Author Topic: Help with Asset Allocation for 401k  (Read 4506 times)

mmmvolfan

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Help with Asset Allocation for 401k
« on: December 18, 2014, 02:08:31 PM »
Hello,

I'm currently opening up a 401k at work and im having a difficult time picking the rights fund to meet a 80% stock 20% bond asset allocation. I'm not choosing the companies life cycle retirement date fund because some of the funds in the portfolio have large expense rations (>1%.) Here is a current list of funds offered by my company.

Prudential Total Return Bond Q - Gross Expense Ratio-0.52% of fund assets
Core Bond Enhanced Inded / PIM Fund - Net Expense Ratio-0.37%
Templeton Global Bond R6 - Gross Expense Ratio-0.54% of fund assets
SA/Oakmark Equity & Income Strategy - Net Expense Ratio-0.80%
Invesco Diversified Dividend R6 - Gross Expense Ratio- 0.51% of fund assets
Vanguard 500 Index Admiral - Gross Expense Ratio- 0.05%
Large Cap Growth / American Century Fund - Net Expense Ratio-1.12%
Vanguard Mid Cap Index Admiral - Gross Expense Ratio-0.10% of fund assets
Prudential Jennison Mid Cap Growth Q- Gross Expense Ratio- 0.59% of fund assets
Small Cap Value / Kennedy Capital Fund - Net Expense Ratio-1.35%
Vanguard Small Cap Index Admiral - Gross Expense Ratio- 0.10% of fund assets
Brown Capital Mgmt Small Co Instl - Gross Expense Ratio - 1.08% of fund assets
American Funds EuroPacific Gr R6- Gross Expense Ratio- 0.50% of fund assets
Oakmark International I - Gross Expense Ratio - 0.98% of fund assets
DFA Emerging Markets Core Equity I - Gross Expense Ratio - 0.63% of fund assets

Thank you in advance for your help MMM community.

Cromacster

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Re: Help with Asset Allocation for 401k
« Reply #1 on: December 18, 2014, 02:15:57 PM »
Just a note, you don't need to meet your asset allocation all in one spot.  You should consider your entire portfolio.  IE 100% of your stocks are held in your 401k and 100% of bonds on held in an IRA, but total it would give you 80/20 stocks to bonds.  They don't give you the best bond choices.

You have some decent Vanguard choices.  The simplest would be to go 80% Vanguard 500 Admiral and 20% Core Bond Enhanced.  If you want you could mix in the Vanguard mid and small cap.  Personally, I would choose to hold my bond allocation elsewhere.



mmmvolfan

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Re: Help with Asset Allocation for 401k
« Reply #2 on: December 18, 2014, 03:17:49 PM »
Thank you Cromacster. I think i'll take my % of bond allocation elsewhere.

MrsStubble

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Re: Help with Asset Allocation for 401k
« Reply #3 on: December 18, 2014, 07:47:23 PM »
+1 on looking for bonds elsewhere.  Besides those vanguard funds, those other options seem costly

Monark

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Re: Help with Asset Allocation for 401k
« Reply #4 on: December 28, 2014, 07:43:24 PM »
I agree with Cromacster about not needing to satisfy the 80/20 AA all in your 401k.  That being said, if there's one thing I would add to the thread it's that you may want to consider adding in some international diversification.    Most adherents to the Modern Portfolio Theory would advocate somewhere around 30-40% of your portfolio be international, or roughly half of the equity portion.  Of this 30-40%, shoot for 70-80% developed and 20-30% emerging markets.  Again, these are just ballparks.   Given that you only have 3 options here, your best bet looks like the American Funds EuroPac Growth R6.  It comes pretty close to this at 83% developed and 17% emerging.  It also has the lowest expense ratio of the three (.50%) and a solid track record (which I know doesn't mean much).  As a Mustachian, I'm sure you can find better int'l funds with far lower fee structure outside the 401k, but bear in mind int'l funds do tend to have higher exp ratios than domestic funds.  0.50% isn't the worst I've seen by a long shot.  I guess the final point to make would be, don't be penny-wise pound-foolish on your AA.  Getting the AA correct is, generally speaking, far more important and indicative of your overall returns than a few basis points on the exp ratio. 

 

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