Author Topic: 401(k) Allocation Help Requested: Index funds + ?  (Read 2554 times)

SeattleStache

  • Stubble
  • **
  • Posts: 140
401(k) Allocation Help Requested: Index funds + ?
« on: February 17, 2016, 10:39:31 AM »
I'm currently 100% invested in the Vanguard 2045 Target Retirement fund with approximately $75,000. I'm considering phasing out of the target date fund and into index funds but am unsure if I should go all in at 100% in index funds or if I should choose a blend of different funds. Fees associated with the index funds are substantially lower than those with the target date funds.

I'm 33 years old and planning to phase into retirement in the next 20 years. My Roth with Vanguard is also currently invested in a target date fund. Given my long timeline, I'm comfortable with a fair amount of risk but want to ensure I am as diversified as I should be. I chose the target date fund pre MMM and have been lazy about changing it.

Once I decide on my new investment directives, would you suggest transferring my current savings over to the new fund(s) or simply allocating future investments into the new fund(s)?

Here are my investment options. I've underlined my current fund and bolded the index fund I am considering. Any opinions or advice would be much appreciated.

EQUITY/STOCK
AMERICAN CENTURY MID CAP   AVUAX   
AMERICAN EUROPACIFIC GROWTH R6      RERGX   
AMG MNGRS SKYLINE SPC EQTS FD   SKSEX   
DELAWARE LARGE CAP VAL CL 55   DELCT   
GOLDMAN SACHS GRTH OPP FD CL I   GGOIX
NORTHERN TR CL S&P 500 IDX II   NTCST
OAKMARK GLOBAL FUND CL I      OAKGX
OPPENHEIMER DEVELOPING MARKETS   ODVYX   
VOYA GLOBAL REAL ESTATE FD I   IGLIX   
VOYA REAL ESTATE FUND CL I   CRARX   
WELLS FARGO EMERGING GRTH ADM      WFGDX
WELLS FARGO PREMIER LRGE INSTL   EKJYX   

BOND/FIXED INCOME
BLACKROCK STRATEGIC INCOME OPP   BSIIX   
DREYFUS BOND MARKET INDEX BASI   DBIRX   
METROPOLITAN WEST TOTAL FD I   MWTIX   

ALLOCATION FUNDS
THE OAKMARK EQUITY & INCOME FD   OAKBX   
VANGUARD 2010 TARGET RETIREMNT   VTENX   
VANGUARD 2015 TARGET RETIREMNT   VTXVX   
VANGUARD 2020 TARGET RETIREMNT   VTWNX   
VANGUARD 2025 TARGET RETIREMNT   VTTVX   
VANGUARD 2030 TARGET RETIREMNT   VTHRX   
VANGUARD 2035 TARGET RETIREMNT   VTTHX   
VANGUARD 2040 TARGET RETIREMNT   VFORX   
VANGUARD 2045 TARGET RETIREMNT   VTIVX
VANGUARD 2050 TARGET RETIREMNT   VFIFX   
VANGUARD 2055 TARGET RETIREMNT   VFFVX   
VANGUARD 2060 TARGET RETIREMNT   VTTSX   
VANGUARD TRGT INCOME RETRMNT   VTINX   

Thanks in advance for any advice.

iamlindoro

  • Handlebar Stache
  • *****
  • Posts: 1520
    • The Earth Awaits
Re: 401(k) Allocation Help Requested: Index funds + ?
« Reply #1 on: February 17, 2016, 11:24:26 AM »
If you move from a target date fund into a S&P 500 fund, you are going from more diversified to less diversified.  If you want a higher exposure to stocks, I would move to a later target date fund.

I think (but you will have to tell me) you might be chasing lower expense ratios rather than diversification.  The Vanguard target date funds are made up of different ratios of total US stock market, total international market, and total bond market funds.  The higher expense ratio is mostly accounted for by the higher expenses of some of those components.  It would be one thing to compare expense ratios on like funds, but this is somewhat comparing apples and oranges.

TL;DR: If the goal is good diversification and aggressive growth with good expense ratios, switch to the Vanguard 2060 target date fund.
« Last Edit: February 17, 2016, 11:28:54 AM by iamlindoro »

GGNoob

  • Pencil Stache
  • ****
  • Posts: 725
  • Age: 32
  • Location: Colorado
Re: 401(k) Allocation Help Requested: Index funds + ?
« Reply #2 on: February 17, 2016, 11:26:42 AM »
The 2045 fund only costs 0.16% which is $160 per $100,000. That's not bad at all for an all-in-one fund. Like iamlindora said, if you want more stocks for longer, switch to the 2060 fund. Otherwise, you are just fine in your 2045 fund if you agree with it's asset allocation and glide-path.

seattlecyclone

  • Magnum Stache
  • ******
  • Posts: 4732
  • Age: 34
  • Location: Seattle, WA
Re: 401(k) Allocation Help Requested: Index funds + ?
« Reply #3 on: February 17, 2016, 11:27:17 AM »
You are aware that the target date fund is nothing more or less than a collection of four index funds, right?

robartsd

  • Handlebar Stache
  • *****
  • Posts: 2180
  • Location: Northern California
Re: 401(k) Allocation Help Requested: Index funds + ?
« Reply #4 on: February 17, 2016, 12:39:03 PM »
Vanguard's target date funds are built from 4 index funds - US Stocks, US Bonds, International Stocks, and International Bonds. Each of these index funds is available in Admiral shares to investors who invest at least $10,000 in them. If your smallest allocation between the 4 index funds is greater than $10,000 and you don't mind doing your own rebalancing, you probably ought to convert all your target date funds to the component index funds. The target date funds are great for getting low cost diversified investment when starting out with as little as $1,000 and they're great for people who don't want to manage (rebalance) their investments. But the convienience of the fund taking care of rebalancing comes at a cost - the target date fund's expense ratio on top of the expense ratios of the component funds. Vangaurd does a great job keeping expenses low, but that's still about $10/month for your current investment.

NoStacheOhio

  • Handlebar Stache
  • *****
  • Posts: 2143
  • Location: Cleveland
Re: 401(k) Allocation Help Requested: Index funds + ?
« Reply #5 on: February 17, 2016, 01:01:11 PM »
Vanguard's target date funds are built from 4 index funds - US Stocks, US Bonds, International Stocks, and International Bonds. Each of these index funds is available in Admiral shares to investors who invest at least $10,000 in them. If your smallest allocation between the 4 index funds is greater than $10,000 and you don't mind doing your own rebalancing, you probably ought to convert all your target date funds to the component index funds. The target date funds are great for getting low cost diversified investment when starting out with as little as $1,000 and they're great for people who don't want to manage (rebalance) their investments. But the convienience of the fund taking care of rebalancing comes at a cost - the target date fund's expense ratio on top of the expense ratios of the component funds. Vangaurd does a great job keeping expenses low, but that's still about $10/month for your current investment.

OP's plan doesn't give access to the underlying funds.

Given the plan options, I'd stick with a Vanguard target fund. Adjust target date based on your desired allocation.

SeattleStache

  • Stubble
  • **
  • Posts: 140
Re: 401(k) Allocation Help Requested: Index funds + ?
« Reply #6 on: February 17, 2016, 01:07:22 PM »
Thanks everyone, that makes sense. That's correct that I don't have the option to individually invest in the funds that make up the target date fund. I like the idea of switching from 2045 to 2060 to more heavily invest in stocks.

Would you suggest transferring all funds from 2045 to 2060 or simply allocate future investments to 2060?

Thanks again.

seattlecyclone

  • Magnum Stache
  • ******
  • Posts: 4732
  • Age: 34
  • Location: Seattle, WA
Re: 401(k) Allocation Help Requested: Index funds + ?
« Reply #7 on: February 17, 2016, 02:43:08 PM »
If you really want to optimize your expenses, that S&P 500 fund has a 0.02% expense ratio, which is really nice. However that's only about 80% of the US total market index, which in turn is only 53.9% of the Target Retirement 2045 fund. That DBIRX bond index fund is at 0.15%, which isn't terrible either. However I don't really see a good low-cost international stock or bond fund in there. To replicate the rest of that target date fund, you would need to invest in the remaining components in a different account. This may or may not be possible depending on how large your 401(k) is compared to your other investment accounts.

Note that the Target Retirement 2045 fund has basically the same composition right now as the Target Retirement 2060 fund. The 2045 version will start becoming bond-heavy about 15 years before the 2060 version does, but for the time being there's no real difference between the two. It will be years before that changes.

robartsd

  • Handlebar Stache
  • *****
  • Posts: 2180
  • Location: Northern California
Re: 401(k) Allocation Help Requested: Index funds + ?
« Reply #8 on: February 17, 2016, 04:22:02 PM »
Sorry, I forgot about the 401k's list of investments. Depending on how agressive you want to be and how much you have in your Roth (assumed IRA), you might want to make investment changes there while continuing to buy target date funds in your 401k. I figure it's better to put more agressive investments in a Roth and more conservative investments in a traditional account because Roth earnings (eventually) come out tax free, but traditional retirement accounts are taxed upon withdrawl.