403B,401A,457B Retirement Portfolio Review

[KCBBQ]

Hello, looking for feedback on Retirement fund allocation, presently equity heavy and seeking to rebalance as nearing retirement.

Assumptions:
Desired Asset allocation: 60% stocks / 40% Bonds
Desired International stock allocation: 10% stocks
Total Portfolio: 1.7M
Tax rate: 32% Federal
State of residence: KS
Age:58, plan to retire at 65
Emergency Fund: 6 months
Debt: Minimal, Mortgage paid off
Tax Filling status: Married filing jointly

Current Retirement assets:

Traditional 403B (Primary Retirement Account)

58.93%, Vang Inst Index Fund plus (VIIIX) 0.02%
10.94%, Vang Tot International Stock Index Fund Inst plus (VTPSX) 0.08%
4.8%, MFS International Intrinsic Val Fund R6 (MINJX) 0.7%
13.45%, Fidelity Total Bond K6 Fund (FTKFX) 0.3%
6.7%, Fidelity Balanced K6 Fund (FBKFX) 0.32%
5.17%, New York Life Guaranteed Interest Account 0.1% (I recently moved funds from VIIIX into this short-term account until I figure out asset allocation)

401A (Employer match plan)

62.4%, Vang Inst 500 Index Trust (No Ticker) 0.012%
11.02%, Vang Inst Tot International Stock Market Index Trust (No Ticker) 0.06%
4.88%, MFS International (MINJX) 0.7%
13.56%, FIAM Core Plus Commingled Pool class J (No Ticker) 0.23% (Bond Fund)
7.7%, Fidelity Balanced K6 Fund (FBKFX) 0.32%
0.44%, New York Life Guaranteed Interest Account 0.1% (I recently moved funds from VIIIX into this short-term account until I figure out asset allocation)

457 B Plan

87.35%, Vang Inst Index Fund Plus (VIIIX) 0.02%
12.6%, New York Life Guaranteed Interest Account 0.1% (I recently moved funds from VIIIX into this short-term account until I figure out asset allocation)

Roth IRA

100%, Fidelity 500 Index Fund (FXAIX) 0.015%
$60 K in this account

HSA

100%, FXAIX 0.015%
$25 K

Available Investment Options in Retirement Plans:

403B and 401A Plans (In addition to above)

PIMCO Income Fund Inst Class (PIMIX) 0.83%
Vanguard Growth Index Fund Inst Class (VIGIX) 0.04 (High P/E 40X)
Vanguard Wellesley Income Fund Admiral Shares 0.16%
Vanguard Windsor II Fund Admiral Shares (VWNAX) 0.26%

403B Plan only

Fidelity Growth Company K6 Fund (FGKFX) 0.45% (High P/E 48X)
Vanguard Extended Market Index Fund Inst Plus Shares (VEMPX) 0.04%
Vanguard Total Bond Market Index Fund Inst Plus shares (VBMPX) 0.03%
Vanguard Total Stock Market Index Fund Inst Plus Shares (VSMPX) 0.02%

401 Plan only options

Vanguard Inst Total Bond Market Index Trust, 0.035% (No Ticker)
Vanguard Inst Total Stock Market Index Trust, 0.014% (No Ticker)

Contributions

Max allowed contributions to all plans.

Questions:

1. I would like to realign to a 60/40 portfolio. For the core stock position, I am debating if I should stay with VIIIX or move to VSMPX for a broader exposure or any other available funds?
2. Appreciate recommendations for international stock options.
3. For Bonds, Should I stay with the current election FTKFX which has higher return with slightly higher expense ratio or consider VBMPX? PIMIX is also an option with higher returns albeit much higher fees
4. Does a blended fund like FBKFX makes sense in the portfolio? Should I consider VEMPX for mid-small cap stocks

Thanks in advance for taking the time to review and advise.

[Duckie]

KCBBQ, welcome to the forum.

Hello, looking for feedback on Retirement fund allocation, presently equity heavy and seeking to rebalance as nearing retirement.

This is hard to do because we don't know the amount in each account. We don't need dollar amounts but we do need your account percentages. For example:

• 67% 403b plan
  15% 401a plan
  15% 457b plan
  2% Roth IRA (At what custodian?)
  1% HSA (At what custodian?)
  100% total

What are your numbers? We also don't know what other options you have in your 457b plan.

You're married. Do the employer plans belong to one person or not? Why does one spouse not have a Roth IRA?

Desired Asset allocation: 60% stocks / 40% Bonds
Desired International stock allocation: 10% stocks

10% of 60% is 6%. Is that what you mean? 54% US stocks and 6% international stocks? Or do you mean 50% of US stocks and 10% of international stocks?

Traditional 403B (Primary Retirement Account)

The best listed options in this account are:

• Vanguard Total Stock Market Index Fund Inst Plus Shares (VSMPX) 0.02%
• Vanguard Total International Stock Index Fund Inst plus (VTPSX) 0.08%
• Vanguard Total Bond Market Index Fund Inst Plus shares (VBMPX) 0.03%

Since this appears to be your largest account you could hold all three funds here and use this for all rebalancing.

401A (Employer match plan)

The best listed options in this account are:

• Vanguard Inst Total Stock Market Index Trust (No Ticker) 0.014%
• Vanguard Inst Total International Stock Market Index Trust (No Ticker) 0.06%
• Vanguard Inst Total Bond Market Index Trust (No Ticker) 0.035%

Depending on the size of this account holding just one fund here might be best.

457 B Plan

What are the options besides VIIIX? Is this a governmental 457b or a non-governmental 457b? Depending on the size of this account one fund might be best.

Roth IRA

Assuming this is at Fidelity I would hold only Fidelity Total Market Index Fund (FSKAX) 0.015%.

HSA

If this is at Fidelity I would hold only FSKAX.

I would like to realign to a 60/40 portfolio. For the core stock position, I am debating if I should stay with VIIIX or move to VSMPX for a broader exposure or any other available funds?

Since Total Stock Market is an option I would go with that for US stocks in all tax-sheltered accounts. You show no taxable accounts so at this point Wash Sales are not an issue but they may be in the future and 500 Index (VFIAX or FXAIX) might be useful in taxable at that point.

Appreciate recommendations for international stock options.

Vanguard Total International is offered in two of your employer plans. That will do.

For Bonds, Should I stay with the current election FTKFX which has higher return with slightly higher expense ratio or consider VBMPX? PIMIX is also an option with higher returns albeit much higher fees

I would pick an index fund. Two of the employer plans have Vanguard Total Bond and I recommend that.

Does a blended fund like FBKFX makes sense in the portfolio?

No. Blended funds make figuring your AA more difficult, especially since you have good separate funds.

Should I consider VEMPX for mid-small cap stocks

If you hold Total Stock Market you do not need VEMPX.

[KCBBQ]

My bad, in order to keep the post simple I did not mention my wife's accounts.

The listed accounts are mine, portfolio $1.5M
My wife has her own employer retirement plan, portfolio $200K. I will list her account for review in the next post after I get details of all available options in her plan, tomorrow
Both of us have Roth IRA at Fidelity, $30k each
HSA is with Fidelity also
457b is non-governmental, investment options are the same as 403b.
I was thinking 54% US stocks and 6% International, would welcome your recommendation

My account percentages are as follows.
55% 403b plan
25% 401a plan
16% 457b plan
2% Roth IRA
2% HSA

Please review and update recommendations.
Thank you for your time, much appreciated!

[Duckie]

Please review and update recommendations.

Given your updated information and ignoring your wife's assets, with an AA of 48% US stocks, 12% international stocks, and 40% bonds I recommend the following for your portfolio:

His 403b -- 55%
19% (VSMPX) Vanguard Total Stock Market Index Fund Institutional Plus Shares (0.02%)
12% (VTPSX) Vanguard Total International Stock Index Fund Institutional Plus Shares (0.08%)
24% (VBMPX) Vanguard Total Bond Market Index Fund Institutional Plus Shares (0.03%)

His 401a -- 25%
25% (N/A) Vanguard Institutional Total Stock Market Index Trust (0.014%)

His 457b -- 16%
16% (VBMPX) Vanguard Total Bond Market Index Fund Institutional Plus Shares (0.03%)

His Roth IRA at Fidelity -- 2%
2% (FSKAX) Fidelity Total Market Index Fund (0.015%)

His HSA at Fidelity -- 2%
2% (FSKAX) Fidelity Total Market Index Fund (0.015%)

My comments:

• Obviously once you add your wife's $200K retirement assets to the above $1.5MM assets the portfolio (what goes where) will need to be adjusted.
• Holding all three primary assets in his 403b means that that account is the only one that needs to be rebalanced.
• There are just bonds in the 457b because it is non-governmental and it is best that it grows the least of your accounts.
• 6% international is insignificant. The general recommendation is 20% to 40% of stocks in international. 20% of 60% is 12%.
• If the HSA will be used for ongoing medical expenses instead of holding for retirement, then a bond fund may be a better option there.
• Are you sure VTPSX in his 403b is 0.08%? Vanguard's page has it as 0.05%. I know employer plans aren't retail but just checking.

Just some possibilities.

[KCBBQ]

Thanks Duckie, for the recommendations.
I checked, VTPSX is 0.08% in my plan.
I will hold HSA for retirement.

Following are details of my Wife's 403b plan, employer's match goes into the same plan

Current Portfolio: Aggressive, has done very well so far, time to realign. Seeking 70/30 allocation for her portfolio

20% DWS Capital Growth VIP (?) 0.49%
25% T Rowe Price Blue chip Growth portfolio (TRBCX) 0.75%
15% Fidelity VIP Equity-Income Portfolio (FAVEI) 0.47%
30% MOA Equity Index Fund (MAEIX) 0.14%
10% Fidelity VIP Contra fund portfolio (FAVCF) 0.56%

Additional available options:

Large Cap

Goldman Sachs VIT US Equity Insights Fund (GSSQX) 0.56%
MOA All America Fund (MAAKX) 0.53%
Neuberger Berman AMT Sustainable Equity Portfolio (?) 0.9%
Invesco VI Main Street Fund (MSIGX) 0.8%

Mid Cap

Vanguard VIF Diversified Value Portfolio 0.29 %
LVIP American Century Capital Appreciation Fund 0.57%
Fidelity VIP Midcap Portfolio 0.57%
MOA Midcap Equity Index Fund 0.15%
MOA Midcap Value Fund 0.74%

International

Vanguard VIF International Portfolio 0.33%
MOA International Fund (MAIFX) 0.32%

Bond

MOA Core Bond Fund (MABDX) 0.45%
MOA Intermediate Bond Fund (MAMBX) 0.47%
PIMCO VIT Real Return Inst Portfolio 0.69%
Vanguard VIF Total Bond Market Index Portfolio 0.14%

Target date

MOA Clear Passage Target Date Funds

Look forward to your advice.

[bonesly]

1. I would like to realign to a 60/40 portfolio. For the core stock position, I am debating if I should stay with VIIIX or move to VSMPX for a broader exposure or any other available funds?
2. Appreciate recommendations for international stock options.
3. For Bonds, Should I stay with the current election FTKFX which has higher return with slightly higher expense ratio or consider VBMPX? PIMIX is also an option with higher returns albeit much higher fees
4. Does a blended fund like FBKFX makes sense in the portfolio? Should I consider VEMPX for mid-small cap stocks

1. You should stay with VIIIX as S&P-500 is 85% of the Total US Stock market and despite that 15% composition difference, the performance is nearly identical; use the lowest cost fund... pick TSM in a Taxable account to avoid wash sales with TSM in tax-advantaged accounts (when you get around to opening a Taxable account). In other words, to avoid wash sales, use TSM and Taxable and S&P-500 in tax-advantaged accounts.
2. Use the lowest cost Total Int'l Stock Index which is the Vanguard offering in your 401a.
3. Use the lowest cost Total US Bond Index which is the Vanguard offering your 403b.
4. No the blended fund is actively managed which is why is expense ratio (ER) is 0.32 rather than 0.03... Costs Matter.

Your Current layout includes some moderately high-cost funds (highlighted in yellow with ERs in red). These same high-cost funds are actively managed so they occupy multiple columns, which complicates assessment and rebalance efforts. The Proposed layout uses a simple 3-Fund Portfolio of pure-asset class index funds that only occupy one column each, so it's trivial to assess and rebalance (maybe 10-15 minutes once a year). It's very similar to @Duckie's proposal, but I put all the bonds in the 403b and all the int'l stock in the 401a (both choices are lowest ER), which results in only 7 holdings, which is a lot simpler than your current 16 holdings.

"Simplicity is the master key to financial success." -- John C. Bogle



A template spreadsheet (not your data) to help with asset allocation assessment and rebalance planning is linked below. Make a copy in your local GoogleSheets space to edit (or download to your local machine if you have Excel).
Asset Allocation Sheet
AA Current and Proposed

P.S. To include your wife's assets, start with the Proposed rebalance and then add some rows for each of her accounts... try to minimize the number of holdings across all accounts as a joint unified portfolio, rather than mirror the AA in His & Hers as that will lead to more funds than necessary (clutter is not diversification nor simplicity). If you need help, just ask, but the idea is to use the spreadsheet on your own so that you become self-sufficient at this aspect of self-managing your joint portfolio across all accounts (i.e., if she wants 70/30 and you want 60/40 then the joint singular AA is 65/35 across all accounts).

[Duckie]

Following are details of my Wife's 403b plan, employer's match goes into the same plan

The best options shown are:

• (MAEIX) MOA Equity Index Fund (0.14%) -- Large caps (500 Index)
• (N/A) Vanguard VIF International Portfolio (0.33%) -- International developed markets (EAFE)
• (N/A) Vanguard VIF Total Bond Market Index Portfolio (0.14%) -- US bonds

How you choose to merge these with your assets depends on your joint preferences.

[KCBBQ]

Thank you so much gentlemen, this is very helpful.
In reviewing the information, I realized I misquoted the expense ratio for the bond fund available in my 401a plan
Vanguard Inst Total Bond Market Index Trust. The correct expense ratio is 0.024% instead of 0.035%.

Sorry for the bother, please review and advise.

[bonesly]

Vanguard Inst Total Bond Market Index Trust. The correct expense ratio is 0.024% instead of 0.035%.

Sorry for the bother, please review and advise.

This doesn't change anything about my analysis... you want the lowest cost Total Bond Market (TBM) Index you can find and Vanguard's fund is significantly less costly than Fidelity Total Bond (0.30%) which is not an index, it's an actively managed fund. Van TBM is also much less costly than FIAM Core Plus Commingled Pool (0.23%) and Fidelity Balanced Fund (0.32%) which were contributing the bond column in your current layout.

The bigger impact is looking at your wife's holdings combined with yours as a joint unified portfolio (if you run your finances jointly rather than separate).

[KCBBQ]

That makes sense. I will work on the Asset Allocation Spreadsheet to manage our portfolio.
Should I rebalance my portfolio in one go or gradually, given market volatility

[bonesly]

Should I rebalance my portfolio in one go or gradually, given market volatility

That's really up to you... I think it's fine that once you've settled on a risk-tolerance based AA to change it all in one go (at least in tax-advantaged accounts, Taxable might be another thing as there could be taxes owed for making swaps there). If your new target AA is significantly different (say more than 20% change), then I also think it's fine to break up the journey from your old AA to your new AA into a set of ±10% shifts every 3-6 months until you've arrived at your new AA. Whatever will give you the SWAN factor and minimize the likelihood of regret.

I don't typically rebalance unless the delta from my target exceeds ±5%. If the market has a really high run-up or crash, I might look at my current AA to see if my rebalancing band threshold was crossed (and then rebalance if it was), otherwise I'm trying to only check once a year in mid-January. I do check my account activity monthly for anything that might be fraud/theft, so I see the balances, but I don't update my AA spreadsheet unless I know there's been a huge shift in stocks (up or down) or it's around mid-Jan.

However, I'm not wild about big changes in target AA, so I limit those to 10% in a single year (stair-case step-down in stock exposure as I age, likely will flatten out at 60/40 "forever").

[KCBBQ]

Thank you so much, I really appreciate it.