Please help a confused 23yo newbie!

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Skit50
Posts: 19
Joined: Fri Sep 11, 2009 2:45 am

Please help a confused 23yo newbie!

Post by Skit50 » Mon Mar 08, 2010 4:26 pm

Hey, first time poster here, just trying to figure some stuff out. I maxed out both my 401k and Roth IRA this past year thanks to browsing through this site. Beyond that, I am a bit lost and would appreciate any feedback regarding my allocation.

Emergency funds: A few months

Debt: No debt

Tax Filing Status: Single

Tax Rate: 25% Federal 8.5% State DC

Age: 23

Desired Asset allocation: hmmm…don’t really know. 80/20??? What makes sense?

Current Portfolio: about 45k

Taxable
16% Money Market Account

His Roth at Vanguard
22.5% Vanguard Target Retirement 2050 Fund (VFIFX) 0.20%


His 401k
Target 2045 Model through Schwab
Company Match: 4%

0.56% Schwab Value Advantage Money Instl Prime (SNAXX) .35%
4.6% PIMCO Total Return Instl (PTTRX0 .46%
14.4% American Beacon Lg Cap Value Inv (AAGPX) .97%
10.9% Vanguard PRIMECAP Adm (VPMAX) .37%
3.1% Columbia Mid Cap Value Z (NAMAX) .92%
2.6% Columbia Acorn Select Z (ACTWX) .95%
3.2% Wells Fargo Advantage Small Cap Value A (SMVAX) 1.46%
2.5% Royce Value Plus Invmt (RVPHX) 1.08%
8.4% Mainstay ICAP International I (ICEUX) .95%
9.3% AIM International Growth I (AIEVX) 1.04%


Annual Contributions

On pace to max out 401k
Planning on maxing out Roth IRA (can put another $1,000 in)


Questions:
1. Most importantly I just want a sanity check here. Is there anything here that looks glaringly wrong, because I wouldn’t be able to tell if there was.
2. Is there anything wrong with selecting these target models? I would not know how to choose anything specific on my own.
3. I only just noticed this right now, but my 401k is the Target 2045 Model. According to my age, I should be in the Target 2050 Model for another four years. Should I change this?
4. Any other advice/suggestions?

Thanks!

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WolfpackFan
Posts: 368
Joined: Mon Mar 08, 2010 2:18 pm

Post by WolfpackFan » Mon Mar 08, 2010 4:34 pm

Hey Skit, great post. I'm also curious about your question #2 as well. I'm in a target fund in my 401k as well and I've heard they are great autopilots for 401ks... to build off of your question, is it safe to allocate 100% of a 401k to a target fund or should a portion be allocated to other funds within the 401k?

I'll take a stab at answering your #3, my guess is that the allocations for 2045 and 2050 are going to be almost identical at this point, since they're both so far out into the future. I wouldn't think changing it to 2050 would affect anything. But you'll probably want to wait for another poster to confirm this who would knows for sure. :wink:

Default User BR
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Joined: Mon Dec 17, 2007 7:32 pm

Re: Please help a confused 23yo newbie!

Post by Default User BR » Mon Mar 08, 2010 4:40 pm

Skit50 wrote:His 401k
Target 2045 Model through Schwab
Company Match: 4%

0.56% Schwab Value Advantage Money Instl Prime (SNAXX) .35%
4.6% PIMCO Total Return Instl (PTTRX0 .46%
14.4% American Beacon Lg Cap Value Inv (AAGPX) .97%
10.9% Vanguard PRIMECAP Adm (VPMAX) .37%
3.1% Columbia Mid Cap Value Z (NAMAX) .92%
2.6% Columbia Acorn Select Z (ACTWX) .95%
3.2% Wells Fargo Advantage Small Cap Value A (SMVAX) 1.46%
2.5% Royce Value Plus Invmt (RVPHX) 1.08%
8.4% Mainstay ICAP International I (ICEUX) .95%
9.3% AIM International Growth I (AIEVX) 1.04%

I'm not entirely clear. Is this an actual fund in your plan, and that's what it holds, or is this contribution allocation suggested under that umbrella? I think it's the latter. There are a number of very expensive funds in there that wouldn't normally be recommended here.

You should list all of the choices in your plan. Using target funds are fine as long as you aren't paying too much. You might be.

Skit50 wrote:Questions:
1. Most importantly I just want a sanity check here. Is there anything here that looks glaringly wrong, because I wouldn’t be able to tell if there was.
2. Is there anything wrong with selecting these target models? I would not know how to choose anything specific on my own.
3. I only just noticed this right now, but my 401k is the Target 2045 Model. According to my age, I should be in the Target 2050 Model for another four years. Should I change this?
4. Any other advice/suggestions?

Don't worry about the target date. Select the one that best fits your desired allocation. I'm not sure you should be using any of them. Again, let's see the whole magilla.



Brian

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Swamproot
Posts: 307
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Re: Please help a confused 23yo newbie!

Post by Swamproot » Mon Mar 08, 2010 5:53 pm

Skit50 wrote:....
4. Any other advice/suggestions?
Thanks!
Keep it up. I wish I hadn't been so young and dumb (and broke) at 23. At your age, and the amount that you are saving, your continuing contributions will be the driving force in portfolio growth. Keep learning about asset allocation and adjust as you feel you are gaining a better understanding.

The only other thing would be to be "on pace" to max out your Roth, and "Plan on maxing out" your 401k. In the roth, you can avoid some of the higher fees you are stuck with in the 401k, so it "deserves" to be maxed out first.

Laura
Posts: 7973
Joined: Mon Feb 19, 2007 7:40 pm

Looks great

Post by Laura » Mon Mar 08, 2010 7:31 pm

skit,

You are doing great. Using a Target Retirement type fund in each account is a fabulous idea. You get broad diversification and simplicity with the fund companies maintaining the target asset allocation.

You should, however, select the Target Retirement fund by your target asset allocation and not by the day. So, I would recommend that you switch to more conservative funds in each of your accounts. Pick the funds that have an asset allocation closest to your target 80/20. Don't worry about the dates at all.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.

Skit50
Posts: 19
Joined: Fri Sep 11, 2009 2:45 am

Re: Please help a confused 23yo newbie!

Post by Skit50 » Tue Mar 09, 2010 11:54 am

Default User BR wrote:
Skit50 wrote:His 401k
Target 2045 Model through Schwab
Company Match: 4%

0.56% Schwab Value Advantage Money Instl Prime (SNAXX) .35%
4.6% PIMCO Total Return Instl (PTTRX0 .46%
14.4% American Beacon Lg Cap Value Inv (AAGPX) .97%
10.9% Vanguard PRIMECAP Adm (VPMAX) .37%
3.1% Columbia Mid Cap Value Z (NAMAX) .92%
2.6% Columbia Acorn Select Z (ACTWX) .95%
3.2% Wells Fargo Advantage Small Cap Value A (SMVAX) 1.46%
2.5% Royce Value Plus Invmt (RVPHX) 1.08%
8.4% Mainstay ICAP International I (ICEUX) .95%
9.3% AIM International Growth I (AIEVX) 1.04%

I'm not entirely clear. Is this an actual fund in your plan, and that's what it holds, or is this contribution allocation suggested under that umbrella? I think it's the latter. There are a number of very expensive funds in there that wouldn't normally be recommended here.



Hmm...I am not sure what this means. Those are the actual funds in my Target 2045 Model and those are the actual current percentages of my total allocation. The only thing I have ever done is pick the model and that is what is in it.

Default User BR wrote:You should list all of the choices in your plan. Using target funds are fine as long as you aren't paying too much. You might be.

Don't worry about the target date. Select the one that best fits your desired allocation. I'm not sure you should be using any of them. Again, let's see the whole magilla.


These are the funds I have to choose from (as far as I can tell):

Schwab Value Advantage Money Instl Prime Money Market/Stable Value 0.35%

PIMCO Total Return Instl Intermediate-Term Bond .46%

Principal High Yield Instl High Yield Bond .54%

Oakmark Equity & Income I Moderate Allocation .85%

American Beacon Lg Cap Value Inv Large Cap Value .97%

Schwab S&P 500 Index Large Blend .09 %

Vanguard PRIMECAP Adm Large Cap Growth .37%

Columbia Mid Cap Value Z Mid-Cap Value .92%

Vanguard Extended Market Idx Instl Mid-Cap Blend .09%

Columbia Acorn Select Z Mid-Cap Growth .95%

Wells Fargo Advantage Small Cap Value A Small Blend 1.46%

Royce Value Plus Invmt Small Growth 1.08%

Mainstay ICAP International I Foreign Large Value .95%

AIM International Growth I Foreign Large Growth 1.05%

These are some of the models offered with allocation percentages (if that is what you meant):

Target 2055 Model
Bonds
PIMCO Total Return Instl Intermediate-Term Bond 7.00%
Stock
American Beacon Lg Cap Value Inv Large Cap Value 24.00%
Vanguard PRIMECAP Adm Large Cap Growth 19.00%
Columbia Mid Cap Value Z Mid-Cap Value 5.00%
Columbia Acorn Select Z Mid-Cap Growth 4.00%
Wells Fargo Advantage Small Cap Value A Small Blend 5.00%
Royce Value Plus Invmt Small Growth 4.00%
Mainstay ICAP International I Foreign Large Value 16.00%
AIM International Growth I Foreign Large Growth 16.00%
Total: 100%

Target 2050 Model
Bonds
PIMCO Total Return Instl Intermediate-Term Bond 8.00%
Stock
American Beacon Lg Cap Value Inv Large Cap Value 24.00%
Vanguard PRIMECAP Adm Large Cap Growth 18.00%
Columbia Mid Cap Value Z Mid-Cap Value 5.00%
Columbia Acorn Select Z Mid-Cap Growth 4.00%
Wells Fargo Advantage Small Cap Value A Small Blend 5.00%
Royce Value Plus Invmt Small Growth 4.00%
Mainstay ICAP International I Foreign Large Value 16.00%
AIM International Growth I Foreign Large Growth 16.00%
Total 100%

Target 2045 Model (My current model)
Bonds
PIMCO Total Return Instl Intermediate-Term Bond 8.00%
Cash
Schwab Value Advantage Money Instl Prime Money Market/Stable Value 1.00%
Stock
American Beacon Lg Cap Value Inv Large Cap Value 24.00%
Vanguard PRIMECAP Adm Large Cap Growth 18.00%
Columbia Mid Cap Value Z Mid-Cap Value 5.00%
Columbia Acorn Select Z Mid-Cap Growth 4.00%
Wells Fargo Advantage Small Cap Value A Small Blend 5.00%
Royce Value Plus Invmt Small Growth 4.00%
Mainstay ICAP International I Foreign Large Value 15.00%
AIM International Growth I Foreign Large Growth 16.00%
Total 100%

Swamproot wrote:The only other thing would be to be "on pace" to max out your Roth, and "Plan on maxing out" your 401k. In the roth, you can avoid some of the higher fees you are stuck with in the 401k, so it "deserves" to be maxed out first.


I see. My 401k contribution is automatically deducted from my pay check, so I am “on pace” with my current contribution percentage to reach $16,500 this year. With my Roth, I randomly put a couple thousand in here and there this year. I can still put another thousand in, thus I “plan on maxing out”. Is this incorrect? I suppose I can put the last thousand in now, if that is what you mean.


Laura wrote:You should, however, select the Target Retirement fund by your target asset allocation and not by the day. So, I would recommend that you switch to more conservative funds in each of your accounts. Pick the funds that have an asset allocation closest to your target 80/20. Don't worry about the dates at all.

Laura



I should point out that I admittedly had not really thought about target asset allocation until prompted to yesterday. The only thing I have ever done is pick models based on my birthday, which is cool for a confused dude like myself, but as you guys have pointed out, not the best option. I skimmed over the age in bonds thing and read some other people with 80/20 so I just threw it out there a little ignorantly. I assume the higher the stock percentage the higher the risk. I do not have a problem with high risk and am fine with the 90/10 allocation of my Vanguard Roth IRA. Does this allocation make sense? I should have made this clearer in my initial post.

Thanks for all the help! Much appreciated

flyfisher_work
Posts: 69
Joined: Tue Feb 05, 2008 1:23 pm

Post by flyfisher_work » Tue Mar 09, 2010 2:27 pm

Others may disagree, however, I'm wondering if you could put together a great plan by choosing the best funds available to you (make your own simple, diverse, low-cost model) rather than picking a pre-packaged model that may contain a little junk.

I would suggest the following funds from your last post;

20% PIMCO Total Return Instl Intermediate-Term Bond, ER .46%
80% Schwab S&P 500 Index Large Blend, ER .09 %


This would give you 80/20 (stock/ bond), then you could use a Roth IRA at Vanguard to pick an international index fund.

Laura, any thoughts?

Laura
Posts: 7973
Joined: Mon Feb 19, 2007 7:40 pm

My thoughts

Post by Laura » Tue Mar 09, 2010 9:07 pm

For investors who don't really understand portfolio management and who only have tax advantaged accounts I really think that using just one target retirement type fund in each account is just about perfect. Could it be tweaked with lower expenses, certainly. But there are so many things that can go wrong that for now just go with the one fund option and let the portfolio manager do all the work.

If the OP wants to do some additional reading and understand the concept of asset allocation, risk and reward, and a diversification then he can later switch to individual holdings if he really wants. For now I believe he is on the right path with the one fund solution.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.

Default User BR
Posts: 7501
Joined: Mon Dec 17, 2007 7:32 pm

Re: Please help a confused 23yo newbie!

Post by Default User BR » Wed Mar 10, 2010 1:27 pm

Skit50 wrote:
Default User BR wrote:
Skit50 wrote:His 401k
Target 2045 Model through Schwab

I'm not entirely clear. Is this an actual fund in your plan, and that's what it holds, or is this contribution allocation suggested under that umbrella? I think it's the latter. There are a number of very expensive funds in there that wouldn't normally be recommended here.


Hmm...I am not sure what this means. Those are the actual funds in my Target 2045 Model and those are the actual current percentages of my total allocation. The only thing I have ever done is pick the model and that is what is in it.

That's what I figured. A model portfolio is fine if you have no other information. Assuming that you're allowed to define your own mix versus choosing a model, then we can help devise something that will save you a lot in ER over the years. You have some fine stock index and reasonable fixed-income funds.

Skit50 wrote:These are the funds I have to choose from (as far as I can tell):

Schwab Value Advantage Money Instl Prime Money Market/Stable Value 0.35%

PIMCO Total Return Instl Intermediate-Term Bond .46%

Schwab S&P 500 Index Large Blend .09 %

Vanguard Extended Market Idx Instl Mid-Cap Blend .09%

These are the funds I would look towards as being the core of your portolio. The two stock funds will give you essentially Total Market when used in the right proportions, at very low cost. The bond fund is pretty good, although actively managed, and I'd use that for your FI selection.

You don't have any particularly good choices for international, small, or value. I'd look to the Roth for that. I'd swap out the TR fund for a complementary mix to go with the low-cost 401(k) selections. Now, this is a bit more work initially, although once your 401(k) is set up that part should be largely on auto-pilot.

There are many ways to get there. Sticking with what you have is one way, and not the worst way at all. It's up to you whether you want to reduce expenses at the cost of some work. Part of that work would be reading some of the books recommended here. You can check your public library to see if they have some of them.



Brian

Default User BR
Posts: 7501
Joined: Mon Dec 17, 2007 7:32 pm

Re: My thoughts

Post by Default User BR » Wed Mar 10, 2010 1:34 pm

Laura wrote:For investors who don't really understand portfolio management and who only have tax advantaged accounts I really think that using just one target retirement type fund in each account is just about perfect. Could it be tweaked with lower expenses, certainly. But there are so many things that can go wrong that for now just go with the one fund option and let the portfolio manager do all the work.

But he's not using a TR fund, but a model portfolio. And not a particularly good one given the numerous expensive funds. I don't see anything wrong with developing a consolidated portfolio that will be simple and easy enough to manage. Yeah, he needs to do some research, but even if using TR funds one ought to anyway.

To paraphrase the movie "The Shawshank Redemptions", if he's come this far, maybe he'll be willing to come a little further.



Brian

squawk
Posts: 142
Joined: Wed Mar 10, 2010 5:17 pm

Thoughts...

Post by squawk » Wed Mar 10, 2010 5:50 pm

Bonds: 25%
Equities: 75%


Taxable Accounts
(13%) Vanguard Intermediate Tax Exempt (VWITX)
(37%) Vanguard Midcap Index (VIMSX)
(38%) Vanguard Total Market Index (VTSMX)

Non-Taxable
(12%) Vanguard Total Bond Market Index


***Feel free to move some of the equities into the non-taxable --> especially for Roth IRA***

Laura
Posts: 7973
Joined: Mon Feb 19, 2007 7:40 pm

Not either/or

Post by Laura » Wed Mar 10, 2010 9:20 pm

BR,

I agree but he can get started now with the one fund solution and keep doing his research. If and when he feels comfortable he can easily change his holdings to break out into individual funds. Not everyone wants to move much further down the path. The one fund solution for the long term is a better choice than holding a bunch of individual funds and not understanding how they work together.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.

Default User BR
Posts: 7501
Joined: Mon Dec 17, 2007 7:32 pm

Re: Not either/or

Post by Default User BR » Thu Mar 11, 2010 1:09 pm

Laura wrote:BR,

I agree but he can get started now with the one fund solution and keep doing his research. If and when he feels comfortable he can easily change his holdings to break out into individual funds. Not everyone wants to move much further down the path. The one fund solution for the long term is a better choice than holding a bunch of individual funds and not understanding how they work together.

But it's not a fund. It's a preselected portfolio. I'm not suggesting that he immediately change, I just don't think that particular one is a good solution. I think a better one with a few funds in the 401(k) and a few more in the Roth will be better.

It's up to him if he wants that. He can get back to us and let us know. Like I said, he needs to do the reading whether he keeps the current selection or goes in a new direction.



Brian

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