Balancing allocation across accounts

[tetlee]

Along with the usual target funds my 401k has a limited selection of funds, most notably are (with expense ratio).

VINIX (Vanguard Institutional Index Fund Institutional Shares) 0.04%
PDBZX (Prudential Total Return Bond Fund Class Z) 0.53%

So I'm not wild about paying 0.53% for a Bond fund, compared to something like BND at 0.07%.
I emailed HR benefits lady about it and she said there was no adding new funds.


So what I'm thinking is I use my entire 401k to hold VINIX then I use the tIRA to buy BND and some REIT/Foreign Equity.
(I have a pension account in the UK which gives me lots of Foreign Equity/Bonds already).

If I can maintain my target allocations, do you think it's a problem that they are in different accounts?

I can more easily balance my taxable account - I guess it's important to keep that balanced separately from the others.

[NoStacheOhio]

Holding the funds in different accounts is fine as long as you're comfortable managing it. Buying an expensive bond fund just because it's the only offering in your plan is suboptimal.

[halfshellmeijin]

The only problem is rebalancing becomes difficult. What you need is the same asset class in both then you can adjust percentages to reallocate. I think people usually use bonds for this but I wouldn't be jumping for the .53% either.

[Heckler]

Yes.

https://www.bogleheads.org/wiki/Asset_allocation_in_multiple_accounts

[JZinCO]

Yes.

https://www.bogleheads.org/wiki/Asset_allocation_in_multiple_accounts

To echo, yes.
I do the same between my accounts. I also hold international equities in my taxable just because it is tax efficient and possibly for foreign income tax exclusion. If I sell anything in my taxable, I adjust in my other accounts accordingly.

[Geekenstein]

+1

I'll pile on too.  Anything in taxable is tax efficient stuff.  I have bonds in my deferred account, along with VEIRX, VFIAX and VHT.  VGK in the Roth.

I'm not sure how happy I would be about getting dinged .5 for a bond fund either.  The turnover in PDBZX is pretty high, and the return is decent for a bond fund, but for the extra risk I'd almost rather have my 401k  allocation all in equities, and buy BND in my Roth.

[PhysicianOnFIRE]

That's what I do.  I prefer different fund types in different accounts, particularly if you have a taxable account.  Reduces the likelihood of a transaction in a tax advantage account interfering with tax loss harvesting opportunities.  Each account has US stocks, but other classes are in different buckets.

Rebalancing is simple.  Use a simple excel sheet to track your ratios and rebalance according to your desired asset allocation.   Also keep in mind tax efficiency.

I keep US Total Stock / S&P 500 and developed international in taxable.
Emerging markets, REIT and US small value in Roth.
Tax deferred gets US small & mid caps and bond.

Having stocks in each bucket makes for easy rebalancing.  Having different US stock classes in taxable versus tax advantaged protects me from accidental wash sales.

[tetlee]

Thanks guys!

Pretty much validates what I was thinking (though I hadn't considered tax efficiency).

[MustacheAndaHalf]

I'm not sure how that applies in each case (not a lawyer), but you're being offered a plan with 1/6th bonds below investment grade.  I don't know if it's related to 11% of the bonds being in the Cayman Islands (I wish I could make this up!), but that's what you've got:
http://portfolios.morningstar.com/fund/summary?t=PDBZX&region=usa&culture=en_US

Before you press your 401k department, do you have retirement date funds, or target date funds in your plan?  Is there anything else in your 401k plan that holds bonds?

401(k) plans have a fiduciary duty to you to work in your best interest, so you might need to ask them why a 0.53% expense ratio bond fund is in your best interest (and your only choice, based on your earlier post).