Author Topic: Requesting input on 401k asset allocation  (Read 1514 times)

eaknet

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Requesting input on 401k asset allocation
« on: January 05, 2018, 03:41:56 PM »
Hello all, I really appreciate the collective wisdom and experience on this forum.  It's been a tremendous resource (along with the MMM blog), and I have a question to put out there regarding my 401k asset allocation. 

Based on some reasonable assumptions, I probably have anywhere between 12-15 years to FI.  Some things could come into play to make that earlier (namely stock option performance, raises, and bonuses).  At present we're focusing on being as Mustachian as possible, and trying to avoid lifestyle inflation. 

I'm contributing to my 401k to max out the 50% employer match.  The match is in company stock which vests over 4 years at 25%/yr.  I'd prefer an immediately vested cash match, but whatever.  The company is a relatively mature biotech firm, so the match being in company stock is not a terrible thing.  That being said, as soon as shares vest each year I'm selling them immediately and moving the assets elsewhere just for diversification's sake.  No need to have an Enron situation on my hands.

My question for you all is if you have an opinion on which funds I should consider contributing to with the liquid portion of my 401k.  The options for funds I have are shown below, along with their fees.  Lack of formatting makes the table a little hard to read, but I think it can be deciphered.  If not let me know and I can try to get it better.  At present my contributions are going into the Vanguard Target 2045, with a 0.16% fee.  This is somewhat due to my naïveté when I set up the account, and based on the fact that I wasn't really contributing at first so it didn't matter.  Now I've changed that and am starting to build.....the 2017 yield in that target date fund was great, but I don't expect that kind of growth in the future.  I'm also wondering if it is worth the fee, as opposed to some other options with as little as 0.035%.

At present I'm tempted by some of the other Vanguard options, and will probably ditch the target date fund entirely.  I would appreciate anyone's input on what you would do in my situation with this selection of fund options.  Thank you for any suggestions/discussion.


Name/Inception Date   Asset Class   Category   Gross Expense Ratio**   Shareholder Fees

JH DISCPL VALUE R6 (JDVWX)
01/02/1997  Stock Investments   Large Cap   0.72%   No additional fees apply.

JPM LG CAP GROWTH R6 (JLGMX)
02/28/1992  Stock Investments   Large Cap   0.6%   No additional fees apply.

VANGUARD INST INDEX (VINIX)
07/31/1990  Stock Investments   Large Cap   0.035%   No additional fees apply.

MFS MID CAP VALUE R6 (MVCKX)
08/31/2001  Stock Investments   Mid-Cap   0.75%   No additional fees apply.

MM SEL MID CAP GR I (MEFZX)
05/31/2000  Stock Investments   Mid-Cap   0.73%   No additional fees apply.

VANG EXT MKT IDX ADM (VEXAX)
12/21/1987  Stock Investments   Mid-Cap   0.08%   No additional fees apply.

CRLN E SM CAP GR R6 (HSRUX)
05/07/1993  Stock Investments   Small Cap   0.67%   No additional fees apply.

DLWR SM CAP VAL INST (DEVIX)
06/24/1987  Stock Investments   Small Cap   0.99%   No additional fees apply.

AF EUROPAC GROWTH R6 (RERGX)
04/16/1984  Stock Investments   International   0.5%   No additional fees apply.

AF SMALLCAP WORLD R6 (RLLGX)
04/30/1990  Stock Investments   International   0.7%   No additional fees apply.

VANG TOT INTL STK AD (VTIAX)
04/29/1996  Stock Investments   International   0.11%   No additional fees apply.

VANG TARGET RET 2015 (VTXVX)
10/27/2003  Blended Fund Investments*   N/A   0.14%   No additional fees apply.

VANG TARGET RET 2020 (VTWNX)
06/07/2006  Blended Fund Investments*   N/A   0.14%   No additional fees apply.

VANG TARGET RET 2025 (VTTVX)
10/27/2003  Blended Fund Investments*   N/A   0.14%   No additional fees apply.

VANG TARGET RET 2030 (VTHRX)
06/07/2006  Blended Fund Investments*   N/A   0.15%   No additional fees apply.

VANG TARGET RET 2035 (VTTHX)
10/27/2003  Blended Fund Investments*   N/A   0.15%   No additional fees apply.

VANG TARGET RET 2040 (VFORX)
06/07/2006  Blended Fund Investments*   N/A   0.16%   No additional fees apply.

VANG TARGET RET 2045 (VTIVX)
10/27/2003  Blended Fund Investments*   N/A   0.16%   No additional fees apply.

VANG TARGET RET 2050 (VFIFX)
06/07/2006  Blended Fund Investments*   N/A   0.16%   No additional fees apply.

VANG TARGET RET 2055 (VFFVX)
08/18/2010  Blended Fund Investments*   N/A   0.16%   No additional fees apply.

VANG TARGET RET 2060 (VTTSX)
01/19/2012  Blended Fund Investments*   N/A   0.16%   No additional fees apply.

VANG TARGET RET 2065 (VLXVX)
07/12/2017  Blended Fund Investments*   N/A   0.16%   No additional fees apply.

VANG TARGET RET INC (VTINX)
10/27/2003  Blended Fund Investments*   N/A   0.13%   No additional fees apply.

MORLEY STABLE VALUE
04/30/2009  Bond Investments   Stable Value   0.55%   No additional fees apply.

METWEST TOT RTN BD P (MWTSX)
03/31/1997  Bond Investments   Income   0.38%   No additional fees apply.

VANG TOT BD MKT ADM (VBTLX)
12/11/1986  Bond Investments   Income   0.05%   No additional fees apply.
« Last Edit: January 05, 2018, 03:44:36 PM by eaknet »

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Re: Requesting input on 401k asset allocation
« Reply #1 on: January 05, 2018, 07:05:32 PM »
Hello eaknet, the Vanguard 2045 is a great fund to start out with and you can't go wrong with it. However, you're right that there are some other good options there with lower fees, and you can essentially reconstruct the Vanguard 2045 fund with some of your other options but at a lower overall fee.

For example, Vanguard 2045 is broken down into 54% domestic total market stocks, 34% international stocks, and 10% bonds. With your options available -- and I would definitely stick to just the Vanguard ones -- you can simulate this fund by going 43% VINIX and 11% VEXAX (approximately replicates the domestic total market at 80% large cap, 20% mid/small), 34% VTIAX, and 10% VBTLX.

But it all depends on your risk tolerance and whatever asset allocation you think fits best. The good thing about Vanguard 2045 is that it automatically rebalances, and shifts towards more bonds closer to retirement. Good luck, hope this helps!

CoffeeR

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Re: Requesting input on 401k asset allocation
« Reply #2 on: January 05, 2018, 07:05:57 PM »
The choices you have in your 401K are good so this makes it easier.

You need a complete asset allocation plan and/or IPS across all your taxable and tax advantaged accounts. So decide on your asset allocation and look to see what choices you have in your other tax advantaged accounts and/or taxable accounts (you should have good ones, if not *move* them to a brokerage where you have good low cost choices). One possible allocation is 80 / 20 (stocks / bonds) and 80 / 20 within stocks for US / International. So, if the only money you had invested is in this 401K, then one possible allocation is:
  • 64% VINIX (US Stock Market)
  • 16% VTIAX (International)
  • 20% VBTLX (Bonds)
You can change this to match your risk tolerance and target dates. Some people prefer more international. Personally, if you have less than say $100K I would keep it simple and use the target date fund that matches not when you want to retire but when you would normally retire (e.g. when you turn 65 or so).

Keep it simple.
« Last Edit: January 05, 2018, 07:08:20 PM by CoffeeR »

eaknet

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Re: Requesting input on 401k asset allocation
« Reply #3 on: January 05, 2018, 07:29:07 PM »
Thank you both for your responses, they are very helpful. When I looked at the fees on the 2045 fund, I didn’t think 0.16% was outrageous. I was anticipating a 1+ % fee, when actually it’s almost 10x lower than that.

The reason I was thinking of steering clear of the target date was based on some advice from a financial planner who said that generally the target date funds had significantly higher fees than other funds. If you compare it to the 0.035%, I guess that’s the case, but there’s also something to be said for the automatic rebalancing that the fund does. I guess part of me feels guilty if I take a “set it and forget it” route; at this point I’ve been thinking I should be a little more actively involved.

But being the neophyte I am, training wheels might be good while I continue to learn and read up on the subject.

Thanks again for the responses, I really appreciate the help.


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CoffeeR

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Re: Requesting input on 401k asset allocation
« Reply #4 on: January 06, 2018, 09:00:05 AM »
The reason I was thinking of steering clear of the target date was based on some advice from a financial planner who said that generally the target date funds had significantly higher fees than other funds. If you compare it to the 0.035%, I guess that’s the case, but there’s also something to be said for the automatic rebalancing that the fund does. I guess part of me feels guilty if I take a “set it and forget it” route; at this point I’ve been thinking I should be a little more actively involved.
Target date funds in 401K are indeed one of the worst offenders on high fees and/or being able to do your own asset allocation cheaper then using the target date funds. There is a recent Barron's article about this issue. Still, the Vanguard Target date funds are OK and low cost enough. Personally, to my liking, I think their International allocation is too high, but it is not high enough to cause me concern and many like the higher allocation. Right now I recommend you concentrate on the savings aspect off investing.

Please be careful when listening to any financial planner. There are good ones, but many do not have your best interest in mind. If you ever walk away from a financial advisor with any kind of "fear", "uncertainty" or "doubt" (e.g. FUD) then the advisor probably does not have your best interest at heart and they are succeeding in their purpose (creating FUD). Dump them. Dump them as advisor. Dump them as a friend. Avoid contact with them.
« Last Edit: January 06, 2018, 09:25:14 AM by CoffeeR »

eaknet

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Re: Requesting input on 401k asset allocation
« Reply #5 on: January 06, 2018, 09:13:19 AM »
The reason I was thinking of steering clear of the target date was based on some advice from a financial planner who said that generally the target date funds had significantly higher fees than other funds. If you compare it to the 0.035%, I guess that’s the case, but there’s also something to be said for the automatic rebalancing that the fund does. I guess part of me feels guilty if I take a “set it and forget it” route; at this point I’ve been thinking I should be a little more actively involved.
Target date funds in 401K are indeed once of the worst offenders on high fees and/or being able to do your own asset allocation cheaper then using the target date funds. There is a recent Barron's article about this issue. Still, the Vanguard Target date funds are OK and low cost enough. Personally, to my liking, I think their International allocation is too high, but it is not high enough to cause me concern and many like the higher allocation. Right now I recommend you concentrate on the savings aspect off investing.

Please be careful when listening to any financial planner. There are good ones, but many do not have your best interest in mind. If you ever walk away from a financial advisor with any kind of "fear", "uncertainty" or "doubt" (e.g. FUD) then the advisor probably does not have your best interest at heart and they are succeeding in their purpose (creating FUD). Dump them. Dump them as advisor. Dump them as a friend. Avoid contact with them.

Thanks for your input regarding the target date funds; the fee aspect is why I was hesitant to continue that direction....but it seems the one I have selected at present (2045) isn't terrible in the fee aspect.  Regarding the fund's specific holdings, I don't know enough to have an opinion on the diversification.

The financial adviser aspect is something I take to heart.  At present I'm not employing/consulting any advisers, that input was from a local adviser on a radio show when someone called in asking about their 401k and a target date fund.  The adviser brought up the fee aspect to the target date funds, and recommended the individual pull out of that fund....and based on his age and financial situation the adviser recommended an asset allocation that seemed to make sense to me.  Of course they would like people to employ their company's services, but he wasn't pushing that aspect at all.  It's a radio show I listen to occasionally when I'm in the car on a Saturday morning, and overall the advice they give seems pretty solid. 

Thanks also for the advice to focus on the savings aspect.  We are certainly doing that at this time, and the amounts in the investment accounts would seem pretty trivial to most on this board.  That being said, we started budgeting in June 2016 and it has opened our eyes with respect to our spending and has allowed us to start focusing on saving and finishing paying off debt.  We've started contributing to the 401k to fully get my employer match, and have adjusted our monthly spending accordingly.  In addition we're aggressively paying off what we do owe.  We're still up in the air regarding whether or not to focus on paying off the mortgage next or to start contributing more to tax-advantaged accounts - especially with the tax law that will likely affect our ability to deduct the mortgage interest.

Anyway, thanks again for all the advice.  If there's any more information that would be helpful to someone looking at this aspect of our investing future, I'd be open to sharing more.  I'm not quite ready to go to the Case Study territory, but am certainly glad for the input.  Thanks to the forum and MMM for providing so much valuable advice!