Author Topic: Case study: Quick update needed - rebalance, which accounts, etc.  (Read 1454 times)

skunkfunk

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So, for the next year I'm considering whether to max my 401K before doing IRAs or mortgage paydown and such. I don't really like the 401k that well, due to higher fees than my Vanguard IRA. Here are some quick income and expense numbers. Background - I'm 29 years old and my wife is 26, we have one small child. We've been on this train for 2 years now.

Monthly income- Me $4250 Wife $3350 My side gigs: $800

Less taxes, current 401k contribution ($510), health insurance, maxed HSA etc. it comes to about $5700

Monthly expenses less mortgage: $2900 - this will go down some as there were excess medical bills for childbirth, a new roof, etc.
Mortage: $1500
Total $4400

As you can see, there's about $1300 a month left. That's enough to either max out our IRAs or the 401k, plus a bit extra. My current thoughts are to max out the 401k and then use whatever is left for Roth IRAs. I have been going Roth so that we have something that can actually be withdrawn while we're waiting for any rollovers to season for 5 years.

Now, I have a weird mix of funds between the IRAs and the 401k.

401k :
Blackrock S&P 500 $26336
American Funds Capital World G/I R3 $3161
Columbia Select Large Cap Value A $2366
First Eagle Global A $1493
JPMorgan SmartRetirement 2050 A $1293
Columbia Cmall Cap Index A $661
Columbia Mid Cap Index A $657

And a few others totaling around $1000, including janus enterprise S, Global Bond A, Alger Capital Appreciation A, and Oakmark International II. Blech.

In the IRAs - these are Roth IRAs held by either myself or my wife.

Vanguard REIT index ETF - $2835
Vanguard Total Stock Market ETF - $5941
Vanguard Windsor II Fund Investor Share $3164
Vanguard Total Bonbd ETF $2074
Vanguard Total INTL Stock Market Index Fund ETF $1788
Vanguard S&P500 ETF$605

There's a bunch of overlap and I don't really understand it. I don't even know how to calculate my allocations, so I'm wondering if I should just throw all of the 401K into the Blackrock S&P500 and split the IRA 3 ways between total stock market, total international, and the REIT index.

Any thoughts? Should I post more specifics, or any suggestions on what I should do to run the numbers better?

seattlecyclone

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Re: Case study: Quick update needed - rebalance, which accounts, etc.
« Reply #1 on: October 22, 2015, 10:37:48 AM »
Simpler is often better. You already have about two-thirds of your 401(k) in the S&P 500 fund. You're not really getting that much additional diversification by spreading the remaining third across ten (!!) different funds, especially when several of them are also US stock funds. My advice is to decide what you want your asset allocation to be, and figure out how to implement it with the smallest possible number of funds.

As to whether you should max out your 401(k) or IRA first, the general advice for people with high-fee 401(k) options is to contribute enough to the 401(k) to get the maximum match, then max out the IRA, then contribute to more to the 401(k). However since we're nearing the end of the year I might instead suggest focusing on the 401(k) for now (because the deadline for 2015 contributions is 12/31) and then maxing out the IRA before your tax deadline in April. Given that your total household income is $100k, I would hope you could max out a 401(k) and two IRAs next year without much trouble even if you use some of next year's income for this year's IRA contributions.

skunkfunk

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Re: Case study: Quick update needed - rebalance, which accounts, etc.
« Reply #2 on: October 22, 2015, 11:20:42 AM »
Given the funds at my disposal, do you have any suggestions regarding asset allocation?

seattlecyclone

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Re: Case study: Quick update needed - rebalance, which accounts, etc.
« Reply #3 on: October 22, 2015, 11:24:13 AM »
Asset allocation is something you need to decide for yourself. What I mean by "asset allocation" is not exactly which funds to buy, but what percentage of your assets you want in US stocks, US bonds, international stocks, REITs, etc. Once you decide that, take a look at the funds available in your 401(k) and pick the cheapest ones that fit into each category. You don't need to tick all the boxes in your 401(k), it's fine to focus on a couple of asset classes in that account and fill any gaps inside your IRA.