401k Portfolio Allocation Advice

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Topic Author
DMB41
Posts: 4
Joined: Fri Nov 20, 2020 2:55 pm

401k Portfolio Allocation Advice

Post by DMB41 »

Hey all. Looking for some advice on my 401k portfolio allocation. My works 401k provider (John Hancock) just recently made some changes to their available investment options so I want to make sure I'm making the best decisions. Some background information:

Emergency funds: ~6 months of expenses
Debt: Car = $21k @ 2.99%
Tax Filing Status: Single
Tax Rate: 24% Federal, 5% State
State of Residence: AL
Age: 27
Desired Asset allocation: TBD; Retirement is far down the road, with much higher earning potential. I am fine with significant risk today.
Desired International allocation: TBD

Total Portfolio = ~$70k

Roth IRA (~$14.4k)
  • 10.3% - Vanguard Target Retirement 2055 Fund Investor Shares (VFFVX) (ER 0.15%)
HSA (~$4k)
  • 7.6% - Vanguard Institutional Index Fund Institutional Plus Shares (VIIIX) (ER 0.02%)
401k (~$51k)
  • 70.1% - Northern Trust S&P 500 Index Fund Non Lending (ER 0.02%)
Future Contributions:
  • Roth IRA: Max - $6k
    401k: 10% (~$8,800) for 2021 | Employer contribution = 2% + 3% profit sharing
Funds Available in 401k:
Some of these do not have ticker symbols unfortunately. I have these categorized exactly as they provide them.

Legend for below: [Fund Name] [Ticker, if available] [Expense Ratio]

Income
  • Loomis Sayles Bond Fund (Class N) (LSBNX) 0.59%
  • Northern Trust Aggregate Bond Index Fund Non Lending (Tier 3) 0.04%
  • PGIM Total Return Bond Fund (Class R6) (PTRQX) 0.41%
Target Date
  • T. Rowe Price Retirement Hybrid 2050 Trust (Class T4) 0.42%
  • T. Rowe Price Retirement Hybrid 2055 Trust (Class T4) 0.42%
  • T. Rowe Price Retirement Hybrid 2060 Trust (Class T4) 0.42%
Growth & Income
  • American Century Equity Income Fund (Class R6) 0.57%
  • John Hancock Disciplined Value Mid Cap Fund (Class R6) (JVMRX) 0.76%
  • Northern Trust S&P 500 Index Fund Non Lending (Tier 3) 0.02%
Growth
  • Carillon Eagle Mid Cap Growth Fund (Class R6) (HRAUX) 0.65%
  • Harbor Capital Appreciation Fund (Retirement Class) (HNACX)0.64%
  • MFS New Discovery Value Fund (Class R6) (NDVVX) 0.87%
  • Northern Trust Extended Equity Market Index Fund Non Lending (Tier 3) 0.05%
  • Principal Real Estate Securities Fund (Class R6) (PFRSX) 0.81%
  • Victory RS Small Cap Growth Fund (Class R6) (RSEJX) 1.06%
International
  • American Century Emerging Markets Fund (Class R6) (AEDMX) 0.90%
  • American Funds - EuroPacific Growth Fund (Class R6) (RERGX) 0.46%
  • Invesco Global Fund (Class R6) (OGLIX) 0.67%
  • MFS International New Discovery Fund (Class R6) (MIDLX) 0.93%
  • Northern Trust ACWI ex US IMI Fund Non Lending (Tier 3) 0.09%
Other Information:
  • I've been saving for a down payment for a house since the beginning of this year (~$25k so far in a HYSA). I'm planning to have a house by October of next year. Therefore, I haven't been investing as much as I could have been and don't plan to change that until after I have a house.
  • I anticipate being married by the time I have the house so combined income, tax bracket/filing and all that good stuff will change if that happens.
Questions:
  • What do you recommend for asset allocation?
  • How do I get there with the 401k offerings I have?
I didn't list my Roth or HSA offerings, but with them being a smaller slice of the pie, I figured it'd be easier to keep those as they are and change my 401k to get to my desired AA. Thoughts?

From my research and limited experience, I'd think it would be simple and effective to just go the target date fund route, but those ER are relatively high so I avoided those initially and just threw 100% into the Northern Trust S&P 500 Index Fund since it's ER is so low, but I'm guessing this doesn't get me to a desired AA. I'm still very new to all of this, despite all the research I've been doing over the last few years, so the more I can KISS the better!

Thanks in advance for all the help everyone!
tashnewbie
Posts: 929
Joined: Thu Apr 23, 2020 12:44 pm

Re: 401k Portfolio Allocation Advice

Post by tashnewbie »

Welcome to the forum.

Really neat, organized presentation of your information. Great job on starting young!

Given the relatively high fees of the target date funds in your 401k, I would skip them. Depending on what you want your asset allocation to be and whether you want an international fund, I think the Northern Trust index funds are the best options in your 401k.

If you really want to KISS, then I think putting all of your 401k deferrals into the S&P 500 index fund is a good option.
retiredjg
Posts: 42203
Joined: Thu Jan 10, 2008 12:56 pm

Re: 401k Portfolio Allocation Advice

Post by retiredjg »

Here are the excellent choices in your 401k.

Northern Trust Aggregate Bond Index Fund Non Lending (Tier 3) 0.04%
Northern Trust S&P 500 Index Fund Non Lending (Tier 3) 0.02%
Northern Trust Extended Equity Market Index Fund Non Lending (Tier 3) 0.05% (this fund completes the 500 index)
Northern Trust ACWI ex US IMI Fund Non Lending (Tier 3) 0.09%

I suggest 20% bonds, 45% 500 index, 11% Extended Market, 24% international,
Beehave
Posts: 841
Joined: Mon Jun 19, 2017 12:46 pm

Re: 401k Portfolio Allocation Advice

Post by Beehave »

retiredjg wrote: Fri Nov 20, 2020 5:43 pm Here are the excellent choices in your 401k.

Northern Trust Aggregate Bond Index Fund Non Lending (Tier 3) 0.04%
Northern Trust S&P 500 Index Fund Non Lending (Tier 3) 0.02%
Northern Trust Extended Equity Market Index Fund Non Lending (Tier 3) 0.05% (this fund completes the 500 index)
Northern Trust ACWI ex US IMI Fund Non Lending (Tier 3) 0.09%

I suggest 20% bonds, 45% 500 index, 11% Extended Market, 24% international,
+1

I concur strongly with this recommendation as a very reasonable asset allocation for the circumstances. It provides a risk orientation that is highly appropriate and it also can provide an opportunity for performing disciplined rebalancing according to pre-set parameters that should establish and then reinforce good maintenance habits.
Marseille07
Posts: 247
Joined: Fri Nov 06, 2020 1:41 pm

Re: 401k Portfolio Allocation Advice

Post by Marseille07 »

I'd be 100% Northern Trust S&P 500 Index Fund Non Lending (Tier 3) 0.02%. Doing something similar in my 401k, no regrets.
Topic Author
DMB41
Posts: 4
Joined: Fri Nov 20, 2020 2:55 pm

Re: 401k Portfolio Allocation Advice

Post by DMB41 »

Beehave wrote: Fri Nov 20, 2020 5:55 pm
retiredjg wrote: Fri Nov 20, 2020 5:43 pm Here are the excellent choices in your 401k.

Northern Trust Aggregate Bond Index Fund Non Lending (Tier 3) 0.04%
Northern Trust S&P 500 Index Fund Non Lending (Tier 3) 0.02%
Northern Trust Extended Equity Market Index Fund Non Lending (Tier 3) 0.05% (this fund completes the 500 index)
Northern Trust ACWI ex US IMI Fund Non Lending (Tier 3) 0.09%

I suggest 20% bonds, 45% 500 index, 11% Extended Market, 24% international,
+1

I concur strongly with this recommendation as a very reasonable asset allocation for the circumstances. It provides a risk orientation that is highly appropriate and it also can provide an opportunity for performing disciplined rebalancing according to pre-set parameters that should establish and then reinforce good maintenance habits.
Thanks Beehave and retiredjg for the recommendation!
Topic Author
DMB41
Posts: 4
Joined: Fri Nov 20, 2020 2:55 pm

Re: 401k Portfolio Allocation Advice

Post by DMB41 »

retiredjg wrote: Fri Nov 20, 2020 5:43 pm Here are the excellent choices in your 401k.

Northern Trust Aggregate Bond Index Fund Non Lending (Tier 3) 0.04%
Northern Trust S&P 500 Index Fund Non Lending (Tier 3) 0.02%
Northern Trust Extended Equity Market Index Fund Non Lending (Tier 3) 0.05% (this fund completes the 500 index)
Northern Trust ACWI ex US IMI Fund Non Lending (Tier 3) 0.09%

I suggest 20% bonds, 45% 500 index, 11% Extended Market, 24% international,
reiredjg, what was the reasoning or calculation behind the percentages here? 11% and 24% seem like specific numbers rather than something like 10% and 25%. Just want to make sure I'm not missing something.

Thanks!
retiredjg
Posts: 42203
Joined: Thu Jan 10, 2008 12:56 pm

Re: 401k Portfolio Allocation Advice

Post by retiredjg »

Yes, they are specific, but hitting those numbers exactly is not very important.

For the 80% stocks - I put 30% in international (this is a middle of the road allocation). 30% of 80 is 24% of the portfolio in international.

For the remaining 56% of the portfolio (US stocks) I put 20% of that (11% of the portfolio) in the extended market because that is a round number that is close to the actual market weight.

If you prefer to use 20% bonds, 45% 500 index, 10% extended market, 25% international that is just fine.

Other things that would be just fine would be 40% US stock and 40% international stock. Or 60% US and 20% international. For your US stock, you can leave out the extended market entirely if you want.

All of those ideas are going to work fine and there is no way to know ahead of time which will do "better". If there is a "better", it probably will not amount to much so don't worry about it.

The only important decision here is the stock to bond ratio and that is chosen depending on the amount of risk you are willing and able to take. Everything else is investing philosophy. Do I want international? If yes, how much? Do I want the entire US market or is 500 index enough for me? Etc.
Topic Author
DMB41
Posts: 4
Joined: Fri Nov 20, 2020 2:55 pm

Re: 401k Portfolio Allocation Advice

Post by DMB41 »

retiredjg wrote: Mon Nov 23, 2020 9:36 am Yes, they are specific, but hitting those numbers exactly is not very important.

For the 80% stocks - I put 30% in international (this is a middle of the road allocation). 30% of 80 is 24% of the portfolio in international.

For the remaining 56% of the portfolio (US stocks) I put 20% of that (11% of the portfolio) in the extended market because that is a round number that is close to the actual market weight.

If you prefer to use 20% bonds, 45% 500 index, 10% extended market, 25% international that is just fine.

Other things that would be just fine would be 40% US stock and 40% international stock. Or 60% US and 20% international. For your US stock, you can leave out the extended market entirely if you want.

All of those ideas are going to work fine and there is no way to know ahead of time which will do "better". If there is a "better", it probably will not amount to much so don't worry about it.

The only important decision here is the stock to bond ratio and that is chosen depending on the amount of risk you are willing and able to take. Everything else is investing philosophy. Do I want international? If yes, how much? Do I want the entire US market or is 500 index enough for me? Etc.
Understood. Thanks for the explanation!
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