Author Topic: A Little Help with 401k Investments  (Read 2912 times)

midwestmoney

  • 5 O'Clock Shadow
  • *
  • Posts: 5
A Little Help with 401k Investments
« on: December 19, 2014, 11:32:05 AM »
Hi there everyone!

I have been a lurker here for the last couple months and I've got say, MMM has really gotten me excited to begin forging my path to FI.

A little about me:
-I am a 23 year old, recent college grad working in Finance for the last 9 months.
-I am lucky to be at a company with a 5% match and a 401k laden with Vanguard options

-I was a little spendy initially, however I currently have:

Roth IRA - $3,300 all in VTSAX

401k - $5,500 - see below for allocation. 

Current:
25% - ER 0.54 American Funds EuroPacific Gr R5
20% - ER 0.24 Vanguard Small Cap Index Fund - Inv
20% - ER 0.24 Vanguard Mid Cap Index Inv
20% - ER 0.17 Vanguard 500 Index Fund
05% - ER 0.44 Vanguard Selected Value Inv
10% - ER 1.25 Nuveen Real Estate Securities A

Other Options:
Harding Loevner Emerging Markets - HLMEX - ER 1.24
Franklin Small Cap Value Adv - FREAX - ER 1.20
T Row Price Diversified Sm Cap Growth - PRDSX - 0.82
Wells Fargo Advantage Discovery R6 - WFDRX - 0.80
American Funds Growth Fund of Amer R5 - RGAFX - 0.66
Dodge & Cox Stuck Fund - DODGX - 0.52
Vanguard Total Bond Market Index Inst - VBTIX - 0.05
Money Market

I think that I already have some good exposure to the U.S. Market with my Roth being held in VTSAX.  The obvious worry spots are the 0.54 ER American Funds, 0.44 ER Vanguard Selected Vale and 1.25 ER Nuveen Real Estate. I think that I would like to keep the American Funds since it is the one International Asset I hold, and is a lower ER than the Harding Emerging Markets Fund (1.30). This is the same for Nuveen.  I like to have a little bit of Real Estate in the portfolio, however, at a high ER, I could be talked out of this.  I am unsure if I should continue my small investment in the Vanguard Selected Value fund.  I suppose my mindset at the time (before I had the knowledge I hold now) was that it was one more fund to help diversify the portfolio.

All of this being said.  Would the good Mustachians make any change to my current allocation, or does this look up to par?
            

BarkyardBQ

  • Pencil Stache
  • ****
  • Posts: 667
Re: A Little Help with 401k Investments
« Reply #1 on: December 19, 2014, 11:41:28 AM »
Welcome. It looks like you have a pretty good start.

You could probably do without the Vanguard Selected Value Fund, the 123 stocks this holds are already part of your other Vanguard options and the expense ratio is an unnecessary increase in your fees. You could move your international allocation to a taxable account (by rebalancing your 401k without international). You can get benefits from foreign tax credit in a taxable account that you can't in your 401k. https://bogleheads.org/wiki/Principles_of_Tax-Efficient_Fund_Placement

REIT's are good in tax advantaged accounts, but that expense ratio is terrible. Reallocate your Roth to include VGSIX, and dump that fund from your 401k.

Is your Roth at Vanguard?

edit: if you want Value stocks check out VMVIX and VISVX.

edit 2: leaving you to determine your 401k allocation with the following funds.

Vanguard Small Cap Index Fund - Inv
Vanguard Mid Cap Index Inv
Vanguard 500 Index Fund
« Last Edit: December 19, 2014, 11:52:53 AM by zdravé »

Cheddar Stacker

  • Magnum Stache
  • ******
  • Posts: 3714
  • Age: 41
  • Location: USA
Re: A Little Help with 401k Investments
« Reply #2 on: December 19, 2014, 11:54:55 AM »
+1 zdrave.

Use the Roth to buy the high expense ratio type assets. Intl, and REIT. Vanguard has some good low cost funds.

My IRA is 50% REIT and 50% INTL since my 401k offers all the US equities with low expenses.

Just stick with the small, mid, and 500 indexes in the 401k.

FLBiker

  • Pencil Stache
  • ****
  • Posts: 985
  • Age: 43
Re: A Little Help with 401k Investments
« Reply #3 on: December 19, 2014, 11:55:31 AM »
Those are great options for your 401K -- I'm at TIAA CREF and I'm a bit jealous.

I'd start by figuring out the allocation you want.  Here's what you are currently doing:

78% US Stock
16% INT Stock
6% REIT

If that's what you want to do, fine.  There isn't one right answer.  My personal asset allocation (as a 38 year old married homeowner) is:

54% US Stock
26% INT Stock
10% Bonds (2% INT)
8% REIT
2% Other (peer to peer, specialty funds)

That's according to Personal Capital.  I'm planning to up my INT % of both stocks and bonds with next years IRA contributions.  I also own a house, which makes me less concerned with the REIT.

So first figure out the allocation you want, and then figure out how to hit your new allocation with the options at hand while minimizing the fees.  For example, if you decided you wanted:

60% US Stock
25% INT Stock
10% US Bond
5% REIT

You could adjust your 401K accordingly, increasing your American Fund, adding VBTIX, and (slightly) decreasing your REIT. 

In all honesty, though, at this stage of early investing, I'd probably just focus on minimizing fees.  For example, I might just put my whole 401K in the 500 index (keep the small and mid, too, if you want, and maybe add a bit of VBTIX) and plan to do my REIT / INT Stock exposure in my IRA.

BarkyardBQ

  • Pencil Stache
  • ****
  • Posts: 667
Re: A Little Help with 401k Investments
« Reply #4 on: December 19, 2014, 12:08:59 PM »
FLBiker makes a good point. You do need to determine a good AA. With your age Lazy Portfolios are a good start. http://www.bogleheads.org/wiki/Lazy_portfolios

I'd shy away from bonds right now as you have so much time and career ahead of you that you should seek higher gains and less stable income.

Also, depending on your income level and tax bracket, you may want to consider reducing your taxes by deferring income to your 401k before putting into a Roth (n the future). Or recharacterizing your Roth to a T.IRA and making your contribution tax deductible.
« Last Edit: December 19, 2014, 12:14:16 PM by zdravé »

midwestmoney

  • 5 O'Clock Shadow
  • *
  • Posts: 5
Re: A Little Help with 401k Investments
« Reply #5 on: December 22, 2014, 01:22:29 PM »
I wanted to thank all of you for your suggestions!  I really appreciate the advice. 

I am going to go with a core "four" portfolio.  I really like the idea of "set and forget it" AA.  I have reallocated my 401k 80% into the Vanguard 500 and 10% into both the Small and Mid Cap Vanguard Funds.

On the IRA (which is a Vanguard account) side, I will be splitting roughly 50/50 into VGSIX and VGTSX.  As zdrave noted, at my age I would like to stay out of bonds for right now.  At some point I will allocate some of this into VBTIX per FLBiker's suggestion.  I feel like I was on the right track but these little tweaks will really help minimize my expenses.  I have also added the Tax Efficient Fund Placement article to my reading list.

Thanks again all!

BarkyardBQ

  • Pencil Stache
  • ****
  • Posts: 667
Re: A Little Help with 401k Investments
« Reply #6 on: December 22, 2014, 05:03:40 PM »
Looks good. Glad to help. Now you can do something like www.personalcapital.com so you know what your AA and Expenses are as a sum among accounts. Then as your AA changes over the year, chose a time to rebalance with new contributions. Also, if you ever buy a house reconsider your AA in REITs as the house covers you there.