April, good advice from
grantmeaname. Bogleheads.org is the best investing site there is and has mustachian sensibilities.
A few points:
* Overall, if these are the total, total expenses, you have a pretty good 401(k) plan compared to a lot of people. For example, the expense ratio for your S&P 500 Index fund is 0.26% which is pretty low, as are the expense ratios for the Total Bond Fund (Y) and the Treasury Inflation-Protected Securities (TIPS) fund (VAIPX).
* You can't really compare the returns of Vanguard TIPS (VAIPX) with a small company growth fun (MSSMX) because these are entirely different
asset classes.
* You mention you're contributing 25% of your $60K salary, which would be $15,000. Tip: unless doing so would cause you to lose some employer matching, you're better off contributing $5,000 to a
deductible Traditional IRA (where you will pay lower fees and have better investment options) and $10,000 to your 401(k) than putting all $15,000 into the 401(k). Given that your marginal tax rate (assuming you're single) is 25% Federal plus around 3% AZ, I'd favor deductible IRA contributions over Roth IRA contributions. (See:
http://iracontributionlimits2010.com/ira-contribution-cheat-sheet-2012/). From a tax perspective, there would be no difference (either way, you're reducing your taxable income by $15,000) but you'd have better and cheaper options if you had an IRA at Vanguard.
* Think first about what you want your
asset allocation to be (what percent stocks and bonds), and
then pick the best and most appropriate funds for those asset classes with an eye toward fund expenses.
* If you want a really good, but simple, 100-page starter book on investing, you couldn't do much better than "Investing Made Simple: Index Fund Investing and ETF Investing Explained in 100 Pages or Less" (
http://www.amazon.com/Investing-Made-Simple-Index-Explained/dp/0981454240/ref=sr_1_2?ie=UTF8&qid=1349745108&sr=8-2&keywords=oblivious+investor). The next book to read after that is the Bogleheads Guide to Investing.
* You have to decide for yourself what you want your asset allocation to be, but I agree with granmeaname that for a 26-year-old, being 20% stocks and 80% bonds is pretty conservative.
* This may seem counter-intuitive, but don't worry about past returns of funds. Historical returns rarely augur the future. Choose your asset allocation, choose the best/cheapest funds that fit it, and go with that.
* Don't think "more funds means more diversification". You have to look at what's
in the funds. Often, people who haphazardly pick a mismatched bunch of funds wind up accidentally with too much in one sector and too little in another.
My suggestion:
1. First, determine your asset allocation between stocks and bonds. A good rule of thumb is "your age in bonds". Since you seem to be a bit on the conservative side, let's say 70% stocks and 30% bonds. You need to pick a number you're comfortable with and can stick with when (not if, but when) we have a fall in the stock market. You need to stick with it because the biggest mistake investors make in a bear market is to panic, sell their stocks for cash (which locks in your losses, i.e. "selling low"), and then sit out the rebound from the sidelines. Then they get back into the market when stocks are high again (meaning they're "buying high"). Don't make this mistake by trying to time the market, which rarely works. Instead, pick an allocation you can stick with it and stay the course.
2. Within stocks, what percentage US and what percentage International? Per Vanguard, a reasonable default is 70% US and 30% international.
That means (roughly):
50% US Stocks
20% International Stocks
30% bonds
With your choices, I'd go with:
US Stocks:
40% - S&P 500 Index Fund (Ticker? F?)
10% - DFA US Targeted Value (DFFVX)
International:
20% - Am Funds EuroPacific Growth (REREX)
Bonds:
30% - Putnam Bond Index Trust Fund (Y)
These funds are the closest you can get to an index fund portfolio, which is the most inexpensive and most broadly diversified portfolio you can have.
With this portfolio, with your
US Stock allocation, you have 80% of it in the S&P 500 index fund, which is that sector's (large cap) share of the total US stock market. The other 20% is in the DFA Small Cap Value fund, which operates/performs close to how an index fund does and has low expenses. Roughly 20% of the US stock market is in mid/small capitalization stocks, so we keep that percentage.
International funds - most 401(k) plans don't have the best international fund and your plan is no exception. As you grow your IRA, I'd hold as much Vanguard Total International Stock Market Index Fund (VGTSX) in your IRA as you can, which is a better and more diversified (and cheaper) fund than REREX. As your IRA grows, you can lower your international allocation proportionally in your 401(k). Just keep roughly the same overall ratio across your entire portfolio (401k + IRA). But for now, REREX is probably your best bet out of the 3 global/international funds in your plan. MALOX is an odd fund that is intended to be an all-in-one fund, with some US stocks, International stocks, and bonds. I wouldn't go with that.
Bonds - I recommend the Putnam bond fund because it tracks the Barclay's index. Per the fund prospectus: "The fund seeks investment results that correspond to the total return of bonds as represented by the Barclays Capital U.S. Aggregate Bond Index." (
https://content.putnam.com/institutional/pdf/dcio/BondIndex_Y.pdf) That's basically the gold standard of bond funds. If you're feeling conservative, you could supplement this with the TIPS fund (VAIPX) or the stable value fund, perhaps 1/3rd each (10%, 10%, 10%). The fact that the TIPS fund is a bit cheaper than the Putnam Y fund makes the case for splitting bond funds a bit stronger.
If you want to be more conservative, then just adjust the ratios. For example, 60% stocks and 40% bond would be:
42% US Stock (33% S&P 500 + 9 % DFA Small Cap Value)
18% International Stock
40% bonds