401k allocation advice

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Topic Author
beth65
Posts: 112
Joined: Mon May 08, 2017 1:51 pm

401k allocation advice

Post by beth65 » Mon Jan 13, 2020 12:55 pm

I work for a big corp that has customized Blackrock Index funds as options for investments. I rolled over an old IRA ($91k) into the 401k in October, and I max out the 401k last year and every year going forward. I currently have $116,500 invested in six investments:

US Bond Index fund - govt, corp, securitized ($13.5k),
Strategic Real Asset Fund -TIPS, REIT, commodity ($16.2k)
US Large Cap - FAANG, MSFT, JNJ,P&G, JPM ($29.3k)
US Small Cap - TSLA, NOW, WDAY, LULU, HSBC, LVS, SQ, ($22.7k)
Int'l Developed Equity - NSRGF, RHHBF, NVSEF, TM, HSBC, BP, ($16.6k)
MSCI Emerging Market Fund - TCTZF, BABA, SSNLF, TSM, CICHY ($17.3k)
Corp Stock Fund (their direct contributions, no choice here, but it's a strong dividend-paying stock) ($1.2k)

Do you think this is well-diversified, or should I look to make any changes? I tend to be more conservative and look for steady growth and diversification. The only other investment options available are target funds, and a short term bond fund.

I’m almost 40, plan to retire around 65/68, my job and employee are overall secure- layoffs are uncommon. I don’t have a pension as it’s no longer offered to anyone hired after 2015. I had about 65k invested in 08, moved some investments to gold and weathered it quite well. I’m debt-adverse and save and budget well. I sync my budget app daily and have downsized my living in the past two years, living below my means. Between paying down part of a student loan, savings, 529’s and retirement, I saved almost $100k in 2019.

My HSA (only $3k so far) is invested in a 20% split in VGHAX, VSMGX, VEXAX, TAGRX, PRTNX

I have a separate investment of $10,200 in an i-bond, $6k in a roth I just rolled over this year (100% invested in SPY), and $15k in an investment account I use to play/invest with. I also have a lot of cash in savings (sold a house recently and currently renting), at 1.8% - just over $200k, and prefer to keep that liquid until the housing situation becomes more clear in a year.

My spouse has his own investments ($330k) - HSA, Roth, 401k, i-bonds, that he manages himself, and we have no debt except his student loan. We are a high-income couple earning $370k combined, for reference (my salary is the $70k). 24% tax bracket with deductions.

We keep our investments completely separate, so I don’t want to include his investments in any of my calculations/investment considerations.
Last edited by beth65 on Tue Jan 14, 2020 9:50 am, edited 5 times in total.

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ruralavalon
Posts: 17140
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Work 401k allocation advice

Post by ruralavalon » Mon Jan 13, 2020 1:26 pm

beth65 wrote:
Mon Jan 13, 2020 12:55 pm
I work for a big corp that has customized Blackrock Index funds as options for investments. I rolled over an old IRA ($91k) into the 401k in October, and I max out the 401k last year and every year going forward. I currently have $116,500 invested in six investments:

US Bond Index fund - govt, corp, securitized ($13.5k),
Strategic Real Asset Fund -TIPS, REIT, commodity ($16.2k)
US Large Cap - FAANG, MSFT, JNJ,P&G, JPM ($29.3k)
US Small Cap - TSLA, NOW, WDAY, LULU, HSBC, LVS, SQ, ($22.7k)
Int'l Developed Equity - NSRGF, RHHBF, NVSEF, TM, HSBC, BP, ($16.6k)
MSCI Emerging Market Fund - TCTZF, BABA, SSNLF, TSM, CICHY ($17.3k)
Corp Stock Fund (their direct contributions, no choice here, but it's a strong dividend-paying stock) ($1.2k)

Do you think this is well-diversified, or should I look to make any changes? I tend to be more conservative and look for steady growth and diversification.

Some more information will be helpful. I see just 12% of the 401k in fixed income, not very "conservative".

What is your age, about how long until expected retirement? How secure is your job, your employer and the industry you work in? Did you have significant investments in 2008? If so how did you react to the crisis?

Can you post a link the fact sheet for each of the funds you are using?


beth65 wrote:
Mon Jan 13, 2020 12:55 pm
My HSA (only $3k so far) is invested in a 20% split in VGHAX, VSMGX, VEXAX, TAGRX, PRTNX

I have a separate investment of $10,200 in an i-bond, $6k in a roth I just rolled over this year (100% invested in SPY), and $15k in an investment account I use to play/invest with. I also have a lot of cash in savings (sold a house recently and currently renting), at 1.8% - just over $200k, and prefer to keep that liquid until the housing situation becomes more clear in a year.

My spouse has his own investments ($330k) - HSA, Roth, 401k, i-bonds, that he manages himself, and we have no debt except his student loan. We are a high-income couple earning $370k combined, for reference. 24% tax bracket with deductions.
Please post your information in this format: "Asking Portfolio Questions". This will make it easier to understand your situation. Please include the accounts of both of you.

Please don't just use ticker symbols alone. Please give fund names, ticker symbols and expense ratios.

Please simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started


retired@50
Posts: 1061
Joined: Tue Oct 01, 2019 2:36 pm

Re: 401k allocation advice

Post by retired@50 » Tue Jan 14, 2020 12:38 am

beth65 wrote:
Mon Jan 13, 2020 12:55 pm

US Bond Index fund - govt, corp, securitized ($13.5k),
Strategic Real Asset Fund -TIPS, REIT, commodity ($16.2k)
US Large Cap - FAANG, MSFT, JNJ,P&G, JPM ($29.3k)
US Small Cap - TSLA, NOW, WDAY, LULU, HSBC, LVS, SQ, ($22.7k)
Int'l Developed Equity - NSRGF, RHHBF, NVSEF, TM, HSBC, BP, ($16.6k)
MSCI Emerging Market Fund - TCTZF, BABA, SSNLF, TSM, CICHY ($17.3k)
Corp Stock Fund (their direct contributions, no choice here, but it's a strong dividend-paying stock) ($1.2k)
I'd suggest selling the Strategic Real Asset Fund and use the proceeds to buy more of the US Bond Index fund.

It also appears you're over exposed to the MSCI Emerging Market Fund. Generally, the emerging markets should represent about 20% of your international stock holdings. In your case, you're at around 50% of your international stock.

You may be a little light on the US Large Cap fund as well, perhaps sell off a little of the US Small Cap fund. Generally, the Mid / Small cap portions of the US Market are no more than 30% of the overall US market.

Regards,
Boggle - a game from Parker Brothers. Bogle - investor, founder of Vanguard.

3funder
Posts: 1177
Joined: Sun Oct 15, 2017 9:35 pm

Re: 401k allocation advice

Post by 3funder » Tue Jan 14, 2020 8:55 am

retired@50 wrote:
Tue Jan 14, 2020 12:38 am
beth65 wrote:
Mon Jan 13, 2020 12:55 pm

US Bond Index fund - govt, corp, securitized ($13.5k),
Strategic Real Asset Fund -TIPS, REIT, commodity ($16.2k)
US Large Cap - FAANG, MSFT, JNJ,P&G, JPM ($29.3k)
US Small Cap - TSLA, NOW, WDAY, LULU, HSBC, LVS, SQ, ($22.7k)
Int'l Developed Equity - NSRGF, RHHBF, NVSEF, TM, HSBC, BP, ($16.6k)
MSCI Emerging Market Fund - TCTZF, BABA, SSNLF, TSM, CICHY ($17.3k)
Corp Stock Fund (their direct contributions, no choice here, but it's a strong dividend-paying stock) ($1.2k)
I'd suggest selling the Strategic Real Asset Fund and use the proceeds to buy more of the US Bond Index fund.

It also appears you're over exposed to the MSCI Emerging Market Fund. Generally, the emerging markets should represent about 20% of your international stock holdings. In your case, you're at around 50% of your international stock.

You may be a little light on the US Large Cap fund as well, perhaps sell off a little of the US Small Cap fund. Generally, the Mid / Small cap portions of the US Market are no more than 30% of the overall US market.

Regards,
+1

Topic Author
beth65
Posts: 112
Joined: Mon May 08, 2017 1:51 pm

Re: 401k allocation advice

Post by beth65 » Tue Jan 14, 2020 9:44 am

retired@50 wrote:
Tue Jan 14, 2020 12:38 am
beth65 wrote:
Mon Jan 13, 2020 12:55 pm

US Bond Index fund - govt, corp, securitized ($13.5k),
Strategic Real Asset Fund -TIPS, REIT, commodity ($16.2k)
US Large Cap - FAANG, MSFT, JNJ,P&G, JPM ($29.3k)
US Small Cap - TSLA, NOW, WDAY, LULU, HSBC, LVS, SQ, ($22.7k)
Int'l Developed Equity - NSRGF, RHHBF, NVSEF, TM, HSBC, BP, ($16.6k)
MSCI Emerging Market Fund - TCTZF, BABA, SSNLF, TSM, CICHY ($17.3k)
Corp Stock Fund (their direct contributions, no choice here, but it's a strong dividend-paying stock) ($1.2k)
I'd suggest selling the Strategic Real Asset Fund and use the proceeds to buy more of the US Bond Index fund.

It also appears you're over exposed to the MSCI Emerging Market Fund. Generally, the emerging markets should represent about 20% of your international stock holdings. In your case, you're at around 50% of your international stock.

You may be a little light on the US Large Cap fund as well, perhaps sell off a little of the US Small Cap fund. Generally, the Mid / Small cap portions of the US Market are no more than 30% of the overall US market.

Regards,
Thank you!

retired@50
Posts: 1061
Joined: Tue Oct 01, 2019 2:36 pm

Re: 401k allocation advice

Post by retired@50 » Tue Jan 14, 2020 10:58 am

beth65 wrote:
Tue Jan 14, 2020 9:44 am
retired@50 wrote:
Tue Jan 14, 2020 12:38 am
beth65 wrote:
Mon Jan 13, 2020 12:55 pm

US Bond Index fund - govt, corp, securitized ($13.5k),
Strategic Real Asset Fund -TIPS, REIT, commodity ($16.2k)
US Large Cap - FAANG, MSFT, JNJ,P&G, JPM ($29.3k)
US Small Cap - TSLA, NOW, WDAY, LULU, HSBC, LVS, SQ, ($22.7k)
Int'l Developed Equity - NSRGF, RHHBF, NVSEF, TM, HSBC, BP, ($16.6k)
MSCI Emerging Market Fund - TCTZF, BABA, SSNLF, TSM, CICHY ($17.3k)
Corp Stock Fund (their direct contributions, no choice here, but it's a strong dividend-paying stock) ($1.2k)
I'd suggest selling the Strategic Real Asset Fund and use the proceeds to buy more of the US Bond Index fund.

It also appears you're over exposed to the MSCI Emerging Market Fund. Generally, the emerging markets should represent about 20% of your international stock holdings. In your case, you're at around 50% of your international stock.

You may be a little light on the US Large Cap fund as well, perhaps sell off a little of the US Small Cap fund. Generally, the Mid / Small cap portions of the US Market are no more than 30% of the overall US market.

Regards,
Thank you!
You're welcome.
In case I wasn't crystal clear in my earlier post, I'd avoid the Strategic Real Asset Fund altogether. Allocation set to 0%. Also, if the Corp Stock Fund grows to more than 5% of your allocation, I'd suggest selling off pieces over time. It's not disloyal to diversify your holdings.

Regards,
Boggle - a game from Parker Brothers. Bogle - investor, founder of Vanguard.

lakpr
Posts: 3522
Joined: Fri Mar 18, 2011 9:59 am

Re: 401k allocation advice

Post by lakpr » Tue Jan 14, 2020 11:50 am

I also see that @beth65 is contributing less to the Developed Markets index fund and more to the Emerging Markets index fund. If this is a conscious decision on the OP's part, I have no issues, but understand that Emerging Markets make up less than 5% of the total world market. Even if we take the "international market excluding US" alone, EM makes up for less than 20% by market weight.

If you are fond of it, you can take the EM tilt in your portfolio; it can either pay off big time or crash big time. That's the risk you take with Emerging Markets. Personally (and mainly because I just turned 50), I skip the emerging markets altogether, and invest only 20% of my overall portfolio into Developed Markets Index fund and no more.

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ruralavalon
Posts: 17140
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Work 401k allocation advice

Post by ruralavalon » Tue Jan 14, 2020 12:10 pm

beth65 wrote:
Mon Jan 13, 2020 12:55 pm
Do you think this is well-diversified, or should I look to make any changes? I tend to be more conservative and look for steady growth and diversification. The only other investment options available are target funds, and a short term bond fund.

I’m almost 40, plan to retire around 65/68, my job and employee are overall secure- layoffs are uncommon. I don’t have a pension as it’s no longer offered to anyone hired after 2015. I had about 65k invested in 08, moved some investments to gold and weathered it quite well. I’m debt-adverse and save and budget well. I sync my budget app daily and have downsized my living in the past two years, living below my means. Between paying down part of a student loan, savings, 529’s and retirement, I saved almost $100k in 2019.

My HSA (only $3k so far) is invested in a 20% split in VGHAX, VSMGX, VEXAX, TAGRX, PRTNX

I have a separate investment of $10,200 in an i-bond, $6k in a roth I just rolled over this year (100% invested in SPY), and $15k in an investment account I use to play/invest with. I also have a lot of cash in savings (sold a house recently and currently renting), at 1.8% - just over $200k, and prefer to keep that liquid until the housing situation becomes more clear in a year.
Your employer's 401k plan offers excellent, very diversified funds with very low expense ratios. You are fortunate.

It is not necessary to use all the funds in order to be well diversified.

BlackRock, U.S. Bond Index Fund, Bloomberg Barclays U.S. Aggregate Bond Index, ER 0.00%.

BlackRock, Strategic Real Asset Fund, TIPS, REITS, Commodities, ER 0.01%.

BlackRock, U.S. Large Cap Equity Index Fund, S&P 500 Index, ER 0.00%.

BlackRock, U.S. Small/Mid Cap Equity Index Fund, Dow Jones Completion Total Stock Market Index, ER 0.00%.

BlackRock, International Developed Country Equity Index Fund, MSCI World ex-US Index, ER 0.01%.

BlackRock, MSCI Emerging Markets Equity Index Fund, MSCI Emerging Markets Net Dividend Return Index, ER 0.02%.


Asset allocation.
With $200k in a savings account and $10.1k in an I-bond, you have 60% in fixed income, which is very conservative for your situation ("almost 40, plan to retire around 65/68, my job and employee are overall secure- layoffs are uncommon.")

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.


Fund selection.
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"; and
3) Taylor Larimore post, "Articles recommending the three-fund portfolio".


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 28 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 – 2020), 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.

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?".

If you want to add the completion index fund, then an 82/18 mix of the S&P 500 and small/mid funds will approximate the content of a total stock market index fund. Wiki article, "Approximating total stock market". In my opinion this is not necessary, it is optional if you prefer to do this.

With $200k in a savings account and $10.1k in an I-bond, you have 60% in fixed income, so I do not suggest any additional fixed income in a bond fund.

I suggest keeping it simple in international stocks using just BlackRock, International Developed Country Equity Index Fund, MSCI World ex-US Index, ER 0.01%. In my opinion using 1-2% of portfolio in emerging markets will make no difference, other than to make your investments more complex and harder to manage.

It is often better to coordinate investments among 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. It is not necessary to put all elements of the desired asset allocation in each account.



Questions.
How much will you contribute annually to your Roth IRA? What fund firm or brokerage is that account with?

What types of investments do you have in your play/investing account? U.S. stocks? What fund firm or brokerage is that account with? How much will you contribute annually to this account?

What fund firm or brokerage is your HSA with? How much will you contribute annually to this account?

Establishing a high rate of contributions is one of the most important investing decisions you can make.


Example portfolio.
Here is an example portfolio that you could consider. This is a three-fund type portfolio, modified as necessary to accommodate your 60% in fixed income in the form of savings account and I-bond, and to accommodate the fund offerings in your 401k. Total portfolio = $350.6k. The asset allocation is: 60% fixed income; 08% international stocks; and 32% 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. All percentages and dollar amounts are rounded off, so may not add up exactly.


401k (33% of total portfolio; $116.5k; adds $19.5k/yr)
25%, $88k, BlackRock, U.S. Large Cap Equity Index Fund, S&P 500 Index, ER 0.00%.
08%, $28k, BlackRock, International Developed Country Equity Index Fund, MSCI World ex-US Index, ER 0.01%.

Roth IRA @ ??? (02% of total portfolio; $6k; adds $???/yr)
02%, $06k, SPDR® S&P 500 ETF Trust (SPY) ER 0.095%

Treasury Direct (03% of total portfolio; $10.1k)
03%, I-bond

HSA @ ??? (01% of total portfolio; $03k; adds $???/yr)

Savings account 1.8% (57% of total portfolio; $200k)

play/investing account @ ??? (04% of total portfolio; $15k; adds $???/yr)
04%, $15k, U.S. stocks???

. . . . .

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. A quick education for a beginning investor is Dr. Bernstein's free short on-line book, "If You Can".

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

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