Help diversifying 401k + personal investment account

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Topic Author
dappermuis
Posts: 2
Joined: Wed Apr 14, 2021 12:54 pm

Help diversifying 401k + personal investment account

Post by dappermuis »

Hi Bogleheads

I just finished reading the Three Fund Portfolio book and I was inspired to come here and ask for some guidance.

Edit: Adding more Details
Emergency funds: Three months of expense
Debt: 18k left on car
Tax Filing Status: Single
Tax Rate: 35% Federal, 0% State
State of Residence: WA
Age: 34
Desired Asset allocation: Majority stock in taxable account. Less in retirement account.

This is my current investment portfolio.

Taxable - Fideltiy
23% Vanguard 500 Index Fund ETF (VOO) (0.03)
6% First Trust NASDAQ Clean Edge Green Energy Idx Fd ETF (QCLN) (0.60)
71% Microsoft (MSFT)

401k
91% BlackRock LifePath® Index 2050 Fund N (LIPIX) (0.06)
9% Vanguard Institutional S&P 500 Index Trust (VFFSX) (0.011)
Company match 50% up to annual limit.

Available funds in my 401k plan include:
  • BlackRock LifePath® Index 2050 Fund N (LIPIX) (0.06)
  • Fidelity ® Growth Company Commingled Pool Class 3 (0.35)
  • Artisan Mid Cap Account (0.5)
  • Vanguard Russell 1000 Growth Index Trust (VRGWX) (0.02)
  • Vanguard Russell 2000 Growth Index Trust (VRTGX) (0.03)
  • Vanguard Institutional S&P 500 Index Trust (VFFSX) (0.011)
  • DFA Small/Mid Cap Value Account (0.27)
  • PIMCO Inflation Response Multi-Asset Fund Institutional (PIRMX) (0.86)
  • PIMCO Total Return Account (0.25)
  • International Value Account (0.48)
  • PIMCO All Asset All Authority Fund Institutional Class (PAUIX) (3.08)
  • Vanguard Short-Term Bond Index Fund Institutional Plus Shares (VBIPX) (0.04)
Contributions
New annual Contributions
$19,500 to 401k + $9750 company match
$22,000 after tax to 401k in plan Roth conversion (contribution in 2020)

Current Investment Status
For 401k I do 50% pre-tax and 50% Roth up to the allowable amount. This is because I was unable to find good advice on which to choose, so I chose to split the difference. My 401k plan allows for an additional $28k in after tax contributions that are converted to Roth.

I know I am heavily over invested in my company stock. I participate is ESPP and sell as soon as I receive it to fund short term goals. I also have received large stock bonuses, which I've been holding onto, but have recently started selling as soon as long term capital gains tax applies. I plan to make a large sale of company stock in June, which should bring my holding down to 30%.

Financial Goals
  • I plan on buying a house later this year and I already have enough for a down payment in a high interest savings account.
  • I would like to retire as early as possible.
Questions
My 401k distribution seems to be wrong. According to the Three Fund Portfolio, I might want to move about 20% from foreign stock into bonds. Since I am still young and probably have a few decades until retirement, I have a fair appetite for risk. Given this, would it make sense for me to redistribute my 401k?

I'm willing to take even more risk in my personal (non-retirement) account. Assuming I convert all my company stock to index funds. Are my holdings reasonable? Should I add more foreign stocks and bonds. Besides just maximizing returns I also have an interest in investing in sectors that I feel strongly about, e.g., green energy, ESG, etc. hence the QCLN.

Thanks and any feedback is greatly appreciated!
Last edited by dappermuis on Wed Apr 14, 2021 3:25 pm, edited 1 time in total.
User avatar
ruralavalon
Posts: 26351
Joined: Sat Feb 02, 2008 9:29 am
Location: Illinois

Re: Help diversifying 401k + personal investment account

Post by ruralavalon »

Welcome to the forum :) .

It's great to see you making maximum annual employee contributions to your 401k account, and using low expense ratio index funds.

dappermuis wrote: Wed Apr 14, 2021 1:26 pm Hi Bogleheads

I just finished reading the Three Fund Portfolio book and I was inspired to come here and ask for some guidance.

I'm mid 30s and earn a fairly high salary. I'm currently single but expecting to get married within the next few years. I also have no kids, but would like to have some in the future. No debt. 3 months expenses in emergency fund.

This is my current investment portfolio.

401k - $283k current total
91% in Target Fund: Currently 57% domestic stock, 40% international stock, 1.5% bonds. Expense Ratio: 0.06
9% in S&P 500 index. Expense Ratio 0.011.
Overall distribution: 60.5% domestic, 37.3% foreign, 1.5% bonds

I max out mt 401k every year and do 50% pre-tax and 50% Roth. My plan allows an additional $28k/year in after tax non-Roth contributions, which can be converted to Roth within the plan. Last year I contributed an additional $22k this way.

Personal Investment Account - $200k current total
23% in VOO
71% in company stock (from sign up bonuses, annual stock bonus, etc)
6% in QCLN - green energy index fund, Expense ratio 0.6.

I know I am heavily over invested in my company stock. I participate is ESPP and sell as soon as I receive it. I also have received large stock bonuses, which I've been holding onto, but have recently started selling as soon as long term capital gains tax applies. I plan to make a large sale of company stock in June, which should bring my holding down to 30%.

Financial Goals
  • I plan on buying a house later this year and I already have enough for a down payment in a high interest savings account.
  • I would like to retire as early as possible.
Questions
My 401k distribution seems to be wrong. According to the Three Fund Portfolio, I might want to move about 20% from foreign stock into bonds. Since I am still young and probably have a few decades until retirement, I have a fair appetite for risk. Given this, would it make sense for me to redistribute my 401k?

I'm willing to take even more risk in my personal (non-retirement) account. Assuming I convert all my company stock to index funds. Are my holdings reasonable? Should I add more foreign stocks and bonds. Besides just maximizing returns I also have an interest in investing in sectors that I feel strongly about, e.g., green energy, ESG, etc. hence the QCLN.

Thanks and any feedback is greatly appreciated!
What funds are offered in your employer's 401k plan? Please give fund names, tickers and expense ratios. (We can't suggest any improvement without knowing what the other choices are.)

Why are you making Roth contributions to your 401k? Will you be eligible for both a significant pension and Social Security benefits? How much do you currently have in traditional tax-deferred accounts? What is your profession or occupation? What is your current tax bracket, both federal and state?What

What fund firm or brokerage is your individual taxable account with?

How much do you contribute annually to each account?

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 onbogleheadsbogleheads.org/forum/viewtopic.php?f=1&t=6212]Asking Portfolio Questions[/url].

You could consider adding an IRA and contributing another $6k annually, using the Backdoor Roth technique.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
dappermuis
Posts: 2
Joined: Wed Apr 14, 2021 12:54 pm

Re: Help diversifying 401k + personal investment account

Post by dappermuis »

ruralavalon wrote: Wed Apr 14, 2021 2:45 pm Welcome to the forum :) .

It's great to see you making maximum annual employee contributions to your 401k account, and using low expense ratio index funds.
Thank you for the warm welcome!
ruralavalon wrote: Wed Apr 14, 2021 2:45 pm
dappermuis wrote: Wed Apr 14, 2021 1:26 pm Hi Bogleheads

I just finished reading the Three Fund Portfolio book and I was inspired to come here and ask for some guidance.

I'm mid 30s and earn a fairly high salary. I'm currently single but expecting to get married within the next few years. I also have no kids, but would like to have some in the future. No debt. 3 months expenses in emergency fund.

This is my current investment portfolio.

401k - $283k current total
91% in Target Fund: Currently 57% domestic stock, 40% international stock, 1.5% bonds. Expense Ratio: 0.06
9% in S&P 500 index. Expense Ratio 0.011.
Overall distribution: 60.5% domestic, 37.3% foreign, 1.5% bonds

I max out mt 401k every year and do 50% pre-tax and 50% Roth. My plan allows an additional $28k/year in after tax non-Roth contributions, which can be converted to Roth within the plan. Last year I contributed an additional $22k this way.

Personal Investment Account - $200k current total
23% in VOO
71% in company stock (from sign up bonuses, annual stock bonus, etc)
6% in QCLN - green energy index fund, Expense ratio 0.6.

I know I am heavily over invested in my company stock. I participate is ESPP and sell as soon as I receive it. I also have received large stock bonuses, which I've been holding onto, but have recently started selling as soon as long term capital gains tax applies. I plan to make a large sale of company stock in June, which should bring my holding down to 30%.

Financial Goals
  • I plan on buying a house later this year and I already have enough for a down payment in a high interest savings account.
  • I would like to retire as early as possible.
Questions
My 401k distribution seems to be wrong. According to the Three Fund Portfolio, I might want to move about 20% from foreign stock into bonds. Since I am still young and probably have a few decades until retirement, I have a fair appetite for risk. Given this, would it make sense for me to redistribute my 401k?

I'm willing to take even more risk in my personal (non-retirement) account. Assuming I convert all my company stock to index funds. Are my holdings reasonable? Should I add more foreign stocks and bonds. Besides just maximizing returns I also have an interest in investing in sectors that I feel strongly about, e.g., green energy, ESG, etc. hence the QCLN.

Thanks and any feedback is greatly appreciated!
What funds are offered in your employer's 401k plan? Please give fund names, tickers and expense ratios. (We can't suggest any improvement without knowing what the other choices are.)

Why are you making Roth contributions to your 401k? Will you be eligible for both a significant pension and Social Security benefits? How much do you currently have in traditional tax-deferred accounts? What is your profession or occupation? What is your current tax bracket, both federal and state?What

What fund firm or brokerage is your individual taxable account with?

How much do you contribute annually to each account?

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 onbogleheadsbogleheads.org/forum/viewtopic.php?f=1&t=6212]Asking Portfolio Questions[/url].

You could consider adding an IRA and contributing another $6k annually, using the Backdoor Roth technique.
I have edited my original post to include the information you requested - and thanks for the link that shows what should be include in an investment advice post.

I think the only question that isn't answered by the additional data is why am I making Roth contributions to my 401k. The reason is that I was reading up on the difference between Roth and pre-tax. I'm in a high tax bracket now so pre-tax makes sense from that perspective. However, everything that I've read says that taxes are expected to go up in the future, in which case I thought Roth made sense. This caused a lot of uncertainty for me, so I just decided to split the difference and go 50/50.
User avatar
ruralavalon
Posts: 26351
Joined: Sat Feb 02, 2008 9:29 am
Location: Illinois

Re: Help diversifying 401k + personal investment account

Post by ruralavalon »

Asset allocation.
dappermuis wrote: Wed Apr 14, 2021 1:26 pmDesired Asset allocation: Majority stock in taxable account. Less in retirement account.
What overall asset allocation do you want for the portfolio as a whole?

It's usually better to coordinate investments among all accounts treating all accounts together as a single unified portfolio, rather than treat each account separately.

This approach allows you to use just the best funds in a 401k plan where the fund choices are always limited, and permits better tax-efficiency with use of only very tax-efficient stock index funds in a taxable account. Wiki Prioritizing "Tax-efficient Fund Placement", link.

dappermuis wrote: Wed Apr 14, 2021 1:26 pmTax Rate: 35% Federal, 0% State
State of Residence: WA
Age: 34

. . . . .

Contributions
New annual Contributions
$19,500 to 401k + $9750 company match
$22,000 after tax to 401k in plan Roth conversion (contribution in 2020)
You are not making Roth 401k contributions.

I think it makes sense to use those Mega Backdoor Roth (link) features of the 401k plan (i.e. after-tax non-Roth contributions, with in-plan Roth conversions) because of the increased contribution limit. TFB blog post "The Elusive Mega Backdoor Roth", link.

Does your employer's 401k plan also permit in-service distributions?

dappermuis wrote: Wed Apr 14, 2021 1:26 pmAvailable funds in my 401k plan include:
BlackRock LifePath® Index 2050 Fund N (LIPIX) (0.06)
Fidelity ® Growth Company Commingled Pool Class 3 (0.35)
Artisan Mid Cap Account (0.5)
Vanguard Russell 1000 Growth Index Trust (VRGWX) (0.02)
Vanguard Russell 2000 Growth Index Trust (VRTGX) (0.03)
Vanguard Institutional S&P 500 Index Trust (VFFSX) (0.011)
DFA Small/Mid Cap Value Account (0.27)
PIMCO Inflation Response Multi-Asset Fund Institutional (PIRMX) (0.86)
PIMCO Total Return Account (0.25)
International Value Account (0.48)
PIMCO All Asset All Authority Fund Institutional Class (PAUIX) (3.08)
Vanguard Short-Term Bond Index Fund Institutional Plus Shares (VBIPX) (0.04)
You might simply use BlackRock LifePath® Index 2050 Fund N (LIPIX) (0.06) by itself depending on your desired asset allocation.

I think good funds to consider using in the 401k plan are:
1) Vanguard Institutional S&P 500 Index Trust (covers over 80% of the U.S. stock market) (VFFSX) (0.011);
2) EITHER PIMCO Total Return Account (0.25), OR Vanguard Short-Term Bond Index Fund Institutional Plus Shares (VBIPX) (0.04).

Can you post a link to the fact sheet for "PIMCO Total Return Account (0.25)"?

What fund company manages the "International Value Account (0.48)" What benchmark does that fund use? How does the fund performance compare to that benchmark? Can you post a link to the fact sheet for that fund?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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