First time 401K, how does this plan look like?
First time 401K, how does this plan look like?
I am getting my first employer-sponsored retirement plan. I am not familiar with what the fees should be like. Many details are still not available since the agent is away, and the replacement guy is unfamiliar with all details. So far, this document is all that has been shared.
https://www.dropbox.com/s/l9if6osgl08cxvj/401k.pdf?dl=0
I would appreciate feedback on whether the fees seem reasonable.
There are no funds for the 3-fund portfolio, so I was thinking about SWPPX. Is there any other fund I should consider?
Thanks in advance.
https://www.dropbox.com/s/l9if6osgl08cxvj/401k.pdf?dl=0
I would appreciate feedback on whether the fees seem reasonable.
There are no funds for the 3-fund portfolio, so I was thinking about SWPPX. Is there any other fund I should consider?
Thanks in advance.
Re: First time 401K, how does this plan look like?
In order to make this decision, you need to know the expense ratios (specific to the plan) of the funds offered.
A 500 index is almost automatically a good choice. The rest depends on what you find out about the expense ratios. Can you click on the funds on the list and see anything there? If not, you may just have to wait until you get all the information.
Edited below.
A 500 index is almost automatically a good choice. The rest depends on what you find out about the expense ratios. Can you click on the funds on the list and see anything there? If not, you may just have to wait until you get all the information.
Edited below.
Last edited by retiredjg on Sat Oct 23, 2021 6:52 am, edited 1 time in total.
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Re: First time 401K, how does this plan look like?
If I was just starting out with a 401k I'd do:
70% Schwab S&P 500 index
30% Vanguard Mid-Cap index
Add DFA International Core Equity if you are partial to international.
Do 10, 15, 20% Pre-tax with the goal to max out $19,500 at some point as you get raises. Also filling as much as you can your Roth IRA each year.
Ride this until 35 at least. Consider bonds at 35ish.
70% Schwab S&P 500 index
30% Vanguard Mid-Cap index
Add DFA International Core Equity if you are partial to international.
Do 10, 15, 20% Pre-tax with the goal to max out $19,500 at some point as you get raises. Also filling as much as you can your Roth IRA each year.
Ride this until 35 at least. Consider bonds at 35ish.
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Re: First time 401K, how does this plan look like?
This is generally reasonable, but I would recommend a bit more caution in providing a blanket recommendation to allocate 100% to stock until age 35 without knowing more about the person's circumstances. That may well be a fine strategy, however.bloom2708 wrote: ↑Fri Oct 22, 2021 4:54 pm If I was just starting out with a 401k I'd do:
70% Schwab S&P 500 index
30% Vanguard Mid-Cap index
Add DFA International Core Equity if you are partial to international.
Do 10, 15, 20% Pre-tax with the goal to max out $19,500 at some point as you get raises. Also filling as much as you can your Roth IRA each year.
Ride this until 35 at least. Consider bonds at 35ish.
The DFA funds would be reasonable choices for US small caps and international equities. Whether or not 100% of assets in stock is appropriate, a reasonable allocation for the stock portion of the portfolio would be something like:
59% Schwab S&P500
8% Vanguard Midcap Index
8% DFA Small-Cap US
20% DFA International Core (developed mkts)
5% DFA Emerging Markets
Instead with a higher int'l allocation and a mild size tilt for US, the stock allocation could be:
45% Schwab S&P500
8% Vanguard Midcap Index
15% DFA Small-Cap US
24% DFA International Core (developed mkts)
8% DFA Emerging Markets
Again, these are for the equity portion. Whether or not equities are 100% of portfolio is a different question.
Using the TIAA-CREF Lifecycle target date fund for your estimated retirement year also would be a reasonable choice.
The fees are reasonable if there is good participation to bring aggregate plan balance up to the levels with the lower fees.
- Alto Astral
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Re: First time 401K, how does this plan look like?
In your plan, the Schwab S&P500 has an awesome fee (Expense Ration = 0.02%). I would stick with 100% of this. I am doing this right now in both wife+my 401ks.
I am 42 and we have 20% bonds in an old 401k. In your case, I recommend to max out the 10k annual limit in iBonds. In a few years it will be a good bond portion of your asset allocation.
I am 42 and we have 20% bonds in an old 401k. In your case, I recommend to max out the 10k annual limit in iBonds. In a few years it will be a good bond portion of your asset allocation.
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Re: First time 401K, how does this plan look like?
I agree with suggestion to put everything on the S and P 500 index fund. If you still have money leftover, you can also open a Roth IRA at Vanguard or Charles Schwann, and contribute $6,000 after tax.
On second thought, if you’re a doctor earning a high salary, you may not qualify for a Roth.
On second thought, if you’re a doctor earning a high salary, you may not qualify for a Roth.
- mrpotatoheadsays
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Re: First time 401K, how does this plan look like?
I'm OK with
- Schwab S&P 500 Index (US Large Cap Blend)
- Vanguard Equity Income (US Large Cap Value)
- DFA US Small Cap (US Small Cap Blend)
- DFA International Core Equity (International Large Cap Blend)
DFA International Core Equity is inaccurately listed as International Large Cap Value.
Goldman Sachs Small Cap Value Insights is too expense. Invest in a US Small Cap Value in your IRA (e.g. SLYV).
Vanguard Equity Income is not a very good US Large Cap Value fund. Invest in a better US Large Cap Value in your taxable or IRA.
TIAA-CREF is an unethical company.
Don't use mid-caps; historically, over the long-term, small caps outperform mids.
Don't use growth funds; historically, over the long-term, blend and value outperform growth
If you are young, you don't need bonds.
If you want high return for high risk, put it all in small caps. Small caps have historically, over the long-term, outperformed the S&P 500 by 2-3% annually.
- Schwab S&P 500 Index (US Large Cap Blend)
- Vanguard Equity Income (US Large Cap Value)
- DFA US Small Cap (US Small Cap Blend)
- DFA International Core Equity (International Large Cap Blend)
DFA International Core Equity is inaccurately listed as International Large Cap Value.
Goldman Sachs Small Cap Value Insights is too expense. Invest in a US Small Cap Value in your IRA (e.g. SLYV).
Vanguard Equity Income is not a very good US Large Cap Value fund. Invest in a better US Large Cap Value in your taxable or IRA.
TIAA-CREF is an unethical company.
Don't use mid-caps; historically, over the long-term, small caps outperform mids.
Don't use growth funds; historically, over the long-term, blend and value outperform growth
If you are young, you don't need bonds.
If you want high return for high risk, put it all in small caps. Small caps have historically, over the long-term, outperformed the S&P 500 by 2-3% annually.
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Re: First time 401K, how does this plan look like?
100% in Schwab S&P500. You're welcome.
- Brianmcg321
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Re: First time 401K, how does this plan look like?
Second.
Rules to investing: |
1. Don't lose money. |
2. Don't forget rule number 1.
- anon_investor
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Re: First time 401K, how does this plan look like?
+1!
Re: First time 401K, how does this plan look like?
+2.anon_investor wrote: ↑Fri Oct 22, 2021 11:50 pm+1!
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Re: First time 401K, how does this plan look like?
Folks, are you all assuming the OP is very young? I check some previous posts and that doesn't appear to be the case. It would help if Doc provided an approximate retirement time line but I don't think 100% equities is the right call here necessarily.
Re: First time 401K, how does this plan look like?
Sorry, I did not realize the form would allow scrolling through pages for more information.retiredjg wrote: ↑Fri Oct 22, 2021 4:50 pm In order to make this decision, you need to know the expense ratios (specific to the plan) of the funds offered.
A 500 index is almost automatically a good choice. The rest depends on what you find out about the expense ratios. Can you click on the funds on the list and see anything there? If not, you may just have to wait until you get all the information.
There are a number of good funds that will make good building blocks for a 4 fund type portfolio.
Instead of Total Stock, use 500 index and the Fidelity Small Cap index at about 8:2. Or use the 500 index alone since it performs essentially identical to total stock.
For international, the DFA international fund is reasonable (or hold international in another account).
For bonds, I'm a little conflicted - you have several OK choices. I do not recommend 100% stock portfolios, even for younger investors.
Easiest choice - pick one of the low cost target date funds - choose by the stock to bond ratio you want, not by the date in the name.
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Re: First time 401K, how does this plan look like?
Thanks, everyone for all the comments.
My main concern here is the fees. 0.5% fee for asset management seems high (to me). I will appreciate it if someone could confirm my understanding of the fees in this case.
Expense ratio + (Asset*asset account fee)+Plan administrator fee (0.5%). The details are on p4-Part Two: Administrative Expenses. This fee goes to almost 1% or above depending on the fund I choose and it will be a significant amount after compounding. Is this fee reasonable?
I am going to ask for 408(b)(2) to see if there are any 'hidden' fees, like revenue sharing.
I will look into the portfolios mentioned by some folks. I know DFS funds have a good reputation and are not easily accessible.
One question,
Can I have a traditional IRA along with 401K or Roth only?
Thanks again.
Edit: I am not at all young. I am 45, and late to the retirement savings. Having started over two years ago due to our son's medical expenses, I made his health priority over our retirement savings. Now that things have calmed down and I have more cash on hand (thanks to my new job), I plan to aggressively invest for the foreseeable future. As of right now, I have $100K with VTSAX: VTIAX (75-25). I do not have any bond funds yet, and will not purchase any until some time in the future, but I have started small in Series I-bonds. The retirement age is uncertain. If my wife gets a good job, things may turn out well/different.
My main concern here is the fees. 0.5% fee for asset management seems high (to me). I will appreciate it if someone could confirm my understanding of the fees in this case.
Expense ratio + (Asset*asset account fee)+Plan administrator fee (0.5%). The details are on p4-Part Two: Administrative Expenses. This fee goes to almost 1% or above depending on the fund I choose and it will be a significant amount after compounding. Is this fee reasonable?
I am going to ask for 408(b)(2) to see if there are any 'hidden' fees, like revenue sharing.
I will look into the portfolios mentioned by some folks. I know DFS funds have a good reputation and are not easily accessible.
One question,
Can I have a traditional IRA along with 401K or Roth only?
Thanks again.
Edit: I am not at all young. I am 45, and late to the retirement savings. Having started over two years ago due to our son's medical expenses, I made his health priority over our retirement savings. Now that things have calmed down and I have more cash on hand (thanks to my new job), I plan to aggressively invest for the foreseeable future. As of right now, I have $100K with VTSAX: VTIAX (75-25). I do not have any bond funds yet, and will not purchase any until some time in the future, but I have started small in Series I-bonds. The retirement age is uncertain. If my wife gets a good job, things may turn out well/different.
Re: First time 401K, how does this plan look like?
I found the fee section confusing myself.
First, who is paying the administrative fee - you or the employer?
It appears that "guided fund select service fee" of .05% may not be optional but that Guided Choice at .45% is optional - huh?
Yes, you can contribute to a traditional IRA while also contributing to a 401k, but it might not be deductible. That depends on your income and marital status which we don't know.
First, who is paying the administrative fee - you or the employer?
It appears that "guided fund select service fee" of .05% may not be optional but that Guided Choice at .45% is optional - huh?
Yes, you can contribute to a traditional IRA while also contributing to a 401k, but it might not be deductible. That depends on your income and marital status which we don't know.
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- ruralavalon
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Re: First time 401K, how does this plan look like?
DocHudson wrote: ↑Fri Oct 22, 2021 4:27 pm I am getting my first employer-sponsored retirement plan. I am not familiar with what the fees should be like. Many details are still not available since the agent is away, and the replacement guy is unfamiliar with all details. So far, this document is all that has been shared.
https://www.dropbox.com/s/l9if6osgl08cxvj/401k.pdf?dl=0
I would appreciate feedback on whether the fees seem reasonable.
There are no funds for the 3-fund portfolio, so I was thinking about SWPPX. Is there any other fund I should consider?
Thanks in advance.
In my opinion the better funds to consider using are:DocHudson wrote: ↑Sat Oct 23, 2021 7:41 amEdit: I am not at all young. I am 45, and late to the retirement savings. Having started over two years ago due to our son's medical expenses, I made his health priority over our retirement savings. Now that things have calmed down and I have more cash on hand (thanks to my new job), I plan to aggressively invest for the foreseeable future. As of right now, I have $100K with VTSAX: VTIAX (75-25). I do not have any bond funds yet, and will not purchase any until some time in the future, but I have started small in Series I-bonds. The retirement age is uncertain. If my wife gets a good job, things may turn out well/different.
1) Schwab 500 Index Fund (80% of U.S. stock market) (SWPPX) ER 0.02%;
2) DFA International Core Equity (developed markets only) (DFIEX) ER 0.35%; and
3) Metropolitan West Total Return Bond Institutional (intermediate-term, investment-grade bonds) (MWTIX) ER 0.45%.
A S&P 500 Index Fund covers 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 two types of funds have had almost identical performance. Portfolio Visualizer, 1993-2021.
Although less diversified with no emerging markets, DFA International Core Equity (DFIEX) ER 0.35% has performed well compared to a total international stock index fund. Portfolio Visualizer, 2006- 2021. It has had higher returns, a higher Compound Annual Growth Rate (CAGR), similar volatility, higher risk-adjusted returns.
Although actively managed Metropolitan West Total Return Bond Institutional (MWTIX) ER 0.45% is a good, diversified (34% government, 21% corporate bonds, 38% securitized), intermediate-term (effective duration= 6.02 years), investment-grade (credit quality = BBB) bonds fund with a lower than average expense ratio. The performance of the fund has compared well to a total bond market index fund. Portfolio Visualizer, 2001-2021.
An asset allocation of 100% stocks is risky in my opinion, and is atypical at any age. Stocks versus age, graph. At age 45ish an asset allocation of around 65-75% stocks has been more typical. Bogleheads' stock allocation, bar graph and table
The most important investing decision you can make is to establish a high rate of contributions. forum discussion.
So the better strategy when "late to retirement savings" is a high rate of contributions rather than taking high risk.
About how much (in dollars) do you expect that you might be able to contribute annually to investing (totak, all a accounts)?
What is your income, what is your tax bracket both federal and state, and what is your tax filing status?
What kind of account holds your "$100K with VTSAX: VTIAX (75-25)"?
Last edited by ruralavalon on Sat Oct 23, 2021 10:54 am, edited 3 times in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein |
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Re: First time 401K, how does this plan look like?
I think the Metropolitan West fund is .45% instead of .045% (which would be really good indeed ). I think I might combine that one with one of the very low cost Vanguard funds.
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- ruralavalon
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Re: First time 401K, how does this plan look like?
Thanks. Fixed that.
"Everything should be as simple as it is, but not simpler." - Albert Einstein |
Wiki article link: Bogleheads® investment philosophy
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Re: First time 401K, how does this plan look like?
Given they're asking about 401K, I maintain to advise 100% Schwab S&P500 in 401K. This doesn't mean they're 100/0 overall. They're free to hold fixed income elsewhere.dukeblue219 wrote: ↑Sat Oct 23, 2021 6:06 am Folks, are you all assuming the OP is very young? I check some previous posts and that doesn't appear to be the case. It would help if Doc provided an approximate retirement time line but I don't think 100% equities is the right call here necessarily.
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Re: First time 401K, how does this plan look like?
Marseille07 wrote: ↑Sat Oct 23, 2021 11:10 amGiven they're asking about 401K, I maintain to advise 100% Schwab S&P500 in 401K. This doesn't mean they're 100/0 overall. They're free to hold fixed income elsewhere.dukeblue219 wrote: ↑Sat Oct 23, 2021 6:06 am Folks, are you all assuming the OP is very young? I check some previous posts and that doesn't appear to be the case. It would help if Doc provided an approximate retirement time line but I don't think 100% equities is the right call here necessarily.
DocHudson wrote: ↑Sat Oct 23, 2021 7:41 amEdit: I am not at all young. I am 45, and late to the retirement savings. Having started over two years ago due to our son's medical expenses, I made his health priority over our retirement savings. Now that things have calmed down and I have more cash on hand (thanks to my new job), I plan to aggressively invest for the foreseeable future. As of right now, I have $100K with VTSAX: VTIAX (75-25). I do not have any bond funds yet, and will not purchase any until some time in the future, but I have started small in Series I-bonds. The retirement age is uncertain. If my wife gets a good job, things may turn out well/different.
"Everything should be as simple as it is, but not simpler." - Albert Einstein |
Wiki article link: Bogleheads® investment philosophy
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Re: First time 401K, how does this plan look like?
It depends on facts you haven’t provided, including what’s in your other accounts, your tax brackets, desired asset allocation (AA).
I think one of the target date funds (TDF) that gets you to your desired AA would be good. Gets you bonds and international stock exposures at a cheap price. But it can get complicated to maintain AA across multiple accounts when you’re using individual funds in other accounts. But I don’t think you need to worry too much about sticking stringently close to an AA right now. It would be something to revisit as your portfolio grows.
Or as others have mentioned, you could use the S&P 500 index fund. And I would use a TDF as a bond proxy (the 2020 one is probably 60% bonds). You’ll have to do a little algebra to get the bond allocation roughly where you want, but it’s cheaper than other bond options in this plan. You probably wouldn’t need to adjust too often, but you also may not think the extra math is worth it. Use the Metropolitan West bond fund in that case.
I think one of the target date funds (TDF) that gets you to your desired AA would be good. Gets you bonds and international stock exposures at a cheap price. But it can get complicated to maintain AA across multiple accounts when you’re using individual funds in other accounts. But I don’t think you need to worry too much about sticking stringently close to an AA right now. It would be something to revisit as your portfolio grows.
Or as others have mentioned, you could use the S&P 500 index fund. And I would use a TDF as a bond proxy (the 2020 one is probably 60% bonds). You’ll have to do a little algebra to get the bond allocation roughly where you want, but it’s cheaper than other bond options in this plan. You probably wouldn’t need to adjust too often, but you also may not think the extra math is worth it. Use the Metropolitan West bond fund in that case.
Re: First time 401K, how does this plan look like?
Thank you for the detailed comment, with links.ruralavalon wrote: ↑Sat Oct 23, 2021 9:38 am
So the better strategy when "late to retirement savings" is a high rate of contributions rather than taking high risk.
About how much (in dollars) do you expect that you might be able to contribute annually to investing (totak, all a accounts)?
What is your income, what is your tax bracket both federal and state, and what is your tax filing status?
What kind of account holds your "$100K with VTSAX: VTIAX (75-25)"?
My new salary is $100K (NY resident, outside NYC/Yonkers), and I am finalizing details of a 1099 part-time job (should add abt ~$12-15K per year). My wife is also looking for a job but after 12 years of parenting, it's not exactly easy.
The goal is to max out 401K, IRA, HSA, and a few I-bonds. If at all anything is left, goes in brokerage. Our expenses are tightly controlled, so trying our best to increase contributions.
The $100K is in our IRAs and HSA together. We do not use HSA for medical expenses anymore. I'm not sure if I can have a traditional IRA and 401K, but if I can't, then I'll get a Roth IRA and try to contribute as much as I can.
Are you not hopeful of the international market? Vanguard claimed in one of the reports that international could do better than the US market in the next decade, so I am contemplating increasing international in the accounts moving forward.
@trashnewbie,
I don't have any concrete thoughts on desired asset allocation. For the next 5-10 years, I am willing to take extra risks but after that, I plan to reduce my risk appetite. It depends on other unknown factors, out of my control. For e.g. if my wife gets a job that offers even 50-60K, that would ease the pressure and I can easily reduce the risk. That is one reason why I started with Series I bonds this year and plan to continue. My understanding of bonds is not very clear, hence preferred I-bonds over bond funds. I am hoping things to get clearer in a few months.
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Re: First time 401K, how does this plan look like?
I don't see anything wrong with being 100% equities on their first 25K or so of 401K.ruralavalon wrote: ↑Sat Oct 23, 2021 11:19 amMarseille07 wrote: ↑Sat Oct 23, 2021 11:10 amGiven they're asking about 401K, I maintain to advise 100% Schwab S&P500 in 401K. This doesn't mean they're 100/0 overall. They're free to hold fixed income elsewhere.dukeblue219 wrote: ↑Sat Oct 23, 2021 6:06 am Folks, are you all assuming the OP is very young? I check some previous posts and that doesn't appear to be the case. It would help if Doc provided an approximate retirement time line but I don't think 100% equities is the right call here necessarily.DocHudson wrote: ↑Sat Oct 23, 2021 7:41 amEdit: I am not at all young. I am 45, and late to the retirement savings. Having started over two years ago due to our son's medical expenses, I made his health priority over our retirement savings. Now that things have calmed down and I have more cash on hand (thanks to my new job), I plan to aggressively invest for the foreseeable future. As of right now, I have $100K with VTSAX: VTIAX (75-25). I do not have any bond funds yet, and will not purchase any until some time in the future, but I have started small in Series I-bonds. The retirement age is uncertain. If my wife gets a good job, things may turn out well/different.
If one hesitates to do so, I wonder if they should have any investment in 401K at all.
Re: First time 401K, how does this plan look like?
Just to clear the understanding, Considering all my investments are in equities, I have no qualms about going 100% S&P500 should that be the best option (considering fees). I have started small conservative investments and will be increasing them over time.Marseille07 wrote: ↑Sat Oct 23, 2021 12:09 pmI don't see anything wrong with being 100% equities on their first 25K or so of 401K.ruralavalon wrote: ↑Sat Oct 23, 2021 11:19 amMarseille07 wrote: ↑Sat Oct 23, 2021 11:10 amGiven they're asking about 401K, I maintain to advise 100% Schwab S&P500 in 401K. This doesn't mean they're 100/0 overall. They're free to hold fixed income elsewhere.dukeblue219 wrote: ↑Sat Oct 23, 2021 6:06 am Folks, are you all assuming the OP is very young? I check some previous posts and that doesn't appear to be the case. It would help if Doc provided an approximate retirement time line but I don't think 100% equities is the right call here necessarily.DocHudson wrote: ↑Sat Oct 23, 2021 7:41 amEdit: I am not at all young. I am 45, and late to the retirement savings. Having started over two years ago due to our son's medical expenses, I made his health priority over our retirement savings. Now that things have calmed down and I have more cash on hand (thanks to my new job), I plan to aggressively invest for the foreseeable future. As of right now, I have $100K with VTSAX: VTIAX (75-25). I do not have any bond funds yet, and will not purchase any until some time in the future, but I have started small in Series I-bonds. The retirement age is uncertain. If my wife gets a good job, things may turn out well/different.
If one hesitates to do so, I wonder if they should have any investment in 401K at all.
My risk profile will be adjusted to reflect boglehead principles if earnings improve, but I will use other tax-deferred accounts, and not 401K.
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Re: First time 401K, how does this plan look like?
It is by far the best option, given the information you've provided. Not even close.DocHudson wrote: ↑Sat Oct 23, 2021 1:29 pm Just to clear the understanding, Considering all my investments are in equities, I have no qualms about going 100% S&P500 should that be the best option (considering fees). I have started small conservative investments and will be increasing them over time.
My risk profile will be adjusted to reflect boglehead principles if earnings improve, but I will use other tax-deferred accounts, and not 401K.
If you need fixed income, hold it elsewhere; could be as simple as holding cash in HYSA.
- ruralavalon
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Re: First time 401K, how does this plan look like?
Its good to see that you plan maximum annual contributions to all tax-advantaged accounts.
IRS, "2021 IRA Deduction Limits - Effect of Modified AGI on Deduction if You Are Covered by a Retirement Plan at Work" , link. "My new salary is $100K", but you need to determine your Modified Adjusted Gross Income (MAGI) to determine the deductibility of IRA contributions.
In a taxable account its best to use very tax-efficient stock index funds. Stock index funds are also very suitable for any type of account.
Bond funds are not very tax-efficient and ordinarily are best held in a tax -advantaged account, preferably traditional tax-deferred accounts like a traditional IRA.
Wiki article, Tax-efficient Fund Placement.
Purchase of I savings bonds is a good idea, they "are government savings bonds issued by the U.S. Treasury that offer inflation protection. I Bonds offer tax-deferral for up to 30 years and are free from state and local taxation. I Bonds are not marketable securities and cannot be traded in the secondary market" and are not held in a tax-advantaged account.
"The composite rate for I bonds issued from May 2021 through October 2021 is 3.54 percent. This rate applies for the first six months you own the bond", Treasury Direct.
I bonds are certainly a reasonable choice for a bond allocation. The general purchase limit is $10k annually per person, so $20k annually for a married couple. I suggest using I bonds to establish a reasonable bond allocation for age 45.
I do usually suggest around 20-30% of stocks in international stocks for a diversification benefit. International stocks are a hotly debated topic here, opinions differ and range all the way from 00% of stocks in international stocks to 50% of stocks in international stocks.
So the account and fund/I bonds lineup could be something like this.
taxable account @ Vanguard???
Vanguard Total Stock Market Index Fund (VTSAX) ER 0.04%
Vanguard Total International Stock Index Fund (VTIAX) ER 0.11%
401k
Schwab 500 Index Fund (80% of U.S. stock market) (SWPPX) ER 0.02%
DFA International Core Equity Institutional (developed markets only) (DFIEX) ER 0.25%
IRA @ Vanguard???
Vanguard Total Stock Market Index Fund (VTSAX) ER 0.04%
Vanguard Total International Stock Index Fund (VTIAX) ER 0.11%
Vanguard Total Bond Market Index Fund (VBTLX) ER 0.05%
Treasury Direct
I bonds
HSA
?????
IRS, "2021 IRA Deduction Limits - Effect of Modified AGI on Deduction if You Are Covered by a Retirement Plan at Work" , link. "My new salary is $100K", but you need to determine your Modified Adjusted Gross Income (MAGI) to determine the deductibility of IRA contributions.
It is better to coordinate investments among all accounts, treating all accounts together as a single unified portfolio, rather than treat each account separately. It is not necessary to have all elements of the desired asset allocation in each account.DocHudson wrote: ↑Sat Oct 23, 2021 11:54 amThank you for the detailed comment, with links.ruralavalon wrote: ↑Sat Oct 23, 2021 9:38 am
So the better strategy when "late to retirement savings" is a high rate of contributions rather than taking high risk.
About how much (in dollars) do you expect that you might be able to contribute annually to investing (total, all a accounts)?
What is your income, what is your tax bracket both federal and state, and what is your tax filing status?
What kind of account holds your "$100K with VTSAX: VTIAX (75-25)"?
My new salary is $100K (NY resident, outside NYC/Yonkers), and I am finalizing details of a 1099 part-time job (should add abt ~$12-15K per year). My wife is also looking for a job but after 12 years of parenting, it's not exactly easy.
The goal is to max out 401K, IRA, HSA, and a few I-bonds. If at all anything is left, goes in brokerage. Our expenses are tightly controlled, so trying our best to increase contributions.
The $100K is in our IRAs and HSA together. We do not use HSA for medical expenses anymore. I'm not sure if I can have a traditional IRA and 401K, but if I can't, then I'll get a Roth IRA and try to contribute as much as I can.
Are you not hopeful of the international market? Vanguard claimed in one of the reports that international could do better than the US market in the next decade, so I am contemplating increasing international in the accounts moving forward.
@trashnewbie,
I don't have any concrete thoughts on desired asset allocation. For the next 5-10 years, I am willing to take extra risks but after that, I plan to reduce my risk appetite. It depends on other unknown factors, out of my control. For e.g. if my wife gets a job that offers even 50-60K, that would ease the pressure and I can easily reduce the risk. That is one reason why I started with Series I bonds this year and plan to continue. My understanding of bonds is not very clear, hence preferred I-bonds over bond funds. I am hoping things to get clearer in a few months.
In a taxable account its best to use very tax-efficient stock index funds. Stock index funds are also very suitable for any type of account.
Bond funds are not very tax-efficient and ordinarily are best held in a tax -advantaged account, preferably traditional tax-deferred accounts like a traditional IRA.
Wiki article, Tax-efficient Fund Placement.
Purchase of I savings bonds is a good idea, they "are government savings bonds issued by the U.S. Treasury that offer inflation protection. I Bonds offer tax-deferral for up to 30 years and are free from state and local taxation. I Bonds are not marketable securities and cannot be traded in the secondary market" and are not held in a tax-advantaged account.
"The composite rate for I bonds issued from May 2021 through October 2021 is 3.54 percent. This rate applies for the first six months you own the bond", Treasury Direct.
I bonds are certainly a reasonable choice for a bond allocation. The general purchase limit is $10k annually per person, so $20k annually for a married couple. I suggest using I bonds to establish a reasonable bond allocation for age 45.
I do usually suggest around 20-30% of stocks in international stocks for a diversification benefit. International stocks are a hotly debated topic here, opinions differ and range all the way from 00% of stocks in international stocks to 50% of stocks in international stocks.
So the account and fund/I bonds lineup could be something like this.
taxable account @ Vanguard???
Vanguard Total Stock Market Index Fund (VTSAX) ER 0.04%
Vanguard Total International Stock Index Fund (VTIAX) ER 0.11%
401k
Schwab 500 Index Fund (80% of U.S. stock market) (SWPPX) ER 0.02%
DFA International Core Equity Institutional (developed markets only) (DFIEX) ER 0.25%
IRA @ Vanguard???
Vanguard Total Stock Market Index Fund (VTSAX) ER 0.04%
Vanguard Total International Stock Index Fund (VTIAX) ER 0.11%
Vanguard Total Bond Market Index Fund (VBTLX) ER 0.05%
Treasury Direct
I bonds
HSA
?????
Last edited by ruralavalon on Sun Oct 24, 2021 7:58 am, edited 3 times in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein |
Wiki article link: Bogleheads® investment philosophy
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Re: First time 401K, how does this plan look like?
Holding series I savings bonds is by no means a mistake, but with a sizable taxable account, many would prefer to hold stock index funds in taxable space, and fixed income in tax-deferred space. If your taxable savings exceeds your equity allocation, the overflow can go into i-bonds. If your 401K balance exceeds your fixed income allocation, the balance can go into equities. I would suggest prioritizing holding international equities in your taxable account to get the foreign tax credit.DocHudson wrote: ↑Sat Oct 23, 2021 7:41 am Thanks, everyone for all the comments.
My main concern here is the fees. 0.5% fee for asset management seems high (to me). I will appreciate it if someone could confirm my understanding of the fees in this case.
Expense ratio + (Asset*asset account fee)+Plan administrator fee (0.5%). The details are on p4-Part Two: Administrative Expenses. This fee goes to almost 1% or above depending on the fund I choose and it will be a significant amount after compounding. Is this fee reasonable?
I am going to ask for 408(b)(2) to see if there are any 'hidden' fees, like revenue sharing.
I will look into the portfolios mentioned by some folks. I know DFS funds have a good reputation and are not easily accessible.
One question,
Can I have a traditional IRA along with 401K or Roth only?
Thanks again.
Edit: I am not at all young. I am 45, and late to the retirement savings. Having started over two years ago due to our son's medical expenses, I made his health priority over our retirement savings. Now that things have calmed down and I have more cash on hand (thanks to my new job), I plan to aggressively invest for the foreseeable future. As of right now, I have $100K with VTSAX: VTIAX (75-25). I do not have any bond funds yet, and will not purchase any until some time in the future, but I have started small in Series I-bonds. The retirement age is uncertain. If my wife gets a good job, things may turn out well/different.
Generally, it is best to design an asset allocation first, then decide how to implement it with available fund products and account vehicles. You may want to read the asset location entry in the bogleheads wiki. You want to view all the assets together as the implementation of a single portfolio.
- ruralavalon
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Re: First time 401K, how does this plan look like?
I agree.Northern Flicker wrote: ↑Sat Oct 23, 2021 6:30 pm . . . .
Holding series I savings bonds is by no means a mistake, . . . .
Generally, it is best to design an asset allocation first, then decide how to implement it with available fund products and account vehicles. You may want to read the asset location entry in the bogleheads wiki. You want to view all the assets together as the implementation of a single portfolio.
Here are resources about a establishing a bond allocation (or other fixed income investments like I-bonds, bond funds, CDs, savings accounts, Stable Value Fund, money market fund). A fixed income allocation is expected to substantially reduce portfolio volatility (risk). 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", link;
4) Morningstar (4/8/2020), "What's the Best Diversifier for Stocks?", link;
5) White Coat Investor (9/23/2016), "In Defense of Bonds", link;
6) Ben Carlson (8/2/2020), "Why Would Anyone Own Bonds Right Now?", link; and
7) Morningstar (4/13/2021), "Which Bonds Provide the Biggest Diversification Benefits?", link.
"Everything should be as simple as it is, but not simpler." - Albert Einstein |
Wiki article link: Bogleheads® investment philosophy
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Re: First time 401K, how does this plan look like?
Many here know much more than I, but I have been cool to bonds for years. Low yield, guaranteed low returns. Now with inflation finally—unequivocally—popping up (after many wrongfully predicted it for year after year) buying these low yield bonds now feels even worse than ever.
We’ve had long periods of inflation with poor market returns (so stocks doing badly for years), but given your late addition to this I’m guessing you’re 15+ years out from retirement anyway.
In the early 80’s 30 year treasury rates were in the double-digits! Now that is an amazing investment. But today they are still 2%.
I’d pile into equities and hold on tight.
We’ve had long periods of inflation with poor market returns (so stocks doing badly for years), but given your late addition to this I’m guessing you’re 15+ years out from retirement anyway.
In the early 80’s 30 year treasury rates were in the double-digits! Now that is an amazing investment. But today they are still 2%.
I’d pile into equities and hold on tight.
Username is not serious :)
- ruralavalon
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Re: First time 401K, how does this plan look like?
But inflation was also very high 12+%, so NOT an "amazing" investment.TimeTheMarket wrote: ↑Sun Oct 24, 2021 8:57 am Many here know much more than I, but I have been cool to bonds for years. Low yield, guaranteed low returns. Now with inflation finally—unequivocally—popping up (after many wrongfully predicted it for year after year) buying these low yield bonds now feels even worse than ever.
. . . . .
In the early 80’s 30 year treasury rates were in the double-digits! Now that is an amazing investment. But today they are still 2%.
Unemployment was also very high, 8-10%, so not such a dandy time.
"Everything should be as simple as it is, but not simpler." - Albert Einstein |
Wiki article link: Bogleheads® investment philosophy
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Re: First time 401K, how does this plan look like?
But you could buy those bonds and hold them as inflation fell. The yields were still high.ruralavalon wrote: ↑Sun Oct 24, 2021 11:26 amBut inflation was also very high 12+%, so NOT an "amazing" investment.TimeTheMarket wrote: ↑Sun Oct 24, 2021 8:57 am Many here know much more than I, but I have been cool to bonds for years. Low yield, guaranteed low returns. Now with inflation finally—unequivocally—popping up (after many wrongfully predicted it for year after year) buying these low yield bonds now feels even worse than ever.
. . . . .
In the early 80’s 30 year treasury rates were in the double-digits! Now that is an amazing investment. But today they are still 2%.
Unemployment was also very high, 8-10%, so not such a dandy time.
Username is not serious :)
- ruralavalon
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Re: First time 401K, how does this plan look like?
If only it were possible to know such things in advance . We only think we know what is "unequivocally" coming.TimeTheMarket wrote: ↑Tue Nov 09, 2021 9:13 amBut you could buy those bonds and hold them as inflation fell. The yields were still high.ruralavalon wrote: ↑Sun Oct 24, 2021 11:26 amBut inflation was also very high 12+%, so NOT an "amazing" investment.TimeTheMarket wrote: ↑Sun Oct 24, 2021 8:57 am Many here know much more than I, but I have been cool to bonds for years. Low yield, guaranteed low returns. Now with inflation finally—unequivocally—popping up (after many wrongfully predicted it for year after year) buying these low yield bonds now feels even worse than ever.
. . . . .
In the early 80’s 30 year treasury rates were in the double-digits! Now that is an amazing investment. But today they are still 2%.
Unemployment was also very high, 8-10%, so not such a dandy time.
The early 80s truly was a miserable time to live through, it did not seem "amazing" then.
"Everything should be as simple as it is, but not simpler." - Albert Einstein |
Wiki article link: Bogleheads® investment philosophy