Reevaluating Asset Allocation in Retirement Portfolio

[sottimate]

Emergency funds: Three months, goal is six by year's end (Sallie Mae Money Market - 1.05 APY)
Debt: None
Tax Filing Status: Single
Tax Rate: 25% Federal, 6.37% State
State of Residence: NJ
Age: 45
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 30% of stocks

Total retirement portfolio: 425K

Current retirement assets

Taxable
None

401k
23% American Funds EuroPacific Growth Fund - Class R-6 (RERGX) (0.5%)
23% Fidelity Contrafund - Class K (FCNKX) (0.58%)
22% Loomis Sayles Small Cap Growth Fund - Class N (LSSNX) (0.83%)
22% Fidelity Low-Priced Stock Fund - Class K (FLPKX) (0.78%)
7% Cohen & Steers Institutional Realty Shares (CSRIX) (0.76%)

Employer contributes 66 2/3 cents for every dollar saved as Traditional pre-tax or after-tax Roth contributions on the first 6% of eligible pay.

Roth IRA at Vanguard
3% Vanguard Total Bond Market Index Fund (VBTLX) (0.06%)

Contributions

New Annual Contributions
$18000 Traditional 401k
$4833 Traditional 401k (employer matching contributions)
$5500 Roth IRA
$15500 taxable (starting next year, once emergency savings goal is met)

Available funds

Funds available in 401(k) as of June 1, 2017
Bond

• -- State Street U.S. Bond Index Non-Lending Series Fund - Class C (CMCZ2) (0.06%)

Domestic Equities

• -- State Street Russell Small/Mid Cap Index Non-Lending Series Fund - Class C (CMZ12) (0.06%)
  -- SSGA S&P 500 Index Fund - Class N (SVSPX) (0.03%)

International/Global

• -- DFA Global Equity Portfolio Institutional Class (DGEIX) (0.6%)
  -- State Street Global Equity ex-U.S. Fund - Class K (SSGLX) (0.11%)

Managed Income

• -- Managed Income Portfolio II Class 2 (?) (0.47%)

Money Market

• -- Fidelity Investments Money Market Government Portfolio - Class I (FIGXX) (0.21%)
  -- Fidelity Money Market Trust Retirement Government Money Market II Portfolio (FRTXX) (0.42%)

Target Date

• -- BlackRock LifePath Index 2035 Non-Lendable Fund (?) (0.1%)
  -- Remainder of options are other target date funds

Other

• -- Fidelity BrokerageLink

Questions:

Hello, Bogleheads—

As of June 1, my employer is changing all of the investment options in their 401k plan and reducing the number by half. My asset allocation historically has been 100% stocks (23% large cap, 23% mid cap, 23% small cap, 23% international, 8% real estate). I started adding bonds to the mix in recent years by funding a Vanguard Roth IRA, which currently accounts for 3% of my retirement portfolio. I think this would be a good time, however, to reevaluate my asset allocation.

1. Is 80/20 too aggressive at age 45? I am single with no dependents and no debt.

2. Since I will have a relative dearth of 401k investment options as of June 1, I am inclined to go with a three-fund portfolio—bonds, domestic and global stocks—in order to focus on the best of those asset classes.

• -- 20% State Street U.S. Bond Index Non-Lending Series Fund - Class C (CMCZ2) (0.06%)
  -- 55% SSGA S&P 500 Index Fund - Class N (SVSPX) (0.03%)
  -- 25% DFA Global Equity Portfolio Institutional Class (DGEIX) (0.6%)

Should I consider diversifying further among the domestic and global options?

3. A few years ago my employer added the Roth option to their 401k plan. All of my contributions thus far have been Traditional pre-tax. Should I consider splitting future contributions between Traditional and Roth?

Thank you!

[traveltoomuch]

1. I like 80/20.

2. First, why not use the target date fund? The expense ratio is right, and it means you don't have to think about it again. If you want to go with the 3-fund thing: I would add in the small/mid cap fund in an 80/20 ratio with the S&P fund, but it probably doesn't matter much. Why are you choosing the DFA (actively managed) int'l fund instead of the index option?

3. At your tax rates, I wouldn't use the Roth401k option - I'd take the tax break now.

What I'm wondering is: why not implement this now? Can you put together something that looks like this, including the 20% bond allocation, using the current 401k funds?

What's your plan for investments in the RothIRA and taxable accounts going forward?

[sottimate]

I'd chosen the actively managed international fund based on past performance, although now I see that fund has only been around since 2015. That's not a lot of time for comparison.

I am reconsidering the target date fund. With so few investment options going forward, the amount of control I have is negligible. Unless, of course, Target Date 2035 is more heavily invested in bonds than I'd like.

Which leads me to my next question: If I choose the target date option, is the assumption that the 'age-appropriate' allocation of bonds are in the mix? So therefore I would put 100% in the target date fund and forget the bond index in my 401k?

Thanks for your input on #1 and #3.

I would reallocate sooner if I weren't being forced to select new investment options in a couple of months. I figure the less movement the better. Do you agree?

For the time being I intend to keep my Roth IRA invested in Vanguard's Total Bond Index. I'd originally stashed my emergency savings there, but found out the hard way that NJ taxes on early withdrawals of contributions. I subsequently started funding a Salle Mae MM for emergency savings.

I don't have a firm plan yet for taxable investments, which is why I am here. It's time to start researching and learning from you all.

Thank you for your time and consideration!

[traveltoomuch]

Which leads me to my next question: If I choose the target date option, is the assumption that the 'age-appropriate' allocation of bonds are in the mix? So therefore I would put 100% in the target date fund and forget the bond index in my 401k?

right.

I would reallocate sooner if I weren't being forced to select new investment options in a couple of months. I figure the less movement the better. Do you agree?

Not really, no. If an investment plan is the right thing to do, "just do it" has charm. Better that than leave yourself invested in the wrong thing(s), even if only for two months.

[sottimate]

Thanks again for your feedback.

I've been doing forum research on Fidelity BrokerageLink, which is an option in my plan that I had never before explored. (Updated OP to reflect that.) Since it's a Fidelity plan I could set up a three-fund portfolio with Fidelity NTF funds. I am going to contact our administrator to find out if there are other fees involved.

55% Fidelity Total Market Index Fund Premium Class (FSTVX) (0.045%)
25% Fidelity Total International Index Fund Premium Class (FTIPX) (0.11%)
20% Fidelity U. S. Bond Index Fund Premium Class (FSITX) (0.05%)

My motivation for retaining some semblance of control is that I am comfortable having a higher percentage in stock vs. bond funds than is the common recommendation for my age.

At the end of the day, though, the target date fund still holds the appeal of 'set it and forget it.'

[harvestbook]

You can always choose a later target date if you want to be aggressive. That's what I do for my daughter, just pick the last one on the list. Simply choose the date that has your desired stock/bond ratio.

You can save a few basis points by three-funding, but that would basically be rounding errors. This also gives you a little more flexibility if you're trying to balance AA across several accounts. All depends on how much you want to have hands on. Personally I find investing interesting (not "fun" or "exciting") so I like to stay close to things. Good luck.

[traveltoomuch]

Interesting idea. Those are definitely Boglehead-ish funds - if you want to do the 3-fund portfolio, those are fine choices. As harvestbook says, though, fee differences down at this level are rounding errors, at least compared to the fees of the funds you're in now.

The Fidelity 401k site should have a link for "Plan Fact Sheet" under "BrokerageLink" which will give you any plan-specific fees.

[sottimate]

You can save a few basis points by three-funding, but that would basically be rounding errors. This also gives you a little more flexibility if you're trying to balance AA across several accounts.

That's another argument for choosing funds myself that I hadn't thought of. Thanks!

I too find investing interesting but would put myself squarely in the advanced-beginner category. I would like to start learning more now that I'm on the cusp of having money to save outside of my retirement accounts.

[sottimate]

The Fidelity 401k site should have a link for "Plan Fact Sheet" under "BrokerageLink" which will give you any plan-specific fees.

As long as I choose Fidelity funds there will be no transaction fees, and there is no annual fee for using BrokerageLink. Still parsing through the fine print, but this option is looking more and more attractive.

Thanks!