401K Fund Allocation

[Spur08 384]

So, I’m looking over my 401K quarterly statement and think something needs to change.  I’ve been with this company for about 2 years (1 year in 401K participation), below are the stats:

·         Current Allocation – Vanguard TD 2050 (VFIFX) 50% and Vanguard TD 2055 (VFFVX) 50%, both ER are 0.15%

·         Rate of return for the last quarter – 0.95%

·         Last quarter gains -- $76.37

·         Last quarter fees -- $59.23 (77% of gains)

o   Admin Expense -- $39.47 (66% of total fee)

o   Investment Expense -- $19.76 (33% of total fee)

 

My guess is that admin expenses are the custodial provider’s expenses, so there’s nothing I can do about that, correct?  If that’s the case, I assume my only option is to lower the investment (ER) expense.  Below are my fund options, I’m okay with a fairly aggressive portfolio.   Obviously, the most appealing to avoid expenses are the Vanguard funds.  Any recommendations or advice out there?

 

 

Edited August 7, 2018 by Spur08

[Nice Guy Eddie 13712]

I've never been a fan of the funds that are based on your age.  In theory they should be ok but I don't know if it works out like that in the long run.

I'm don't claim to know anything but from the basic data you show, the Vanguard S&P 500 fund beats those 2 funds for every measurement (YTD, 3 mo, 1 yr, 3 yr, etc) and has an expense ratio that is only 1/4 of the expenses from your 2 funds.   

Perhaps 2/3 in Vanguard S&P500 and 1/3 in a higher risk fund if you want to mix it up some.   

[HenryJames 67129]

Why are you in two different TD funds?

[Nice Guy Eddie 13712]

Even if you know this, it never hurts to consider the other 401k concepts that are key:

• definitely contribute enough to earn the full match from your employer. 
• if possible, contribute the max allowed by the IRS.   $18,500.  (this may be impossible for some, but have a plan to get putting away more each year.)
• Save enough outside of the 401k so you don't have to withdraw later from the 401k to pay bills or buy a house
• Be clear on when the matching funds are fully vested.  This is important if you leave your job.   If you leave with 6 months to go on the vesting, that's real money that you lose.  

Early on in your 401k savings lifecycle, how much you save is more important than picking the right fund, IMO.   Gaining or losing a few percentage points, or even paying a bit more or less in expenses doesn't affect it as much as ensuring you save as much as possible.

[HouTex 1913]

I don't like the age based blended funds either.

40% Vanguard S&P 500
20% Vanguard Mid
20% international??
10% Vanguard Small cap value
10% Vanguard Small cap growth

How old are you? I'm 56 and this year is the first time I have put any money in a bond/fixed income fund. Some think that's even too conservative. I've been in a mix of large cap growth, large cap value, mid cap, small cap, and international growth funds for over 25 years and overall I have done well. I couldn't tell if your options include an international fund. If so I would put 20% there. By the way, I don't like your fund options. American Funds, Fidelity, and T Rowe Price would be better IMO.

And I would go 7-10 years without touching my allocation. Diversify and leave it alone unless something really weird happens.

[Cheeseweasel 26439]

8 minutes ago, HouTex said:

How old are you? I'm 56 and this year is the first time I have put any money in a bond/fixed income fund. Some think that's even too conservative. 

I agree. People tend to think about their investment timeline as "age of retirement". Most people will be retired for 20-30 years. That's a hell of a long time for an investment to grow. 

[HouTex 1913]

12 minutes ago, Cheeseweasel said:

I agree. People tend to think about their investment timeline as "age of retirement". Most people will be retired for 20-30 years. That's a hell of a long time for an investment to grow. 

Exactly.  My father sold his business and put everything in fixed income--in 1985.  He never trusted the stock market (being a depression baby).  My parents are still alive and have done fine.  But if he had just invested it in an S&P 500 index fund they would be 15x-20x richer.  But the ups and downs of the broader market over the years would have made his brain explode.

[Spur08 384]

Good insight so far.  I'm 33 this year.  MFJ with a 14 month old.  I hold a $1MM 30 year term on myself and my wife and kid have a lower and cheaper term as well (kid paid by inlaws).  I contribute 12% (6% match) to my 401K with a little extra to a Roth and individual investment fund.  Household income is just under $200K depending on bonuses.  I have approximately 1 year of salary already saved in a rollover 401K, SDIRA, and rollover roth.  There is also a 529 that has a negligible amount in it.  To be honest, I don't know any of what my wife currently has and it's my goal to correct that this year.  

 

In regards to the funds available, I don't disagree.  It looks like the composition of the 2050 fund is:

Holding Name Percent of TNA

Vanguard Total Stock Mkt Idx Inv 54.35%

Vanguard Total Intl Stock Index Inv 35.69%

Vanguard Total Bond Market II Idx Inv 6.97%

Vanguard Total Intl Bd Idx Investor 2.99%

Percent of Assets in Top Holdings 100.00%

 

So, I could get close to that by using VOO (S&P 500), a mixture of the small caps for international + bonds, and maybe one of the international funds; however, the 0.66% ER for the cheapest one is just too damn high.

[luke duke 6447]

You’re fine in the funds that you are currently in, assuming that they match your risk tolerance.

 

[TwiceHorn 31996]

One of the problems with the "date funds," that's pretty clear here, is that they have relatively high fees because they are more actively managed than an index fund.  They aren't a horrible choice, but as young as you are, I think you could/should go higher risk and put at least some of your money in the SP500 index fund.  The degree of management often has an inverse correlation to ROR.

Personally, I have been a bit higher risk in qualified accounts than unqualified because I can't withdraw from the qualified so I won't realize any losses there. As I approach 59.5 that may change.

[Cheeseweasel 26439]

2 hours ago, Spur08 said:

Good insight so far.  I'm 33 this year.  MFJ with a 14 month old.  I hold a $1MM 30 year term on myself and my wife and kid have a lower and cheaper term as well (kid paid by inlaws).  I contribute 12% (6% match) to my 401K with a little extra to a Roth and individual investment fund.  Household income is just under $200K depending on bonuses.  I have approximately 1 year of salary already saved in a rollover 401K, SDIRA, and rollover roth.  There is also a 529 that has a negligible amount in it.  To be honest, I don't know any of what my wife currently has and it's my goal to correct that this year.  

 

In regards to the funds available, I don't disagree.  It looks like the composition of the 2050 fund is:

Holding Name Percent of TNA

Vanguard Total Stock Mkt Idx Inv 54.35%

Vanguard Total Intl Stock Index Inv 35.69%

Vanguard Total Bond Market II Idx Inv 6.97%

Vanguard Total Intl Bd Idx Investor 2.99%

Percent of Assets in Top Holdings 100.00%

 

So, I could get close to that by using VOO (S&P 500), a mixture of the small caps for international + bonds, and maybe one of the international funds; however, the 0.66% ER for the cheapest one is just too damn high.

Good mix. You'll do fine with this one if you don't "play" with it too much.

FWIW, that's a bunch of insurance. Not sure I'd be carrying that much (especially term). What is your monthly payment?

[Spur08 384]

13 minutes ago, Cheeseweasel said:

Good mix. You'll do fine with this one if you don't "play" with it too much.

FWIW, that's a bunch of insurance. Not sure I'd be carrying that much (especially term). What is your monthly payment?

It's not my intention to play and frequently rebalance.  I just see it as a problem where 77% of my gain is eating up by fees.  My personal monthly on the life is $131. It's probably a little high b/c I have combined a 20 year and a 30 year.  The idea is that if I were to die, the money would get the kids through college with some money for a wedding, etc. I wouldn't need as much insurance once they're on their own so the final 10 years is just a $500K policy.

[Cheeseweasel 26439]

Each to his own. I like to play the odds and assume I will see my kids graduate from HS.  If you put $131 per month in a college account, you'd cover a year's worth (easily). But I don't know your situation and your mileage may vary.

Other than that, you are in GREAT shape if you keep it up. Don't dwell on the first 2 quarters this year. They were squirrelly.  I agree with others that have pointed out that "managed" funds can be a drain with Management fees. 

[Reagan1k 3042]

35 minutes ago, Cheeseweasel said:

Good mix. You'll do fine with this one if you don't "play" with it too much.

FWIW, that's a bunch of insurance. Not sure I'd be carrying that much (especially term). What is your monthly payment?

With a $200k income, I'm of the opposite opinion - That's not too much and may my not be enough insurance depending on what either spouse would need/want do in the event of the other's death and how that total income is split between the two.

Term is cheap at that age and the face amount can always be reduced as time passes and the need lessens.

It's not just about replacing some income.  One must also consider opportunity costs for lifestyle in a single parent home, ability for the surviving spouse to save on top of their income if they do in fact continue / chose to work, etc.

$1mm doesn't go very far when needing to fund another 20+ years of having a dependent child, college, etc.

Just my 2 cents.

[Cheeseweasel 26439]

Maybe I don't want my wife spending 1 million bucks on the pool boy when I'm dead 

[luke duke 6447]

40% Vanguard S&P 500
20% Vanguard Mid
20% international??
10% Vanguard Small cap value
10% Vanguard Small cap growth

This would be a fairly aggressive allocation that most people would not recommend. There is no bond allocation and there is a large tilt to mid/small caps.

[HenryJames 67129]

1 hour ago, TwiceHorn said:

One of the problems with the "date funds," that's pretty clear here, is that they have relatively high fees because they are more actively managed than an index fund.

The expense ratio of the two funds he has is .15%. The Investment Expense Fee he's paying is not going to Vanguard. 

[luke duke 6447]

One of the problems with the "date funds," that's pretty clear here, is that they have relatively high fees because they are more actively managed than an index fund.

You think that a 0.15% ER is excessive for a set it and forget it fund? Also, stating that the fund is “actively managed” is a bit dishonest. It consists of 4 index funds that are automatically rebalanced.

They aren't a horrible choice, but as young as you are, I think you could/should go higher risk and put at least some of your money in the SP500 index fund.

The funds he is in are 89.8% equities and 10.2% bonds.

The two funds are currently identical so there is no benefit to holding both. The equity portion of the fund is 60/40 domestic/international which is on the high side of most recommendations. If you wish to be weighted more domestic then put a little more in the S&P 500 fund.

[Red Six 131]

Why are you using two target date funds?

Do like a 60/30/10 VOO/Int'l fund/bond fund (although the international choices look like they suck).

If you want to cut expenses, gripe to HR and ask them to switch their provider to Vanguard or someone who charges a lower administration fee.

[tokamak 6685]

3 hours ago, Spur08 said:

Good insight so far.  I'm 33 this year.  MFJ with a 14 month old.  I hold a $1MM 30 year term on myself and my wife and kid have a lower and cheaper term as well (kid paid by inlaws).  I contribute 12% (6% match) to my 401K with a little extra to a Roth and individual investment fund.  Household income is just under $200K depending on bonuses.  I have approximately 1 year of salary already saved in a rollover 401K, SDIRA, and rollover roth.  There is also a 529 that has a negligible amount in it.  To be honest, I don't know any of what my wife currently has and it's my goal to correct that this year.  

 

In regards to the funds available, I don't disagree.  It looks like the composition of the 2050 fund is:

Holding Name Percent of TNA

Vanguard Total Stock Mkt Idx Inv 54.35%

Vanguard Total Intl Stock Index Inv 35.69%

Vanguard Total Bond Market II Idx Inv 6.97%

Vanguard Total Intl Bd Idx Investor 2.99%

Percent of Assets in Top Holdings 100.00%

 

So, I could get close to that by using VOO (S&P 500), a mixture of the small caps for international + bonds, and maybe one of the international funds; however, the 0.66% ER for the cheapest one is just too damn high.

This asset allocation looks just fine to me for someone in their early 30s. Your big problem if you are concerned about expenses is that admin fee, which it seems like you can do nothing about. At least your company match makes up for it some. Looking at the expense ratios, you might be able to do 0.1% better at best by switching out of the target date funds. On a $100k portfolio, that's $100 a year. Seems a small price to pay for not having to worry about rebalancing, ever.

[Dahobbs 18196]

1 hour ago, Cheeseweasel said:

Good mix. You'll do fine with this one if you don't "play" with it too much.

FWIW, that's a bunch of insurance. Not sure I'd be carrying that much (especially term). What is your monthly payment?

eh, I have the same on a 20 year term. It is around 40 a month, so not a big deal. Worth it to have until my other accounts are such to provide for family if something happens to me. 

[TwiceHorn 31996]

33 minutes ago, luke duke said:

 

You think that a 0.15% ER is excessive for a set it and forget it fund? Also, stating that the fund is “actively managed” is a bit dishonest. It consists of 4 index funds that are automatically rebalanced.



The funds he is in are 89.8% equities and 10.2% bonds.

The two funds are currently identical so there is no benefit to holding both. The equity portion of the fund is 60/40 domestic/international which is on the high side of most recommendations. If you wish to be weighted more domestic then put a little more in the S&P 500 fund.

No, it's not objectively high, but it is higher than index funds, almost 4x the Vanguard SP500.  The rest were more general points, applying to "more managed" funds (the Invesco and Zacks for example), versus Vanguard funds vs. Vanguard index funds.

 

[HouTex 1913]

This would be a fairly aggressive allocation that most people would not recommend. There is no bond allocation and there is a large tilt to mid/small caps.

Yes, it probably is aggressive, but that was close to my allocation over the last 25 years and it served me well. I'm 56 and this is the first year I went into bonds/fixed income. It's around 15% of my combined IRA and 401k.

[jdhorn92 1590]

I'm a Vanguard guy, been investing with them since right after my UT days.  I posted on tos often about my investment philosophy.  I too do not like Target Date (TD) funds.  Typical rule of thumb back when i was in my early 20's (28 years ago) was age minus 100 and thats the % that should be in equities.  Of course that was back when mortality tables and defined benefit plans were still en vogue. We all have to be able to fend for ourselves these days.  I would go 50% S&P and 50% Small Cap (or Small Cap Value).  I have a substantial % of my portfolio in those two funds and it has suited me well through tech bust (when Nasdaq peaked), 9-11 and recent great recession.  Slow and steady wins the race.

[Whitman 694]

Edited August 8, 2018 by Whitman

[Anastasis 23704]

7 hours ago, Cheeseweasel said:

Maybe I don't want my wife spending 1 million bucks on the pool boy when I'm dead 

The only purpose of my wife's policy is to fund my bereavement boat and a few years of books for college. 

[Anastasis 23704]

My current breakdown is:

30% large cap

30% small/mid cap

20% company

10% Intl

10% cash

40yo. 

11.49% rate of return YTD. 

Edited August 8, 2018 by Anastasis

[Longhorn Al 440]

I'm 50/50 in large and small cap.  I'm 35.

[Horn21 175]

 

For those pumping 90-100% into the s&p at historically high valuations, just a friendly reminder to keep the “oh shit!” handle readily available and hang on tight.

 

[Cheeseweasel 26439]

5 hours ago, Horn21 said:

 

For those pumping 90-100% into the s&p at historically high valuations, just a friendly reminder to keep the “oh shit!” handle readily available and hang on tight.

 

If you are 60, yeah. Diversify.

If you are 30, ride that fucker out and hunt for bargains.

[Parliament 14570]

Subscribed

I put $4MM in the S&P 500,  $2MM in gold, $1.5MM in broad international index, andn $500k in cash.  I'm afraid this is the wrong allocation.

[52-80 19374]

25 minutes ago, Parliament said:

Subscribed

I put $4MM in the S&P 500,  $2MM in gold, $1.5MM in broad international index, andn $500k in cash.  I'm afraid this is the wrong allocation.

where's your Bitcoin allocation, dumbass

[HouTex 1913]

 
For those pumping 90-100% into the s&p at historically high valuations, just a friendly reminder to keep the “oh shit!” handle readily available and hang on tight.
 

What is the vertical axis?

[Spur08 384]

16 minutes ago, HouTex said:

What is the vertical axis?

Looks like it's the PE ratio chart.  I don't really see the significance, current day is 24.

http://www.multpl.com/

[Sbbruin 22095]

You need to leverage your ass deep into soybeans and cocoa futures.

[Cheeseweasel 26439]

18 minutes ago, Sbbruin said:

You need to leverage your ass deep into soybeans and cocoa futures.

 

 

[TwiceHorn 31996]

I bought cardboard at 0.14 a ton  . . . .

[CooterBrown 18273]

Each to his own. I like to play the odds and assume I will see my kids graduate from HS.  If you put $131 per month in a college account, you'd cover a year's worth (easily). But I don't know your situation and your mileage may vary.
Other than that, you are in GREAT shape if you keep it up. Don't dwell on the first 2 quarters this year. They were squirrelly.  I agree with others that have pointed out that "managed" funds can be a drain with Management fees. 

Statistically, your spouse will forget about your dead ass and be remarried within two years. There’s no need to finance their second family’s lifestyle.

[Cheeseweasel 26439]

13 minutes ago, CooterBrown said:

 

Statistically, your spouse will forget about your dead ass and be remarried within two years. There’s no need to finance their second family’s lifestyle.

 

Preach.

[texas08 1599]

Subscribed

[Spur08 384]

So what if I did the allocation based on my total portfolio and mimic the date fund?  I.e..

Vanguard Total US Stock - 54.3% -- Held in 401K via VOO (S&P 500 Index)
Vanguard Total Intl Stock - 35.5% Held in rollover?
Vanguard Total US Bond - 7.20% Held in rollover?
Vanguard Total Intl Bond - 3.00% Held in rollover?

Just 2 things -- How do I balance the exposure of the SP 500 to the total stock market? I.e. how do I get that remaining exposure that's not in the S&P and at what ratio:VOO?  Also, is there any particular holding that would be more beneficial in a Roth?

FWIW -- In my SDIRA, I hold $50K in real estate and $25K in ownership of a plumbing company.

[tokamak 6685]

30 minutes ago, Spur08 said:

So what if I did the allocation based on my total portfolio and mimic the date fund?  I.e..

Vanguard Total US Stock - 54.3% -- Held in 401K via VOO (S&P 500 Index)
Vanguard Total Intl Stock - 35.5% Held in rollover?
Vanguard Total US Bond - 7.20% Held in rollover?
Vanguard Total Intl Bond - 3.00% Held in rollover?

Just 2 things -- How do I balance the exposure of the SP 500 to the total stock market? I.e. how do I get that remaining exposure that's not in the S&P and at what ratio:VOO?  Also, is there any particular holding that would be more beneficial in a Roth?

FWIW -- In my SDIRA, I hold $50K in real estate and $25K in ownership of a plumbing company.

No reason you can't do that, just gotta remember to stay on top of rebalancing. I assume in this scenario all (or most) of your new contributions are going into a single account (the 401k?), so that makes it doubly important to rebalance regularly.

As far as S&P 500 vs Total Market, others may disagree but I think that's splitting hairs. In a perfect world, yeah, you'd have access to a total market fund or be able to add some mid- and small-cap somehow, but IMO the difference is not worth worrying about. In other words, what you've proposed is diversified "enough".

IRAs and 401ks are similarly tax-advantaged, so there's no practical difference in what you hold in which account.

[HouTex 1913]

1 hour ago, CooterBrown said:

 

 

Statistically, your spouse will forget about your dead ass and be remarried within two years. There’s no need to finance their second family’s lifestyle.

 

Depends on the widow (age and looks).  The mid-50 widows I know have had a hard time of it.  Single/divorced/widower men around their age can go after and get much younger/hotter women.  They have been stay at home moms so they need the $$$ just to maintain their lifestyle. 

[HouTex 1913]

1 hour ago, Spur08 said:

Looks like it's the PE ratio chart.  I don't really see the significance, current day is 24.

http://www.multpl.com/

It might be somewhat relevant, but IMO it should not keep people out of the market for extended periods.  There's a huge risk to being out of the market.  I recall seeing an analysis done in the late 90's when I became eligible for my firm's 401k.  It assumed a lump sum investment of $10,000 made each year in the 1970's under two scenarios.  One was at the top of the market (worst time to buy) and one at the bottom (best time to buy).  Even the investments made at the worse time each year had grown significantly and it was only about 30% less than if the investments had been made at the best time to buy each year.  The point is that you can't time the market perfectly unless you have a time machine so invest early and stay invested. 

[Cheeseweasel 26439]

15 minutes ago, HouTex said:

It might be somewhat relevant, but IMO it should not keep people out of the market for extended periods.  There's a huge risk to being out of the market.  I recall seeing an analysis done in the late 90's when I became eligible for my firm's 401k.  It assumed a lump sum investment of $10,000 made each year in the 1970's under two scenarios.  One was at the top of the market (worst time to buy) and one at the bottom (best time to buy).  Even the investments made at the worse time each year had grown significantly and it was only about 30% less than if the investments had been made at the best time to buy each year.  The point is that you can't time the market perfectly unless you have a time machine so invest early and stay invested. 

+rep

Bears make money, Bulls make money. Pigs get slaughtered. Market timing is a fool's errand. 

[kmac30 416]

With a $200k income, I'm of the opposite opinion - That's not too much and may my not be enough insurance depending on what either spouse would need/want do in the event of the other's death and how that total income is split between the two.
Term is cheap at that age and the face amount can always be reduced as time passes and the need lessens.
It's not just about replacing some income.  One must also consider opportunity costs for lifestyle in a single parent home, ability for the surviving spouse to save on top of their income if they do in fact continue / chose to work, etc.
$1mm doesn't go very far when needing to fund another 20+ years of having a dependent child, college, etc.
Just my 2 cents.

I agree. And if you don’t want the pool boy or the next husband to get all your money, there are guys who handle setting up just documents just for those situations. Estate attorneys are great resources. Term policies rarely pay out. But would you want your wife to have to sell your house and move to an apartment or find some new rich guy to support your family?

131 for $1M term seems high to me. Even if it is two different policies. Shop around. You can always just ditch what you have. Great thing about shopping for insurance, go through the process and if it’s not the price you want just say no thanks.

[Horn Dog 10156]

If you came across 500k of unexpected cash and were pretty convinced a crash was right around the corner, what Vanguard funds would you be eyeing?

[FWD 297]

34 minutes ago, Horn Dog said:

If you came across 500k of unexpected cash and were pretty convinced a crash was right around the corner, what Vanguard funds would you be eyeing?

If you are convinced there is a crash coming, cash or VGLT (long-maturity treasuries).

[FWD 297]

I avoid the target date funds personally but for most people make sense. The .15 ER is 4 times higher than .04 for the all-market Vanguard, but that is misleading since .11 is already such a small amount. What that buys you compared to building the same allocation yourself is the automatic rebalancing. Not everyone wants to set a reminder to rebalance constantly. I do it, but for most people the target date fund lets you set it and forget it for a relatively low price.

[Anastasis 23704]

46 minutes ago, Horn Dog said:

If you came across 500k of unexpected cash and were pretty convinced a crash was right around the corner, what Vanguard funds would you be eyeing?

The smart people on the market falling like whoa thread talked me out of VIX options, but I think that you shoudl try it.