Help with 403 b allocations

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
green81
Posts: 4
Joined: Sun Jan 12, 2020 7:46 pm

Help with 403 b allocations

Post by green81 » Sun Jan 12, 2020 9:12 pm

Hello, 

I just got a job where I finally can contribute to a 403b plan. I'm fairly new to this country  and I do not have trusted family members that have done this before me, so I do not know where to go for advice. I feel weird bringing this topic up with friends, so I thought to post here. I do not know much about investing but for the past year or so I have been reading a lot of FIRE blogs specifically Mister Money Mustache and the Mad Fientist.My understanding is that I should max out my 403b choosing the lowest ER. 

Here is my situation : 

My job offers:
1. A regular 403b with TIAA.
2. A non-contributory retirement plan where my employer will put 10% of my salary ( no matter how muchI contribute)  also with TIAA

Me: 
38, single 
Salary 62.5 K
Savings: 40K in a savings account 
Debt: 0 

Available Funds
Discovery Growth Fund Class Z (CHCZXAB) ER 0.66%
American Funds EuroPacific Growth Fund - R6  (RERGX) ER 0.49%
BlackRock High Yield Bond Portfolio K (BRHYX) ER 0.50%
CREF Inflation-Linked Bond Account ER (QCILIX) 0.22%
CREF Money Market Account (R3)(QCMMIX) ER 0.23%
CREF Social Choice Account (R3)(QCSCIX) ER 0.24%
CREF Stock Account (R3) (QCSTIX) ER 0.30%
Delaware Small Cap Value Fund Class R6 (DVZRX) ER 0.72%
JPMorgan Equity Income Fund Class R6 (OIEJX) ER 0.50%
PIMCO Total Return Instl ( PPTRX)ER 0.71%
T. Rowe Price Blue Chip Growth Fund Class I (TBCIX) ER 0.57 %
T. Rowe Price Retirement I 2045 Fund Class (TRPKX) ER 0.60 %
Templeton Global Bond Fund Class R6 (FBNRX) ER 0.67%
TIAA Real Estate Account (QREARX) ER 0.83%
TIAA Stable Value - No info regarding ER fund started on 12/31/2019
TIAA-CREF Quant Small-Cap Equity Fund (Institutional)(TISEX) ER 0.41%
Vanguard Extended Market Index Fund Institutional(VIEIX) ER 0.06%
Vanguard Institutional Index Fund Institutional Plus (VIIIX) ER 0.02%
Vanguard Total Bond Market Index Fund Institutional(VBTIX) ER 0.04%
Vanguard Total International Stock Index Fund Institutional (VTSNX) ER 0.08%
Victory Sycamore Established Value Fund R6( VEVRX) ER 0.89%
Voya Real Estate Fund Class (VREQX) R6 ER 0.89%

Questions: 
1. Would it make sense to put 38% of my allocations in Vanguard Bond fund (VBTIX) 20% in the Vanguard Total International Stock (VTSNX) and the remaining 42% in Vanguard Extended Market Index Fund (VIEIX). 

2. Should I do the same with the allocations in the non-contributory plan? 

I'm very hesitant in making this choice and frankly overwhelmed. I feel I should read/study more before making this decision but I want to take action sooner rather than later. l truly  appreciate any input. 

User avatar
F150HD
Posts: 2557
Joined: Fri Sep 18, 2015 7:49 pm

Re: Help with 403 b allocations

Post by F150HD » Sun Jan 12, 2020 10:09 pm

38.....thirty+ year time horizon?

80% - Vanguard Institutional Index Fund Institutional Plus (VIIIX) ER 0.02%
20% - Vanguard Extended Market Index Fund Institutional(VIEIX) ER 0.06%

80/20 ratio of these two gives you total market (VTSAX)

Bond allocation is your call at 38. Some don't do international, your call.

Vanguard Total Bond Market Index Fund Institutional(VBTIX) ER 0.04%

Compound
Posts: 750
Joined: Mon May 26, 2014 1:32 pm

Re: Help with 403 b allocations

Post by Compound » Sun Jan 12, 2020 10:17 pm

Welcome to the forum.

For question #1, I was surprised you didn’t list VIIIX. That should be a core fund for you.

User avatar
bogglizer
Posts: 271
Joined: Tue Aug 16, 2016 8:56 pm

Re: Help with 403 b allocations

Post by bogglizer » Sun Jan 12, 2020 10:22 pm

F150HD wrote:
Sun Jan 12, 2020 10:09 pm
38.....thirty+ year time horizon?

80% - Vanguard Institutional Index Fund Institutional Plus (VIIIX) ER 0.02%
20% - Vanguard Extended Market Index Fund Institutional(VIEIX) ER 0.06%

80/20 ratio of these two gives you total market (VTSAX)

Bond allocation is your call at 38. Some don't do international, your call.

Vanguard Total Bond Market Index Fund Institutional(VBTIX) ER 0.04%
When I was in a similar situation, I did the above. My ratios were 1/3 VBTIX, 1/3 VTSNX, 4/15 VIIIX, and 1/15 VIEIX.
My intellectual superiority will shortly be demonstrated here by a pithy quotation.

Topic Author
green81
Posts: 4
Joined: Sun Jan 12, 2020 7:46 pm

Re: Help with 403 b allocations

Post by green81 » Sun Jan 12, 2020 10:32 pm

Compound wrote:
Sun Jan 12, 2020 10:17 pm
Welcome to the forum.

For question #1, I was surprised you didn’t list VIIIX. That should be a core fund for you.
Thank you for your reply. The difference between VIIX and VIEIX? I see that VIIX has a lower ER but TIAA lists is as lower performing compared to VIEIX so that is why I went with VIEIX. Are you saying that it would make more sense for me to choose VIIX over VIEIX? And if so could you explain why?

Topic Author
green81
Posts: 4
Joined: Sun Jan 12, 2020 7:46 pm

Re: Help with 403 b allocations

Post by green81 » Sun Jan 12, 2020 10:34 pm

F150HD wrote:
Sun Jan 12, 2020 10:09 pm
38.....thirty+ year time horizon?

80% - Vanguard Institutional Index Fund Institutional Plus (VIIIX) ER 0.02%
20% - Vanguard Extended Market Index Fund Institutional(VIEIX) ER 0.06%

80/20 ratio of these two gives you total market (VTSAX)

Bond allocation is your call at 38. Some don't do international, your call.

Vanguard Total Bond Market Index Fund Institutional(VBTIX) ER 0.04%
Thank you! I appreciate your input.... it is simple and straightforward.... I am assuming that you would use this strategy for both the 403b and the non-contributory plan?

Topic Author
green81
Posts: 4
Joined: Sun Jan 12, 2020 7:46 pm

Re: Help with 403 b allocations

Post by green81 » Sun Jan 12, 2020 10:42 pm

bogglizer wrote:
Sun Jan 12, 2020 10:22 pm
F150HD wrote:
Sun Jan 12, 2020 10:09 pm
38.....thirty+ year time horizon?

80% - Vanguard Institutional Index Fund Institutional Plus (VIIIX) ER 0.02%
20% - Vanguard Extended Market Index Fund Institutional(VIEIX) ER 0.06%

80/20 ratio of these two gives you total market (VTSAX)

Bond allocation is your call at 38. Some don't do international, your call.

Vanguard Total Bond Market Index Fund Institutional(VBTIX) ER 0.04%
When I was in a similar situation, I did the above. My ratios were 1/3 VBTIX, 1/3 VTSNX, 4/15 VIIIX, and 1/15 VIEIX.
Hey Bogglizer.... I don't get what you mean by 4/15 VIIX and 1/15 VIEIX

User avatar
bogglizer
Posts: 271
Joined: Tue Aug 16, 2016 8:56 pm

Re: Help with 403 b allocations

Post by bogglizer » Mon Jan 13, 2020 1:04 am

green81 wrote:
Sun Jan 12, 2020 10:42 pm
bogglizer wrote:
Sun Jan 12, 2020 10:22 pm
When I was in a similar situation, I did the above. My ratios were 1/3 VBTIX, 1/3 VTSNX, 4/15 VIIIX, and 1/15 VIEIX.
Hey Bogglizer.... I don't get what you mean by 4/15 VIIX and 1/15 VIEIX
80% = 4/5. (1/3)*(4/5) = 4/15.
20% = 1/5. (1/3)*(1/5) = 1/15.

You would probably not use 1/3 like I did, so these mathy bits aren't too interesting. I think you had more bonds, and may not want 50/50 USA/INT.
My intellectual superiority will shortly be demonstrated here by a pithy quotation.

User avatar
ruralavalon
Posts: 17076
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Help with 403 b allocations

Post by ruralavalon » Mon Jan 13, 2020 11:14 am

Welcome to the forum :) .

Its good to see that you are debt free and have a savings account. There are some very good funds offered in your 403b plan, you are fortunate.

How much will you contribute annually to your 403b account? When just staring out establishing a good rate of contributions is the most important investing decision you can make.

green81 wrote:
Sun Jan 12, 2020 9:12 pm
Questions:
1. Would it make sense to put 38% of my allocations in Vanguard Bond fund (VBTIX) 20% in the Vanguard Total International Stock (VTSNX) and the remaining 42% in Vanguard Extended Market Index Fund (VIEIX).

2. Should I do the same with the allocations in the non-contributory plan?

I'm very hesitant in making this choice and frankly overwhelmed. I feel I should read/study more before making this decision but I want to take action sooner rather than later. l truly appreciate any input.
Asset allocation.
At age 38 I suggest about 20% in bonds or other fixed income investments (like CDs, savings accounts, money market fund). This is expected to substantially reduce portfolio volatility (risk), with only a relatively modest decrease in portfolio return. Graph, "An Efficient Frontier: the power of diversification". Please see:
1) Wiki article Bogleheads® investment philosophy, part 3 "Never bear too much or too little risk";
2) Wiki article, "Asset allocation"; and
3) Morningstar (8/20/2019), "The Best Diversifiers for Your Equity Portfolio".

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 ranging 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.
In selecting funds strive for a combination of both broad diversification (to reduce risk) and low expense ratios (to increase your net return). To simply and easily achieve those two goals I suggest choosing funds to simulate the very well diversified, low expense ratio "three-fund portfolio". Please see:
1) Wiki article "Three-fund portfolio";
2) Forum discussion, "The Three-Fund Portfolio"; and
3) Taylor Larimore post, "Articles recommending the three-fund portfolio".


In your 403b my suggestions for funds to use are:
1) 60%, Vanguard Institutional Index Fund Institutional Plus (S&P 500 index fund, 82% of U.S. stock market) (VIIIX) ER 0.02%;
2) 20%, Vanguard Total International Stock Index Fund Institutional (VTSNX) ER 0.08%; and
3) 20%, Vanguard Total Bond Market Index Fund Institutional(VBTIX) ER 0.04%.

For domestic stocks I suggest using a total stock market index fund where available. "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".

In my opinion in a plan that lacks a total stock market index fund, a S&P 500 index fund (such as Vanguard Institutional Index Fund Institutional Plus in your 403b) is good enough by itself for a domestic stock allocation. A S&P 500 index fund covers 82% of the U.S. stock market, investing in stocks of selected large-cap and mid-cap U.S. companies. In the 28 years since the creation of the first total stock market index fund the performance (total return with dividends reinvested) of the two types of funds has been almost identical. Morningstar, "growth of $10k" graph (1992 – 2020), VTSAX vs VFIAX. 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 made little difference in performance.

See also:
1) Allan Roth, CBS Moneywatch (02/03/2010), "John C. Bogle on the S&P 500 vs. the Total Stock Market"; and
2) Wall Street Physician (01/17/2019), "Should You Invest in the S&P 500 or the Total Stock Market?".

If you want to add the extended market fund, then an 82/18 mix of the S&P 500 and extended market funds will approximate the content of a total stock market index fund. Wiki article, "Approximating total stock market". In my opinion this is not necessary, it is optional if you prefer to do this.

. . . . .

I suggest that you read one or two books on 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. A quick education for a beginning investor is Dr. Bernstein's free short on-line book, "If You Can".

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

Compound
Posts: 750
Joined: Mon May 26, 2014 1:32 pm

Re: Help with 403 b allocations

Post by Compound » Wed Jan 15, 2020 8:49 pm

green81 wrote:
Sun Jan 12, 2020 10:32 pm
Compound wrote:
Sun Jan 12, 2020 10:17 pm
Welcome to the forum.

For question #1, I was surprised you didn’t list VIIIX. That should be a core fund for you.
Thank you for your reply. The difference between VIIX and VIEIX? I see that VIIX has a lower ER but TIAA lists is as lower performing compared to VIEIX so that is why I went with VIEIX. Are you saying that it would make more sense for me to choose VIIX over VIEIX? And if so could you explain why?
VIIIX is an index fund that tracks the S&P500 index. VIEIX is a completion fund. In essence VIEIX tracks the stocks not in the S&P500 index. Another way to think about this is if you buy VIIIX and VIEIX in the appropriate ratio (80% the former), then you approximate a total stock market fund.

You should ignore the prior performance when determining which funds to buy. There is so much fluctauation from year to year in performance, that performance over the short term is highly unreliable as a predictor of future performance. It’s far more important to focus on cost (you have great choices available to you by that parameter) and that the fund you’re buying owns the types of stocks you want to buy. You will find that many Bogleheads believe in owning funds that have a broad diversity of stocks and ideally those stock holdings comprise the total stock market.

Ferdinand2014
Posts: 999
Joined: Mon Dec 17, 2018 6:49 pm

Re: Help with 403 b allocations

Post by Ferdinand2014 » Wed Jan 15, 2020 8:57 pm

If it were me, I would put 100% VIIIX into my 403b for the rest of my working career and enough cash in my savings for 6 months of expenses.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

Post Reply