Create a 3 fund portfolio with these investments?

[Gnick]

Hello,

I just started a new job and the 401k options are different than I'm used to. I typically just invested in the Vanguard Target Retirement 2050 (VFIFX). I am 38 years old. My new company offers no target date funds and I'd like to create a 3 fund portfolio. I have VTSAX which takes care of the total stock market, but the bond and international funds are not equities I'm familiar with. I'm not a tinkerer, I just want to set and forget. I was happy following the glide path with VFIFX and don't stress about market fluctuations.


here is a list of the options

1. American Funds Bond Fund of America R6 (RBFGX) - [ER.20] - Plan Service Fee .31
2. DFA Inflation-Protected Securities (DIPSX) - [ER.11] - Plan Service Fee .29
3. Loomis Sayles Global Bond Retail (LSGLX) - [ER.94] - Plan Service Fee .04
4. Schwab Fundamental US large company index (SFLNX) - [ER.25] - Plan Service Fee .31
5. Vanguard Total Stock mkt idx Adm (VTSAX) - [ER.04] - Plan Service Fee .31
6. Vanguard US Growth Admiral (VWUAX) - [ER.28] - Plan Service Fee .31
7. Victory Sycamore Established Value R6 (VEVRX) - [ER.56] - Plan Service fee .31
8. Fidelity Mid Cap Index (FSMDX) - [ER.03] - Plan Service Fee .31
9. Del Ivy Mid cap Gr I (IYMIX) - [ER.79] - Plan Service Fee .21
10. DFA US Targeted Value I (DFFVX) - [ER.29] - Plan Service fee .29
11. Vanguard Small Cap index ADM (N/A) - [ER.05] - Plan Service Fee .31
12. American Century Smal Cap Growth R6 (ANODX) - [ER.82] - Plan Service Fee .31
13. Vanguard Real Estate index Adm (N/A) - [ER.12] - Plan Service Fee .31
14. State Street Global Equity ex-US Index K (SSGLX) - [ER.07] - Plan Service Fee .31
15. Columbia Emerging Markets (N/A) - [ER 1.41] - Plan Service Fee -.44
16. Janus Henderson Global Tech and Innovation (JATIX) - [ER.75] - Plan Service Fee .21


SSGLX seems like a decent option for international, but there is no total market bond fund. Any help would be appreciated.

[dbr]

The American Funds and the DFA TIPS fund are options. The AF is pretty much a total bond fund.

My opinion is that the TBM concept in the three fund portfolio should not be rigid. Even all TIPS is not crazy.

You can also ask if they offer a brokerage link to select funds at a designated broker.

[lakpr]

I agree, I do not see a good bond fund in the line up. Presumably you have a good bond fund in the 401(k) plan of your previous job?

This is what I actually do. I switched jobs in 2015, and faced with the same issue: the only bond fund available in my current 401(k) line up is the Metropolitan West Total Return Bond fund, actively managed, and a 0.40% expense ratio. In my old plan, I had access to VBTIX (Institutional version of the Vanguard Total Bond Fund) for only 0.04%, a tenth of the cost.

So at my current job I contribute only to the S&P 500 Index + Small Cap Index to approximate the Total Stock Market Index, and move money in the old 401(k) plan once every quarter to the bond fund from the stock fund to maintain my preferred 70:30 allocation ratio (although I occasionally let it drift up to 75:25).

[mikejuss]

Are these really all your options, OP? You have only 2 bond funds to chose from? That strikes me as odd.

[mhc]

OP,

do you still have your old 401k? Does it have a good bond option? If so, put your bonds there. If you have an IRA, you could put your bonds there. What about your spouse if you have one? You could load up the bonds there.

[dbr]

If TR2050 has been your model you are not holding enough in fixed income for bond selection to matter. As time goes by this could be more an issue. Who knows where you will work or what the choices are then.

[Gnick]

OP,

do you still have your old 401k? Does it have a good bond option? If so, put your bonds there. If you have an IRA, you could put your bonds there. What about your spouse if you have one? You could load up the bonds there.

yes - my old 401k has VBLIX. I had planned to roll my old 401k into this one, but maybe I just build up my bonds in my old 401k. I didn't think about that.

my wife is in a target date 2050.

[Gnick]

Are these really all your options, OP? You have only 2 bond funds to chose from? That strikes me as odd.

that's it - my old 401k has even fewer options. its 15 funds and 7 of them are TDF's.

[lakpr]

Are these really all your options, OP? You have only 2 bond funds to chose from? That strikes me as odd.

that's it - my old 401k has even fewer options. its 15 funds and 7 of them are TDF's.

My understanding is that 401(k) plans are supposed to offer a "can't-lose-money" options. Some companies meet this requirement by offering money market funds in the plan line up, some by offering a "Guaranteed Investment Income" type accounts which are backed by insurance companies in the back-end ...

Now that @mikejuss mentions it, this does strike me as odd too.

[Gnick]

If TR2050 has been your model you are not holding enough in fixed income for bond selection to matter. As time goes by this could be more an issue. Who knows where you will work or what the choices are then.

I guess I'm not sure why I would be holding more fixed income? is there an issue with the VFIFX glide path?

[Gnick]

Are these really all your options, OP? You have only 2 bond funds to chose from? That strikes me as odd.

that's it - my old 401k has even fewer options. its 15 funds and 7 of them are TDF's.

My understanding is that 401(k) plans are supposed to offer a "can't-lose-money" options. Some companies meet this requirement by offering money market funds in the plan line up, some by offering a "Guaranteed Investment Income" type accounts which are backed by insurance companies in the back-end ...

Now that @mikejuss mentions it, this does strike me as odd too.

I just looked at this again, and I missed this the first time.

there is a "transamerica stable value core option" - no ER, but a .31 plan service fee.

does that make any difference?

[lakpr]

I just looked at this again, and I missed this the first time.

there is a "transamerica stable value core option" - no ER, but a .31 plan service fee.

does that make any difference?

Oh this is good. With these "stable value" / "Guaranteed Investment Income" options, you can basically ignore the service fee. What does the fact sheet on this fund say? What's the guaranteed return for the next few months (they must disclose it per law)? Note that the guaranteed return should be NET of fees, so that's why I said you can ignore the plan service fee.

There may be holding period requirements (you cannot move funds away from this option, if you choose it, for at least 6 months ...)

You can use this basically as a bond-fund substitute.

[dbr]

If TR2050 has been your model you are not holding enough in fixed income for bond selection to matter. As time goes by this could be more an issue. Who knows where you will work or what the choices are then.

I guess I'm not sure why I would be holding more fixed income? is there an issue with the VFIFX glide path?

Glide path is what I am referring to by "as time goes by." The endpoint for TR funds is they get converted to Target Retirement Income Fund at 30/70 and when that time comes what bonds you hold might be a bigger concern. That's all.

I actually do have an issue with those glide paths. The biggest problem is that the 30/70 endpoint is probably too conservative for most retirees. Whether or not 90/10 is too aggressive for now is harder to say. A lot of people have effectively diluted that by holding a significant cash emergency fund in their taxable account. Generally 10% shifts in AA don't mean anything so it could just as well be 100/0. A meaningful change in AA would be maybe 75/25 and I have no idea when that might become a choice for you. TR funds are fine in tax deferred accounts but asset allocation for a total portfolio should be based on need, ability, and willingness to take risk and not on the year label on a TR fund.

[dbr]

I just looked at this again, and I missed this the first time.

there is a "transamerica stable value core option" - no ER, but a .31 plan service fee.

does that make any difference?

Yep, that could be fine.

ER is irrelevant to an SV fund if the yield is decent. SV fund yields are going to lag interest rate changes so you might see the yield ratchet up in time.

Having to pay .31% to run the plan is not horrible but it is not good either. A better employer would subsidize the costs. I have been in a 401k going on forty years now and the cost has always been zero. At one point they did delete the SV plan because the yield was too low and the expense too high. It might be back now, but all my 401k bonds are in a TIPS fund in a brokerage link and have been for years now.

[Gnick]

the yield doesnt look that good at .08". I pulled together my old 401k options here. It may make sense to leave my bonds there. However, the fees for that plan are .4%. Unfortunately, my industry is all private equity owned and they don't care that much about benefits. At least they pay alright.

here are the options in my other 401k. I guess I won't roll it into my new one.

-Federated hermes Instl High Yield Bond Instl Fund - FIHBX - .5%ER
-Vanguard Intermediate-Term Bond Index Admiral Fund - VBILX - .07% ER
-Vanguard Total International Bond Index Admiral Fund - VTABX - .11% ER
-Vanguard Target Retirement Income Inv Fund
-Vanguard Target Retirement 2020 Inv Fund
-Vanguard Target Retirement 2030 Inv Fund
-Vanguard Target Retirement 2040 Inv Fund
-Vanguard Target Retirement 2050 Inv Fund
-Vanguard Target Retirement 2060 Inv Fund
-Vanguard Target Retirement 2070 Inv Fund
-Fidelity 500 Index Fund - FXAIX - .02% ER
-ClearBridge Appreciation I Fund
-Vanguard Equity-Income Adm Fund
-Vanguard Growth Index Admiral Fund
-JP Morgan Mid Cap Value L Fund
-T. Rowe Price New Horizons Fund
-Vanguard Small Cap Index Admiral Fund
-Vanguard Small Cap Value Index Admiral Fund

I suppose I could use VTSAX and SSGLX from my new employer 401k and utilize 1 or 2 of these bond funds from my old employer and top the equities off with FXAIX from my old employer.

Am I on the right track, or does that not make any sense?