Help with 401k Allocation and Selection

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Topic Author
Surfinfan
Posts: 18
Joined: Sat Sep 19, 2020 7:08 am

Help with 401k Allocation and Selection

Post by Surfinfan »

Hi all,

Thank you in advance. I just had a few questions regarding asset allocation in my new 401k and fund choices.

ASSETS:
Emergency fund: $3,500
Checking: $3,000
Current Retirement Assets
Roth IRA: $3,900.00
Traditional IRA: $7,800.00

DEBT:
Private Student Loans: $45,000 at 3% fixed (down from $110,000).
Federal Student Loans: $90,000 @ 0.00% currently will resume to 6% in September.
Rent: $0.00 (Living with Parents)

Tax Filing Status: Single
Tax Rate: 24% Federal
Age: 31
Desired Asset allocation: 100% Stocks
Desired International allocation: 30% of stocks
Desire Roth v. Traditional Allocation: 2% each.
4% match. Currently contributing 4%.

AVAILABLE FUNDS IN NEW 401K
Fund (Ticker) (Gross Expense Ratio)

STOCKS/EQUITIES
BLACK ROCK EQUITY INDEX (BEMMT) (0.04%)
BLACKROCK MID CAPITALIZATION EQUITY INDEX NON LENDABLE FUND (BMCCT) (.06%)
BLACKROCK MSCI EAFE EQUITY INDEX NON LENDABLE FUND (BCMMT) (.08%)
DIAMOND HILL LARGE CAP FUND (DHLYX) (.55%)
GOLDMAN SACHS SMALL CAP GROWTH INSIGHTS FUND (GDIOX) (.92%)
HARBOR CAPITAL APPRECIATION FUND (HACAX) (.72%)
MFS INTERNATIONAL GROWTH (MGRVX) (.83%)
TRANSAMERICA INTERNATIONAL EQUITY FUND (TSWIX) (.86%)
VICTORY INTEGRITY SMALL-CAP VALUE FUND (VSVIX) (1.11%)
WELLS FARGO EMERGING MARKETS EQUITY FUND (EMGDX) (1.16%)

BOND/FIXED INCOME
METROPOLITAN WEST TOTAL RETURN BOND FUND (MWTIX) (.46%)

STABLE VALUE
WELLS FARGO STABLE RETURN FUND (WESRT) (.39%)

ALLOCATION FUNDS
THE OAKMARK EQUITY & INCOME FUND (OAKBX) (.86%)


Proposed Portofolio:

60%: BLACK ROCK EQUITY INDEX (BEMMT)
10%: GOLDMAN SACHS SMALL CAP GROWTH INSIGHTS FUND (GDIOX) (.92%)
30%: TRANSAMERICA INTERNATIONAL EQUITY FUND (TSWIX) (.86%) or MFS INTERNATIONAL GROWTH (MGRVX) (.83%)

I'm concerned that the transamerica int'l fund may not give me global exposure. The prospectus says that it invests in three non-USA countries. I having difficulty finding resources about these funds.

Questions:

1. Does a 100% stock allocation make sense?

2. Does a 2% allocation to both a Roth and Traditional 401k make sense?

3. General suggestions/thoughts on which funds to choose and my propose portfolio?
User avatar
retired@50
Posts: 5168
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Help with 401k Allocation and Selection

Post by retired@50 »

Surfinfan wrote: Tue Apr 06, 2021 7:24 am Questions:

1. Does a 100% stock allocation make sense?

2. Does a 2% allocation to both a Roth and Traditional 401k make sense?

3. General suggestions/thoughts on which funds to choose and my propose portfolio?
I'd use these two funds.
BLACK ROCK EQUITY INDEX (BEMMT) (0.04%) <- Presumably, this is a US Stock Index fund. 70% here.
BLACKROCK MSCI EAFE EQUITY INDEX NON LENDABLE FUND (BCMMT) (.08%) <- Presumably, this is an international stock index fund. 30% here.

The company 401k website should have a fact sheet or prospectus for every fund that is offered in the plan. Do some reading to find out what these funds hold if you're in doubt. If you still can't find info or details, contact HR or Payroll.

At your tax bracket (24%) I'd strongly consider using the Traditional 401k, especially if you are also paying any state or local income taxes.

If you decide to add bonds at some point, and are still using this plan, I'd use this fund.
METROPOLITAN WEST TOTAL RETURN BOND FUND (MWTIX) (.46%)

Additional resource for the Traditional versus Roth decision.
https://www.bogleheads.org/wiki/Traditional_versus_Roth

Regards,
This is one person's opinion. Nothing more.
tashnewbie
Posts: 1508
Joined: Thu Apr 23, 2020 12:44 pm

Re: Help with 401k Allocation and Selection

Post by tashnewbie »

Agree with user above about which funds to use and traditional 401k instead of Roth 401k.

How much in total contributions are you able to make each year? Are you doing 4% to the 401k and also a Roth IRA/TIRA (max is $6k)?

Depending on where you are in the 24% bracket, I'd aim to max the traditional 401k ($19.5k) and a Roth IRA ($6k).

Rest of disposable income would go to aggressively paying off student loans, starting with the private one, then the federal one after 0% interest period ends.
Topic Author
Surfinfan
Posts: 18
Joined: Sat Sep 19, 2020 7:08 am

Re: Help with 401k Allocation and Selection

Post by Surfinfan »

retired@50 wrote: Tue Apr 06, 2021 9:41 am
Surfinfan wrote: Tue Apr 06, 2021 7:24 am Questions:

1. Does a 100% stock allocation make sense?

2. Does a 2% allocation to both a Roth and Traditional 401k make sense?

3. General suggestions/thoughts on which funds to choose and my propose portfolio?
I'd use these two funds.
BLACK ROCK EQUITY INDEX (BEMMT) (0.04%) <- Presumably, this is a US Stock Index fund. 70% here.
BLACKROCK MSCI EAFE EQUITY INDEX NON LENDABLE FUND (BCMMT) (.08%) <- Presumably, this is an international stock index fund. 30% here.

The company 401k website should have a fact sheet or prospectus for every fund that is offered in the plan. Do some reading to find out what these funds hold if you're in doubt. If you still can't find info or details, contact HR or Payroll.

At your tax bracket (24%) I'd strongly consider using the Traditional 401k, especially if you are also paying any state or local income taxes.

If you decide to add bonds at some point, and are still using this plan, I'd use this fund.
METROPOLITAN WEST TOTAL RETURN BOND FUND (MWTIX) (.46%)

Additional resource for the Traditional versus Roth decision.
https://www.bogleheads.org/wiki/Traditional_versus_Roth

Regards,
I appreciate the response. In regards to the Traditional v. Roth, I don't have any state income tax. I'm making $92,000 a year and I'm not sure what bonuses will look like. I figured with the marginal tax rate the extra 2% going toward a traditional still wouldn't get me below the 24% tax bracket anyway. So I figured I'd diversity my tax strategy. If that makes sense?
Topic Author
Surfinfan
Posts: 18
Joined: Sat Sep 19, 2020 7:08 am

Re: Help with 401k Allocation and Selection

Post by Surfinfan »

tashnewbie wrote: Tue Apr 06, 2021 9:57 am Agree with user above about which funds to use and traditional 401k instead of Roth 401k.

How much in total contributions are you able to make each year? Are you doing 4% to the 401k and also a Roth IRA/TIRA (max is $6k)?

Depending on where you are in the 24% bracket, I'd aim to max the traditional 401k ($19.5k) and a Roth IRA ($6k).

Rest of disposable income would go to aggressively paying off student loans, starting with the private one, then the federal one after 0% interest period ends.
My total contribution this year is going to be $3,680 to 401K and $3,000 towards Roth IRA. My salary is $92,000. Typing this out it seems to make a lot more sense to contribute all 4% to the traditional 401k. 4% if my full company match. Does that make sense?

I aim to pay off the remaining private student loans in November of 2022. Then reevaluate the strategy of paying off the federal student loans. I'll likely max out my retirement accounts before aggressively paying off the federal loans.
tashnewbie
Posts: 1508
Joined: Thu Apr 23, 2020 12:44 pm

Re: Help with 401k Allocation and Selection

Post by tashnewbie »

Surfinfan wrote: Tue Apr 06, 2021 12:15 pm My total contribution this year is going to be $3,680 to 401K and $3,000 towards Roth IRA. My salary is $92,000. Typing this out it seems to make a lot more sense to contribute all 4% to the traditional 401k. 4% if my full company match. Does that make sense?

I aim to pay off the remaining private student loans in November of 2022. Then reevaluate the strategy of paying off the federal student loans. I'll likely max out my retirement accounts before aggressively paying off the federal loans.
I don't know what the cost of living is in your area, but I assume your overall expenses are low because you're living rent-free with your parents.

I would max traditional 401k ($19.5k) and Roth IRA ($6k) this year and every subsequent year, if possible.

You make enough to do that.
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ruralavalon
Posts: 20886
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Help with 401k Allocation and Selection

Post by ruralavalon »

Questions:

1. Does a 100% stock allocation make sense?
In my opinion 100% in anything is not a good idea.

2. Does a 2% allocation to both a Roth and Traditional 401k make sense?
For most people traditional tax-deductible 401k contributions are likely better. Will you be eligible for both a substantial pension and Social Security benefits? What is your profession or occupation?

Once you have paid off the student debt contribute more. Your employer's 401k plan offers good funds with low to average expense ratios. There is no reason to limit yourself to just enough to get the full employer match.

The most important investing decision you can make is to establish a high rate of contributions. Forum discussion, link.

3. General suggestions/thoughts on which funds to choose and my propose portfolio?
In my opinion the better funds to consider using in your employer's 401k plan are:
1) BLACK ROCK EQUITY INDEX (BEMMT) (0.04%), a S&P 500 index fund, covers over 80% of the U.S. stock market;
2) BLACKROCK MSCI EAFE EQUITY INDEX NON LENDABLE FUND (BCMMT) (.08%), stocks of companies in developed countries except the U.S. and Canada; and
3) METROPOLITAN WEST TOTAL RETURN BOND FUND (MWTIX) (.46%), intermediate-term, investment-grade bonds.

1. U.S. stocks.
"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 over 80% of the U.S. stock market investing in stocks of selected large-cap and mid-cap U.S. companies. In the 29 years since the creation of the first total stock market index fund the performance of the two types of funds has been almost identical. Portfolio Visualizer, 1993-2021. 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?".

In my opinion it's not reasonable to add either of the high expense small-cap funds offered to try to mimic the content of a total stock market index fund.


2. International stocks.
The EAFE equity index is stocks of large-cap and mid-cap companies, 85% of market cap in 21 developed market countries except the U.S. and Canada, (pdf link to MSCI fact sheet) (0.06% net)


3. Bonds.
Although actively managed Metropolitan West Total Return Bond is a good intermediate-term (effective duration = 5.66 years), investment-grade (credit rating = BBB) bond fund. It is diversified (36% government bonds, 28% corporate bonds, 41% securitized), with an average expense ratio. It's performance has compared well to a total bond market index fund. Portfolio Visualizer, 1998-2021. I used the oldest share classes to get the longest period for comparison.

What is the interest rate currently paid on "WELLS FARGO STABLE RETURN FUND (WESRT) (.39%)"? What interest rate is guaranteed?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
Topic Author
Surfinfan
Posts: 18
Joined: Sat Sep 19, 2020 7:08 am

Re: Help with 401k Allocation and Selection

Post by Surfinfan »

ruralavalon wrote: Tue Apr 06, 2021 2:51 pm
Questions:

1. Does a 100% stock allocation make sense?
In my opinion 100% in anything is not a good idea.

2. Does a 2% allocation to both a Roth and Traditional 401k make sense?
For most people traditional tax-deductible 401k contributions are likely better. Will you be eligible for both a substantial pension and Social Security benefits? What is your profession or occupation?

Once you have paid off the student debt contribute more. Your employer's 401k plan offers good funds with low to average expense ratios. There is no reason to limit yourself to just enough to get the full employer match.

The most important investing decision you can make is to establish a high rate of contributions. Forum discussion, link.

3. General suggestions/thoughts on which funds to choose and my propose portfolio?
In my opinion the better funds to consider using in your employer's 401k plan are:
1) BLACK ROCK EQUITY INDEX (BEMMT) (0.04%), a S&P 500 index fund, covers over 80% of the U.S. stock market;
2) BLACKROCK MSCI EAFE EQUITY INDEX NON LENDABLE FUND (BCMMT) (.08%), stocks of companies in developed countries except the U.S. and Canada; and
3) METROPOLITAN WEST TOTAL RETURN BOND FUND (MWTIX) (.46%), intermediate-term, investment-grade bonds.

1. U.S. stocks.
"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 over 80% of the U.S. stock market investing in stocks of selected large-cap and mid-cap U.S. companies. In the 29 years since the creation of the first total stock market index fund the performance of the two types of funds has been almost identical. Portfolio Visualizer, 1993-2021. 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?".

In my opinion it's not reasonable to add either of the high expense small-cap funds offered to try to mimic the content of a total stock market index fund.


2. International stocks.
The EAFE equity index is stocks of large-cap and mid-cap companies, 85% of market cap in 21 developed market countries except the U.S. and Canada, (pdf link to MSCI fact sheet) (0.06% net)


3. Bonds.
Although actively managed Metropolitan West Total Return Bond is a good intermediate-term (effective duration = 5.66 years), investment-grade (credit rating = BBB) bond fund. It is diversified (36% government bonds, 28% corporate bonds, 41% securitized), with an average expense ratio. It's performance has compared well to a total bond market index fund. Portfolio Visualizer, 1998-2021. I used the oldest share classes to get the longest period for comparison.

What is the interest rate currently paid on "WELLS FARGO STABLE RETURN FUND (WESRT) (.39%)"? What interest rate is guaranteed?
Wow. What a great reply.

Based on this I think I’m going to go for the full traditional 401k. I don’t have a pension and honestly I have no idea what to expect from Social Security. I’m an in-house attorney so I expect my salary to increase but probably level off around $120,000-$140,000.

That thread/article on the importance of contributions was enlightening! I’m going to try and get as close to maxing it out as I comfortably can. I’m on track to pay off my remaining private loans in a year and a half. By then I’ll definitely be able to comfortably max out all my retirement accounts. Currently putting $3,500/month towards loans.

That insight into the other funds is very helpful too. Thank you for linking where you got that information.
User avatar
ruralavalon
Posts: 20886
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Help with 401k Allocation and Selection

Post by ruralavalon »

That insight into the other funds is very helpful too. Thank you for linking where you got that information.
You can get easy access to information on funds on the Morningstar website, for each fund you are considering look at the "portfolio" tab to see what the fund invests in.

Also the Vanguard website has a nice "compare" function.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
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