401k - time to make changes?

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Topic Author
slalom
Posts: 79
Joined: Mon Dec 25, 2017 4:59 am

401k - time to make changes?

Post by slalom » Tue Jan 14, 2020 1:53 pm

Hi there - another portfolio thread. I'm afraid I'm not going to fill out the giant recommended template in the sticky but this should be enough:

Age: 40
Expected Retirement: ~65-70?
State: CA
No debt outside mortgage (which will be paid off in 2025)
I max out 401k every year now - didn't start contributing to one until age 26

Current balance: $328,651 (Fidelity)

Current funds allocation:

FID SEL TECHNOLOGY (FSPTX) 33.50%
FID FDM IDX 2045 IPR (FFOLX) 31.37%
VANGUARD INST INDEX (VINIX) 4.98%
AF AMCAP R6 (RAFGX) 3.13%
TRP SM CAP STOCK I (OTIIX) 3.02%
VANG SM CAP IDX INST (VSCIX) 2.70%
DELAWARE VALUE INST (DDVIX) 2.67%
VAN REAL EST IDX ADM (VGSLX) 2.61%
JPM MIDCAP VALUE L (FLMVX) 2.57%
GS SM CAP VALUE INST (GSSIX) 2.48%
I O DEVELOP MKT R6 (ODVIX) 2.43%
VANG TOT INTL STK AD (VTIAX) 2.24%
LAZARD INTL EQ INST (LZIEX) 2.08%
PIM TOTAL RT INST (PTTRX) 1.44%
VANG TOT BD MKT ADM (VBTLX) 1.43%
WF STABLE FUND C 1.35%

[contribution % are not too much different than that]

I cannot remember at all how I ended up with this allocation. I think I spread things out roughly at some point and never changed it. So it's a combination of large cap, small cap, international, and bonds, but a giant amount in a tech fund (which is up 51% year over year or something, but ...)

Wondering if I should simplify and go lower fee.. there is no VTSAX available. I'm actually invested in every single fund other than the target date ones that aren't my own. I should probably move that out to the 2050 fund too.

Just wanting any feedback..

Thanks!

niceguy7376
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Location: Metro ATL

Re: 401k - time to make changes?

Post by niceguy7376 » Tue Jan 14, 2020 1:58 pm

Is 401k the only account that you contribute to?
No Roth/Trad IRA or Brokerage/after-tax account?
I see a VG Tot Bond (VBTLX) and VG Tot Intl Stock (VTIAX).
For a total stock for US, VG Inst Index / VG SmallCAp / JPM Mid Cap might all work in some %. I am not an expert on this and hope others will chime in.

What you currently have is too many.

sycamore
Posts: 137
Joined: Tue May 08, 2018 12:06 pm

Re: 401k - time to make changes?

Post by sycamore » Tue Jan 14, 2020 2:18 pm

Do have a strong preference and belief that tilting to one sector is still a good idea? If so, figure out what that tilt should be (whether to technology stocks, or value stocks, or whatever).

Otherwise (and this is my suggestion) I think you should consolidate what you have into something resembling the Three-fund portfolio.

You'll want to figure out your Asset Allocation. It needs to be something you personally are comfortable with. You previously picked FFOLX which is roughly 90/10 stocks/bonds. Does 90/10 still sound right for your Ability, willingness, and need to take risk?

Say you end up with 80/20. You could go with:
US stocks 60%, with VINIX (large cap) at 56% and VSCIX (small cap) at 14%
Intl stocks 20%, using VTIAX
Bonds at 20%, using VBTLX.

Topic Author
slalom
Posts: 79
Joined: Mon Dec 25, 2017 4:59 am

Re: 401k - time to make changes?

Post by slalom » Sat Jan 18, 2020 6:42 am

niceguy7376 wrote:
Tue Jan 14, 2020 1:58 pm
Is 401k the only account that you contribute to?
No Roth/Trad IRA or Brokerage/after-tax account?
I see a VG Tot Bond (VBTLX) and VG Tot Intl Stock (VTIAX).
For a total stock for US, VG Inst Index / VG SmallCAp / JPM Mid Cap might all work in some %. I am not an expert on this and hope others will chime in.

What you currently have is too many.
Yes additionally I have a Vanguard account with two prongs - Roth IRA from backdoor contributions, in VTSAX and VBTLX and a taxable account in VTSAX.

Topic Author
slalom
Posts: 79
Joined: Mon Dec 25, 2017 4:59 am

Re: 401k - time to make changes?

Post by slalom » Sat Jan 18, 2020 6:44 am

sycamore wrote:
Tue Jan 14, 2020 2:18 pm
Do have a strong preference and belief that tilting to one sector is still a good idea? If so, figure out what that tilt should be (whether to technology stocks, or value stocks, or whatever).

Otherwise (and this is my suggestion) I think you should consolidate what you have into something resembling the Three-fund portfolio.

You'll want to figure out your Asset Allocation. It needs to be something you personally are comfortable with. You previously picked FFOLX which is roughly 90/10 stocks/bonds. Does 90/10 still sound right for your Ability, willingness, and need to take risk?

Say you end up with 80/20. You could go with:
US stocks 60%, with VINIX (large cap) at 56% and VSCIX (small cap) at 14%
Intl stocks 20%, using VTIAX
Bonds at 20%, using VBTLX.
I do have a strong preference and belief that technology as a sector has a strong future but I think it's TOO tilted (and I don't remember why which is disturbing).

I like your recommendation there. I think the target date funds get automatically shifted to less risky over time?

For the others maybe I should consolidate into those 4 vanguard funds for lower fees since they all cover similar ground to the non vanguard ones.

retiredjg
Posts: 39038
Joined: Thu Jan 10, 2008 12:56 pm

Re: 401k - time to make changes?

Post by retiredjg » Sat Jan 18, 2020 7:20 am

401k - time to make changes?
Yes. :happy

You could improve both the costs and the unnecessary complexity if you want.

snailderby
Posts: 694
Joined: Thu Jul 26, 2018 11:30 am

Re: 401k - time to make changes?

Post by snailderby » Sat Jan 18, 2020 8:04 am

Owning a target date fund AND a three fund portfolio would be redundant. You could either use a target date fund in all of your accounts (see viewtopic.php?t=287967) or implement a three fund portfolio across all of your accounts (see viewtopic.php?t=88005), using VTSAX and VTIAX in your Roth IRA and taxable account and VINIX, VTIAX, and VBTLX in your 401(k).

Both approaches would lower your fees, reduce complexity, and improve diversification.

N.Y.Cab
Posts: 20
Joined: Wed Feb 07, 2018 8:46 pm

Re: 401k - time to make changes?

Post by N.Y.Cab » Sat Jan 18, 2020 8:32 am

Having so many positions is closet indexing at a higher average cost. As a rule, anything less than 5% won’t make a meaningful impact to a portfolio and should be eliminated and consolidated.

retiringwhen
Posts: 1512
Joined: Sat Jul 08, 2017 10:09 am
Location: New Jersey, USA

Re: 401k - time to make changes?

Post by retiringwhen » Sat Jan 18, 2020 8:48 am

As stated above, the Fidelity Freedom Index Funds (Target Date) are very good funds. If you want to simplify, just put it all there and walk away. If you want to still tilt toward FSPTX, you can, but I take the LONG view and tilting on sectors requires attention and possible market timing (there will be a day when Tech is not the winning sector).

Unless you have a large taxable account or something like that where tax efficient place is a concern, make life simple with the target date funds.

If you want more hands on just go with the VINIX/VSCIX 80/20 for US stocks, VTIAX and VBTLX in the mix you desire. You will have to rebalance occasionally though.

My advice to almost all of my family is take the TDF and stop worrying
Last edited by retiringwhen on Sat Jan 18, 2020 12:44 pm, edited 2 times in total.

retired@50
Posts: 1062
Joined: Tue Oct 01, 2019 2:36 pm

Re: 401k - time to make changes?

Post by retired@50 » Sat Jan 18, 2020 10:51 am

I agree that it's time to make some changes.

You're using too many funds, and many of them are too expensive from an expense ratio perspective.

I hope this isn't the case, but it appears like you're laying bets on a roulette wheel. Spreading around your money on every fund in the plan, hoping that one of them "pops" for a huge gain. This isn't smart. In the long run, you'll just overpay on expense ratios and take longer to achieve your goals.

Like the other posters, I'd urge you to either go all-in on the target date fund, or use the Vanguard funds in your plan to approximate the total market approach.

Regards,
Boggle - a game from Parker Brothers. Bogle - investor, founder of Vanguard.

retiringwhen
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Location: New Jersey, USA

Re: 401k - time to make changes?

Post by retiringwhen » Sat Jan 18, 2020 12:57 pm

For two decades, my retirement portfolio followed a nearly market cap distribution of funds in an 85 Stocks / 15 bond w/ around 15% International and a slight small/value tilt (<5%). It was split about 60/40 between index and active funds. This was the core of Jack Bogle's advice from his first book "Bogle on Mutual Funds".

I simplified to 99.9% passive in very close to three funds in 2018, only dealing with missing holes in 401K and some tax advantage placement opportunities.

At the time, I did a 10 year history comparison of my portfolio against Vanguard LifeStrategy Growth, and all the work I did to rebalance 12 funds a couple times a years at a slightly higher risk ratio got me 9.5% annual return vs. 10.2% for LifeStrategy Growth. It was a wakeup call, that buy and hold and let some else just do the rebalancing can surely do very well.

averagedude
Posts: 853
Joined: Sun May 13, 2018 3:41 pm

Re: 401k - time to make changes?

Post by averagedude » Sat Jan 18, 2020 2:38 pm

This is a complicated mess, but there is a possibility that this portfolio has had a decent rate of return over the years. If so it is because you are heavily tilted to technology stocks, and they have been the top performing sector fund over the last 10 years. I would encourage you to develop a strategy, instead of investing in a hodge-podge of higher risk and high expense funds. Here are some things to think about.
1. Your Roth account should be 100% in stocks. Get rid of the bond fund in there. Your taxable account looks good.
2. Determine your asset allocation and put all of your bond holdings in your 401k. Use VBTLX. Look at all of your accounts holistically to determine how much to put in this bond fund.
3. Determine your Domestic/International allocation. Right now you have 20% in your 401k and none in your Roth and taxable account. You could very well have less than 10% Internationally. I would recommend 30% for you. Use VTIAX for your International holding. Use VINIX for your domestic holding.
4. Determine how much you want to tilt to small caps, if at all. I would recommend that you do so and I would use VSCIX to accomplish this.
5. Determine if you want to continue to tilt to tech stocks. It's had a good run and now might be time to cash in. If you do tilt, I would use FSPTX, but don't put 33% in this fund like you do now.
Like I said you should look at all of your accounts holistically. This is what a sample portfolio would look like if you wanted a 80/20 AA, 70/30 domestic/international, and a tilt to small caps and technology, and also assuming you had just a couple of bucks in your Roth and taxable accounts.
VINIX Vanguard Institution index 25%
VSCIX Vanguard small cap index 15%
FSPTX Fidelity select technology 10%
VTIAX Vanguard total international 30%
VBTLX Vanguard total bond index 20%
Another option would be to just invest in the target date fund. This would be a great choice and would end the complexity.

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ruralavalon
Posts: 17140
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: 401k - time to make changes?

Post by ruralavalon » Sat Jan 18, 2020 2:59 pm

it is good to see that you are making maximum annual contributions to your 401k account. Consider also contributing to an IRA if eligible. Establishing a high rate of contributions is the most important investing decision you can make.


slalom wrote:
Tue Jan 14, 2020 1:53 pm
Hi there - another portfolio thread. I'm afraid I'm not going to fill out the giant recommended template in the sticky but this should be enough:

Age: 40
Expected Retirement: ~65-70?
State: CA
No debt outside mortgage (which will be paid off in 2025)
I max out 401k every year now - didn't start contributing to one until age 26

Current balance: $328,651 (Fidelity)

Current funds allocation:

FID SEL TECHNOLOGY (FSPTX) 33.50%
FID FDM IDX 2045 IPR (FFOLX) 31.37%
VANGUARD INST INDEX (VINIX) 4.98%
AF AMCAP R6 (RAFGX) 3.13%
TRP SM CAP STOCK I (OTIIX) 3.02%
VANG SM CAP IDX INST (VSCIX) 2.70%
DELAWARE VALUE INST (DDVIX) 2.67%
VAN REAL EST IDX ADM (VGSLX) 2.61%
JPM MIDCAP VALUE L (FLMVX) 2.57%
GS SM CAP VALUE INST (GSSIX) 2.48%
I O DEVELOP MKT R6 (ODVIX) 2.43%
VANG TOT INTL STK AD (VTIAX) 2.24%
LAZARD INTL EQ INST (LZIEX) 2.08%
PIM TOTAL RT INST (PTTRX) 1.44%
VANG TOT BD MKT ADM (VBTLX) 1.43%
WF STABLE FUND C 1.35%

[contribution % are not too much different than that]

I cannot remember at all how I ended up with this allocation. I think I spread things out roughly at some point and never changed it. So it's a combination of large cap, small cap, international, and bonds, but a giant amount in a tech fund (which is up 51% year over year or something, but ...)

Wondering if I should simplify and go lower fee.. there is no VTSAX available. I'm actually invested in every single fund other than the target date ones that aren't my own. I should probably move that out to the 2050 fund too.

Just wanting any feedback..

Thanks!
Asset allocation.
At age 40, expected retirement at about 65-70, no debt except mortgage note, I suggest about 25-30% 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).

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".

Is the 401k your only account? Are you married, and if so does your spouse have any accounts? It is often better to coordinate investments among all accounts, in other words treat all accounts together as a single unified portfolio, rather than view each account separately.

You could simplify to just three funds like this:
1) 55%, Vanguard Institutional Index Fund Institutional (S&P 500 index fund, 82% of U.S. stock market) (VINIX) ER 0.02%;
2) 20%, Vanguard Total International Stock Index Fund (VTIAX) ER 0.11%; and
3) 25%, Vanguard Total Bond Market Index Fund (VBTLX) ER 0.05%.

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, VINIX, in your 401k plan) 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 small-cap index fund, then an 82/18 mix of the S&P 500 and small-cap index 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.




Education.
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.
Last edited by ruralavalon on Sat Jan 18, 2020 3:07 pm, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

chevca
Posts: 3060
Joined: Wed Jul 26, 2017 11:22 am

Re: 401k - time to make changes?

Post by chevca » Sat Jan 18, 2020 3:06 pm

slalom wrote:
Tue Jan 14, 2020 1:53 pm
Wondering if I should simplify and go lower fee..
Yes, too much overlap and unnecessary complexity as is.

Pick the target date fund alone, or use the vanguard index funds if you want to run your own show.

Topic Author
slalom
Posts: 79
Joined: Mon Dec 25, 2017 4:59 am

Re: 401k - time to make changes?

Post by slalom » Sat Jan 18, 2020 7:39 pm

Thank you very much for all the advice and especially ruralavalon for the eye popping reply!

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