Portfolio review- 40, with 457(b) plan

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Topic Author
M633
Posts: 2
Joined: Thu Nov 07, 2019 8:08 am

Portfolio review- 40, with 457(b) plan

Post by M633 » Thu Nov 07, 2019 8:40 am

Greetings! First time poster. I work for a local government so my retirement account is a 457b plan. Unfortunately I didn’t get serious about investing until a few years ago. And when I did start, I paid high fees for advised asset management before deciding to DIY. Initially I picked my funds and allocations like a kid in a candy shop. Now that I’m starting to read and learn, it’s time for a comprehensive portfolio review.
Thanks in advance for your input! This site is a fantastic resource and I welcome any and all suggestions.

Emergency fund: Yes, close to 6 months’ expenses
Debt: just the mortgage: $150k @ 3.0%. 10 yrs left on 15 yr note.
Tax Filing Status: MJF
Tax Rate: 22% Federal, 9.3% State
State of Residence: CA
Age: H:40, W:33
Desired Asset allocation: 90% equities / 10% bonds (?- open to change-see below)
Desired International allocation: 30% of equities (? open to change)
current total portfolio: low six-figures

Current retirement assets
(Current balance / Future allocation / Fund / expense ratio)
His Roth 457b (includes his rolled-over IRA)
29% / 46% Vanguard 500 Index Admiral (VFIAX) .04
19% / 0% Vanguard Growth Index – Admiral (VIGAX) .05
15% / 11% Vanguard Mid Cap Index Admiral (VIMAX) .05
13% / 6% Vanguard Small Cap Index Admiral (VSMAX) .05
13% / 20% Vanguard Developed Markets Index Admiral (VTMGX) .07
7% / 7% Vanguard Emerging Mkts Stock Idx Admiral (VEMAX) .14
2% / 10% Vanguard Short Term Bond Index Admiral (VBIRX) .07
*Trying to mimic a 3-fund portfolio with 90/10 stocks/bonds and 70/30 US/Int’l
** I haven’t rebalanced yet because I’ve been unsure about allocation and afraid to mess something up!

Her HSA (only had qualifying HDHP for 1 yr- no longer eligible to contribute)
2% / 0% Vanguard Total Bond Market Idx Instlpls (VBMPX) .03

Annual Contributions
$10k pretax to his pension (mandatory, no control)
$11.5k after-tax to his Roth 457b
$1750 employer pre-tax to his 457b
$0 to her HSA (no longer have qualifying HDHP)

(Also $4800 to 529 accounts. $100/mo per kid x 4 kids, in Utah (Vanguard) plan- Age-Based Aggressive Global option. Not included above because not for retirement)

Note: Spouse works part time, but only to cover kids’ private school tuition. (I recognize this is going to seriously hamper the goal of FI, but it’s a faith/family values life choice we’ve committed to).

Available funds
Funds available in his 457b
American Funds 2015 Trgt Date Retire R6 (RFJTX) 0.33
American Funds 2025 Trgt Date Retire R6 ( RFDTX) 0.36
American Funds 2035 Trgt Date Retire R6 (RFFTX) 0.39
American Funds 2045 Trgt Date Retire R6 (RFHTX) 0.40
American Funds 2055 Trgt Date Retire R6 (RFKTX) 0.42

American Funds EuroPacific Gr R6 (RERGX) 0.49
American Funds New Perspective R6 (RNPGX) 0.45
Vanguard Emerging Mkts Stock Idx Adm (VEMAX) 0.14
Vanguard Developed Markets Index Adm (VTMGX) 0.07

Nuveen Small Cap Value R6 (FSCWX) 0.78
T. Rowe Price QM US Small-Cap Growth Eq (PRDSX) 0.80
Vanguard Small Cap Index Adm (VSMAX) 0.05

American Century Mid Cap Value R6 (AMDVX) 0.63
Baron Growth Instl (BGRIX) 1.03
T. Rowe Price Diversified Mid Cap Growth (PRDMX) 0.83
Vanguard Mid Cap Index Admiral (VIMAX) 0.05

American Funds Fundamental Investors R6 (RFNGX) 0.30
American Funds Growth Fund of Amer R6 (RGAGX) 0.33
American Funds American Mutual R6 (RMFGX) 0.30
Vanguard 500 Index Admiral (VFIAX) 0.04
Vanguard FTSE Social Index Admiral (VFTAX) 0.14
Vanguard Growth Index – Admiral (VIGAX) 0.05

Janus Henderson Balanced I (JBALX) 0.64
PIMCO Total Return Instl (PTTRX) 0.71
Vanguard Short Term Bond Index Admiral (VBIRX) 0.07

Funds available in her HSA
Vanguard Emerging Mkts Stock Idx I (VEMIX) .11
Vanguard Extended Market Idx Instlplus (VEMPX) .05
Vanguard Growth Index I (VIGIX) .04
Vanguard Inflation-Protected Secs I (VIPIX) .07
Vanguard Institutional Index Instl Pl (VIIIX) .02
Vanguard Materials Index Adm (VMIAX) .10
Vanguard Reit Index I (VGSNX) .10
Vanguard Small Cap Index Adm (VSMAX) .05
Vanguard Total Bond Market Idx Instlpls (VBMPX) .03
Vanguard Total Intl Stock Idx Instlpls (VTPSX) .07
Vanguard Wellesley Income Admiral (VWIAX) .15
Vanguard Target Retirement 2020 Inv (VTWNX) .13
Vanguard Target Retirement 2030 Inv (VTHRX) .14
Vanguard Target Retirement 2040 Inv (VFORX) .15
Vanguard Target Retirement 2050 Inv (VFIFX) .15
Vanguard Target Retirement 2060 Inv (VTTSX) .15
Vanguard Target Retirement Income Inv (VTINX) .13
Vanguard Mid-Cap Value Index Adm (VMVAX) .07
Vanguard Short-Term Bond Index Adm (VBIRX) .07
Vanguard Shrt-Term Infl-Prot Sec Idx Adm (VTAPX) .06
Vanguard Small-Cap Value Index Adm (VSIAX) .07
Vanguard Total Intl Bd Idx Admiral (VTABX) .11
Vanguard Value Index Adm (VVIAX) .05

Questions
1. 457b or IRA? The $1750 employer match in the 457b is at a 1:4 ratio, so I have to contribute $7k to max the match. But beyond that, I’m thinking I should switch contributions over to a brokerage account for more/better fund choices and lower fees. It’s not a matter of needing to create new tax-deferred space because I’m not hitting the $19k contribution limit in the 457 plan. It’s more about saving fees: as far as I can tell I’m paying about 28 basis points in administrative fees in the 457 plan (above and beyond the fund expense ratios). Probably should have done this long ago but of course I didn’t know what I was paying and I’m also having a tough time deciding whether to go with Vanguard or Fidelity (endless debates on this forum :happy. About 30% of the 457 is a rollover IRA so I should be able to roll that over again along with new contributions. Is this reasoning sound, or would anyone advise just sticking with the 457 plan to keep things simple? One other consideration is that under the rules of the 457 plan as I understand them, the funds would be available to me prior to age 59.5 if I were to separate from service and want to retire early, unlike an IRA. But with tuition and weddings for 4 kids, I don’t anticipate that happening.

2. Roth or pre-tax? Within the 457 plan I have the option of contributing before or after-tax dollars. I’ve been using the Roth option. Is that wise given my situation? My thinking is- if my prospective pension pans out, it is structured to replace most of my income and when combined with SS (which we’re both paying into), we are likely to be in a higher tax bracket at retirement than now (also thinking that having 4 child tax credits right now means lower effective tax rate). Also, I don’t want to have RMDs (see below).

3. Asset allocation. Is 90/10 split reasonable given the fact that the pension sort of functions as a bond equivalent? Time horizon is 20+ years- actually my hope is that pension +SS would cover retirement expenses, so the 457 account would be a legacy fund for heirs. To be honest I’m inclined to just be 100% equities.

4. How to approximate Total US and Total International using my funds? I don’t have total US or total int’l fund options within the 457, so I’m trying to recreate them using the funds available to me. The wiki pages on this were a little unclear to me. Would this be the closest I can get using my funds?
a. Total US = 76% VFIAX, 18% VIMAX, and 6% VSMAX
*If I want to simplify this to two funds, which of the latter two should I eliminate? And then would 82/18 be about right?
b. Total Int’l market = 78% VTMGX (developed) and 22% VEMAX (emerging)

5. Orphaned large cap growth fund (VIGAX, .05%ER). I contributed to this for a few years after being enamored with the historical performance numbers. I’ve since changed my future contributions to the 500 index only, but what to do with the money now stranded in the growth index fund? Should I lump sum over to VFIAX or rebalance via dollar cost average over 6 or 12 months? For getting funds into the market, I understand that lump sum is better 2/3 of the time, but wasn’t sure if that remains true when the funds are already in the market and just transferring from one fund to another within a tax-advantaged account. These two funds have a lot of overlap, so as long as the transfer goes through on the same day, I should avoid a big loss regardless of whether the markets happen to be up or down that day, right?

Again, thanks in advance for any insight/suggestions!

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Duckie
Posts: 6867
Joined: Thu Mar 08, 2007 2:55 pm
Location: California Bay Area

Re: Portfolio review- 40, with 457(b) plan

Post by Duckie » Thu Nov 07, 2019 8:05 pm

M633, welcome to the forum.
M633 wrote:Desired Asset allocation: 90% equities / 10% bonds (?- open to change-see below)
Desired International allocation: 30% of equities (? open to change)
That breaks down to 63% US stocks, 27% international stocks, and 10% bonds. 10% bonds is really low for your ages.
His Roth 457b (includes his rolled-over IRA)
How much is Roth (employee contributions) and how much pre-tax (rollover & employer contributions)?
Spouse works part time, but only to cover kids’ private school tuition.
Working part time is she covered by an employer retirement plan?
Funds available in his 457b
The best options are:
  • Vanguard 500 Index (VFIAX) 0.04
  • Vanguard Mid Cap Index (VIMAX) 0.05
  • Vanguard Small Cap Index (VSMAX) 0.05
  • Vanguard Developed Markets Index (VTMGX) 0.07
  • Vanguard Emerging Markets Stock Index (VEMAX) 0.14
  • Vanguard Short Term Bond Index (VBIRX) 0.07
Funds available in her HSA
The best options are:
  • Vanguard Institutional Index (VIIIX) .02 -- Large caps, 80% of US stocks
  • Vanguard Extended Market Index(VEMPX) .05 -- Mid/small caps, 20% of US stocks
  • Vanguard Total International Stock Index (VTPSX) .07 -- Complete international stocks
  • Vanguard Total Bond Market Index (VBMPX) .03 -- US bonds
457b or IRA? The $1750 employer match in the 457b is at a 1:4 ratio, so I have to contribute $7k to max the match. But beyond that, I’m thinking I should switch contributions over to a brokerage account for more/better fund choices and lower fees.
You have decent funds and low costs in the 457b plan even with the extra 0.28% administrative fees. Can you put fund A in the Roth and fund B in the pre-tax sub-account or do they have to mirror each other? Do you plan to open IRAs for you and your wife?
About 30% of the 457 is a rollover IRA so I should be able to roll that over again along with new contributions. Is this reasoning sound, or would anyone advise just sticking with the 457 plan to keep things simple?
If you rolled the rollover portion out to a Traditional IRA you could hold a better bond fund. Either VBTLX at Vanguard or FXNAX at Fidelity would be more complete options.
Asset allocation. Is 90/10 split reasonable given the fact that the pension sort of functions as a bond equivalent? Time horizon is 20+ years- actually my hope is that pension +SS would cover retirement expenses, so the 457 account would be a legacy fund for heirs. To be honest I’m inclined to just be 100% equities.
The pension is a future income stream. Right now you have no control over it and may not even know what it is comprised of. Although it is an asset it should not be part of your portfolio for figuring your AA and rebalancing (because you can't).

Given that, at your ages I recommend at least 25% bonds if not 30%.
How to approximate Total US and Total International using my funds? I don’t have total US or total int’l fund options within the 457, so I’m trying to recreate them using the funds available to me. The wiki pages on this were a little unclear to me. Would this be the closest I can get using my funds?
a. Total US = 76% VFIAX, 18% VIMAX, and 6% VSMAX
*If I want to simplify this to two funds, which of the latter two should I eliminate? And then would 82/18 be about right?
I would skip mid caps and make the ratio 82% VFIAX and 18% VSMAX. You could even skip VSMAX and make it 100% VFIAX if you want.
b. Total Int’l market = 78% VTMGX (developed) and 22% VEMAX (emerging)
That will work.
Orphaned large cap growth fund (VIGAX, .05%ER). I contributed to this for a few years after being enamored with the historical performance numbers. I’ve since changed my future contributions to the 500 index only, but what to do with the money now stranded in the growth index fund? Should I lump sum over to VFIAX or rebalance via dollar cost average over 6 or 12 months?
Since this is the 457b plan just exchange it all now into the 500 Index.

Topic Author
M633
Posts: 2
Joined: Thu Nov 07, 2019 8:08 am

Re: Portfolio review- 40, with 457(b) plan

Post by M633 » Sat Nov 09, 2019 2:33 am

Thanks for the response. I think I figured out how to use the "quote" feature to give answers in context, below:
Duckie wrote:
Thu Nov 07, 2019 8:05 pm
How much is Roth (employee contributions) and how much pre-tax (rollover & employer contributions)?
About 70% are my (Roth) contributions and the other 30% is mostly my (pre-tax) rollover (the employer contributions only started relatively recently).
Duckie wrote:
Thu Nov 07, 2019 8:05 pm
Working part time is she covered by an employer retirement plan?
Spouse is technically "per diem" so I think the answer is no. She actually had about $6k in employer contributions that apparently weren't vested quite yet and disappeared when we had kids and she switched to per diem status. :annoyed
Duckie wrote:
Thu Nov 07, 2019 8:05 pm
You have decent funds and low costs in the 457b plan even with the extra 0.28% administrative fees. Can you put fund A in the Roth and fund B in the pre-tax sub-account or do they have to mirror each other? Do you plan to open IRAs for you and your wife?
They have to mirror each other. Starting IRAs for DW and I is what I'm currently considering. More flexibility, more options, cheaper, but also introduces more complexity for a newb like me.
Duckie wrote:
Thu Nov 07, 2019 8:05 pm
If you rolled the rollover portion out to a Traditional IRA you could hold a better bond fund. Either VBTLX at Vanguard or FXNAX at Fidelity would be more complete options.
Makes sense. I'm with ya there.

Any thoughts on Roth vs pretax for my situation? That's the other big decision I've been contemplating. Thanks!

Compound
Posts: 713
Joined: Mon May 26, 2014 1:32 pm

Re: Portfolio review- 40, with 457(b) plan

Post by Compound » Sat Nov 09, 2019 9:55 am

1. I think your reasoning is sound. I’d go with 457b to the full match, then IRA, then back to 457b if there is extra money.
2. Roth versus traditional is more or less a toss up in my mind. If you foresee higher tax rates in your future go with Roth. If there may be a period of lower tax rates in the future, you may want to contribute as traditional and plan for a Roth rollover.
3. I think 90/10 is fine in your situation. It’s a bit aggressive for me, but everyone’s different.
4. I’m not sure of the exact numbers, but this question is splitting hairs. I’d probably go 80/20, VFIAX/VTSAX and call it a day.
5. Lump sum it and move on.

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