Author Topic: Update post: what is automatic rebalance and should i do it with 401k?  (Read 2728 times)

Emergo

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You guys may have seen my thread in ask a mustachian. I'm on the right track because of you guys. I just need some more help on where to put my 401k. Because my traditional ira will go in vanguard, i think. Anyway heres a list on what i can invest in:
Domestic:

WSMIX, 1.15%

 

Global:

ARTIX, 1.17%

ODMAX, 1.33%

OSMAX, 1.22%

 

Mid-cap:

VEXAX, 0.10%

 

Large/Multicap:

ABSIX, 0.89%

PEYAX, 0.98%

PINVX, 1.08%
Putnam S&P 500 Index Fund (No Ticker symbol), 0.35%

PABGX, 0.98%

 

Income/bond:

PGBOX, 0.98%

PTTAX, 0.85%
PDINX, 0.97%

 

Capital Preservation:

PDDXX, 0.49%

 

Mixed Asset:

OAKBX, 0.74%

PABAX, 1.00%

PACAX, 1.04%

PAEAX, 1.07%
« Last Edit: January 11, 2016, 01:30:03 PM by Emergo »

seattlecyclone

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Re: Now that I've put max in 401k, which one to put it in?
« Reply #1 on: November 14, 2015, 09:16:06 AM »
Most of those funds have terrible expense ratios. I would put it all in a combination of the Putnam S&P 500 fund and VEXAX. If you buy these in an 80/20 ratio it's pretty similar to a total US stock market fund. Buy bonds and international stocks in a different account.

Emergo

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Re: Now that I've put max in 401k, which one to put it in?
« Reply #2 on: November 14, 2015, 09:23:17 AM »
Most of those funds have terrible expense ratios. I would put it all in a combination of the Putnam S&P 500 fund and VEXAX. If you buy these in an 80/20 ratio it's pretty similar to a total US stock market fund. Buy bonds and international stocks in a different account.

So 80% in putnam and 20% in vexax?

Emergo

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Re: Now that I've put max in 401k, which one to put it in?
« Reply #3 on: November 14, 2015, 09:30:11 AM »
Hmm in my other thread no one mentioned international stocks and bonds..

seattlecyclone

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Re: Now that I've put max in 401k, which one to put it in?
« Reply #4 on: November 14, 2015, 09:35:34 AM »
Yes, 80% Putnam 20% VEXAX if you want to approximate VTSAX.

You need to decide for yourself what your overall asset allocation should be. What percentage of your money do you want to have in stocks, what percent in bonds? Within each of those categories, how much should be US-based, and how much should be international? Do you want to add other investments like real estate investment trusts (REITs) into the mix? These are questions that nobody but you can answer.

I will tell you that most people do not recommend putting 100% of your money into US stocks. Some international and bond investments can be a good idea. You don't need to invest in every category in every account though; if your 401(k) has terrible bond options (which it does), you can go with stocks in that account and put your bond dollars elsewhere.

Emergo

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Re: Now that I've put max in 401k, which one to put it in?
« Reply #5 on: November 14, 2015, 10:56:24 AM »
I never really thought about bonds. Sorry, im pretty new. Here was my thread to explain things:
http://forum.mrmoneymustache.com/ask-a-mustachian/1st-post-new-to-mmm-started-with-0-feels-like-i'm-saving-too-slow-need-help/

Thought all i needed to do was invest in mutual funds. I guess its way more than that. *brain explosion*

Emergo

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Re: Update post: what is automatic rebalance and should i do it with 401k?
« Reply #6 on: January 11, 2016, 01:31:17 PM »
It seems like my 401k dropped by a $1000. Help i dont know what happened. Currently invested in putnam 500 and vexax. 80/20 respectively. Should i do automatic rebalance? My 401k offers that.

Jack

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Re: Update post: what is automatic rebalance and should i do it with 401k?
« Reply #7 on: January 11, 2016, 02:57:04 PM »
Hmm in my other thread no one mentioned international stocks and bonds..

Could be because you didn't ask specifically about asset allocation.

Anyway, the total world market capitalization is something like 40% US, 60% everybody else, so if all your stocks are US stocks you're not very diversified. Most US-based investors are "tilted" towards US, which is fine for reasons such as reduction of currency risk and correlation between home-market investment performance and cost of living (or whatever -- that's kind of beyond the scope of this comment).

For your situation (being from the Philippines), I'd say that maybe you want to invest a little bit more in Asia than usual -- maybe an extra 5% or so -- especially if you think it's likely that you'll move back eventually. You could consider tilting specifically towards the Philippines, as opposed to Asia in general, but I don't know enough about that to say whether it would be a good idea or not. Of course, if you are 100% certain to stay in the US then it's irrelevant and you should go with the same kind of portfolio any other normal American would use.

Read this.

I never really thought about bonds. Sorry, im pretty new. Here was my thread to explain things:
http://forum.mrmoneymustache.com/ask-a-mustachian/1st-post-new-to-mmm-started-with-0-feels-like-i'm-saving-too-slow-need-help/

Thought all i needed to do was invest in mutual funds. I guess its way more than that. *brain explosion*

Bonds are just another asset class and can be packaged into mutual funds too. For example, Vanguard's total bond market index fund is VBTLX.

I personally own zero bonds [or bond funds] and argue that, for mustachians, the portfolio's percentage of bonds should be smaller than commonly recommended (e.g. 0-20%) because a very-early retiree's time horizon is so long.

Other people argue that holding bonds is important for rebalancing purposes. For example, when the stock market goes down and you want to buy stocks "on sale," you need money to do so -- money you get by selling some of your bond allocation (which has necessarily grown as a percentage of your portfolio if stocks are relatively down).

I would argue that an 80/20 stock/bond portfolio would tend to have a slightly lower very-long-term return than a 100% stock portfolio even with rebalancing, but is very likely to be closer to the efficient frontier.

Also read this.

It seems like my 401k dropped by a $1000. Help i dont know what happened.

The market went down. It happens; don't worry about it.

You still own the same number of shares you did before; they just cost less at the moment. So buy more!

(Either that or somebody withdrew (i.e., you) money from the account. But if that happened, I assume you'd know about it.)

Should i do automatic rebalance? My 401k offers that.

IMO, it just depends on what's the most convenient thing for you. If your 401k's asset allocation is the same as your overall asset allocation, then it's probably a good idea. If you have assets in other assorted accounts such that you'd have to rebalance manually anyway, maybe not.

I was going to write an example about how that would work, but it seemed like too much effort so I didn't bother. Let me know if you need it.