Author Topic: How to choose: Do it myself 401k Contibutions  (Read 2898 times)

danb

  • 5 O'Clock Shadow
  • *
  • Posts: 37
How to choose: Do it myself 401k Contibutions
« on: December 24, 2014, 11:32:48 AM »
Hello,

My Employer offers a 401K plan through principle.com and I currently contribute 4.5% of my Salary ($90,000). My Employer double's my contribution up to 9%. When I enrolled, I used the default investment options. Over the past 3 years, the total contribution between my employer and I was 37k, and my 401k Is currently at 46k.  with a Personalized Rate of Return at 6.96%

Now that I am mustachian I would like to try to pick my own portfolio. I will attempt to max it out each year , I will leave the money in for the long run, and wont pull out when stock prices drop. I like the idea of buying the entire market. However, I don't see options to pick the vanguard total stock or total international funds that MMM talks highly of, so I tried to pick the most close choices. I was curious if anyone here could provide me guidance / opinions on the choices I made in the attachment. I am currently 34 year old, and saving about 30K a year. I plan to work for a long time, but I would like the option to not have to work before i reach 50.

Thanks!
« Last Edit: December 24, 2014, 11:46:29 AM by danb »

dandarc

  • Magnum Stache
  • ******
  • Posts: 3440
  • Age: 36
Re: How to choose: Do it myself 401k Contibutions
« Reply #1 on: December 24, 2014, 11:42:34 AM »
Expense Ratios?

danb

  • 5 O'Clock Shadow
  • *
  • Posts: 37
Re: How to choose: Do it myself 401k Contibutions
« Reply #2 on: December 24, 2014, 11:47:14 AM »
I've added a new attachment that I believe contains the expense ratio info.

Thanks!

dandarc

  • Magnum Stache
  • ******
  • Posts: 3440
  • Age: 36
Re: How to choose: Do it myself 401k Contibutions
« Reply #3 on: December 24, 2014, 11:50:32 AM »
General Advice -

Figure your risk tolerance - if it is high, then an all-stock allocation (as I think is laid out in the document) is acceptable.  If you're apt to tinker and get scared by the downsides, then work some bonds in.  I personally go with 25% each in small, mid, and large-cap and international.  Which means I am tilted pretty heavily towards small / mid - a riskier position.

If you really want to go to vanguard, see if your 401K plan allows in-service rollovers.  If not, you're stuck with what they offer.  I notice that there are several index funds available - those likely have lower expenses, so use them to hit your target allocation where you can.  If you need small cap and there is no index fund, pick one or two with the most reasonable expense ratios.

Are you working for Ciber?  This looks awfully familiar from what I remember when I worked for them.  Or maybe this is a pretty standard fund lineup for Principal.

johnny847

  • Magnum Stache
  • ******
  • Posts: 3196
    • My Blog
Re: How to choose: Do it myself 401k Contibutions
« Reply #4 on: December 24, 2014, 11:55:05 AM »
We're still going to need some more information to give you some good advice.

Do you have any other investments? An IRA? Maybe a pension? Do you have a mortgage or car loan? What is your desired asset allocation? Stocks vs bonds? Do you want international investments? (I recommend that you do).

At first glance, you've got a low expense ratio S&P Index fund available, which is great. It seems like you have some decent bond funds, but I'll read into the details more when you provide some more info.

danb

  • 5 O'Clock Shadow
  • *
  • Posts: 37
Re: How to choose: Do it myself 401k Contibutions
« Reply #5 on: December 24, 2014, 12:49:36 PM »
Sure, here are some more details:

I have no other investments.
I have a mortgage. $299k at 3.75% 30 yr fixed.
No debt besides the mortgage
I keep 4K in my checking account to pay bills
I have 3K in an emergency fund (for small emegrncies that require i need instant access to the cash_
I'm currently building up a safety nest in betterment (5k) I plan to keep 30K with a (60/40 mix)
I have 2K in my HSA and my employer contributes about $90/month to it. [/li][/list]


I have the savings to max it out, but I'm concerned about what income I will have available to me if i stop working at 50, since i wont be able to touch these retirement accounts till age 59.5. 

I don't know if i have a desired asset allocation.  I am willing to trust that stocks will perform better over the longrun, and there is a chance that they might be low when i retire. So i tend to think I am leaning heavily towards stocks more than bonds. I also like the idea of international investments.

dandarc

  • Magnum Stache
  • ******
  • Posts: 3440
  • Age: 36
Re: How to choose: Do it myself 401k Contibutions
« Reply #6 on: December 24, 2014, 01:20:14 PM »
I have the savings to max it out, but I'm concerned about what income I will have available to me if i stop working at 50, since i wont be able to touch these retirement accounts till age 59.5. 
This comes up pretty often here - search Roth IRA pipeline and 72t (Substantially Equal Periodic Payments).  The 59.5 rule is only a problem for the truly un-creative people out there.  So don't let that stop you from maxing out your tax-advantaged accounts.

gobius

  • Stubble
  • **
  • Posts: 167
Re: How to choose: Do it myself 401k Contibutions
« Reply #7 on: December 24, 2014, 02:14:05 PM »
You're making $90K/year so I would max that 401k.  Dandarc told you of a couple of ways to get that money without waiting until you're 59.  Besides, even if you pay the penalty, if you're in a low enough tax bracket when you retire at 50 it still may be lower than what tax bracket you're in now (I'm guessing 25% marginal bracket) so paying the penalty may be worth it.  That's one fringe benefit of living off a small income and making a large income (obviously fringe compared to the fact that you are able to save a ton of money):  you are currently in a higher tax bracket so lowering your taxes now is ideal.  I'd max the HSA too.

You have a few with pretty good expense ratios (below 0.2%); most leave something to be desired but also aren't too bad and it still would probably be worth it to have them since you'll be avoiding taxes.  You can pick a balanced fund.  I usually don't just because I like controlling what percentage of equities and bonds I have.  I believe they do rebalance each year and get more conservative.  If it were me I'd probably pick the best fund from each category.

johnny847

  • Magnum Stache
  • ******
  • Posts: 3196
    • My Blog
Re: How to choose: Do it myself 401k Contibutions
« Reply #8 on: December 24, 2014, 05:36:44 PM »
I don't know if i have a desired asset allocation.  I am willing to trust that stocks will perform better over the longrun, and there is a chance that they might be low when i retire. So i tend to think I am leaning heavily towards stocks more than bonds. I also like the idea of international investments.

This is something that is critical to get right. Only you get judge your willingness to take risk (and hence how much to allocate to stocks vs bonds). One rule of thumb is your age in bonds. But it's just a rule of thumb.

Your basic building blocks look like the S&P 500 index (it covers ~80% of Vanguard's total stock market index anyway, in terms of market cap) and one or twoof the low expense ratio bond funds.