Asset Allocation & Investment Strategy

[ascZend]

I posted this in the "Ask a Mustachian" sub-forum, but I figured this was a more suitable location for this type of post.  Quick background:  I'm 26, single, no kids, full-time working professional and student.  Here is my proposed asset allocation and overall investment strategy.  I'm currently on pace to maximize both my Roth IRA and 401(k).  The BlackRock S&P 500 Fund is the only decent option in my 401(k) with a low expense ratio.    Thoughts?

45% - U.S. Total Market Stocks
25% - International Total Market Stocks
20.7% - U.S. Small-Cap Stocks
9.3% - Bonds

401(k) ($7,436.82 / 6.3%)
6.3% - BlackRock S&P 500 Fund

Vanguard Roth IRA ($11,000 / 9.3%)
9.3% - Vanguard Total Bond Market Index Admiral Shares (VBTLX)

Vanguard Brokerage ($100,000 / 84.4%)
38.7% - Vanguard Total Stock Market Index Admiral Shares (VTSAX)
25% - Vanguard Total International Stock Index Admiral Shares (VTIAX)
20.7% - Vanguard Small-Cap Index Admiral Shares (VSMAX)

Total Balance - $118,436.82 (100%)

[Joel]

Do you know that an s&p 500 index fund does not translate exactly to total stock market index fund?

You need approximately 81% s&p 500, 6% mid cap, and 13% small cap. Your allocation has some total stock market and then some s&p 500 counting as total stock market, which they are not exactly identical. And then you have a focus on small cap. I'm not sure why you have that or if it was your intentional but most people around here just do three funds: total stock market, total international stock market, and total bond market.

[RapmasterD]

All in all it looks pretty good, particularly your highest level AA. But I agree with the other poster. On one hand, why have an S&P 500 fund plus a small market cap fund...AND...a total stock market fund.

I myself go with the S&P 500 fund plus a small market cap fund and a bond fund...and I'm done. But you could just go with total stock market plus bond plus international (if you want that), and you'd be fine. Hope this rambling makes sense. Again, at the macro, what you have is fine...

[foobar]

It is a 401(k). Often their are investment limits

Personally I skipped bonds when I had low account balances. Filling up that valuable roth space with a 0% real return asset is a waste. I would rather pay taxes, 401(k) er or take the muni yield hit.

All in all it looks pretty good, particularly your highest level AA. But I agree with the other poster. On one hand, why have an S&P 500 fund plus a small market cap fund...AND...a total stock market fund.

I myself go with the S&P 500 fund plus a small market cap fund and a bond fund...and I'm done. But you could just go with total stock market plus bond plus international (if you want that), and you'd be fine. Hope this rambling makes sense. Again, at the macro, what you have is fine...

[butchmonkey]

An s  & p fund plus a small cap fund will tilt smaller than a total market fund.


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[foobar]

Not really. It can tilt more or less depending on the ratio

An s  & p fund plus a small cap fund will tilt smaller than a total market fund.


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[ascZend]

I'm posting basically the same thing in two different sub-forums, but here's what I actually went with for now:

U.S. Stocks - 60.7%
International Stocks - 30%
Bonds - 9.28%

401(k) ($7,436.82 / 6.3%)
6.27% - BlackRock S&P 500 Fund

Vanguard Roth IRA ($11,000 / 9.3%)
9.28% - Vanguard Total Bond Market Index Admiral Shares (VBTLX)

Vanguard Brokerage ($100,000 / 84.4%)
54.43% - Vanguard Total Stock Market Index Admiral Shares (VTSAX)
30% - Vanguard Total International Stock Index Admiral Shares (VTIAX)

Total Balance - $118,436.82 (100%)

I'd like to eventually tilt with a Small-Cap Index fund (perhaps 10%), but given that the Total Stock Market Index has exposure to small and mid-cap, I figured this would be a good starting point.

[MDM]

I'm currently on pace to maximize both my Roth IRA and 401(k).
...
401(k) ($7,436.82 / 6.3%)
...
Vanguard Roth IRA ($11,000 / 9.3%)
...
Vanguard Brokerage ($100,000 / 84.4%)

Just checking the "currently on pace" comment: is that a very recent change?  Annual contribution limit is $17.5K to a 401K, but only $5.5K to an IRA so your current asset amounts seem upside down...?

Good for you if you have in fact recently increased your 401K contributions to reach the $17.5K/yr.

[ascZend]

Just checking the "currently on pace" comment: is that a very recent change?  Annual contribution limit is $17.5K to a 401K, but only $5.5K to an IRA so your current asset amounts seem upside down...?

Good for you if you have in fact recently increased your 401K contributions to reach the $17.5K/yr.

It's accurate.  I already maximized my 2013 IRA and just contributed another $2,500 for my 2014.  I wasn't eligible for my company's 401(k) plan until last October, at which point I contributed 15% (plus a 3% company match) through the end of last year.  Since January however, I've steadily increased my 401(k) contribution rate in order to reach $17.5K for the year, which I should be on pace to do.

[matchewed]

Minimize fees and expense ratios.

Go with the Asset Allocation that works for you and lets you sleep at night, AKA not panicking if shit hits the fan and markets tumble.

Get an investment policy statement.

Generally stick with index funds as your foundation for investing.

No one can tell you what to choose. That is your husbands choice primarily.

I'll just repost a response I've done before.

[bdc]

Given your $100,000 in taxable accounts, you might look at a 529 education savings fund if you have time left in school (or think it's likely you'll have children) -- many states have tax advantages.

[ascZend]

Given your $100,000 in taxable accounts, you might look at a 529 education savings fund if you have time left in school (or think it's likely you'll have children) -- many states have tax advantages.

Thanks for the suggestion, bdc.

As a veteran, I am currently using my G.I. Bill benefits (through the V.A's Vocational Rehabilitation & Employment program) and I still have another 3-4 years of educational benefits remaining at my disposal, which covers 100% of all tuition, books/supplies, and fees, in addition to providing a monthly housing allowance (tax-free income as it is classified as an allowance) when I am taking classes. I'm very close to receiving my Associates degree and my girlfriend has a Bachelor's in Biology.  But perhaps I could consider a 529 plan if we decide to have children someday.