Author Topic: 401k to Vanguard IRA Rollover-Asset Allocation  (Read 4885 times)

Wooderson

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401k to Vanguard IRA Rollover-Asset Allocation
« on: February 06, 2013, 09:01:09 PM »
I posted this at Bogleheads but am curious what the collective Mustache wisdom is:

I have decided to take a more proactive role in managing our money and found my way over here.  I think that I have always been a pseudo Mustachian but not quite as refined or informed.  I am trying to change that quickly but it seems there are endless topics!  Currently I am studying asset allocation and tax implications in addition to taking Finance and Personal Finance on Coursera.  Following that, I will be looking at implementing a college fund.  All suggestions, criticisms, advice, etc. are greatly appreciated.

Here are my vitals:

Emergency funds: Six Months
Debt: $30,000 HEL, 5 year fixed at 2.0%
Tax Rate: 25% Federal, 4.35% State
State of Residence: Michigan
Age: 38
Yearly spending: $25,000
Desired Asset allocation: Currently researching
Desired International allocation: Currently researching

Current total portfolio, both taxable and tax advantaged is in the mid six figures:



Anticipated Annual Contributions:
$30,000 Taxable
$15,000 401k (Sum of employee and employer contributions)
$10,000 Roth
$10,000 College fund (as yet unidentified)

Additional info:
I am in the process of rolling a former employers 401k and a Fidelity Roth to Vanguard.  I have reduced my current 401k contribution to maximize my employers match, but nothing additional.  I would like to contribute more to a taxable account so that in 5-10 years I can increase my family time and supplement my income using investments.  Also, the high ER 401k options above are likely to be converted to a Vanguard IRA as my wife's employment situation changes.  The lower cost options are mine and so far I am happy with them.

So, on to the questions:

1.  Any suggestions for an asset allocation?  Based on the above details, I am not risk averse, should I be more conservative?
2.  How would you allocate the 26% in the Vanguard IRA?
3.  Should I DCA the Vanguard IRA rollover?  It is currently set up to go into the Prime Money Market, the transfer should occur in the next 2 weeks or so.
4.  How would you allocate the 3% in the Roth IRA?
5.  Currently I have no exposure to Bonds, is that OK for now or should I be seeking a bond fund, in the taxable or tax-advantaged account? 
6.  College fund suggestions?
7.  Are the annual contributions appropriate? 
8.  Am I completely off my rocker?

I look forward to the replies, suggestions, and subsequent research (this really is fun stuff)!

Thanks,
Wooderson
« Last Edit: February 06, 2013, 11:13:07 PM by Wooderson »

Crash87

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Re: 401k to Vanguard IRA Rollover-Asset Allocation
« Reply #1 on: February 07, 2013, 04:44:24 PM »
Nobody will be able to tell you what the best allocation is because nobody can predict the future.

All I can offer is my own (Roth) plan:
90% S&P 500 Index
10% ST Bond Index

When my Roth is funded more fully I plan:
10% ST Bond Index
Remaining 90%:
  30% S&P 500 Index
  30% Small Cap Index
  30% International Index
  10% REIT Index

Is my plan the best? Certainly not. The only real advice I can give is pick funds with low fees and take advange of lower fee admiral funds when possible.

IMO, Bogleheads is a great site for this kind of research.

chucklesmcgee

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Re: 401k to Vanguard IRA Rollover-Asset Allocation
« Reply #2 on: February 07, 2013, 07:58:16 PM »
[quote author=Wooderson link=topic=3681.msg54993#msg54993 date=1360209669
1.  Any suggestions for an asset allocation?  Based on the above details, I am not risk averse, should I be more conservative? [/quote]
No. I don't think you should be more conservative. I question the wisdom of some of those high expensive ratio funds.

Quote
2.  How would you allocate the 26% in the Vanguard IRA? 4.  How would you allocate the 3% in the Roth IRA?
There's no need to have different allocations in different IRAs. I'd probably suggest the total stock market index, in admiral or ETF variety depending on their purchasing requirements and fees.
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3.  Should I DCA the Vanguard IRA rollover?  It is currently set up to go into the Prime Money Market, the transfer should occur in the next 2 weeks or so.
No. Odds are that investing it all ASAP will give you better returns than DCA, though DCA will make the invested portion of your portfolio track the market returns a little bit more. You won't be withdrawing for decades, so short-term volatility shouldn't be an issue.
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5.  Currently I have no exposure to Bonds, is that OK for now or should I be seeking a bond fund, in the taxable or tax-advantaged account? 
I think it depends on the target size of your stache and your tolerance for fluctuations. If I was in your situation, I wouldn't go with bonds- then again, if you couldn't tolerate, say, a 50% drop in the market for a few years when you go to retire, you might want some bonds. With bonds you're trading anticipated returns for safety though. I think most financial advisors recommend a transitioning to bonds so that final retirement size is predictable as you zero in on your retirement date. This probably will hurt your returns and final stashe so it comes down to personal risk tolerance.
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6.  College fund suggestions?
Probably a 529, but they aren't great. Usually limited investment options and high fees. But earnings are tax exempt so if you'll be investing for some time it's an alright idea
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7.  Are the annual contributions appropriate? 
~3 times your spending? Looks solid to me.

Wooderson

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Re: 401k to Vanguard IRA Rollover-Asset Allocation
« Reply #3 on: February 08, 2013, 08:58:42 AM »
Thanks for the replies.  Between the conversation here and at the other site I think I have a decent handle on things.  Next to the advice,  the most beneficial thing was to put everything down on paper in one place.  I think that I will put the Vanguard IRA into TIPS/Bond funds and use my 401k as domestic/international equity.  I am going to max my 401k (a departure from my original thinking) and reduce my taxable contributions.  I am leaning towards a high growth fund for the taxable account.  As for the college fund, I am still looking, not sure if 529 is the way to go because it seems a bit rigid.  For instance, can it be used for truck driving school, what if my kids go the US Military Academy, but these are all questions for another thread.  Obviously more research is necessary on this topic.

Not to hijack my own thread but... has anyone attended a Fidelity seminar before?  I went to a Tax Investing Strategies presentation last night, and while it was only OK, the refreshments they served beforehand were great :)