. I'd also do 20% bonds in your 30s. And I agree with slightly less %international though 50:50 is not that preposterous; market cap I think is about 55:45 US to international. So basically I'm just advising what my target allocation is, which would be 20% bonds, 80% stocks with 66% US and 33% international. I don't do REITs at this time. I also suppose you're looking at a US REIT fund so that gives you more US exposure. So you could drop the US and international stock funds by 5% and add that to bonds. But overall your portfolio is basically fine as it is.

UnLearnYourself
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Re: What to invest my 401K in instead of target date funds?

Post by UnLearnYourself » Mon Jan 13, 2020 9:17 am

I'm 38, with accounts split between 401k at Fidelity and Roth at Vanguard too...I've gotten some solid advice on a very similar set of question if you want to check the replies I've received here:

viewtopic.php?f=1&t=300240&newpost=4950 ... ead#unread

Topic Author
betterdays15
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Re: What to invest my 401K in instead of target date funds?

Post by betterdays15 » Mon Jan 13, 2020 2:41 pm

UnLearnYourself wrote:
Mon Jan 13, 2020 9:17 am
I'm 38, with accounts split between 401k at Fidelity and Roth at Vanguard too...I've gotten some solid advice on a very similar set of question if you want to check the replies I've received here:

viewtopic.php?f=1&t=300240&newpost=4950 ... ead#unread
Thank you! That's quite helpful.

A question for everybody. How much attention should I pay to the "ratings" section? Like if I found a fund I liked but it only has a 2/5 star rating, does that mean anything?

Topic Author
betterdays15
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Re: What to invest my 401K in instead of target date funds?

Post by betterdays15 » Mon Jan 13, 2020 2:42 pm

tenkuky wrote:
Mon Jan 13, 2020 8:16 am
Is your IRA a Traditional or Roth?
Reason is: put equities in Roth, bonds in 401K or Trad IRA.
Consider your portfolio as a whole and balance accordingly.
You are not going to be able to keep that "balance" for long as 401K contribution limits are 3:1 or more than IRA ones, and there is no need to split like that anyway.
You don't have to do bonds due to your age and long time line, but some people like that they provide stability.
Most of it is traditional. I have about $1K in a Roth.

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Wiggums
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Re: What to invest my 401K in instead of target date funds?

Post by Wiggums » Mon Jan 13, 2020 3:03 pm

betterdays15 wrote:
Mon Jan 13, 2020 2:41 pm
UnLearnYourself wrote:
Mon Jan 13, 2020 9:17 am
I'm 38, with accounts split between 401k at Fidelity and Roth at Vanguard too...I've gotten some solid advice on a very similar set of question if you want to check the replies I've received here:

viewtopic.php?f=1&t=300240&newpost=4950 ... ead#unread
Thank you! That's quite helpful.

A question for everybody. How much attention should I pay to the "ratings" section? Like if I found a fund I liked but it only has a 2/5 star rating, does that mean anything?
I believe they are showing the Morningstar rating. Past performance is not an indication of future performance. The rating compared to other similar funds is also not relevant. the star or number rating is not useful to me. Morningstar does provide a lot of other useful data about the fund, risk and return which I think is more helpful.

The Morningstar Rating for funds, often called the star rating, is a purely quantitative, backward-looking measure of a fund’s past performance, measured from one to five stars.

The Morningstar Rating is a measure of a fund's risk-adjusted return, relative to similar funds. Funds are rated from 1 to 5 stars, with the best performers receiving 5 stars and the worst performers receiving a single star. ... This concept is the basis for how Morningstar adjusts for risk.

jimkinny
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Re: What to invest my 401K in instead of target date funds?

Post by jimkinny » Mon Jan 13, 2020 3:09 pm

Read this re 3 fund portfolio
viewtopic.php?f=10&t=88005
Vanguard recommends 20-40% international, if I remember correctly

Topic Author
betterdays15
Posts: 5
Joined: Sun Jan 12, 2020 10:54 pm

Re: What to invest my 401K in instead of target date funds?

Post by betterdays15 » Mon Jan 13, 2020 3:16 pm

I just found out about Fidelity's FZROX (a total US market index fund) and FZILX (international total market fund). Both have 0% expense ratio but both are still fairly new.

Banjoman
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Re: What to invest my 401K in instead of target date funds?

Post by Banjoman » Mon Jan 13, 2020 3:26 pm

Might I suggest the Three-Fund Portfolio?
After trying to tweak my previously under-performing portfolio to the Vanguard suggestions I came upon this forum and Taylor Larimore's post.
viewtopic.php?f=10&t=88005
I have since adopted the suggested 60/40 portfolio to both my wife and I's IRA and 401K and we are very pleased with the results.
True simplicity is very complex and hard to achieve... Steve Jobs

Topic Author
betterdays15
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Joined: Sun Jan 12, 2020 10:54 pm

Re: What to invest my 401K in instead of target date funds?

Post by betterdays15 » Mon Jan 13, 2020 3:52 pm

Banjoman wrote:
Mon Jan 13, 2020 3:26 pm
Might I suggest the Three-Fund Portfolio?
After trying to tweak my previously under-performing portfolio to the Vanguard suggestions I came upon this forum and Taylor Larimore's post.
viewtopic.php?f=10&t=88005
I have since adopted the suggested 60/40 portfolio to both my wife and I's IRA and 401K and we are very pleased with the results.
Yup, I'm going to split my portfolio that way. I'll drop out REITs.

When I was researching bond funds, for Fidelity, I found the total bond index fund (FTBFX, ER: .45%, 10year perf: 4.52%), long-term bond index (FNBGX, ER: .03%, 10-year performance: 6.88%), short-term bond index (FUMBX, ER: 0.03%, 10 year performance: 1.65%). I was going to just do a total bond index fund but looking at the expense ratios, I'm wondering if it might be better to split 50/50 into both the long-term and short-term bond index funds?

UnLearnYourself
Posts: 252
Joined: Tue Feb 01, 2011 9:19 pm

Re: What to invest my 401K in instead of target date funds?

Post by UnLearnYourself » Mon Jan 13, 2020 3:55 pm

jimkinny wrote:
Mon Jan 13, 2020 3:09 pm
Read this re 3 fund portfolio
viewtopic.php?f=10&t=88005
Vanguard recommends 20-40% international, if I remember correctly

tenkuky
Posts: 997
Joined: Sun Dec 14, 2014 4:28 pm

Re: What to invest my 401K in instead of target date funds?

Post by tenkuky » Mon Jan 13, 2020 4:02 pm

betterdays15 wrote:
Mon Jan 13, 2020 3:52 pm
Banjoman wrote:
Mon Jan 13, 2020 3:26 pm
Might I suggest the Three-Fund Portfolio?
After trying to tweak my previously under-performing portfolio to the Vanguard suggestions I came upon this forum and Taylor Larimore's post.
viewtopic.php?f=10&t=88005
I have since adopted the suggested 60/40 portfolio to both my wife and I's IRA and 401K and we are very pleased with the results.
Yup, I'm going to split my portfolio that way. I'll drop out REITs.

When I was researching bond funds, for Fidelity, I found the total bond index fund (FTBFX, ER: .45%, 10year perf: 4.52%), long-term bond index (FNBGX, ER: .03%, 10-year performance: 6.88%), short-term bond index (FUMBX, ER: 0.03%, 10 year performance: 1.65%). I was going to just do a total bond index fund but looking at the expense ratios, I'm wondering if it might be better to split 50/50 into both the long-term and short-term bond index funds?
Just use FXNAX Fidelity Bond Index Fund for simplicity sake. You don't need to slice and dice. The Total Bond you list is NOT an index but active fund, avoid.

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