Questions on detailed 3ish-fund portfolio plan execution

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Garp
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Joined: Fri Nov 10, 2017 8:14 pm

Questions on detailed 3ish-fund portfolio plan execution

Post by Garp » Sat Nov 11, 2017 11:56 am

DATA
Age: 30
Savings: 36.5K
Income: 70K
Budget: 2.5K/mo
Current 401k: 6K in TRRMX 2050 (half Traditional and half Roth)
Goal: Do the best I can in a goalless state while I wait for my goals to solidify. (Lame, I know, but that's all I've got so far)

PLAN
Emergency Account: 4K in Barclays Dream Account with 1K max contribution added monthly from income until 15K total
Target Allocation: 45% domestic stocks, 40% international stocks, 15% bonds
Funds and Initial Investments:
Brokerage
VTSAX: 17K
VTIAX: 14K
Brokerage IRA
VBMFX: 5.5K (that's this year's full contribution, and then I plan to upgrade to VBTLX in January with next years full contribution)
Initial Allocation (w/o 401k): 47% domestic stocks, 38% international stocks & 15% bonds (current 401K allocation is about 85/15 too, but with about 30% international stock)
Plan: Once the above is executed, keep adding as much money as I can as often as possible while preserving the target allocation/rebalancing. Direct deposit according to the allocation, and then tweak as needed every few months or so to preserve balance.

DETAILS
  • I derived my target allocation like this: The general rule of thumb from Bogleheads' Guide 2nd Edition was to get your age in percentage of bonds. So 30 would be 30% (pg. 98 'Jack Bogle's rough guide is that bonds should be equal to our age'). So I had that in my head as a starter. But I do consider myself far more into risk/reward than average, so I knew I was going to undershoot that. Then, I spoke with a friend my age who has 95%/5% but factored into his allocation the fact that he is far more well-off than I am, both to start with, and in terms of his investments, so I shied away from that end too. That landed me at 90/10 which felt a little exciting to me. So I further backed off to 85/15 because that didn't feel exciting to me and I figured that the best emotion to start this off with, in hopes that it permeate the whole investing process ongoing, was sort of an average almost boring feeling that mirrors the Boglehead ethos in general, that it's not about winning through anything else other than being average, unemotional, and patient.
  • I have my bond fund in my IRA according to the rule: Place your most tax-inefficient funds into your tax-deferred accounts, then put what's left into your taxable account.
QUESTIONS
  1. What do you think of my plan overall? What would you change? What have I missed or messed up?
  2. There are several funds available for my 401K. I'm only in TRRMX right now because this was the default chosen by my employer. I don't have a problem with its allocation but 0.74% ER seems a bit high to me. I'm not yet familiar with many of the others, which I've included in the list below. Does anyone have any opinions about this one or those, or advice about how to go about comparing them?
  3. Nestle SA is the top holding in VTIAX and VTSAX's eighth largest holding is Exxon. I don't like what these companies have been doing lately. I don't support it. Do you think that buying these funds is contrary to my objective of doing well in the world if I believe that these companies aren't? I don't want my portfolio to be hamstrung either. One thing I thought about was targeting another allocation of 10% to conscientious investing, perhaps such as VFTSX, and then increasing that initiative as I went on if I can afford it. On the one hand that feels like charity, since I'll be paying a higher ER for similar or worse returns, and that's cool with me. On the other, it feels hypocritical if the majority of my money is still with bad guys anyway. Then back to the first hand, divesting companies probably won't impact them as much as other forms of protest since it does seem futile to take measures that sink them (and this seems ridiculous anyway) rather than that steer them better. But then back to the other hand, the last thing I said sure sounds like a convenient rationalization that benefits my portfolio performance. I'm pretty conflicted here and would love to hear what people think this way.
  4. I work for a startup. I actually really do believe in the product and the team and a huge success potential for the company, but I'm essentially paying for stock options on the ground floor with being paid at the very low end of the spectrum for what I do and where I live. The first thought of course is, this is how people get rich. But based on Boglehead philosophy, I would never include a single company in my portfolio, and the alternative to this is investing in my portfolio outlined above at a much greater rate, maybe even 25% - 40%. What is your advice or ideas about how to factor stock options in terms of risk and allocation into my portfolio? How and what might you think about this?
  5. Lastly, I do know that this style of investing doesn't require a whole lot of knowhow and keeping up, but I still want to keep my financial learning going. So far, this has taken place online, with podcasts, and with my first investing book, Bogleheads' Guide to Investing 2nd Edition, which I read twice. Given that I'm already fully evangelized to the Boglehead style but that I'm still curious and want to keep reading, what do you think would be the good second investing book to read now.
AVAILABLE 401K FUNDS
  • EDIT: Chart of plans and details here.
  • I am going to call and double check but it seems that, from the links available to me through ADP, expense ratios available to me through the 401k for the funds below are the same as those listed in the links below/available for general retail investment.
  • I'm not able to track down any information yet on the State Street funds, and their classes aren't listed on State Street's website, but I did find this Bogleheads' thread pertaining to one of them.
Invesco Stable Asset Fund
Putnam U.S. Government Income Trust - Class A - PGSIX
BlackRock Total Return Fund - Investor A Class - MDHQX
PIMCO Total Return Fund - Class A - PTTAX
State Street U.S. Bond Index Securities Lending Series Fund - Class VIII - Details
T. Rowe Price New Income Fund - Advisor Class - PANIX
Voya Intermediate Bond Fund - Class A - IIBAX
PIMCO Investment Grade Corporate Bond Fund - Class A - PBDAX
Deutsche Global High Income Fund - Class S - SGHSX
Prudential High Yield Fund - Class A - PBHAX
PIMCO Real Return Fund - Class A - PRTNX
State Street U.S. Inflation Protected Bond Index Non-Lending Series Fund - Class G - Details
T. Rowe Price Retirement 2010 Fund - Class R - RRTAX
T. Rowe Price Retirement 2015 Fund - Class R - RRTMX
T. Rowe Price Retirement 2020 Fund - Class R - RRTBX
T. Rowe Price Retirement 2025 Fund - Class R - RRTNX
T. Rowe Price Retirement 2030 Fund - Class R - RRTCX
T. Rowe Price Retirement 2035 Fund - Class R - RRTPX
T. Rowe Price Retirement 2040 Fund - Class R - RRTDX
T. Rowe Price Retirement 2045 Fund - Class R - RRTRX
T. Rowe Price Retirement 2055 Fund - Class R - RRTVX
Invesco Equity and Income Fund - Class A - ACEIX
MFS Total Return Fund - Class R3 - MSFHX
Putnam Dynamic Asset Allocation Balanced Fund - Class A - PABAX
State Street Conservative Strategic Balanced Securities Lending Series Fund - Class VII - Details
T. Rowe Price Retirement Balanced Fund - Class R - RRTIX
Invesco Comstock Fund - Class A - ACSTX
MFS Value Fund - Class R3 - MEIHX
Pioneer Equity Income Fund - Class A - PEQIX
Franklin Rising Dividends Fund - Class A - FRDPX
State Street S&P 500 Index Securities Lending Series Fund - Class IX - Details
Wells Fargo Disciplined U.S. Core Fund - Class A - EVSAX
Franklin Growth Fund - Class A - FKGRX
Goldman Sachs Mid Cap Value Fund - Class A - GCMAX
State Street S&P MidCap Index Non-Lending Series Fund - Class J - Details
Principal MidCap Fund - Class R3 - PMBMX
Delaware Small Cap Value Fund - Class A - DEVLX
State Street Russell Small Cap Index Securities Lending Series Fund - Class VIII - Details
BlackRock Advantage Small Cap Growth Fund - Investor A Class - CSGEX
Janus Henderson Triton Fund - Class S - JGMIX
AllianzGI NFJ International Value Fund - Class A - AFJAX
MFS International Value fund - Class R3 - MINGX
Parametric International Equity Fund - Investor Class - EAISX
State Street International Index Securities Lending Series Fund - Class VIII - Details
Oppenheimer International Growth Fund - Class A - OIGAX
Oppenheimer Global Fund - Class A - OPPAX
Oppenheimer Global Opportunities Fund - Class A - OPGIX
Goldman Sachs Emerging Markets Equity Insights Fund - Class A -
GERAX
Invesco Developing Markets Fund - Class A - GTDDX
Ivy Emerging Markets Equity Fund - Class A - IPOAX
Deutsche Real Estate Securities Fund - Class A - RRRAX
Fidelity Advisor Real Estate Fund - Class A - FHEAX
State Street REIT Index Non-Lending Series Fund - Class G - Details
Franklin Utilities Fund - Class A - FKUTX

Please ask any and all questions! Everyones' feedback is hugely appreciated! Thank you!
Last edited by Garp on Sun Nov 26, 2017 1:14 pm, edited 8 times in total.

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ruralavalon
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Re: Questions on detailed 3ish-fund portfolio plan execution

Post by ruralavalon » Sat Nov 11, 2017 1:53 pm

Welcome to the forum :) .

It is always good to see someone starting young, and interested in using low expense ratio index funds. Keeping the contribution rate as high as practical is very important. I see you already plan to "keep adding as much money as I can as often as possible". A high contribution rate is probably more important at the start than the fine points of asset allocation or fund selection.

Asset allocation.
Age: 30
. . . . .
. . . Target Allocation: 45% domestic stocks, 40% international stocks, 15% bonds
That asset allocation is within the range of what is reasonable in my opinion. At age 30 I usually suggest around 20% bonds, 20% international stocks, and 60% domestic stocks.

Garp wrote:
Sat Nov 11, 2017 11:56 am
  • I derived my target allocation like this: The general rule of thumb from Bogleheads' Guide 2nd Edition was to get your age in percentage of bonds. So 30 would be 30% (pg. 98 'Jack Bogle's rough guide is that bonds should be equal to our age'). So I had that in my head as a starter. But I do consider myself far more into risk/reward than average, so I knew I was going to undershoot that. Then, I spoke with a friend my age who has 95%/5% but factored into his allocation the fact that he is far more well-off than I am, both to start with, and in terms of his investments, so I shied away from that end too. That landed me at 90/10 which felt a little exciting to me. So I further backed off to 85/15 because that didn't feel exciting to me and I figured that the best emotion to start this off with, in hopes that it permeate the whole investing process ongoing, was sort of an average almost boring feeling that mirrors the Boglehead ethos in general, that it's not about winning through anything else other than being average, unemotional, and patient.
I am glad you gave some real thought to asset allocation, most new people don't. That's not at all bad way to look at it. Here is my thought process for what it's worth.

At age 30 I suggest about 20 - 25% in bonds. This is expected to substantially reduce volatility (risk), with only a relatively slight decrease in return. Graph, "An Efficient Frontier: the power of diversification". Please see the wiki articles Bogleheads® investment philosophy, part 3 "Never bear too much or too little risk", and "Asset allocation".

I suggest around 20 - 30% of stocks in international stocks. Vanguard paper (March 2012), "Considerations for investing in non-U.S. equities". Historically, allocating 20% of an equity portfolio to non-U.S. stocks would have captured about 84% of the maximum possible diversification benefit, and allocating 30% of an equity portfolio to non-U.S. stocks would have captured about 99% of the maximum possible diversification benefit (p. 6). You can find lots of debate here on international allocation, opinions rangeing all the way from 00% to 50% of stocks in international stocks. If you want more viewpoints on international stocks please try the Google search box (upper right, this page.)

Asset allocation is a very personal decision. You must decide on an allocation that is comfortable for you based on your own ability, willingness and need to take risk.


Fund selection.
Garp wrote:
Sat Nov 11, 2017 11:56 am
QUESTIONS
  1. What do you think of my plan overall? What would you change? What have I missed or messed up?
  2. There are several funds available for my 401K. I'm only in TRRMX right now because this was the default chosen by my employer. I don't have a problem with its allocation but 0.74% ER seems a bit high to me. I'm not yet familiar with many of the others, which I've included in the list below. Does anyone have any opinions about this one or those, or advice about how to go about comparing them?
You haven't "missed or messed up" anything.

I do think it is probable that you can achieve a lower weighted average expense ratio using individual index funds. Low expense ratios are critical to long-term investing performance. Seemingly small annual fees have a large cumulative impact over time. Vanguard blog post, "Stopping the silent killer of returns". Please see the table at the end of the post, "Cumulative impact of fees on ending wealth at various time horizons." Also, here is a calculator you could use to estimate the impact of investing expenses. Bankrate.com, "Mutual fund fees calculator".

Also, low expense ratios are the best predictor of future performance. Morningstar article . “If there's anything in the whole world of mutual funds that you can take to the bank, it's that expense ratios help you make a better decision. In every single time period and data point tested, low-cost funds beat high-cost funds.” “Investors should make expense ratios a primary test in fund selection. They are still the most dependable predictor of performance.”

Often a 401k plan will charge a different expense ratio than is charged to the general retail investor for the same fund, so we can' t just look them up. Please check your401k material and determine the expertise ratios charged, and also the ticker symbols if any. You can simply add this to your original post using the edit button.

These are the funds that may be better to consider using in your 401k. Will you please locate and post the expense ratios and tickers if any for the following funds:

Domestic stocks
State Street S&P 500 Index Securities Lending Series Fund - Class IX "The Class IX Total Annual Operating Expense Ratio will equal 0.703% annually."
State Street S&P MidCap Index Non-Lending Series Fund - Class J "The Class J Total Annual Operating Expense Ratio will equal 0.712% annually"
State Street Russell Small Cap Index Securities Lending Series Fund - Class VIII "The Class VIII Total Annual Operating Expense Ratio will equal 0.962% annually."

International stocks.
MFS International Value fund - Class R3, MINGX, ER 1.01%
State Street International Index Securities Lending Series Fund - Class VIII "The Class VIII Total Annual Operating Expense Ratio will
equal 0. 990% annually"


Bonds.
BlackRock Total Return Fund - Investor A Class, MDHQX, ER 0.79%, average effective duration = 5.45 years average credit quality = BBB
PIMCO Total Return Fund - Class A, PTTAX, ER 0.80%, average effective duration = 5.08 years
State Street U.S. Bond Index Securities Lending Series Fund - Class VIII "The Class VIII Total Annual Operating Expense Ratio will equal 0.712% annually"

EDITED to add fund information in blue.

Garp wrote:
Sat Nov 11, 2017 11:56 am
[*]Nestle SA is the top holding in VTIAX and VTSAX's eighth largest holding is Exxon. I don't like what these companies have been doing lately. I don't support it. Do you think that buying these funds is contrary to my objective of doing well in the world if I believe that these companies aren't? I don't want my portfolio to be hamstrung either. One thing I thought about was targeting another allocation of 10% to conscientious investing, perhaps such as VFTSX, and then increasing that initiative as I went on if I can afford it. On the one hand that feels like charity, since I'll be paying a higher ER for similar or worse returns, and that's cool with me. On the other, it feels hypocritical if the majority of my money is still with bad guys anyway. Then back to the first hand, divesting companies probably won't impact them as much as other forms of protest since it does seem futile to take measures that sink them (and this seems ridiculous anyway) rather than that steer them better. But then back to the other hand, the last thing I said sure sounds like a convenient rationalization that benefits my portfolio performance. I'm pretty conflicted here and would love to hear what people think this way.
I stick with broad market index funds for good diversification, to do well in investing.

We contribute to charities an causes which we favor, to do well in the world.

So the two objectives that make up "do well" urges can be met separately.

Keep in mind that your refusal to invest in Nestle or Exxon does not hurt Nestle or Exxon at all, that does not deprive them of money or anything else.


Garp wrote:
Sat Nov 11, 2017 11:56 am
[*]I work for a startup. I actually really do believe in the product and the team and a huge success potential for the company, but I'm essentially paying for stock options on the ground floor with being paid at the very low end of the spectrum for what I do and where I live. The first thought of course is, this is how people get rich. But based on Boglehead philosophy, I would never include a single company in my portfolio, and the alternative to this is investing in my portfolio outlined above at a much greater rate, maybe even 25% - 40%. What is your advice or ideas about how to factor stock options in terms of risk and allocation into my portfolio? How and what might you think about this?
I have no experience in any start up, so will not comment.

Garp wrote:
Sat Nov 11, 2017 11:56 am
[*]Lastly, I do know that this style of investing doesn't require a whole lot of knowhow and keeping up, but I still want to keep my financial learning going. So far, this has taken place online, with podcasts, and with my first investing book, Bogleheads' Guide to Investing 2nd Edition, which I read twice. Given that I'm already fully evangelized to the Boglehead style but that I'm still curious and want to keep reading, what do you think would be the good second investing book to read now.
[/list]
I suggest that you read one or two books on general investing. Wiki article, "Books: recommendations and reviews". When I first stated managing my own investments, I found this tutorial very helpful in learning investing terminology/jargon and some of the investing basics. Morningstar, "Investing Classroom". Also take a look at our wiki, the "getting started" link below.

If you have any questions just ask.

I hope that this helps.
Last edited by ruralavalon on Sun Nov 26, 2017 2:47 pm, edited 2 times in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Garp
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Joined: Fri Nov 10, 2017 8:14 pm

Re: Questions on detailed 3ish-fund portfolio plan execution

Post by Garp » Sat Nov 11, 2017 4:16 pm

ruralavalon wrote:
Sat Nov 11, 2017 1:53 pm
Welcome to the forum :) .
Thank you so much and thanks so much for all the thoughtful information! I'm reviewing it all carefully.
ruralavalon wrote:
Sat Nov 11, 2017 1:53 pm

Often a 401k plan will charge a different expense ratio than is charged to the general retail investor for the same fund, so we can' t just look them up. Please check your401k material and determine the expertise ratios charged, and also the ticker symbols if any. You can simply add this to your original post using the edit button.

These are the funds that may be better to consider using in your 401k. Will you please locate and post the expense ratios and tickers if any for the following funds
I updated the original post with tickers and links for all those that I could (most of them). The information links for these funds that I have through my employer are private Morning Star links, but they seem to display the same information as the public Morning Star links I included in the original post, same ERs, etc. The only funds I could not reliably locate information for are the SSGA funds. I added notes that way to the original post as well. But they comprised five of the eight funds that you specifically listed so unfortunately I'm at a loss when trying to analyze and study your recommendations.

Thanks again! I'm look forward to reading more of your ideas!

Yossarian
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Joined: Thu May 31, 2007 6:19 pm

Re: Questions on detailed 3ish-fund portfolio plan execution

Post by Yossarian » Sat Nov 11, 2017 4:32 pm

Hi Garp, prevailing wisdom is that Roth 401k is not preferable for most investors. I would do some research and evaluate further why you're putting half of your 401k into the Roth option.

Your target international allocation is quite high, looks like 47% of total equities. Any particular reason?

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ruralavalon
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Re: Questions on detailed 3ish-fund portfolio plan execution

Post by ruralavalon » Sat Nov 11, 2017 8:21 pm

Garp wrote:I updated the original post with tickers and links for all those that I could (most of them). The information links for these funds that I have through my employer are private Morning Star links, but they seem to display the same information as the public Morning Star links I included in the original post, same ERs, etc. The only funds I could not reliably locate information for are the SSGA funds.[ I added notes that way to the original post as well. But they comprised five of the eight funds that you specifically listed so unfortunately I'm at a loss when trying to analyze and study your recommendations. [emphasis added]
In your 401k materials or website there will be a fact sheet for each of the State funds. The fact sheet will be just one or two pages, and will describe the fund strategy, index used, management, performance, and expenses and fees.

These are probably Commingled Investment Trusts (CITs) or Separate Accounts, rather than mutual funds, and will not have tickers.

The State Street index funds are the ones which seem most promising, so please keep looking and add the expense ratios, and for the international and bond funds also state the index used.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Garp
Posts: 10
Joined: Fri Nov 10, 2017 8:14 pm

Re: Questions on detailed 3ish-fund portfolio plan execution

Post by Garp » Sun Nov 12, 2017 1:50 pm

Yossarian wrote:
Sat Nov 11, 2017 4:32 pm
Hi Garp, prevailing wisdom is that Roth 401k is not preferable for most investors. I would do some research and evaluate further why you're putting half of your 401k into the Roth option.
You're right, I should look back into this. It looks like some of the aspects that initially attracted me to Roth were misconceptions or confusions with Roth IRA. Still, do you have any good resources about why the traditional is more preferable for most investors.

One thing I should note is that I hope my income, and therefore my tax bracket, will be greater in retirement than it is this year... but really I'm not sure that the Roth taxation would cancel out the power of compounding returns in a traditional account over time. Also, if ever I want to look into a Roth conversion ladder strategy I better put all contributions in traditional.
Yossarian wrote:
Sat Nov 11, 2017 4:32 pm
Your target international allocation is quite high, looks like 47% of total equities. Any particular reason?
Bogleheads' Guide 2nd Edition suggested 20 - 40%. I originally split the difference at 30% but then decided to increase it when someone pointed out to me that there was an updated recommendation from Vanguard which rang true for me as I figured it accounted for geopolitical changes that have taken place between that publication and today.

I'm at 40% without accounting for the 401k, is that how you got 47%? I'm not actually sure I'm happy with that 401k fund and might change it, so I didn't factor it in. In general actually, I wonder about factoring in the retirement accounts with the rest or my portfolio.

Lastly, I'm new to the forums, are you notified that I've replied to you?

Yossarian
Posts: 134
Joined: Thu May 31, 2007 6:19 pm

Re: Questions on detailed 3ish-fund portfolio plan execution

Post by Yossarian » Sun Nov 12, 2017 8:59 pm

Yes, I received a notification.

There are lots of articles online about pros and cons of 401(k) vs Roth 401(k). Here's one https://www.nerdwallet.com/blog/investi ... k-vs-401k/

It's common for folks to be in a lower tax bracket after retiring due to income coming from non-salary activities, such as selling investments or collecting qualified dividends. This would make the 401(k) the more attractive option. There are other factors to consider of course.

In your OP you wrote "Target Allocation: 45% domestic stocks, 40% international stocks, 15% bonds." The Bogleheads book and the Vanguard recommendation talk about international as a percentage of total equities, not percentage of total portfolio. If you want 40% of equities to be international, you should have only 0.4*85= 34% international when expressed as percent of total portfolio.

Many here, myself included, think It's best to consider all of your funds as one portfolio. It makes it easier for rebalancing and tracking asset allocation.

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ruralavalon
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Re: Questions on detailed 3ish-fund portfolio plan execution

Post by ruralavalon » Mon Nov 13, 2017 5:51 am

Garp wrote:
Sun Nov 12, 2017 1:50 pm
Yossarian wrote:
Sat Nov 11, 2017 4:32 pm
Hi Garp, prevailing wisdom is that Roth 401k is not preferable for most investors. I would do some research and evaluate further why you're putting half of your 401k into the Roth option.
You're right, I should look back into this. It looks like some of the aspects that initially attracted me to Roth were misconceptions or confusions with Roth IRA. Still, do you have any good resources about why the traditional is more preferable for most investors. [emphasis added].

One thing I should note is that I hope my income, and therefore my tax bracket, will be greater in retirement than it is this year... but really I'm not sure that the Roth taxation would cancel out the power of compounding returns in a traditional account over time. Also, if ever I want to look into a Roth conversion ladder strategy I better put all contributions in traditional.
Here are some good resources on the Roth vs traditional issue.

For most people traditional 401k contributions will probably be better. This is because of the progressive nature of the tax Code. TFB blog post, "The case against Roth 401k". "I think for most people the majority, if not 100%, of the contribution should go to a Traditional 401(k)."

Ordinarily most people are likely better off making traditional contributions to their work-based plans. A pension changes that analysis, so that Roth contributions are likely better if you have a significant pension coming. TFB blog post, "Most TSP participants should switch to the Roth TSP". That post discussed the effect of a federal pension, but the analysis should hold for other pensions.

Wiki article, "Traditional vs Roth".
"Tax considerations:
* If your current marginal tax rate is 15% or less, prefer a Roth.
* If you expect to have higher marginal rates than your current marginal rate for most of your career, prefer a Roth.
* If you will have a traditional account or a pension large enough to meet your expected retirement expenses (and you expect to take that pension shortly after retiring), prefer a Roth.
* Otherwise, prefer a traditional account."
Last edited by ruralavalon on Mon Nov 13, 2017 9:01 am, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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ruralavalon
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Re: Questions on detailed 3ish-fund portfolio plan execution

Post by ruralavalon » Mon Nov 13, 2017 8:23 am

Garp wrote:
Sun Nov 12, 2017 1:50 pm
Yossarian wrote:
Sat Nov 11, 2017 4:32 pm
Your target international allocation is quite high, looks like 47% of total equities. Any particular reason?
Bogleheads' Guide 2nd Edition suggested 20 - 40%. I originally split the difference at 30% but then decided to increase it when someone pointed out to me that there was an updated recommendation from Vanguard which rang true for me as I figured it accounted for geopolitical changes that have taken place between that publication and today.

I'm at 40% without accounting for the 401k, is that how you got 47%? I'm not actually sure I'm happy with that 401k fund and might change it, so I didn't factor it in. In general actually, I wonder about factoring in the retirement accounts with the rest or my portfolio.

Lastly, I'm new to the forums, are you notified that I've replied to you?
Why do you "wonder about factoring in the retirement accounts with the rest [of your] portfolio"?

It is often best to look at all accounts together as a single unified whole, rather than consider each account separately. Start fund selection by choosing only the one or two best funds (diversified + expense ratios) available in the 401k, where the choices offered are limited. Then complete the rest of the asset allocation using the nearly unlimited fund choices available in the taxable account and any IRAs. This approach lets you avoid having to use sub-par funds often found in work-based accounts like 401ks.

. . . . .

The fund which you are using in your 401k, 401k T. Rowe Price Retirement 2050 Fund, and has an expense ratio of 0.74%. The expense ratio is high, enough reason to avoid the fund if it turns out that there are better choices (i.e. SSgA index funds with low ERs) available in the 401k.

Low expense ratios are critical to long-term investing performance. Seemingly small annual fees have a large cumulative impact over time. Vanguard blog post, "Stopping the silent killer of returns". Please see the table at the end of the post, "Cumulative impact of fees on ending wealth at various time horizons." Also, here is a calculator you could use to estimate the impact of investing expenses. Bankrate.com, "Mutual fund fees calculator".

Also, low expense ratios are the best predictor of future performance. Morningstar article . “If there's anything in the whole world of mutual funds that you can take to the bank, it's that expense ratios help you make a better decision. In every single time period and data point tested, low-cost funds beat high-cost funds.” “Investors should make expense ratios a primary test in fund selection. They are still the most dependable predictor of performance.”

. . . . .

As mentioned before, you can find lots of debate here on international allocation, opinions rangeing all the way from 00% to 50% of stocks in international stocks. If you want more viewpoints on international stocks please try the Google search box (upper right, this page). And it may turn out to make little difference where an investor is in the 20-50% range.

The "updated recommendation from Vanguard" you linked is too lacking in detail to be very helpful in my opinion, it contains no actual data or analysis. Vanguard has gradually increased its recommendation over the last 9 years.

There are several more detailed Vanguard papers on the subject of how much international stock may be appropriate.

A 2008 Vanguard paper very concisely stated in its Executive Summary "Empirical and practical issues suggest a starting allocation to international stocks of 20%, with an upper limit based on the proportion of the global market they represent". "International Equity: Considerations and Recommendations" (p. 1).

A March 2012 Vanguard paper, "Considerations for investing in non-U.S. equities", stated that historically allocating 20% of an equity portfolio to non-U.S. stocks would have captured about 84% of the maximum possible diversification benefit, and allocating 30% of an equity portfolio to non-U.S. stocks would have captured about 99% of the maximum possible diversification benefit (p. 6). Their graph depicting volatility has a very flat shallow curve between 20-50%, indicating to me that it made little difference where an investor was in that range (Fig. 3, p. 5).

A June 2012 Vanguard paper, "The role of home bias in global asset allocation decisions", has a graph describing "Risk and returns for various equity portfolios: 1988–2011" showing the better risk/return combination for a U.S. investor between 20% and 30% of stocks in international stocks (Fig 1, p. 3). (On a risk/return graph, the optimum place to be is the upper left corner of the graph.) The paper does say that historical performance is not the sole factor to consider (pp. 8-12).

The two 2012 Vanguard papers use data through December 31, 2011.

A February 2014 Vanguard paper, "Global equities: Balancing home bias and diversification", noted that U.S. equities were 49% of the global market, with a recent high of 55% of the global but remained significantly above the all-time low of 29% (p. 2, and Fig. 1, p.3). Again a graph of "Average annualized change in portfolio volatility" has a flat shallow curve between 20-50%, indicating to me that it made little difference where an investor was in that range (Fig. 3, p. 5).

From the February 2014 Vanguard paper -- "What’s striking about Figure 3 is that U.S. investors would have obtained substantial (relative) diversification benefits from allocations to non-U.S. stocks far short of the current market-proportional portfolio (now about 51% and historically approximately 50%, on average). . . . . . Looking at the blue line in Figure 3, which represents a portfolio composed entirely of equities, the maximum historical diversification benefit would have been achieved by allocating approximately 30% of an equity portfolio to non-U.S. equities (although the difference between 30% non-U.S. and 40% non-U.S. is within 0.02%), with a net reduction in volatility of 71 basis points. Allocating 20% of an equity portfolio to non-U.S. stocks would have captured 60 of those 71 basis points, or about 85% of the maximum possible benefit. " (p.6). "On average, dedicating 30% of equities to non-U.S. stocks has provided most of the maximum possible diversification benefit" (Fig. 4, p 7). "Rising correlations mean less impact from global diversification" (Fig. 5, p.9). "High relative volatility means less impact from global diversification" (Fig.6, p.9).

The 2014 Vanguard paper uses data through December 31, 2013.

I am not aware of any other or more recent Vanguard papers on the issue of the desirable amount of international stock allocation.

In my opinion the 2008 viewpoint is still good -- "Empirical and practical issues suggest a starting allocation to international stocks of 20%, with an upper limit based on the proportion of the global market they represent". I personally prefer the lower end of that range, thinking there is no reason to take extra international-related risks for little or no readily apparent benefit.

I had not intended to spend this much effort on the amount of international allocation, just couldn't help myself, I was up early with nothing better to do.
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Re: Questions on detailed 3ish-fund portfolio plan execution

Post by Garp » Mon Nov 13, 2017 7:54 pm

Yossarian wrote:
Sun Nov 12, 2017 8:59 pm

The Bogleheads book and the Vanguard recommendation talk about international as a percentage of total equities, not percentage of total portfolio. If you want 40% of equities to be international, you should have only 0.4*85= 34% international when expressed as percent of total portfolio.
Whoops!

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Re: Questions on detailed 3ish-fund portfolio plan execution

Post by Garp » Mon Nov 13, 2017 8:37 pm

ruralavalon wrote:
Mon Nov 13, 2017 8:23 am
Why do you "wonder about factoring in the retirement accounts with the rest [of your] portfolio"?
It's an emotional thing. I know the strategy for all parts of the portfolio is long-term but, if needed, I could still get to the money in the non401k portion, and that makes it feel entirely different. I know I have to get more on message with that part. But it was there enough beneath the surface that my impulse was to treat the 401k separately when divvying the allocation. However, I'm going to start calculating the right way according to the prevailing wisdom.
ruralavalon wrote:
Mon Nov 13, 2017 8:23 am
It is often best to look at all accounts together as a single unified whole, rather than consider each account separately. Start fund selection by choosing only the one or two best funds (diversified + expense ratios) available in the 401k, where the choices offered are limited. Then complete the rest of the asset allocation using the nearly unlimited fund choices available in the taxable account and any IRAs. This approach lets you avoid having to use sub-par funds often found in work-based accounts like 401ks.
This is awesome and actionable advice that I'm going to take along with your guidance on how to reevaluate the 401k options, and put this plan together even more solidly.
ruralavalon wrote:
Mon Nov 13, 2017 8:23 am
The "updated recommendation from Vanguard" you linked is too lacking in detail to be very helpful in my opinion, it contains no actual data or analysis. Vanguard has gradually increased its recommendation over the last 9 years.
They've also added the international bond fund.

I'm going to read all the papers you linked and make a new determination. In truth, I was originally at 30% simply by splitting the timeworn 20 - 40% down the middle then later got talked up to 40%.
ruralavalon wrote:
Mon Nov 13, 2017 8:23 am
In my opinion the 2008 viewpoint is still good -- "Empirical and practical issues suggest a starting allocation to international stocks of 20%, with an upper limit based on the proportion of the global market they represent". I personally prefer the lower end of that range, thinking there is no reason to take extra international-related risks for little or no readily apparent benefit.
But, from the 2012 and 2014 articles you quoted (in your quotes, I still have to study them), they say "On average, dedicating 30% of equities to non-U.S. stocks has provided most of the maximum possible diversification benefit" and "allocating 30% of an equity portfolio to non-U.S. stocks would have captured about 99% of the maximum possible diversification benefit". I'm not sure exactly what this means "with an upper limit based on the proportion of the global market they represent", but I'm curious why you stayed at 20%. Do you VTIAX for that? I've heard some about going more into emerging markets.

Also now I'm curious about your portfolio's funds and allocation. Do we have any similarities?
ruralavalon wrote:
Mon Nov 13, 2017 8:23 am
I had not intended to spend this much effort on the amount of international allocation, just couldn't help myself, I was up early with nothing better to do.
Thank you so much! This is incredible... heading to the reading.

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Re: Questions on detailed 3ish-fund portfolio plan execution

Post by ruralavalon » Tue Nov 14, 2017 6:19 am

Garp wrote:
Mon Nov 13, 2017 8:37 pm
ruralavalon wrote:
Mon Nov 13, 2017 8:23 am
In my opinion the 2008 viewpoint is still good -- "Empirical and practical issues suggest a starting allocation to international stocks of 20%, with an upper limit based on the proportion of the global market they represent". I personally prefer the lower end of that range, thinking there is no reason to take extra international-related risks for little or no readily apparent benefit.
But, from the 2012 and 2014 articles you quoted (in your quotes, I still have to study them), they say "On average, dedicating 30% of equities to non-U.S. stocks has provided most of the maximum possible diversification benefit" and "allocating 30% of an equity portfolio to non-U.S. stocks would have captured about 99% of the maximum possible diversification benefit". I'm not sure exactly what this means "with an upper limit based on the proportion of the global market they represent", but I'm curious why you stayed at 20%. Do you VTIAX for that? I've heard some about going more into emerging markets.

Also now I'm curious about your portfolio's funds and allocation. Do we have any similarities?
The various Vanguard papers all indicated in one way or another that the vast majority (84 to 99%, 3/2012 paper; or 85% to "the maximum", 2/2014 paper) of the diversification benefit had historically been captured in the range 20-30% of stocks in international stocks. I asked myself why take any more risk (currency risk, political risk etc.) to get the last tiny bit of potential benefit? My answer was "why bother?"

The comment about "an upper limit based on the proportion of the global market" is because some people feel (based on Modern Portfolio Theory, MPT) that a market weight allocation is always best, or at least a kind of default allocation to use and then adjust from. I do not feel that way or take that position.

. . . . .

I personally use only Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) ER 0.11%, which you also use, for international stocks. I think that that fund is the "gold standard" for international stock funds, the best available anywhere. We don't use any other international fund.

We use Vanguard Intermediate-Term Bond Index Fund Admiral Shares (VBILX) ER 0.07% for our only bond fund. Vanguard Intermediate-Term Bond ETF (BIV) ER 0.07%, one of the bond funds which you use, is the ETF share class of the same fund.

We use Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04% for domestic stocks, which you also use. In addition we use some Vanguard Small-Cap Value Index Fund Admiral (VSIAX) ER 0.07%, I will probably drop that in the next few years just to simplify as I get older.

. . . . . .

I am 72 years old, and retired, so your stock/bond mix should be different from ours. Our asset allocation is 50/50 stocks/bonds, with 75/25 domestic/international stocks, and 50/50 government/corporate bonds.
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Re: Questions on detailed 3ish-fund portfolio plan execution

Post by Garp » Sun Nov 26, 2017 1:26 pm

ruralavalon wrote:
Sat Nov 11, 2017 1:53 pm

These are the funds that may be better to consider using in your 401k. Will you please locate and post the expense ratios and tickers if any for the following funds:

Domestic stocks
State Street S&P 500 Index Securities Lending Series Fund - Class IX
State Street S&P MidCap Index Non-Lending Series Fund - Class J
State Street Russell Small Cap Index Securities Lending Series Fund - Class VIII

International stocks.
MFS International Value fund - Class R3, MINGX, ER 1.01%
State Street International Index Securities Lending Series Fund - Class VIII

Bonds.
BlackRock Total Return Fund - Investor A Class, MDHQX, ER 0.79%,
average effective duration = 5.45 years average credit quality = BBB

PIMCO Total Return Fund - Class A, PTTAX, ER 0.80%, average effective duration = 5.08 years
State Street U.S. Bond Index Securities Lending Series Fund - Class VIII
I added details including the overview and disclosure documents for each of the State Street funds to the original post in links called 'Details' where the ticker links are for the other funds. You were right that they seem to be Bank-Maintained Commingled Funds. This type of investment vehicle was not mentioned in any of my Bogleheads readings so far. The largest defining characteristic distinguishing them from mutual funds seems to be a lack of regulation. The Fee Disclosures don't seem to be parallel to ERs so I'm not sure how to compare them.

I also added this chart which came with the quarterly report and in which I added the ticker symbols. According to the wisdom that expense rations are one of the greatest indications of fund performance, then my T. Rowe Price default is among the worst choices on the list. At least for some of the other high ER funds you get some niche allocation that you might be interested in like emerging markets. But for me, for the high ER, I get no control over the asset mixture and so there is no control over how it integrates with the rest of my investments in non-retirement accounts. So I feel like you would only ever want this fund or this type of fund if you did no other investing and wanted to pay more to keep your asset allocations automatically altered for you... which would be a generally bad plan.

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Re: Questions on detailed 3ish-fund portfolio plan execution

Post by ruralavalon » Sun Nov 26, 2017 2:50 pm

Those expense ratios on the SSgA funds are very disappointing :( , hardly better than the alternatives.

Domestic stocks
State Street S&P 500 Index Securities Lending Series Fund - Class IX "The Class IX Total Annual Operating Expense Ratio will equal 0.703% annually."
State Street S&P MidCap Index Non-Lending Series Fund - Class J "The Class J Total Annual Operating Expense Ratio will equal 0.712% annually"
State Street Russell Small Cap Index Securities Lending Series Fund - Class VIII "The Class VIII Total Annual Operating Expense Ratio will equal 0.962% annually."

International stocks.
MFS International Value fund - Class R3, MINGX, ER 1.01%, actively managed fund but turnover rate just 07%, invests in larger companies in developed markets, including Canada.
State Street International Index Securities Lending Series Fund - Class VIII This trust uses the MSCI EAFE Index, which invests in "large and mid-cap securities across 21 developed markets, including countries in Europe, Australasia and the Far East, excluding the U.S. and Canada." "The Class VIII Total Annual Operating Expense Ratio will equal 0.990% annually"

Bonds.
BlackRock Total Return Fund - Investor A Class, MDHQX, ER 0.79%, average effective duration = 5.45 years average credit quality = BBB
PIMCO Total Return Fund - Class A, PTTAX, ER 0.80%, average effective duration = 5.08 years
State Street U.S. Bond Index Securities Lending Series Fund - Class VIII "The Class VIII Total Annual Operating Expense Ratio will equal 0.712% annually"

. . . . .

A few hundredths of a percent in expense ratio is too small to use as a deciding factor in fund selection.

. . . . .

Do you have an emergency fund, enough to cover 3-6 months worth of basic living expenses?

Did you wish to invest some of that $36.5k savings?

Do have any debt? If so, what types, amounts, and interest rates?

About how much (in dollars) do you expect that you will be able to contribute annually to in (total, all accounts)?
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Re: Questions on detailed 3ish-fund portfolio plan execution

Post by Garp » Mon Nov 27, 2017 10:02 pm

ruralavalon wrote:
Sun Nov 26, 2017 2:50 pm
Those expense ratios on the SSgA funds are very disappointing :( , hardly better than the alternatives.
. . . . .

A few hundredths of a percent in expense ratio is too small to use as a deciding factor in fund selection.
But better than my RRTFX default fund though by .7%, right. Even my friend's version of the exact same fund has a better expense ration: TRRMX. Besides the ER, I'm unclear what the difference between those two funds is. It seems like someone is just picking up an arbitrage profit through offering the R-class shares.

Plus splitting amongst three funds allows me to do my own stunts in terms of keeping my asset allocation where I want it across my whole portfolio? What would be the downside to treating my 401k like another 3-fund (since RRTFX is a 4-fund anyway) of say BlackRock Total Return Fund, MFS International Value fund, and State Street S&P 500 Index Securities Lending Series Fund - Class IX. In fact, having my IRA full of VBMFX may mean that I need little to no bond fund allocation in my 401k for some time.

I am going just by ERs here though. A lack of experience prevents me from knowing if SSgA, MFS, or BlackRock are as reputable as T. Rowe Price (though I do think I've heard good things about BlackRock on the 'Money for the Rest of Us' podcast).
ruralavalon wrote:
Sun Nov 26, 2017 2:50 pm

Do you have an emergency fund, enough to cover 3-6 months worth of basic living expenses?
I do. I actually think I'll go more toward the lighter side of emergency fund (3 months) since I'll be targeting a 15% bond allocation which feels like a safe form of secondary emergency funds if things really got tight. I haven't heard that anywhere. But that was my thought.
ruralavalon wrote:
Sun Nov 26, 2017 2:50 pm

Did you wish to invest some of that $36.5k savings?
All of it save 5k for the emergency fund.
ruralavalon wrote:
Sun Nov 26, 2017 2:50 pm

Do have any debt? If so, what types, amounts, and interest rates?
I'm extremely lucky and indebted in non-financial ways to my parents for helping me stay completely debt free. I also prefer to live very close to the ground which ends up being far below my means.
ruralavalon wrote:
Sun Nov 26, 2017 2:50 pm

About how much (in dollars) do you expect that you will be able to contribute annually to in (total, all accounts)?
That's a tough one. Ideally, I think I can shoot for 35-45k/year. Maybe 24 of that toward maxing out both 401k and IRA and the rest in the regular brokerage account? The more I think about this the more I'm tempted to use it for justification to move away from the startup section of my industry where money is tied up in the relative gamble of stock options, and into the more established section of my industry where I will make probably 25% more to invest. I teeter on that one as I'm at an excellent startup that I really do believe has a huge success potential.

Thank you again for all your help, I'm incredibly grateful to you for being so gracious with your time and expertise!

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Re: Questions on detailed 3ish-fund portfolio plan execution

Post by ruralavalon » Tue Nov 28, 2017 9:13 am

T. Rowe Price Retirement 2050 R RRTFX
Garp wrote:
Mon Nov 27, 2017 10:02 pm
ruralavalon wrote:
Sun Nov 26, 2017 2:50 pm
Those expense ratios on the SSgA funds are very disappointing :( , hardly better than the alternatives.
. . . . .

A few hundredths of a percent in expense ratio is too small to use as a deciding factor in fund selection.
But better than my RRTFX default fund though by .7%, right. Even my friend's version of the exact same fund has a better expense ration: TRRMX. Besides the ER, I'm unclear what the difference between those two funds is. It seems like someone is just picking up an arbitrage profit through offering the R-class shares.

Plus splitting amongst three funds allows me to do my own stunts in terms of keeping my asset allocation where I want it across my whole portfolio? What would be the downside to treating my 401k like another 3-fund (since RRTFX is a 4-fund anyway) of say BlackRock Total Return Fund, MFS International Value fund, and State Street S&P 500 Index Securities Lending Series Fund - Class IX. In fact, having my IRA full of VBMFX may mean that I need little to no bond fund allocation in my 401k for some time.

I am going just by ERs here though. A lack of experience prevents me from knowing if SSgA, MFS, or BlackRock are as reputable as T. Rowe Price (though I do think I've heard good things about BlackRock on the 'Money for the Rest of Us' podcast).
As I understand it (from the links you gave) in the 401k T. Rowe Price Retirement 2050 R TRRMX with an expense ratio of 0.74% is about the same expense as:
1) State Street S&P 500 Index Securities Lending Series Fund - Class IX "The Class IX Total Annual Operating Expense Ratio will equal 0.703% annually."; and
2) State Street U.S. Bond Index Securities Lending Series Fund - Class VIII "The Class VIII Total Annual Operating Expense Ratio will equal 0.712% annually", but
3) lower expense than either of the international funds being considered at 0.99% and 1.01%.

You are right about other benefits of using separate funds, the ability to have your desired asset allocation and use lower ER funds in your IRA. I think that I see more benefit (in reduced expense ratio) to using some Vanguard Total International Stock Index Fund in the IRA, rather than Vanguard Total Bond Market Index Fund.

All are reputable firms. Both BlackRock and SSgA are very experienced at operating index funds. MFS has some good actively managed funds.

Garp wrote:
Sat Nov 11, 2017 11:56 am
Brokerage
VTSAX: 17K
VTIAX: 14K
Brokerage IRA
VBMFX: 5.5K (that's this year's full contribution, and then I plan to upgrade to VBTLX in January with next years full contribution)
Initial Allocation (w/o 401k): 47% domestic stocks, 38% international stocks & 15% bonds (current 401K allocation is about 85/15 too, but with about 30% international stock)
About how much money us currently in the 401k account?

If I know the sizes of all accounts, then I can suggest an overall portfolio for you to consider.
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Re: Questions on detailed 3ish-fund portfolio plan execution

Post by Garp » Wed Nov 29, 2017 3:05 pm

ruralavalon wrote:
Tue Nov 28, 2017 9:13 am
As I understand it (from the links you gave) in the 401k T. Rowe Price Retirement 2050 R TRRMX with an expense ratio of 0.74% is about the same expense as:
1) State Street S&P 500 Index Securities Lending Series Fund - Class IX "The Class IX Total Annual Operating Expense Ratio will equal 0.703% annually."; and
2) State Street U.S. Bond Index Securities Lending Series Fund - Class VIII "The Class VIII Total Annual Operating Expense Ratio will equal 0.712% annually", but
3) lower expense than either of the international funds being considered at 0.99% and 1.01%.
RRTFX is the default fund I'm in right now which looks like it has 1.24% ER which is my cause of consternation. I just happened to also realize it was a higher expense ratio than TRRMX, which looks to me like the same fund but .5% less ER (.703). I can't find an explination for that, not that I have access to the latter fund anyway. But it helps me dislike RRTFX even more.
ruralavalon wrote:
Tue Nov 28, 2017 9:13 am
All are reputable firms. Both BlackRock and SSgA are very experienced at operating index funds. MFS has some good actively managed funds.
I'm staying away from actively managed based on the shunning in the Boglehead's Guide, which largely read like a treatise on their tendency to underperform categorically. If BlackRock and SSgA offer something tantamount to the indexing I can get from VG I'm going to be doing that probably. I wish I just had VG options, that would make everything way easier.
ruralavalon wrote:
Tue Nov 28, 2017 9:13 am
Garp wrote:
Sat Nov 11, 2017 11:56 am
Brokerage
VTSAX: 17K
VTIAX: 14K
Brokerage IRA
VBMFX: 5.5K (that's this year's full contribution, and then I plan to upgrade to VBTLX in January with next years full contribution)
Initial Allocation (w/o 401k): 47% domestic stocks, 38% international stocks & 15% bonds (current 401K allocation is about 85/15 too, but with about 30% international stock)
About how much money us currently in the 401k account?
If I know the sizes of all accounts, then I can suggest an overall portfolio for you to consider.
7K in the 401k so far (10 targeted for this year, and 18.5 for next), about half and half Roth and Traditional because I'm still having trouble making up my mind on that. I'm curious why you might put a stock fund rather than a bond fund in the IRA, I put the bond fund in there for its comparative tax inefficiency. But I think it's all going to become clear with your suggestion.

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Re: Questions on detailed 3ish-fund portfolio plan execution

Post by ruralavalon » Wed Nov 29, 2017 7:25 pm

Garp wrote:Age: 30
. . . . .
. . . Target Allocation: 45% domestic stocks, 40% international stocks, 15% bonds
At age 30 I suggest about 20 - 25% in bonds. This is expected to substantially reduce volatility (risk), with only a relatively slight decrease in return. Graph, "An Efficient Frontier: the power of diversification". Please see the wiki articles Bogleheads® investment philosophy, part 3 "Never bear too much or too little risk", and "Asset allocation".

I suggest around 20 - 30% of stocks in international stocks. Vanguard paper (March 2012), "Considerations for investing in non-U.S. equities". Historically, allocating 20% of an equity portfolio to non-U.S. stocks would have captured about 84% of the maximum possible diversification benefit, and allocating 30% of an equity portfolio to non-U.S. stocks would have captured about 99% of the maximum possible diversification benefit (p. 6). You can find lots of debate here on international allocation, opinions rangeing all the way from 00% to 50% of stocks in international stocks. If you want more viewpoints on international stocks please try the Google search box (upper right, this page.)

That works out to about 20% bonds; 20% international stocks, and 60% domestic stocks. Asset allocation is a very personal decision. You must decide on an allocation that is comfortable for you based on your own ability, willingness and need to take risk.



Fund selection & placement.
In selecting funds strive for a combination of broad diversification (to reduce risk) and low expense ratios (to increase your net gain). To simply and easily achieve those two goals I suggest choosing funds to simulate the very well diversified, low expense ratio "three-fund portfolio". Wiki article "Three-fund portfolio". Forum discussion, "The Three-Fund Portfolio".

It is often better to treat all accounts together as a single unified portfolio, rather than view each account separately. Select just one or two of the better funds (most diversified + lower expense ratio) in the work-based account (401k, 403b, 457, TSP etc.), where the choices offered are limited. Then complete the rest of the asset allocation using the nearly unlimited or choices available in a taxable account or IRA. This approach lets you avoid having to use sub-par funds often found in work-based accounts like 401ks.


Domestic stocks.
For domestic stocks I suggest using a total stock market index fund where available; otherwise an S&P 500 index fund (like State Street S&P 500 Index in your 401k) is good enough by itself for domestic 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". An S&P 500 index fund covers 81% of the U.S. stock market, and in the 25 years since the creation of the first total stock market fund the performance of the two types of funds has been almost identical. Morningstar “growth of $10k” graph, VFINX vs VTSMX. In the first 10 years the S&P 500 fund did better, in the last 10 years the total market fund did better, and over the 25 years the total market fund gave a little more return (0.11% per year), but at the cost of a little more volatility (risk): nisiprius post, in the forum discussion "Exchanging the S&P 500 for the TSM". See also Allan Roth, CBS Moneywatch, "John C. Bogle on the S&P 500 vs. the Total Stock Market". 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 added little in performance.

If you want to add the State Street Russell Small Cap Index Securities Lending Series Fund - Class VIII, ER 0.962%, then an 85/15 mix of S&P 500 and extended market will approximate the content of a total stock market index fund. Wiki article, "Approximating total stock market". I do not recommend this, because the expense ratio is 0.26% higher than the S&P 500 index fund, which is more than twice the historical benefit seen over 25 years.


International stocks. The international stock funds in the 401k which we discussed have higher expense ratios (0.99-1.01%) and cover only developed markets. I suggest instead using the taxable account to hold all of the international allocation. I suggest investing in Vanguard Total International Stock Index Fund Admiral Shares (VTIAX), which has a much lower expense ratio of 0.11%, and is also more diversified covering both developed and emerging markets.


Bonds. Bonds are not very tax-efficient and are ordinarily better placed in a tax-advantaged account, preferably a tax-deferred account. Wiki article "Tax-efficient fund placement". State Street U.S. Bond Index Securities Lending Series Fund - Class VIII, ER 0.712% in your 401k appears to track the Bloomberg Barclays U.S. Aggregate Bond Index (p.23 of the strategy disclosure document, not easy to find). That's almost identical to the Bloomberg Barclays U.S. Aggregate Float Adjusted Bond Index used by Vanguard Total Bond Market Index Fund Investor Shares (VBMFX) ER 0.15% which you can use in your Roth IRA. I suggest that you use those funds in those accounts.

In the taxable account I suggest using Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04% and Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) ER 0.11%. Both are very tax-efficient. Wiki article "Tax-efficient fund placement". Those funds are also well suited to any type of account. Both are very diversified with very low expense ratios.



Roth vs traditional contributions.
Garp wrote:
Wed Nov 29, 2017 3:05 pm
7K in the 401k so far (10 targeted for this year, and 18.5 for next), about half and half Roth and Traditional because I'm still having trouble making up my mind on that. . . . . .
For most people traditional 401k contributions will probably be better. TFB blog post, "The case against Roth 401k". "I think for most people the majority, if not 100%, of the contribution should go to a Traditional 401(k)."

Ordinarily most people are likely better off making traditional contributions to their work-based plans. A pension changes that analysis, so that Roth contributions are likely better if you have a significant pension coming. TFB blog post, "Most TSP participants should switch to the Roth TSP". That post discussed the effect of a federal pension, but the analysis should hold for other pensions.


Wiki article, "Traditional vs Roth".
"Tax considerations:
* If your current marginal tax rate is 15% or less, prefer a Roth.
* If you expect to have higher marginal rates than your current marginal rate for most of your career, prefer a Roth.
* If you will have a traditional account or a pension large enough to meet your expected retirement expenses (and you expect to take that pension shortly after retiring), prefer a Roth.
* Otherwise, prefer a traditional account."


The $31.5 extra savings to invest
Garp wrote:
ruralavalon wrote: Did you wish to invest some of that $36.5k savings?
All of it save 5k for the emergency fund.
In the example portfolio I have shown that extra $31.5k added to the taxable investing account.

If possible under your 401k plan you might immediately increase your 401k contributions to meet the maximum $18k this year (another $8k more than you had planned), and draw from that $31.5k to pay living expenses that you otherwise have paid out of your paycheck. This has the effect of transferring money from your savings into your 401k account.

Then contribute the reminder of the $31.5k (about $23.5k) to the taxable account.



Example portfolio.
Here is an example portfolio that you could consider. This is a three-fund type portfolio, modified as necessary to accommodate the fund offerings in your 401k. Total current portfolio = $75k. New annual contributions = about $40k/yr, range of $35-45k/yr. The target asset allocation is 20% bonds, 20% international stocks, and 60% domestic stocks. The percentages given are percentages of the total portfolio, not of a given account. The suggestion is to switch both the existing balances and the new contributions to the funds indicated. All percentages and dollar amounts are rounded off, so may not add up exactly. Sometimes I state 00% to indicate funds you might want to add in the future.

Taxable account @ Vanguard , incl. $31.5 from savings (83% of current portfolio; $62.5k; adds $16k/yr, range of $11-21k/yr, = about 40% of new annual contributions)
63%, $47k, Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04%
20%, $15k, Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) ER 0.11%

401k (09% of current portfolio; $7K; adds $18.5/yr = about 46% of new annual contributions)
00%, $00k, State Street S&P 500 Index Securities Lending Series Fund - Class IX, ER 0.702%
09%, $07k, State Street U.S. Bond Index Securities Lending Series Fund - Class VIII, ER 0.712%

Roth IRA @ Vanguard (07% of current portfolio; $5.5k; adds $5.5k/yr = about 14% of new annual contributions)
07%, $5.5k, Vanguard Total Bond Market Index Fund Investor Shares (VBMFX) ER 0.15%


Rebalancing.
Because the funds will grow at different and unpredictable rates, it may be necessary every year or two to rebalance in order to maintain the desired asset allocation. Wiki article, "Rebalancing". You can easily adjust the stock/bond allocation by exchanging between funds inside the 401k or by how you invest new contributions in the 401k. You can adjust the domestic/international stock allocation by how you invest new contributions in the taxable account.

Avoid exchanging between funds in the taxable account, which can create income tax liability.

. . . . .

I suggest that you read one or two books on general investing. Wiki article, "Books: recommendations and reviews". When I first stated managing my own investments, I found this tutorial very helpful in learning investing terminology/jargon and some of the investing basics. Morningstar, "Investing Classroom". Also take a look at the Boglehead’s wiki, the "getting started" link I give below.

If you have any questions just ask.

I hope that this helps.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

MoonOrb
Posts: 925
Joined: Thu Jan 24, 2013 6:58 pm

Re: Questions on detailed 3ish-fund portfolio plan execution

Post by MoonOrb » Wed Nov 29, 2017 7:42 pm

You might want to consider placing bonds in your 401k instead of in a Roth. The argument behind this is that over time, your Roth will grow more with equities than with bonds, so there's a tax advantage when you allocate bond funds to your 401k and equities to your Roth IRA.

It's definitely a bummer about those high expense ratio on your available options, but at least you have index funds. If/when you change jobs you can roll over those 401k funds into an IRA or a new 401k plan, so you may not be stuck with the high ERs forever.

Regarding purchasing stock options, I think that's a reasonable thing to do as long as you're also indexing. I personally would not want to place a huge bet on the company I'm working for, since I don't want to lose my job and my savings all in one blow, but if after maxing out my retirement accounts I have some investing money left over each month, putting some of that into options seems like an okay plan. Like you said, it's how people get rich. If you're devoting only a sliver of your investing to the options you'll obviously limit your upside, but it's more crucial to limit your downside.

Once upon a time we had some stock options: we didn't overload on them and we sold them a few years after getting them; within 3 years that company went under during the financial crisis. Had we made a huge bet on those options, it would have delayed our retirement by several years.

Garp
Posts: 10
Joined: Fri Nov 10, 2017 8:14 pm

Re: Questions on detailed 3ish-fund portfolio plan execution

Post by Garp » Sat Dec 16, 2017 6:07 pm

ruralavalon wrote:
Wed Nov 29, 2017 7:25 pm

Example portfolio.
Here is an example portfolio that you could consider. This is a three-fund type portfolio, modified as necessary to accommodate the fund offerings in your 401k. Total current portfolio = $75k. New annual contributions = about $40k/yr, range of $35-45k/yr. The target asset allocation is 20% bonds, 20% international stocks, and 60% domestic stocks. The percentages given are percentages of the total portfolio, not of a given account. The suggestion is to switch both the existing balances and the new contributions to the funds indicated. All percentages and dollar amounts are rounded off, so may not add up exactly. Sometimes I state 00% to indicate funds you might want to add in the future.

Taxable account @ Vanguard , incl. $31.5 from savings (83% of current portfolio; $62.5k; adds $16k/yr, range of $11-21k/yr, = about 40% of new annual contributions)
63%, $47k, Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04%
20%, $15k, Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) ER 0.11%

401k (09% of current portfolio; $7K; adds $18.5/yr = about 46% of new annual contributions)
00%, $00k, State Street S&P 500 Index Securities Lending Series Fund - Class IX, ER 0.702%
09%, $07k, State Street U.S. Bond Index Securities Lending Series Fund - Class VIII, ER 0.712%

Roth IRA @ Vanguard (07% of current portfolio; $5.5k; adds $5.5k/yr = about 14% of new annual contributions)
07%, $5.5k, Vanguard Total Bond Market Index Fund Investor Shares (VBMFX) ER 0.15%


Rebalancing.
Because the funds will grow at different and unpredictable rates, it may be necessary every year or two to rebalance in order to maintain the desired asset allocation. Wiki article, "Rebalancing". You can easily adjust the stock/bond allocation by exchanging between funds inside the 401k or by how you invest new contributions in the 401k. You can adjust the domestic/international stock allocation by how you invest new contributions in the taxable account.

Avoid exchanging between funds in the taxable account, which can create income tax liability.

. . . . .

I suggest that you read one or two books on general investing. Wiki article, "Books: recommendations and reviews". When I first stated managing my own investments, I found this tutorial very helpful in learning investing terminology/jargon and some of the investing basics. Morningstar, "Investing Classroom". Also take a look at the Boglehead’s wiki, the "getting started" link I give below.

If you have any questions just ask.

I hope that this helps.
I've been studying this for the past several days through the forums while not having access to the computer where my password was saved. I'm back now and just want to say thank you so so much for this!

Garp
Posts: 10
Joined: Fri Nov 10, 2017 8:14 pm

Re: Questions on detailed 3ish-fund portfolio plan execution

Post by Garp » Sat Dec 16, 2017 6:45 pm

ruralavalon wrote:
Wed Nov 29, 2017 7:25 pm
Taxable account @ Vanguard , incl. $31.5 from savings (83% of current portfolio; $62.5k; adds $16k/yr, range of $11-21k/yr, = about 40% of new annual contributions)
63%, $47k, Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04%
20%, $15k, Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) ER 0.11%

401k (09% of current portfolio; $7K; adds $18.5/yr = about 46% of new annual contributions)
00%, $00k, State Street S&P 500 Index Securities Lending Series Fund - Class IX, ER 0.702%
09%, $07k, State Street U.S. Bond Index Securities Lending Series Fund - Class VIII, ER 0.712%

Roth IRA @ Vanguard (07% of current portfolio; $5.5k; adds $5.5k/yr = about 14% of new annual contributions)
07%, $5.5k, Vanguard Total Bond Market Index Fund Investor Shares (VBMFX) ER 0.15%
My one thought here is this. The bond funds are the least tax efficient and are therefore sheltered in the retirement accounts. That part is crystal clear. BUT they are also the safest and would otherwise be the most accessible funds too, right? But in the retirement accounts they loose their accessibility, and I loose access to my safest funds. If a situation were to come up where I needed to tap into a lot of my money in a down market, either in an emergency or in a big-ticket item acquisition situation (a wedding ring, a house, a new car), I have the largest volatility within the funds the same funds which are the only ones I can actually withdraw.

Does that make sense? I could be wrong about that. But I wonder if not how that plays into this type of portfolio acquisition or perhaps into the life strategy that goes into funding this portfolio.

MotoTrojan
Posts: 948
Joined: Wed Feb 01, 2017 8:39 pm

Re: Questions on detailed 3ish-fund portfolio plan execution

Post by MotoTrojan » Sat Dec 16, 2017 10:02 pm

Garp wrote:
Sat Dec 16, 2017 6:45 pm
ruralavalon wrote:
Wed Nov 29, 2017 7:25 pm
Taxable account @ Vanguard , incl. $31.5 from savings (83% of current portfolio; $62.5k; adds $16k/yr, range of $11-21k/yr, = about 40% of new annual contributions)
63%, $47k, Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04%
20%, $15k, Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) ER 0.11%

401k (09% of current portfolio; $7K; adds $18.5/yr = about 46% of new annual contributions)
00%, $00k, State Street S&P 500 Index Securities Lending Series Fund - Class IX, ER 0.702%
09%, $07k, State Street U.S. Bond Index Securities Lending Series Fund - Class VIII, ER 0.712%

Roth IRA @ Vanguard (07% of current portfolio; $5.5k; adds $5.5k/yr = about 14% of new annual contributions)
07%, $5.5k, Vanguard Total Bond Market Index Fund Investor Shares (VBMFX) ER 0.15%
My one thought here is this. The bond funds are the least tax efficient and are therefore sheltered in the retirement accounts. That part is crystal clear. BUT they are also the safest and would otherwise be the most accessible funds too, right? But in the retirement accounts they loose their accessibility, and I loose access to my safest funds. If a situation were to come up where I needed to tap into a lot of my money in a down market, either in an emergency or in a big-ticket item acquisition situation (a wedding ring, a house, a new car), I have the largest volatility within the funds the same funds which are the only ones I can actually withdraw.

Does that make sense? I could be wrong about that. But I wonder if not how that plays into this type of portfolio acquisition or perhaps into the life strategy that goes into funding this portfolio.
You can sell stocks in taxable, and at same time buy them in your 401k while selling bonds in 401k. Net effect is you sold bonds, but you didn’t directly withdraw from 401k.

Watch out for wash sales if you sell stocks at a loss and buy the identical ticker in 401k.

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