The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: greaps on February 14, 2014, 12:16:31 PM
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Hey, I'v been enrolled in a 457 for about 7 years, I dollar cost average 1200$ a month into various funds, this is my proposed asset allocation that will get re-balanced annually. I am 28 years old, and have 18 more years till retirement, firefighter. Account value is 126,000. I got here by dumb luck and passive index investing into 100% stocks, but I would like to add bonds to my mix, here is what I have in mind below.
Nationwide Bond Index Fund 10% (0.69%)
Nationwide International Index Fund 20% ( lowest expense ratio international index fund 0.75%)
Nationwide Mid Cap Market Index Fund 20% (lowest expense ratio mid cap index fund 0.71%)
Nationwide Small Cap Index Fund 20% ( lowest expense ratio small cap index fund 0.71%)
SEI Institutional Managed Trusts S & P 500 Index Fund 20% ( the lowest expense ratio S&P index fund 0.25%)
Waddell & Reed Advisors High Income Bond Fund 10% (corporate bonds, junk bonds slightly expense ratio 0.75%)
Split summary 20% bonds, 20% international, and 60% domestic.
Would you change the allocations? One idea that comes to mind is just combining all domestic stocks into S&P500 with the lowest expense ratio. Would you change the bond allocations?
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I'm in a similar boat. I'm also contributing to a 457 dcp as a police officer. I'm currently contributing $1787 per month. I got lucky last year and got a return of 34%. I did that with a 100% stock portfolio. I too would like to add some bonds at the appropriate %. I'm waiting to see what some others think. I'm thinking a lot like you...
60% Domestic Index (S&P 500 index)
20% International Index
20% Bond fund
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My two cents would be, even if the S&P 500 fund has significantly lower fees it also doesn't give you diversification, remember it only represent 500 of the largest companies in the NYSE and NASDAQ and the allocations are float-adjusted weighting. This means that not all companies are represented equally. So you are getting less diversification. I personally use the Vanguard Total Stock Market fund but since you don't have the option, you need to weight the pros and cons between .46% more fees vs diversification. Based on your allocation of domestic stocks you effective fee cost is around .55%.
You could try it something like 10% Mid Cap, 10% Small Cap, 40% S&P 500 which would give you an effective fee cost of around .44%. Still higher fees than all S&P500 for domestic stocks but greater diversification.
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I would like to add this is my current allocations for the last 7 years, with no concerns of market volatility over next 18 years+ would it be better to forgo bonds entirely especially in this bond market in the mean time? I also have a pension, and feel that yeilds a little more flexibility to be more aggressive than normal. But I appreciate the need to have a balance portfolio I think your right about diversifying within domestic stocks.. Anyway my current allocations below.
Nationwide International Index Fund 20%
Nationwide Mid Cap Market Index Fund 20%
Nationwide Small Cap Index Fund 20%
SEI Institutional Managed Trusts S & P 500 Index Fund 40%
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I'd lose the high yield and allocate it 5-10% to the other bond fund. It's kind of the worst of both worlds of equity and bonds at the moment (and perhaps in general - guys like Swensen think they don't belong in a retail portfolio).
I might also shift 5% each of the small and midcap to S&P500 to capitalize on the lower expense ratio while maintaining some diversification.