4-fund portfolio using Institution funds?

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batty2250
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Joined: Mon Oct 02, 2017 7:46 pm

4-fund portfolio using Institution funds?

Post by batty2250 » Mon Oct 02, 2017 7:58 pm

Hey everyone! Long time reader, first time poster... just wanted to thank all the regular posters for everything I have learned from you in the past couple of years! Quick question... I searched but could not find an exact answer to my question.

I am 34 years old, so I'm leaning towards putting together a 70:30 stocks to bond 401k portfolio. In my Roth IRA, I have a 4 fund portfolio comprised of US Total Stocks (VTSMX), Int. Total Stocks (VGTSX), US Total Bond (VBMFX), and Int. Total Bond (VTIBX). However, the options through my employer are a bit more limited. On the bright side, I have access to institutional funds with super low expense ratios!

So I do not have the option of picking up a Total Int. Bond fund, so that's out of the picture. However, of the 30 or so available funds, I have these Vanguard funds available: Total Bond Index Institutional (VBTIX), Institutional Index Fund (VINIX), Extended Market Institutional (VIEIX), and Developed Market Institutonal (VTMNX).

So to accomplish my 70:30 portfolio, I could just set VBTIX to 30%. Easy enough. Does VTMNX mirror VGTSX enough that it's safe to set to 20% of my stocks assets? And now the tricky part... blending VINIX and VIEIX to mirror VTSMX... would 75:25 suffice to protect me from some of the volatility in VIEIX?

Putting it all together to make a 4-fund portfolio (sans International bonds, so really a 3-fund blended portfolio), the final allocations would look like:

VINIX: 37.5%
VIEIX: 12.5%
VTMNX: 20%
VBTIX: 30%

Hope this makes sense, and I am greatly appreciative of any insights!

-Matt

lack_ey
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Re: 4-fund portfolio using Institution funds?

Post by lack_ey » Mon Oct 02, 2017 8:13 pm

Extended market (total market ex-S&P 500) is more like 20% of the total, not 25%. So you could use 40% and 10% for VINIX and VIEIX respectively. That's frankly not all that much different from just using 50% VINIX and ignoring the fact that the S&P 500 is not the US stock market. Some people prefer these stocks over the rest anyway, though there are others deliberately taking the other side of that bet.

Vanguard developed markets is missing emerging markets, or about 20% of what would be in the total international fund. So consider that about a 4% extra allocation of ex-US developed markets and 4% less of emerging markets compared to what you might actually want, given your 20% ex-US stock allocation. That's not a huge deal.

pkcrafter
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Re: 4-fund portfolio using Institution funds?

Post by pkcrafter » Mon Oct 02, 2017 11:29 pm

Consider all accounts as parts of a single retirement portfolio. That gives you more flexibility in creating the most efficient portfolio overall.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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FiveK
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Re: 4-fund portfolio using Institution funds?

Post by FiveK » Mon Oct 02, 2017 11:37 pm

batty2250 wrote:
Mon Oct 02, 2017 7:58 pm
And now the tricky part... blending VINIX and VIEIX to mirror VTSMX... would 75:25 suffice to protect me from some of the volatility in VIEIX?
81:19, based on Approximating total stock market - Bogleheads.

batty2250
Posts: 2
Joined: Mon Oct 02, 2017 7:46 pm

Re: 4-fund portfolio using Institution funds?

Post by batty2250 » Tue Oct 03, 2017 8:47 pm

FiveK wrote:
Mon Oct 02, 2017 11:37 pm
batty2250 wrote:
Mon Oct 02, 2017 7:58 pm
And now the tricky part... blending VINIX and VIEIX to mirror VTSMX... would 75:25 suffice to protect me from some of the volatility in VIEIX?
81:19, based on Approximating total stock market - Bogleheads.
that's awesome! thanks!

TropikThunder
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Joined: Sun Apr 03, 2016 5:41 pm

Re: 4-fund portfolio using Institution funds?

Post by TropikThunder » Wed Oct 04, 2017 11:29 am

pkcrafter wrote:
Mon Oct 02, 2017 11:29 pm
Consider all accounts as parts of a single retirement portfolio. That gives you more flexibility in creating the most efficient portfolio overall.

Paul
Also, if you don't divide your IRA among all 4 funds, you can reach Admiral share status quicker (with its lower ER). For example, you have the Instituional equivalent of Total Bond in the 401k, so you don't also need it in the IRA.

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