Managing my own 401k instead of target date fund?

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Danimals543
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Managing my own 401k instead of target date fund?

Post by Danimals543 »

So currently I’m invested in a 2065 TDF with 0.08% expense ratio in my 401k plan. The expense ratio isn’t what bothers me but the asset allocation itself. I did TDF before I knew a lot about investing but I’ve been reading up and learning about the 3 fund portfolio. I have a few questions.

First: I think I want to basically follow the target date fund’s allocation. I heard that they used to be 30% international and changed it to 40%. Should I change my asset allocation when the target date fund changes (excluding bonds), or should I wait until I rebalance? I.e. In July 2021 let’s say Vanguard changes it to 35% international, and I had planned on rebalancing December 2021, do I wait until December to change it or change it right as Vanguard does it?

Second: Is it better to keep the same international % rather than following Vanguard? Ie just choose 40% and stick with it even if Vanguard changes their percentage in their TDFs?

Third: With the amount of questions I’m asking and how closely I’m following the TDF does it make sense to do my own thing or am I just chasing negligible returns? I’m aiming for basically the TDF without the bond component

I’m okay being 100% in stocks and if I see my portfolio decline by 50% I’m okay with that. Currently have $24,000 in 401k and $7,000 in my Roth IRA.

Edit: forgot to mention that I also have a taxable account where it’s invested 100% in VTSAX since I don’t wanna learn for now about tax issues and stuff
billfromct
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Re: Managing my own 401k instead of target date fund?

Post by billfromct »

You don’t mention what company manages your 401k TDF but you do mention Vanguard TDFs several times so I can comment on the Vanguard TDFs.

The 2065 Vanguard TDF asset allocation is about 90% stock/10% fixed income. The Vanguard TDFs move to about 50% stocks/50% fixed income at the target year & about 30% stock/70% fixed income 7 years after the target year. The Vanguard TDF stock allocation stays at about 60% domestic/40% international for the stock allocation only, not the total fund.

You don’t mention your age, but if I was in my 20s, I would be 100% stocks in my retirement accounts & move into a higher fixed income allocation as I get closer to retirement. My kids, in their late 20s/early 30s, are 100% stocks in their retirement accounts & about 15% fixed income in their non retirement accounts should they need the money.

Since the 2065 TDF asset allocation will probably remain the same for the next 10-15 years (only a guess), you have a few years to educate yourself to determine how you want to set your retirement asset allocation as you get closer to retirement.

bill
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Danimals543
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Re: Managing my own 401k instead of target date fund?

Post by Danimals543 »

billfromct wrote: Sun Nov 29, 2020 8:41 am You don’t mention what company manages your 401k TDF but you do mention Vanguard TDFs several times so I can comment on the Vanguard TDFs.

The 2065 Vanguard TDF asset allocation is about 90% stock/10% fixed income. The Vanguard TDFs move to about 50% stocks/50% fixed income at the target year & about 30% stock/70% fixed income 7 years after the target year. The Vanguard TDF stock allocation stays at about 60% domestic/40% international for the stock allocation only, not the total fund.

You don’t mention your age, but if I was in my 20s, I would be 100% stocks in my retirement accounts & move into a higher fixed income allocation as I get closer to retirement. My kids, in their late 20s/early 30s, are 100% stocks in their retirement accounts & about 15% fixed income in their non retirement accounts should they need the money.

Since the 2065 TDF asset allocation will probably remain the same for the next 10-15 years (only a guess), you have a few years to educate yourself to determine how you want to set your retirement asset allocation as you get closer to retirement.

bill
Yeah I want to move away from the target date fund. The only thing I was confused about was how much money I should be putting into international stocks. I’m thinking of just copying the Vanguard Target Fund’s allocations. The only question is that if they change their international allocation in the future again do I try and match that?

I’m 22.
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vineviz
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Re: Managing my own 401k instead of target date fund?

Post by vineviz »

Danimals543 wrote: Sun Nov 29, 2020 1:02 am Third: With the amount of questions I’m asking and how closely I’m following the TDF does it make sense to do my own thing or am I just chasing negligible returns? I’m aiming for basically the TDF without the bond component
The odds against you doing as well as the TDF are incredibly low. Most DIY investors DRAMATICALLY underperform their matching target date fund.

An admittedly subjective evaluation tells me that switching to a DIY strategy of 100% stocks gives you a 20% chance of increasing by returns by up to 0.4% per year and a 80% chance of decreasing returns by up to 1% per year.

That’s not a bet I’d advise anyone to make.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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HMSVictory
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Re: Managing my own 401k instead of target date fund?

Post by HMSVictory »

Use the TDF until you need to start balancing tax deferred, roth and taxable accounts.

100% VTSMX in taxable is fine. Your retirement should be all Roth 401k or Roth IRA.

Pray for a 50% correction because you are building your nest egg! Volatility is the friend of the dollar cost averager.
Stay the course!
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Danimals543
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Re: Managing my own 401k instead of target date fund?

Post by Danimals543 »

HMSVictory wrote: Sun Nov 29, 2020 9:03 am Use the TDF until you need to start balancing tax deferred, roth and taxable accounts.

100% VTSMX in taxable is fine. Your retirement should be all Roth 401k or Roth IRA.

Pray for a 50% correction because you are building your nest egg! Volatility is the friend of the dollar cost averager.
Yeah my retirement and taxable are separate accounts. I plan on using the taxable more for a house down payment fund which is why my asset allocation doesn’t match the 401k or Roth IRA.
jimkinny
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Re: Managing my own 401k instead of target date fund?

Post by jimkinny »

Vanguard recommends something like 20-40% international with 40% being the most "efficient". Why don't you pick something in that range and then stick to it for 10 years and decide then if you want to change to match whatever current allocation Vanguard uses?
I think 100% stocks is fine if you are thinking long term from 15-30 years and are okay with the risk. As you accumulate more you may want to revisit this allocation or if you develop some shorter term goals.
pkcrafter
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Re: Managing my own 401k instead of target date fund?

Post by pkcrafter »

Comments below...
Danimals543 wrote: Sun Nov 29, 2020 1:02 am So currently I’m invested in a 2065 TDF with 0.08% expense ratio in my 401k plan. The expense ratio isn’t what bothers me but the asset allocation itself. I did TDF before I knew a lot about investing but I’ve been reading up and learning about the 3 fund portfolio. I have a few questions.

Above you say you are invested in TR2065, but below it sounds like you are not actually in a TR fund.

First: I think I want to basically follow the target date fund’s allocation. I heard that they used to be 30% international and changed it to 40%.

International is about 40% of equity and stays there as the fund matures and equity % gets lower.

Should I change my asset allocation when the target date fund changes (excluding bonds), or should I wait until I rebalance?

If you are not actually using a TR fund, then asset allocation is totally up to you. Create your own portfolio and rebalance when target AA gets off by 5%. Also, you can set whatever international allocation you want. Most members here don't follow the TR funds high international allocation.

I.e. In July 2021 let’s say Vanguard changes it to 35% international, and I had planned on rebalancing December 2021, do I wait until December to change it or change it right as Vanguard does it?

Change (reset) allocations when they got off by 5%.

Second: Is it better to keep the same international % rather than following Vanguard? Ie just choose 40% and stick with it even if Vanguard changes their percentage in their TDFs?

Don't follow Vanguard. Set your own allocation and keep it +/-5% of your target.

Third: With the amount of questions I’m asking and how closely I’m following the TDF does it make sense to do my own thing or am I just chasing negligible returns? I’m aiming for basically the TDF without the bond component

Right, so you are not following target funds. Basically, it sounds like you are using a simple two-fund portfolio.

I’m okay being 100% in stocks and if I see my portfolio decline by 50% I’m okay with that. Currently have $24,000 in 401k and $7,000 in my Roth IRA.

Edit: forgot to mention that I also have a taxable account where it’s invested 100% in VTSAX since I don’t wanna learn for now about tax issues and stuff

OK.

Pau
l
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
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Re: Managing my own 401k instead of target date fund?

Post by pkcrafter »

Danimals543 wrote: Sun Nov 29, 2020 9:09 am
HMSVictory wrote: Sun Nov 29, 2020 9:03 am Use the TDF until you need to start balancing tax deferred, roth and taxable accounts.

100% VTSMX in taxable is fine. Your retirement should be all Roth 401k or Roth IRA.

Pray for a 50% correction because you are building your nest egg! Volatility is the friend of the dollar cost averager.
Yeah my retirement and taxable are separate accounts. I plan on using the taxable more for a house down payment fund which is why my asset allocation doesn’t match the 401k or Roth IRA.
Assets for short term goals (like house down payment) are not part of long- term investing portfolio, so don't include them in investing asset allocation. By the way, I would not recommend holding 100% equity for short term goals.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
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Danimals543
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Re: Managing my own 401k instead of target date fund?

Post by Danimals543 »

pkcrafter wrote: Sun Nov 29, 2020 9:55 am
Danimals543 wrote: Sun Nov 29, 2020 9:09 am
HMSVictory wrote: Sun Nov 29, 2020 9:03 am Use the TDF until you need to start balancing tax deferred, roth and taxable accounts.

100% VTSMX in taxable is fine. Your retirement should be all Roth 401k or Roth IRA.

Pray for a 50% correction because you are building your nest egg! Volatility is the friend of the dollar cost averager.
Yeah my retirement and taxable are separate accounts. I plan on using the taxable more for a house down payment fund which is why my asset allocation doesn’t match the 401k or Roth IRA.
Assets for short term goals (like house down payment) are not part of long- term investing portfolio, so don't include them in investing asset allocation. By the way, I would not recommend holding 100% equity for short term goals.

Paul
Is 10-15 years considered short term?
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Re: Managing my own 401k instead of target date fund?

Post by pkcrafter »

Danimals543 wrote: Sun Nov 29, 2020 1:49 pm
pkcrafter wrote: Sun Nov 29, 2020 9:55 am
Danimals543 wrote: Sun Nov 29, 2020 9:09 am
HMSVictory wrote: Sun Nov 29, 2020 9:03 am Use the TDF until you need to start balancing tax deferred, roth and taxable accounts.

100% VTSMX in taxable is fine. Your retirement should be all Roth 401k or Roth IRA.

Pray for a 50% correction because you are building your nest egg! Volatility is the friend of the dollar cost averager.
Yeah my retirement and taxable are separate accounts. I plan on using the taxable more for a house down payment fund which is why my asset allocation doesn’t match the 401k or Roth IRA.
Assets for short term goals (like house down payment) are not part of long- term investing portfolio, so don't include them in investing asset allocation. By the way, I would not recommend holding 100% equity for short term goals.

Paul
Is 10-15 years considered short term?
No, 10-15 years is not short term. Maybe you should use some taxable for long term investing. 10-15 years is too long to hold cash for a home purchase.


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
rkhusky
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Re: Managing my own 401k instead of target date fund?

Post by rkhusky »

If you have Total World available, you could use that and not worry about the international allocation or rebalancing.
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Danimals543
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Re: Managing my own 401k instead of target date fund?

Post by Danimals543 »

rkhusky wrote: Sun Nov 29, 2020 5:55 pm If you have Total World available, you could use that and not worry about the international allocation or rebalancing.
So I have Total World in my Roth IRA (VTWAX), and don’t have Total World in my 401k. Should I switch to try to mirror total world in 401k using Domestic/International Total Stock market or just keep Roth IRA as VTWAX and 401K as TDF to not have to worry about rebalancing?
rkhusky
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Re: Managing my own 401k instead of target date fund?

Post by rkhusky »

Danimals543 wrote: Sun Nov 29, 2020 9:05 pm
rkhusky wrote: Sun Nov 29, 2020 5:55 pm If you have Total World available, you could use that and not worry about the international allocation or rebalancing.
So I have Total World in my Roth IRA (VTWAX), and don’t have Total World in my 401k. Should I switch to try to mirror total world in 401k using Domestic/International Total Stock market or just keep Roth IRA as VTWAX and 401K as TDF to not have to worry about rebalancing?
TDF in the 401k and Total World in the Roth IRA is a reasonable approach if you want simplicity and want to minimize bonds. You could also use a TDF in the Roth IRA, but that would increase your bond allocation a bit. The TDF won't change its allocation for 20+ years, so you have plenty of time to think about things.
drumboy256
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Re: Managing my own 401k instead of target date fund?

Post by drumboy256 »

Counter point...

I was managing all of my 3 fund portfolio of which I looked at the Fidelity comparable target fund and it literally was one basis point higher on the ER. So instead of paying $11 bucks per year now I’m paying $12 for Fidelity automagically rebalance for me.

Either way, I still spreadsheet out what is what but you can’t beat the management of having Fidelity do the work for you.

People flipping out over greater than 30% international will be crying once the rest of the world catches up to the US markets that will have to slow down over the next decade.

Big fan of the adage: “Money is like soap, the more you handle it, the less you have.”
Promise is one thing. Fulfilling that promise is quite another. - Sir Alex Ferguson
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Horton
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Re: Managing my own 401k instead of target date fund?

Post by Horton »

vineviz wrote: Sun Nov 29, 2020 8:56 am
Danimals543 wrote: Sun Nov 29, 2020 1:02 am Third: With the amount of questions I’m asking and how closely I’m following the TDF does it make sense to do my own thing or am I just chasing negligible returns? I’m aiming for basically the TDF without the bond component
The odds against you doing as well as the TDF are incredibly low. Most DIY investors DRAMATICALLY underperform their matching target date fund.

An admittedly subjective evaluation tells me that switching to a DIY strategy of 100% stocks gives you a 20% chance of increasing by returns by up to 0.4% per year and a 80% chance of decreasing returns by up to 1% per year.

That’s not a bet I’d advise anyone to make.
I agree with this. I’m almost certain that I have underperformed the Vanguard TDF corresponding to my expected retirement year due to a value tilt and a more conservative stock/bond allocation within my personal portfolio. That said, I’ve consciously made those decisions and saved enough that it doesn’t matter in the end.

If I had to do it over again, I would have just used a TDF.
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Re: Managing my own 401k instead of target date fund?

Post by ruralavalon »

Welcome to the forum :) .

What fund company manages the target date fund you are using? The expense ratio of 0.08% is very nice.

How much do you contribute annually to your 401k and how much do you contribute annually to your Roth IRA?


Danimals543 wrote: Sun Nov 29, 2020 1:02 am So currently I’m invested in a 2065 TDF with 0.08% expense ratio in my 401k plan. The expense ratio isn’t what bothers me but the asset allocation itself. I did TDF before I knew a lot about investing but I’ve been reading up and learning about the 3 fund portfolio. I have a few questions.

First: I think I want to basically follow the target date fund’s allocation. I heard that they used to be 30% international and changed it to 40%. Should I change my asset allocation when the target date fund changes (excluding bonds), or should I wait until I rebalance? I.e. In July 2021 let’s say Vanguard changes it to 35% international, and I had planned on rebalancing December 2021, do I wait until December to change it or change it right as Vanguard does it?

Second: Is it better to keep the same international % rather than following Vanguard? Ie just choose 40% and stick with it even if Vanguard changes their percentage in their TDFs?

Third: With the amount of questions I’m asking and how closely I’m following the TDF does it make sense to do my own thing or am I just chasing negligible returns? I’m aiming for basically the TDF without the bond component

I’m okay being 100% in stocks and if I see my portfolio decline by 50% I’m okay with that. Currently have $24,000 in 401k and $7,000 in my Roth IRA.

Edit: forgot to mention that I also have a taxable account where it’s invested 100% in VTSAX since I don’t wanna learn for now about tax issues and stuff
I suggest just sticking with that target date fund. It is simple, requires no management, and is diversified with a very low expense ratio.

When young and just starting the most important investing decision you can make is to establish a high rate of contributions. Focus on that rather than on the target date vs three funds decision, the details of asset allocation, or the methods of rebalancing.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
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Danimals543
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Re: Managing my own 401k instead of target date fund?

Post by Danimals543 »

ruralavalon wrote: Mon Nov 30, 2020 6:48 pm Welcome to the forum :) .

What fund company manages the target date fund you are using? The expense ratio of 0.08% is very nice.

How much do you contribute annually to your 401k and how much do you contribute annually to your Roth IRA?


Danimals543 wrote: Sun Nov 29, 2020 1:02 am So currently I’m invested in a 2065 TDF with 0.08% expense ratio in my 401k plan. The expense ratio isn’t what bothers me but the asset allocation itself. I did TDF before I knew a lot about investing but I’ve been reading up and learning about the 3 fund portfolio. I have a few questions.

First: I think I want to basically follow the target date fund’s allocation. I heard that they used to be 30% international and changed it to 40%. Should I change my asset allocation when the target date fund changes (excluding bonds), or should I wait until I rebalance? I.e. In July 2021 let’s say Vanguard changes it to 35% international, and I had planned on rebalancing December 2021, do I wait until December to change it or change it right as Vanguard does it?

Second: Is it better to keep the same international % rather than following Vanguard? Ie just choose 40% and stick with it even if Vanguard changes their percentage in their TDFs?

Third: With the amount of questions I’m asking and how closely I’m following the TDF does it make sense to do my own thing or am I just chasing negligible returns? I’m aiming for basically the TDF without the bond component

I’m okay being 100% in stocks and if I see my portfolio decline by 50% I’m okay with that. Currently have $24,000 in 401k and $7,000 in my Roth IRA.

Edit: forgot to mention that I also have a taxable account where it’s invested 100% in VTSAX since I don’t wanna learn for now about tax issues and stuff
I suggest just sticking with that target date fund. It is simple, requires no management, and is diversified with a very low expense ratio.

When young and just starting the most important investing decision you can make is to establish a high rate of contributions. Focus on that rather than on the target date vs three funds decision, the details of asset allocation, or the methods of rebalancing.
Hello! :happy
What fund company manages the target date fund you are using? The expense ratio of 0.08% is very nice.
It’s kind of confusing but basically Fidelity is the fund company that manages my 401K, but for some reason the target date funds offered are Vanguard funds.
How much do you contribute annually to your 401k and how much do you contribute annually to your Roth IRA?
The max amount, so $25,500 in total ($19,500 401K and $6,000 Roth IRA). I’m lucky to be in a position to do so comfortably. I’m also debating putting more into retirement via Mega Backdoor IRA but not sure yet if I want to put excess money into that or into house down payment.
When young and just starting the most important investing decision you can make is to establish a high rate of contributions. Focus on that rather than on the target date vs three funds decision, the details of asset allocation, or the methods of rebalancing.
Ah gotcha, when should I start to worry more about this? I guess I just wanted my best foot forward haha
JustThisGuy
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Re: Managing my own 401k instead of target date fund?

Post by JustThisGuy »

vineviz wrote: Sun Nov 29, 2020 8:56 am The odds against you doing as well as the TDF are incredibly low. Most DIY investors DRAMATICALLY underperform their matching target date fund.
Let me state at the outset that I'm not trying to hijack the OP's thread. I will gladly start a new thread if that's the preferred way to handle it.

I've been thinking about this comment for a few days now. I am someone who was in a TDF until a few months ago and made the change to a Three Fund Portfolio. In the spirit of educating myself (and, hopefully, the OP and others in our position), can you flesh this out a little?

If the comment was intended only as a cautionary tale against the OP's suggestion of rolling their own portfolio to mimic the TDF except without the bonds, no further explanation is needed and my apologies for the interruption.
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Re: Managing my own 401k instead of target date fund?

Post by texasdiver »

My recommendation is to just stick with the target date fund.

When I was younger and portfolio was smaller I did lots of DIY slicing and dicing.

The older we get the more I simplify and in our 50s are now down to just target Date funds for the bulk of my and my wife's investments which are into the 7 figures. What I concluded over time?

1. If you are following Boglehead principles, your DIY portfolio is going to very closely track the target date fund anyway, as long as you pick one that give you your basic desired asset allocation. Fussing around with something like minor changes to your Int'l allocation isn't likely to really change your returns or trajectory in any meaningful way over the long term.

2. You are letting the professionals decide on your international allocation rather than fussing about it yourself. That is the hardest allocation to pin down, most people come down somewhere between 20% and 40% but I've seen a low as zero (John Bogle) to 50% (the market cap of international). By letting Vanguard's professionals make that decision I just stop worrying about it. They know much more than I do.

3. By using a target date fund I stop seeing the individual fund prices and I find that I do way less second guessing of the individual components. For example, if International is doing poorly and I own it as a separate fund I start getting stressed and tempted to fuss around with the allocation. ow that I am only tracking the target date fund price all I see is the aggregate change in the total portfolio and I don't have any idea frankly of how much each individual component is up or down at a given moment. I just stopped worrying about it.

Balances are getting high enough in one of our accounts (rollover IRA) that breaking it down into the individual components would save a little bit of money with the lower management fees. But it just isn't enough to really bother with and would add complexity. It it doubles again I might then bother.
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Re: Managing my own 401k instead of target date fund?

Post by dru808 »

I vote for keeping the close enough target date fund until you hit $100k.
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Re: Managing my own 401k instead of target date fund?

Post by dru808 »

JustThisGuy wrote: Tue Dec 01, 2020 9:17 pm
vineviz wrote: Sun Nov 29, 2020 8:56 am The odds against you doing as well as the TDF are incredibly low. Most DIY investors DRAMATICALLY underperform their matching target date fund.
Let me state at the outset that I'm not trying to hijack the OP's thread. I will gladly start a new thread if that's the preferred way to handle it.

I've been thinking about this comment for a few days now. I am someone who was in a TDF until a few months ago and made the change to a Three Fund Portfolio. In the spirit of educating myself (and, hopefully, the OP and others in our position), can you flesh this out a little?

If the comment was intended only as a cautionary tale against the OP's suggestion of rolling their own portfolio to mimic the TDF except without the bonds, no further explanation is needed and my apologies for the interruption.

Most fiddle, don’t rebalance (let stocks ride), tilt etc. if your 3 fund mimics the target date and you stick to the plan, you’ll be fine.
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Danimals543
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Re: Managing my own 401k instead of target date fund?

Post by Danimals543 »

dru808 wrote: Wed Dec 02, 2020 12:27 am I vote for keeping the close enough target date fund until you hit $100k.
What should I do once I hit $100k? Just so I know in the future
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Danimals543
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Re: Managing my own 401k instead of target date fund?

Post by Danimals543 »

texasdiver wrote: Tue Dec 01, 2020 11:32 pm My recommendation is to just stick with the target date fund.

When I was younger and portfolio was smaller I did lots of DIY slicing and dicing.

The older we get the more I simplify and in our 50s are now down to just target Date funds for the bulk of my and my wife's investments which are into the 7 figures. What I concluded over time?

1. If you are following Boglehead principles, your DIY portfolio is going to very closely track the target date fund anyway, as long as you pick one that give you your basic desired asset allocation. Fussing around with something like minor changes to your Int'l allocation isn't likely to really change your returns or trajectory in any meaningful way over the long term.

2. You are letting the professionals decide on your international allocation rather than fussing about it yourself. That is the hardest allocation to pin down, most people come down somewhere between 20% and 40% but I've seen a low as zero (John Bogle) to 50% (the market cap of international). By letting Vanguard's professionals make that decision I just stop worrying about it. They know much more than I do.

3. By using a target date fund I stop seeing the individual fund prices and I find that I do way less second guessing of the individual components. For example, if International is doing poorly and I own it as a separate fund I start getting stressed and tempted to fuss around with the allocation. ow that I am only tracking the target date fund price all I see is the aggregate change in the total portfolio and I don't have any idea frankly of how much each individual component is up or down at a given moment. I just stopped worrying about it.

Balances are getting high enough in one of our accounts (rollover IRA) that breaking it down into the individual components would save a little bit of money with the lower management fees. But it just isn't enough to really bother with and would add complexity. It it doubles again I might then bother.
Gotcha, what about the fact that it has 10% in bonds? I’m fine with international allocation, just the bonds was what kind of threw me off and I’m worried I’ll get less gains since im young and have time on my side
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markjk
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Re: Managing my own 401k instead of target date fund?

Post by markjk »

Danimals543 wrote: Sun Nov 29, 2020 1:02 am So currently I’m invested in a 2065 TDF with 0.08% expense ratio in my 401k plan. The expense ratio isn’t what bothers me but the asset allocation itself. I did TDF before I knew a lot about investing but I’ve been reading up and learning about the 3 fund portfolio. I have a few questions.

First: I think I want to basically follow the target date fund’s allocation. I heard that they used to be 30% international and changed it to 40%. Should I change my asset allocation when the target date fund changes (excluding bonds), or should I wait until I rebalance? I.e. In July 2021 let’s say Vanguard changes it to 35% international, and I had planned on rebalancing December 2021, do I wait until December to change it or change it right as Vanguard does it?

Second: Is it better to keep the same international % rather than following Vanguard? Ie just choose 40% and stick with it even if Vanguard changes their percentage in their TDFs?

Third: With the amount of questions I’m asking and how closely I’m following the TDF does it make sense to do my own thing or am I just chasing negligible returns? I’m aiming for basically the TDF without the bond component

I’m okay being 100% in stocks and if I see my portfolio decline by 50% I’m okay with that. Currently have $24,000 in 401k and $7,000 in my Roth IRA.

Edit: forgot to mention that I also have a taxable account where it’s invested 100% in VTSAX since I don’t wanna learn for now about tax issues and stuff
I think it's excellent you are educating yourself and looking at your long term savings/investing this early in your career. The good news here is no matter what you do, you will be in great shape long term.

Just a couple of comments. First, the most important thing is getting in early and investing in low cost index funds. You've done that. Second, keep it as simple as possible. In most disciplines there is value in human intervention and trying to "constantly improve." In investing, history has shown that constant intervention tends to reduce returns. The TDF is a great option. You can literally set it and forget. Speaking from experience, it works. Third, stay in for the long term. Don't panic sell when the market roils. You already said you are capable of doing that. Make sure to stick with it.

For any short term savings, make sure to have the money outside the market. Use a money market account, high yield savings, etc.
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ruralavalon
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Location: Illinois

Re: Managing my own 401k instead of target date fund?

Post by ruralavalon »

I suggest staying with Vanguard Target Retirement 2065 Fund (VLXVX) ER 0.08% in both your 401k and Roth IRA for the near future, the $100k trigger is kind of arbitrary. Keep it simple for now. At your rate of contributions you will be there fairly soon.

Meanwhile educate yourself. A quick education for a beginning investor is Dr. Bernstein's free short on-line book, "If You Can". Also take a look at the Boglehead’s wiki, the "getting started" link I give below. To go beyond the most basic I suggest that you also 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".

Learn about asset allocation. 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 (8/20/2019), "The Best Diversifiers for Your Equity Portfolio";
4) Morningstar (4/8/2020), "What's the Best Diversifier for Stocks?"
5) White Coat Investor (9/23/2016), "In Defense of Bonds"; and
6) Ben Carlson (8/2/2020), "Why Would Anyone Own Bonds Right Now?"

Vanguard paper (March 2012), "Considerations for investing in non-U.S. equities", available as an archived pdf. 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). The diversification benefit has varied over time. (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).

When you switch to any multi-fund portfolio, be aware of tax issues. In a taxable account use very tax-efficient stock index funds. Wiki article "Tax-efficient fund placement".
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
texasdiver
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Joined: Thu Jun 25, 2009 12:50 am
Location: Vancouver WA

Re: Managing my own 401k instead of target date fund?

Post by texasdiver »

Danimals543 wrote: Wed Dec 02, 2020 2:19 am
texasdiver wrote: Tue Dec 01, 2020 11:32 pm My recommendation is to just stick with the target date fund.

When I was younger and portfolio was smaller I did lots of DIY slicing and dicing.

The older we get the more I simplify and in our 50s are now down to just target Date funds for the bulk of my and my wife's investments which are into the 7 figures. What I concluded over time?

1. If you are following Boglehead principles, your DIY portfolio is going to very closely track the target date fund anyway, as long as you pick one that give you your basic desired asset allocation. Fussing around with something like minor changes to your Int'l allocation isn't likely to really change your returns or trajectory in any meaningful way over the long term.

2. You are letting the professionals decide on your international allocation rather than fussing about it yourself. That is the hardest allocation to pin down, most people come down somewhere between 20% and 40% but I've seen a low as zero (John Bogle) to 50% (the market cap of international). By letting Vanguard's professionals make that decision I just stop worrying about it. They know much more than I do.

3. By using a target date fund I stop seeing the individual fund prices and I find that I do way less second guessing of the individual components. For example, if International is doing poorly and I own it as a separate fund I start getting stressed and tempted to fuss around with the allocation. ow that I am only tracking the target date fund price all I see is the aggregate change in the total portfolio and I don't have any idea frankly of how much each individual component is up or down at a given moment. I just stopped worrying about it.

Balances are getting high enough in one of our accounts (rollover IRA) that breaking it down into the individual components would save a little bit of money with the lower management fees. But it just isn't enough to really bother with and would add complexity. It it doubles again I might then bother.
Gotcha, what about the fact that it has 10% in bonds? I’m fine with international allocation, just the bonds was what kind of threw me off and I’m worried I’ll get less gains since im young and have time on my side
Vanguard Total Bond is up 7.29% over the past year. Which kind of surprised me when I looked it up.

If you are young and don't want any bonds at all, that's fine. Just create your own 2-fund portfolio with whatever ration of domestic and int'l index funds that you want. There is nothing wrong with that. I'm not sure it is really going to make very much difference whether you are 90/10 or 100/0. Having 10% bonds basically just slightly mutes both your gains and loses.
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Danimals543
Posts: 70
Joined: Sun Nov 29, 2020 12:54 am

Re: Managing my own 401k instead of target date fund?

Post by Danimals543 »

ruralavalon wrote: Wed Dec 02, 2020 12:12 pm I suggest staying with Vanguard Target Retirement 2065 Fund (VLXVX) ER 0.08% in both your 401k and Roth IRA for the near future, the $100k trigger is kind of arbitrary. Keep it simple for now. At your rate of contributions you will be there fairly soon.

Meanwhile educate yourself. A quick education for a beginning investor is Dr. Bernstein's free short on-line book, "If You Can". Also take a look at the Boglehead’s wiki, the "getting started" link I give below. To go beyond the most basic I suggest that you also 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".

Learn about asset allocation. 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 (8/20/2019), "The Best Diversifiers for Your Equity Portfolio";
4) Morningstar (4/8/2020), "What's the Best Diversifier for Stocks?"
5) White Coat Investor (9/23/2016), "In Defense of Bonds"; and
6) Ben Carlson (8/2/2020), "Why Would Anyone Own Bonds Right Now?"

Vanguard paper (March 2012), "Considerations for investing in non-U.S. equities", available as an archived pdf. 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). The diversification benefit has varied over time. (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).

When you switch to any multi-fund portfolio, be aware of tax issues. In a taxable account use very tax-efficient stock index funds. Wiki article "Tax-efficient fund placement".
I’ll read the sources, thanks! I did read the Vanguard paper which is why I do want 40% international. So I was thinking of doing 60% VTSAX and VTIAX in my Roth IRA and just keeping my 401k as a TDF. For me it was what people were saying that bonds are useless at my age so that’s why I was skeptical of the TDF. But then again it’s 10% which isn’t a lot I guess.
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