401K Fund Allocation

[Wally Fairway 5664]

22 hours ago, luke duke said:

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.

 

Time is on his side, be aggressive - you are dollar cost averaging into the funds every paycheck.

That being said - sorry the OP is in a crappy 401k where he pays admin fees

Now is a bad time for bond allocation (IMO), paying low rates and in a time of rising rates you will then lose principal (in a bond fund, owning actual bonds you can hold until maturity so no loss of principal)
Disclosure - I am not a financial advisor, but I do drive by a Holiday Inn Express on my way to work every day (and I've never managed more than $1.5 million in investments)

[52-80 19374]

1 hour 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?

Vanguard Asadulah Securities

[Horn21 175]

2 hours 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/

Close.  It's Shiller's CAPE ratio (currently at 33.24, with a historical mean of 16.88).  Shiller's work isn't the end all be all, but it's most definitely not insignificant.  The CAPE smooths out the PE by taking 10yr averages that cover full cycles.  Whether or not high PE ratios are here to stay due to changes in how earnings are reported is another debate that involves more than the scope of the overall point.

I'm not advocating that everyone take his 401k to the sidelines, and I didn't post the original chart as a market timing indicator.  I'm simply stating that future market expectations should be tempered based on where we are currently.  For a number of reasons, whether it's valuations or a yield curve nearing inversion, or pick your poison on any number of metrics, we are at a point where the next 10+ years of expected market returns (especially for the S&P 500 Index huggers) could easily look very meh to outright bleak.  Again, this isn't a prediction, because nobody knows where the market will be a year from now.  I'm just saying buy into this market with eyes wide open.  If you're 33 you haven't personally experienced a market crash.  I can't tell you how many people I watched talk bravado on the way up and their actions ended in capitulation by the end of 2008 or 1st quarter 2009.  Human emotion is a real thing and it absolutely wrecked a lot of folks who once swore that they wouldn't succumb to it.  The flip side of that being that, yes, a lot people did ride it out.  If you can close your eyes and ride the ride, then jump in.  Just be sure that you can.  It's a long slog back after a big market correction.  I think it's awesome that you're paying attention to your investments and wanting to understand how best to plan for your future...most people don't get to that place until it's too late.  Just know that buying into this current market with 90%+ allocated to equities is going to test a lot of stomachs on the next trip down.  No one's gonna be talking about 0.07% vs. 0.15% expense ratios when it happens.  

2 hours 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?

I think wanting to diversify some of your US market exposure away from the S&P 500 is a good idea.  If you're committed to riding the ride,  reducing your asset allocation correlation plays a big part in portfolio returns.  It's way more important than which fund company you choose or picking a fund based on ER.  The S&P 500 index is cap-weighted, so while Apple, Microsoft, Amazon, and Google individually make up 1/500th of the companies in the S&P 500, they each account for a 3-4% allocation weighting in the index.  As those companies go, so goes the index.

The S&P has had a really strong run; however, it had a negative annualized return during the 2000s while small and midcaps annualized 6%+ (as did the US bond index) during that time.  I'd say it's worth having at least 1/4 (and probably more) of your US equity exposure in small/mid cap funds, IMO.

1 hour 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. 

Overall, I agree with this sentiment.  It doesn't pay for the average investor to avoid the market and try to time it.  Unfortunately, backward looking analysis doesn't keep people from making really bad decisions with their money in times of exuberance or chaos. 

 

[HouTex 1913]

^^^ good post.  I'm 56 and the next market crash, and it will come, will test my resolve.  But staying in 100% equities until now has been the right move.  Even after the 2008 financial crisis I was back to 2007 levels in just a few years.  The last 3 years have been great.  For those under 45 or so I would keep everything in equities and just ignore the inevitable corrections/crashes.

[TwiceHorn 32001]

One thing that gives me comfort is having observed my parents.  Dad retired in 1986, slightly prematurely due to health.  Mom never worked.  Their portfolio survived the late 80s/early 90s recession, the dotcom crisis, and to an extent, the mortgage crisis and came right back and fully supported their retirement with plenty to spare.  And they didn't go in and out of the market in response.  My Mom, however, was a big fan of CDs back before interest rates were in the shitter and they also had other fixed-income assets.  But I am also referring generally to a "couch potato" type portfolio of low-cost, diversified mutual funds.

[HouTex 1913]

When I graduated from UT in 1984 I was invested in some three year CDs that were paying almost 17%.  My dad was a big fan of CDs too--especially at those rates.

[luke duke 6448]

https://www.bogleheads.org/forum/viewtopic.php?f=1&t=255971

[Spur08 384]

17 minutes ago, luke duke said:

https://www.bogleheads.org/forum/viewtopic.php?f=1&t=255971

What?  You're mad that I only take Surly opinions?  Trying to educate myself over here.  Step off son!

Edited August 8, 2018 by Spur08

[Wally Fairway 5664]

28 minutes ago, luke duke said:

https://www.bogleheads.org/forum/viewtopic.php?f=1&t=255971

 

22 minutes ago, Spur08 said:

What?  You're mad that I only take Surly opinions?  Trying to educate myself over here.  Step off son!

I'll be interested to see how the 2 groups advice differs.

Guestimating that bogleheads is a far more conservative group than the collective assholey group gathered on this site

And I agree with @Horn21, you should understand what you are getting in and S&P 500 fund - market weighting means dollars chasing the largest of the large and the methodology forcing more and more $$$'s into the FAANG's. That said VOO is one of my largest holdings, but I overly compensate with small cap ETF's (mainly IJT and IJS). Those are in a rollover IRA, and I'm even more aggressive in my 401(k), because of company matching funds and fewer funds to select from.
I try to reallocate no more that quarterly (ideally annually) - taking gains from the best performers but the harder part is picking where to invest next? Amero's, crypto's, puts ... ¯\_(ツ)_/¯

[52-80 19374]

5 hours ago, tokamak said:

 

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".

 

My general opinion as well.  After a while it's just going in circles with one market proxy vs another.

I have big chunk of my 401K in the furthest date-targeted fund because it's the most aggressive.  Then I wont have to curse myself if I wrongly timed/picked focused funds of international vs small cap vs emerging markets, etc.  And I also have a pie in Self-Directed Account just to feel in charge, as well as retirement-earmarked external accounts as well.

If you've saved a large enough fraction as a principle, after a certain point it's just obsessing without commensurate payoff.  After all, retirement planning is about having peace of mind.

[Red Six 131]

45 minutes ago, Wally Fairway said:

 

I'll be interested to see how the 2 groups advice differs.

Guestimating that bogleheads is a far more conservative group than the collective assholey group gathered on this site

Bogleheads for retirement, Wall Street Bets for the gambling addiction.

This group strikes the balance.

[Red Six 131]

2 hours ago, Anastasis said:

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

VIX isn't a Vanguard fund...

[Anastasis 23705]

11 minutes ago, Red Six said:

 VIX isn't a Vanguard fund...

Now you guys tell me.

[52-80 19374]

1 hour ago, Red Six said:

VIX isn't a Vanguard fund...

I thought it stood for Vanguard Investment eXperts

[luke duke 6448]

6 hours ago, Spur08 said:

What?  You're mad that I only take Surly opinions?  Trying to educate myself over here.  Step off son!

I think that you're way overestimating how much I care about your financial situation.

[Spur08 384]

13 hours ago, luke duke said:

I think that you're way overestimating how much I care about your financial situation.

Says the guy that sought out my post on another message board and took the time to copy/paste it over here.

 

 

 

[Hugh G. Rection 156]

Some stats say the market is overheated and some say not so much.  From the WSJ:

Despite another robust corporate earnings season, the S&P 500 has inched up just 1.5% over the past three weeks as simmering trade tensions and signs of slowing growth at big technology companies sapped investor confidence. Those issues have helped drive valuations down to their lowest levels of the year, even with the broad stock-market index hovering just 0.5% shy of its January high. The S&P 500 trades at 18.8 times earnings over the past 12 months, a basement valuation that is lower than February’s trough of 21 times earnings, according to FactSet. At the S&P 500’s peak in January, the index traded at nearly 22 times earnings, well above its current level. Strong corporate earnings are making stocks look less pricey than they did before. Companies in the S&P 500 have posted double-digit profit growth for the past three quarters to help earnings catch up with the S&P 500’s 7% advance this year. For the latest quarter, profits are on track to rise 24% from a year earlier, the best pace of earnings beats since 2008, according to FactSet

 

[52-80 19374]

30 minutes ago, Hugh G. Rection said:

Some stats say the market is overheated and some say not so much.  

No wai

[Reagan1k 3042]

Many years ago my Econometrics prof started our class by saying this - " A piece of paper is like a whore - it's job is to lay there while you do with it what you want!"

He'd be fired today, but it's true with regard to stats and indicators, especially in the the realm of persuasive market commentary.

Saving early, often, and aggressively within your budget is the key, everything else is  lagniappe.

[luke duke 6448]

Says the guy that sought out my post on another message board and took the time to copy/paste it over here.

 

Which sounds more likely?

 

1. You’re right. I scoured the internet to see if you were seeking advice elsewhere. Right clicking the link in my browser and pasting it here is a complicated task which took me a couple of hours to figure out, but I was determined to show you that I’m on to you.

 

2. You’re a retard. I read both forums regularly, recognized both posts and thought it might be helpful to have the entire discussion in the same place.

[Nice Guy Eddie 13712]

On 8/8/2018 at 1:40 PM, HouTex said:

When I graduated from UT in 1984 I was invested in some three year CDs that were paying almost 17%.  My dad was a big fan of CDs too--especially at those rates.

I miss the days when it was easy to find ~5% 5-year CDs.  (I couldn't even imagine getting 17.)   I loved dropping my emergency savings in CDs with low withdrawal penalties.

[jdhorn92 1590]

3 hours ago, Nice Guy Eddie said:

I miss the days when it was easy to find ~5% 5-year CDs.  (I couldn't even imagine getting 17.)   I loved dropping my emergency savings in CDs with low withdrawal penalties.

You may miss those days, but they were accompanied by a 9% car loan or 7% mortgage, and that was for good credit. 

[TwiceHorn 32001]

3 hours ago, jdhorn92 said:

You may miss those days, but they were accompanied by a 9% car loan or 7% mortgage, and that was for good credit. 

Hahaha.  My rich aunt was going to buy me a car for high school graduation, but I didn't want what she probably was going to buy (Chevy Citation or similar), so she gave me a $10000 CD instead at something like 11.75% interest, distributed monthly.  Gave me about $100/month beer money all through college.  My Mom was mad that it was distributed.

[Firemans4Horn 18501]

That’s a solid 401(k) lineup. Of course investment expenses and admin fees are going to look high as a percentage of gain when your gain is less than 1% YTD. I’m sure in 2016 and 2017 your expenses as a percentage of gain were much smaller.

I’d wager 99.9% of companies charge their employees an admin fee (investment consultant, erisa attorney, recordkeeper costs are all wrapped up in that charge).

Your company is just ahead of the curve by using institutional non-revenue sharing funds and disclosing that admin fee.  That’s a lot better option than them offering a bunch of r-2 shares with 50 basis  point 12(b-1) fees and the employees thinking the 401k plan is “free”. 

[Spur08 384]

I did just find out today that the admin fee is 1.5% per the disclosure docs.  ER is 0.15%

[Firemans4Horn 18501]

If your investment expense is 33% (15bps) wouldn’t that mean your admin fee at 66% would be 30bps?

[Spur08 384]

Slight transition of topic but I didn't want to make a new thread for it.  This weekend I saw an article that Fidelity has created 2 fee-free funds with their new Fidelity Zero Total Market Index  FZROX Fund and Fidelity Zero International Index Fund FZILX.  The folks over at Bogleheads are saying that they have also slashed the fees on their mutual funds but I have not  yet confirmed.  The race to the bottom by Fidelity and Vanguard sure has been great to watch.  It will be interesting to see what Vanguard's response will be.

 

https://www.fool.com/investing/2018/08/12/intels-internet-of-things-business-was-outstanding.aspx?fs_test=True

https://www.nytimes.com/2018/08/10/business/fidelity-mutual-funds-fees.html

https://www.bogleheads.org/forum/viewtopic.php?f=10&t=255356&start=600