Author Topic: 401k Allocation Help  (Read 2194 times)

hovee

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401k Allocation Help
« on: February 06, 2017, 03:59:12 PM »
I would appreciate some advice on what my allocation should be for my 401k at work. I am currently 33 years old and plan to retire when I'm around 65. Below are my allocation options and fees. Should I put 100% in one of the retirement target date funds, like the 2050? I was also interested in the Vanguard VINIX due to its low fees and good track record. However, would that be a bad idea to place all my money in US Stocks, which the VINIX is 99% US stocks. I also like the DODGX, SMVTX, SCETX as well but the latter 2 have higher fees.

Thoughts on options and diversification is appreciated. Thank you for the help!

ARTIX 1.17%
DODGX 0.52%
HIMCX 0.7%
MWTIX 0.44%
PSCZX 0.84%
VINIX 0.04%
NVLIX 0.89%
SMVTX 1.12%
SCETX 1.21%
TRRKX 0.76% (T.Rowe Retirement 2045)
TRRMX 0.76% (T.Rowe Retirement 2050)
TRRNX 0.76% (T.Rowe Retirement 2055)

jjcamembert

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Re: 401k Allocation Help
« Reply #1 on: February 06, 2017, 05:50:30 PM »
I didn't look them all up but the TRRNX is actually fairly diversified like the "model" portfolio you see in various online calculators. I have similar choices in my plan and actually the target date choice is ok (I used to avoid them like the plague). But hey, 30+ year time horizon, I wouldn't have a problem doing 100% VINIX especially if you have other investments elsewhere. I select the cheapest fund where I have limited choices, and diversify in my other accounts where I have choices, if that makes sense. Basically don't pay extra to diversify if you don't have to.

I don't like DODGX because it's very heavy on financial stocks: http://portfolios.morningstar.com/fund/holdings?t=DODGX&region=usa&culture=en-US

And I haven't heard of and wouldn't buy most of the stocks in SCETX or SMVTX. So that's part of my decision making process: look up their top 10 holdings and see if I'd want to own those stocks. But I'm a little more hands-on than most.

Hargrove

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Re: 401k Allocation Help
« Reply #2 on: February 06, 2017, 06:49:48 PM »
A brief statement against retirement date funds:

You pay higher expenses for lower fluctuation that you shouldn't be worried about at all with a 35 yr investment horizon. You also unnecessarily park a lot in low-rate bonds.  To use the retirement date funds, you can tweak how aggressive or conservative they are by your retirement date relative to the current year. If I ever used one, I would set it to retirement in 2150 to get the level of investment aggressiveness that I prefer.

Unfortunately, you also don't... really have much choice.

Fees should be under .25%. The options here are weak. That's ok if you diversify over your total portfolio and lean on VINIX in this one, but unfortunately, the TRowe funds and VINIX are the only ones I would use here. VINIX is one of the better offerings but not the most diverse Vanguard offers. I would put a Roth IRA at Vanguard after you max this, and get a better mix of index funds.

MustacheAndaHalf

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Re: 401k Allocation Help
« Reply #3 on: February 06, 2017, 08:16:15 PM »
All of those fees except VINIX (0.04%) are too high.  Note that the S&P 500 covers about 72% of the market value of the US stock market.  So it's very diversified already.  My suggestion is 100% into VINIX because you avoid losing 1% a year in fees that other funds would involve.

A retirement date fund mixes stocks and bonds, and changes the mix closer to retirement.  Right now, a target date fund will probably put 10-20% in bonds and make no changes for over a decade.  If you want to replicate that, I'd suggest buying bonds in another account (Roth IRA or Traditional IRA?).  You might even hold a tax-exempt bond fund in a regular investment account.

Performance isn't known before it happens, but annual expense ratios always eat into your money.  That's why the expense ratio is so important, and why 100% VINIX is enough because of both the expense ratio and coverage of most of the stock market.

hovee

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Re: 401k Allocation Help
« Reply #4 on: February 07, 2017, 06:47:50 AM »
Thank you everyone for your recommendations. I forgot to mention, which most of you recommended, is that I do also have a Roth IRA and a Traditional IRA in Betterment which are invested in 90% stocks and 10% bonds.

Based off of your recommendations, I will probably move 100% in to the VINIX fund for my 401k.

Aggie1999

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Re: 401k Allocation Help
« Reply #5 on: February 07, 2017, 11:59:05 AM »
Thank you everyone for your recommendations. I forgot to mention, which most of you recommended, is that I do also have a Roth IRA and a Traditional IRA in Betterment which are invested in 90% stocks and 10% bonds.

Based off of your recommendations, I will probably move 100% in to the VINIX fund for my 401k.

IMO, move those IRA's out of Betterment. No reason to pay a 0.25% management fee to Betterment for something you can easily do yourself. Robo advisors' claim to fame is tax loss harvesting. You don't get that in tax advantaged accounts. If you want to replicate Betterment's portfolio strategy just buy Vanguard ETF's in a Vanguard account.

jakubdudek

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Re: 401k Allocation Help
« Reply #6 on: February 07, 2017, 12:22:40 PM »
Is the work 401k plan with Fidelity?  If so, you can look into opening the brokerage link option, which will let you invest in any funds/etfs/stocks in your 401k account.

From there, you can use ishares/fidelity ETFs which have low expense ratios and no transaction fees to build a simple (or not) ETF portfolio diversified portfolio.  For instance you could replicate whatever betterment/wealthfront does.  For instnace... an example of a wealthront portfolio built with no transaction fee fidelity/ishares ETFs:

21%   ITOT   0.03
18%   IXUS   0.11
15%   IEMG 0.14
15%   FDVV 0.29
14%   FREL   0.08
10%   LQD   0.15
7%   EMB   0.40
overal exp ratio:   0.15


same exercise with vanguard funds gave a 0.12 exp ratio, but those are not free trade in fidelity.

some will argue that this is still too expensive/complicated... and yes it can definitely be simplified.  Personally i was interested in seeing how Wealthfront does over time, so i went with something along those lines.