Author Topic: Trying to get close to a 3 Fund Portfolio with limited 401k options  (Read 2695 times)

frozenpenguin

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I'm going to change the investments in my wife's 401k and try to get as close to a 3 fund portfolio as possible, but the options aren't great.  Here's what I have to work with (with the expense ratios):

AMERICAN FUNDS AMCAP   RAFFX   0.42
DODGE & COX STOCK      DODGX   0.52
EAGLE SMALL CAP GROWTH      HRSCX   1.11
NORTHERN SMALL CAP VALUE      NOSGX   1
AMERICAN FDS EUROPACIFIC GRWTH      RERFX   0.54
OPPENHEIMER DEVELOPING MARKETS      ODVYX   0.63
VANGUARD TOTAL BOND MARKET IND         VBTLX   0.08
COLUMBIA ACORN      ACRNX   0.78
VANGUARD MID CAP INDEX      VIMAX   0.09
VANGUARD 500 INDEX      VFIAX   0.05
HARBOR MID CAP VALUE INSTL      HAMVX   0.89
AMERICAN FUNDS NEW ECONOMY      RNGFX   0.52
VANGUARD SMALL CAP INDEX      VSMAX   0.09
PIMCO TOTAL RETURN         PTTRX   0.46
VANGUARD GNMA         VFIJX   0.11
TEMPLETON GLOBAL BOND         TPINX   0.89

There are also Manning & Napier Target Date Funds available but they have high expense ratios 1% - .9% or so.

She is 41 & I'm 42, so I was thinking:

35% - VFIAX
25% - VIMAX
15% - VSMAX
25% - VBTLX

Only thing is there's no international exposure in there.  Thoughts?  Any better combinations I can do with what I have to work with?  We do both have Roth IRAs as well, which I am going to be changing to VTI, BND & either VXUS or VEU, so I can go heavier on the international there if need be to make up for the lack of international in her 401k.


Wolf359

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Re: Trying to get close to a 3 Fund Portfolio with limited 401k options
« Reply #1 on: February 28, 2015, 09:26:06 PM »
That's exactly the way to handle the lack of options in a given account.  Consider all your assets and accounts as one seamless whole.  You can have International exposure in a different account.  All that matters is if your portfolio as a whole (all parts together) are balanced in the way you want.  There's no requirement for each individual piece to be separately balanced.

For that matter, if you run out of space in your tax advantaged accounts, you can also put funds in a taxable account.  Just keep to the most tax efficient assets there, such as an equity index stock fund.

CanuckExpat

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Re: Trying to get close to a 3 Fund Portfolio with limited 401k options
« Reply #2 on: March 01, 2015, 12:53:22 AM »
Hi Frozen penguin,

What you are doing make sense. I have a couple questions and things you might want to consider.
Are you trying to replicate the approximate breakdown of the total stock market, or are you purposely over weighting small and midcaps?
If you are doing the later on purpose, that is cool (it is what I do in a similar situation), however if you are attempting to mimic the Vanguard total stock market fund, your ration of SP500:Midcap:Smallcap should be closer to 81:6:13. See here
Due to the market cap nature of the total stock market fund, it is heavily dominated by the large caps. If you think that's a problem and you want to fix it, what you are doing is good. If you want to get the same returns as the total stock market fund, what you are doing isn't quite right (but may or may not give better returns..).

One other thought: it looks like the total bond fund in your 401k has the same expense ratio as the admiral fund (or ETF) Vanguard Total Bond, whereas the stock funds in your 401k are slightly more expensive than the admiral fund / ETF Vanguard Total stock market. So if you were in the situation where you are maxing out your 401k and IRA and still had taxable investments, it might make sense to buy all/most your bond funds in your 401k and then IRA, and use your taxable accounts to buy the domestic stock fund. This would also be the most tax efficient placement. Assuming you can do that while sticking to your desired asset allocation. International funds are a little tricky in terms of optimal tax placement, or at least I never figured it out.

frozenpenguin

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Re: Trying to get close to a 3 Fund Portfolio with limited 401k options
« Reply #3 on: March 01, 2015, 10:55:47 AM »
Yes, I was trying to simulate the entire stock market, will adjust me percentages accordingly.  Thanks!

hodedofome

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Re: Trying to get close to a 3 Fund Portfolio with limited 401k options
« Reply #4 on: March 01, 2015, 03:04:59 PM »
If you have to use an international fund in your 401k, the American Funds EuroPacific growth would be the one to go with.

wtjbatman

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Re: Trying to get close to a 3 Fund Portfolio with limited 401k options
« Reply #5 on: March 01, 2015, 04:30:51 PM »
Aside from the lack of a cheap international index fund, those options are great. Many people around here would kill for those options in their 401k. You can effectively do 2/3rds of the 3 Fund Portfolio in your 401k.

To complete the other 1/3rd, just put your desired international investments in an IRA or taxable account.