Starting a 3-Fund Plan: How to allocate across 401K and Roth IRA?

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Missjosie444
Posts: 39
Joined: Mon Jul 26, 2021 9:51 pm

Starting a 3-Fund Plan: How to allocate across 401K and Roth IRA?

Post by Missjosie444 »

Hi everyone, thank you for having me! I am 39, recently started in my career (after a very long stint in graduate school), and am only now getting to saving for my future. I had opened a Roth IRA 1 month ago and was lost in trying to pick my own (not-diversified) ETFs based on the recommendations of a friend, as well as planning to invest in a few stock-picking newsletters, and only contributing 2% of my salary to my company's 401K until I came across Bogleheads and the 3-Fund Plan a week ago. Since then I have sold off individual stocks, sold off all ETFs that were not in alignment with the 3-Fund Plan, and I am now preparing to implement that plan into action. Here is where I'm confused.

I am trying to figure out how to allocate my assets across 2 accounts (Roth IRA + traditional 401K), by buying Vanguard's Total Stock Market ETF (VTI), Total International Stock Market ETF (VXUS) and Total Bond Market ETF (BND). I have access to all of those within my Roth IRA, and within my 401K, the closest equivalents I have are:

Vanguard Institutional Total Stock Market Index Trust (ER .02)
Vanguard Institutional Total Bond Market Index Trust (ER .02)
EDIT: Vanguard Institutional Total International Stock Market Index Trust (ER .08)

In my 401K, I'm currently invested entirely in the JP Morgan Chase 2060 Retirement path fund, and I literally have 2 shares of VTI in my Roth IRA.
All of my financials are following, please hang in there with me for my questions at the bottom:

Emergency funds: $26,000

Debt: $207,000 Federal student loans in an income-based repayment plan (I will start paying 10% of my monthly discretionary income at various rates ranging up to 7%, the remainder of which will be forgiven in 18 years; the plan also includes the government paying 50% of any interest payments that go over the amount I'm paying in monthly principle)

Tax Filing Status: Single

Tax Rate: 24% Federal, 9.3% State

State of Residence: CA

Age: 39

Desired Asset allocation: 80% stocks / 20% bonds OR 90% stocks/10% bonds
Desired International allocation: 15-20% of stocks

Approximate size of my total portfolio: approx. $6,372 (I literally just started a month ago), but I will max out my Roth IRA and 401k this year and plan to continue doing so indefinitely if possible.

Current retirement assets $6,372

Funds available in Roth IRA at Vanguard $5,479
79% Vanguard Money Market Settlement Fund: $5,023
14% Vanguard Total Stock Market ETF (VTI) (.03%)

Funds available in 401k $893
7% JPMCB Smart Retire Passive Blend 2060 CF-Z (I am confused about the ER. The Vanguard website says this fund has a "gross ER of .1%". My 401k's Plan information states that this fund has an "annual expense ratio of .44% per $1,000")

Company match: annual $1,700 (1.25% of my income)
_________________________________________________________
Note: Total percentage of all the above accounts together (not each account individually) should equal 100%.

Questions:
1a. For my 401k, should I keep my Target Date Funds, and then implement the 3-Fund plan in my Roth IRA?

1b. If I should keep my Target Date Funds, is a 2060 glide path too aggressive as a 39 year old who literally just started saving this year? I bought this fund on a recommendation from my mother's wealth manager (it is 91% equity, 9% bonds)

2. OR Should I buy total stock market, total bond market, and total international stock market in my 401k, and then mimic the same asset allocation in my Roth IRA using the equivalent ETFs? (EDIT= I edited this to include the fact that yes, my 401k does have an equivalent of Total International Stock Market)

3. Based on the financial information that I provided above, and seeing how I'm "catching up" with my savings and have a relatively stable/safe job, should I start aggressively with a 90% stock mix/10% bond, or would true Boglehead principles mean reducing my risk and going in at 80% stock/ 20% bonds?

4. I don't even know how much to allocate to the international stock market, I was hoping to run a Digital Advisor robo simulation to see what it would recommend and maybe go with that. I'm getting the idea that I should be aiming for 15-20%?

Thank you so much for your input! I feel truly fortunate to find this forum before I could do any real damage to my portfolio.

Sincerely,

Josie
Last edited by Missjosie444 on Sat Jul 31, 2021 3:22 pm, edited 4 times in total.
tashnewbie
Posts: 4284
Joined: Thu Apr 23, 2020 12:44 pm

Re: Starting a 3-Fund Plan: How to allocate across 401K and Roth IRA?

Post by tashnewbie »

Welcome to the forum!
Missjosie444 wrote: Mon Jul 26, 2021 11:08 pm 1a. For my 401k, should I keep my Target Date Funds, and then implement the 3-Fund plan in my Roth IRA?

1b. If I should keep my Target Date Funds, is a 2060 glide path too aggressive as a 39 year old who literally just started saving this year? I bought this fund on a recommendation from my mother's wealth manager (it is 91% equity, 9% bonds)
The ER for the TDF is 0.44%, which is not low, but it's not horrible either. Disregard the ER on Vanguard's website; that's the retail ER. The ER that's relevant to you is the one offered in your 401k. Sometimes the ER's in 401k plans are lower than the retail versions, but sometimes they're higher because the employer passes some costs of administering the plan to its employees.

For a new investor, I think a TDF is generally a great tool. It removes a lot of the potential guesswork out of investing and rebalances for you. A set it and forget it option. Just keep adding new money.

Does the TDF have international stock holdings? If it does, I would probably just use the TDF that corresponds with your desired asset allocation and then use VTI in your Roth IRA. When your portfolio gets bigger (say >$100k), you can reevaluate and change funds in the 401k.

I think it's personal preference what you do and what you want your asset allocation to be. People around here will say your asset allocation should be determined by your personal need, ability, and willingness to take risk. Take Vanguard's investor questionnaire to see what your risk tolerance is and what an appropriate asset allocation for you might be: https://retirementplans.vanguard.com/VG ... Step=start.
Missjosie444 wrote: Mon Jul 26, 2021 11:08 pm 2. OR Should I buy total stock market and total bond market in my 401k (b/c that is what's available), and then allocate the remainder of my Roth IRA to buying the remaining percentages of my total stock market and total international market ETFs?
What are the expense ratios for these funds in your 401k?

Vanguard Institutional Total Stock Market Index Trust
Vanguard Institutional Total Bond Market Index Trust

I assume they're low. If they are and you decide not to use a TDF, then I would use these 2 funds in your 401k and put your desired international holdings in your Roth IRA.
Missjosie444 wrote: Mon Jul 26, 2021 11:08 pm 3. Based on the financial information that I provided above, and seeing how I'm "catching up" with my savings and have a relatively stable/safe job, should I start aggressively with a 90% stock mix/10% bond, or would true Boglehead principles mean reducing my risk and going in at 80% stock/ 20% bonds?
The best way to make up for a "late start" is to have an aggressive savings rate, not asset allocation. Live below your means and invest the difference. You'll get there! Set your asset allocation based on your personal risk tolerance. Use the tools I mentioned above to assess that.
Missjosie444 wrote: Mon Jul 26, 2021 11:08 pm 4. I don't even know how much to allocate to the international stock market, I was hoping to run a Digital Advisor robo simulation to see what it would recommend and maybe go with that. I'm getting the idea that I should be aiming for 15-20%?
This is a very personal decision. There are perennial discussions about whether and how much international stock holdings one should have. It seems anything from 0% to 50% is common. 15-20% would be reasonable (and I think an older Vanguard study showed 20% provided 80% of the diversification benefit).
Missjosie444 wrote: Mon Jul 26, 2021 11:08 pm Debt: $207,000 Federal student loans in an income-based repayment plan (I will start paying 10% of my monthly discretionary income at various rates ranging up to 7%, the remainder of which will be forgiven in 18 years; the plan also includes the government paying I believe 50% of my interest payments---sorry I can't get exact information, but I can no longer find it on the federal student financial aid page, which I'm not sure is due to interest not accruing since Covid)
I would try to get a handle on the terms of your IBR plan, including any subsidized interest payments and the payment schedule. Depending on what you discover, it might be worth trying to pay these off aggressively, especially if the interest rate on some of them will be 7%.
Last edited by tashnewbie on Tue Jul 27, 2021 9:30 am, edited 1 time in total.
Jack FFR1846
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Re: Starting a 3-Fund Plan: How to allocate across 401K and Roth IRA?

Post by Jack FFR1846 »

My 2 cents on this?

Until you hit $100k invested, go all in on VTI in all accounts. If you can't in your 401k, choose the lowest ER fund you have access to. When you get to $100k invested, then start looking into 3 fund and AA.
Bogle: Smart Beta is stupid
etfan
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Re: Starting a 3-Fund Plan: How to allocate across 401K and Roth IRA?

Post by etfan »

Jack FFR1846 wrote: Tue Jul 27, 2021 8:38 am My 2 cents on this?

Until you hit $100k invested, go all in on VTI in all accounts. If you can't in your 401k, choose the lowest ER fund you have access to. When you get to $100k invested, then start looking into 3 fund and AA.
Why $100K?

After that do you phase out the VTI slowly or what?
rhubarbpie
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Joined: Mon May 03, 2021 9:18 am

Re: Starting a 3-Fund Plan: How to allocate across 401K and Roth IRA?

Post by rhubarbpie »

You could use a target-date fund, but I don't love the ER on the one you have now. I'd KISS, with a three-fund approach, one in the IRA and two in the 401k. If you plan to max out the 401k and the IRA contributions each year, that's $19.5k for the 401k and $6k for the IRA. You don't want bonds in anything Roth, so put those in the 401k. $6k is about 24% of the total $25.5k per year, so that'd be close to your desired international allocation.

For example:
in Roth IRA, $6k VXUS = 24% international stock (or a little less VXUS plus a bit of VTI if you want to get precise with your AA, but at this point I don't think it's worth the fuss)
in 401k, $19.5k x :
85% Vanguard Institutional Total Stock Market Index Trust = $16575 = 65% US stock
15% Vanguard Institutional Total Bond Market Index Trust = $2925 = 11% bonds
etfan
Posts: 526
Joined: Sun May 16, 2021 4:22 pm

Re: Starting a 3-Fund Plan: How to allocate across 401K and Roth IRA?

Post by etfan »

rhubarbpie wrote: Tue Jul 27, 2021 2:07 pm You could use a target-date fund, but I don't love the ER on the one you have now. I'd KISS, with a three-fund approach, one in the IRA and two in the 401k.

...
Don't forget to rebalance.
rsundaraz
Posts: 53
Joined: Sat Mar 20, 2021 8:36 pm

Re: Starting a 3-Fund Plan: How to allocate across 401K and Roth IRA?

Post by rsundaraz »

Missjosie444 wrote: Mon Jul 26, 2021 11:08 pm
I don't even know how much to allocate to the international stock market, I was hoping to run a Digital Advisor robo simulation to see what it would recommend and maybe go with that. I'm getting the idea that I should be aiming for 15-20%?
Regarding the VDA robo simulation, it has standard allocations within stocks/bonds sleeve. Once you take the risk questionnaire, your risk profile would be identified as one of very conservative, conservative, moderate, aggressive and very aggressive. You can change it two notches down or two notches up but not outside of that. Like you cannot change it from very aggressive to very conservative. This decides the stocks/bonds split. Once this is determined, it's just 60% US (VTI), 40% ex-US (VXUS) for stocks, and 70% US (BND) and 30% ex-US (BNDX) for bonds. I'm around your age and this what it did for me. Not sure if it reduces ex-US allocation as you get closer to retirement.
Topic Author
Missjosie444
Posts: 39
Joined: Mon Jul 26, 2021 9:51 pm

Re: Starting a 3-Fund Plan: How to allocate across 401K and Roth IRA?

Post by Missjosie444 »

tashnewbie wrote: Tue Jul 27, 2021 8:35 am Welcome to the forum!
Missjosie444 wrote: Mon Jul 26, 2021 11:08 pm 1a. For my 401k, should I keep my Target Date Funds, and then implement the 3-Fund plan in my Roth IRA?

1b. If I should keep my Target Date Funds, is a 2060 glide path too aggressive as a 39 year old who literally just started saving this year? I bought this fund on a recommendation from my mother's wealth manager (it is 91% equity, 9% bonds)
The ER for the TDF is 0.44%, which is not low, but it's not horrible either. Disregard the ER on Vanguard's website; that's the retail ER. The ER that's relevant to you is the one offered in your 401k. Sometimes the ER's in 401k plans are lower than the retail versions, but sometimes they're higher because the employer passes some costs of administering the plan to its employees.

For a new investor, I think a TDF is generally a great tool. It removes a lot of the potential guesswork out of investing and rebalances for you. A set it and forget it option. Just keep adding new money.

Does the TDF have international stock holdings? If it does, I would probably just use the TDF that corresponds with your desired asset allocation and then use VTI in your Roth IRA. When your portfolio gets bigger (say >$100k), you can reevaluate and change funds in the 401k.

I think it's personal preference what you do and what you want your asset allocation to be. People around here will say your asset allocation should be determined by your personal need, ability, and willingness to take risk. Take Vanguard's investor questionnaire to see what your risk tolerance is and what an appropriate asset allocation for you might be: https://retirementplans.vanguard.com/VG ... Step=start.
Missjosie444 wrote: Mon Jul 26, 2021 11:08 pm 2. OR Should I buy total stock market and total bond market in my 401k (b/c that is what's available), and then allocate the remainder of my Roth IRA to buying the remaining percentages of my total stock market and total international market ETFs?
What are the expense ratios for these funds in your 401k?

Vanguard Institutional Total Stock Market Index Trust
Vanguard Institutional Total Bond Market Index Trust

I assume they're low. If they are and you decide not to use a TDF, then I would use these 2 funds in your 401k and put your desired international holdings in your Roth IRA.
Missjosie444 wrote: Mon Jul 26, 2021 11:08 pm 3. Based on the financial information that I provided above, and seeing how I'm "catching up" with my savings and have a relatively stable/safe job, should I start aggressively with a 90% stock mix/10% bond, or would true Boglehead principles mean reducing my risk and going in at 80% stock/ 20% bonds?
The best way to make up for a "late start" is to have an aggressive savings rate, not asset allocation. Live below your means and invest the difference. You'll get there! Set your asset allocation based on your personal risk tolerance. Use the tools I mentioned above to assess that.
Missjosie444 wrote: Mon Jul 26, 2021 11:08 pm 4. I don't even know how much to allocate to the international stock market, I was hoping to run a Digital Advisor robo simulation to see what it would recommend and maybe go with that. I'm getting the idea that I should be aiming for 15-20%?
This is a very personal decision. There are perennial discussions about whether and how much international stock holdings one should have. It seems anything from 0% to 50% is common. 15-20% would be reasonable (and I think an older Vanguard study showed 20% provided 80% of the diversification benefit).
Missjosie444 wrote: Mon Jul 26, 2021 11:08 pm Debt: $207,000 Federal student loans in an income-based repayment plan (I will start paying 10% of my monthly discretionary income at various rates ranging up to 7%, the remainder of which will be forgiven in 18 years; the plan also includes the government paying I believe 50% of my interest payments---sorry I can't get exact information, but I can no longer find it on the federal student financial aid page, which I'm not sure is due to interest not accruing since Covid)
I would try to get a handle on the terms of your IBR plan, including any subsidized interest payments and the payment schedule. Depending on what you discover, it might be worth trying to pay these off aggressively, especially if the interest rate on some of them will be 7%.
Thank you so much for your response! The Vanguard Institutional Total Bond and Institutional Total Stock Market Indices have ER's of .02. Even though those are extremely low, I'm also getting the sense that as a 1-month newbie, I might benefit from the TDFs for now and not trying to split my allocations up across 2 accounts. But after more learning, that may change and probably faster than I think it will. I appreciate you sharing the asset allocation tool, and your very in-depth recommendations on the above. I'll have to read those again to digest.
Topic Author
Missjosie444
Posts: 39
Joined: Mon Jul 26, 2021 9:51 pm

Re: Starting a 3-Fund Plan: How to allocate across 401K and Roth IRA?

Post by Missjosie444 »

Jack FFR1846 wrote: Tue Jul 27, 2021 8:38 am My 2 cents on this?

Until you hit $100k invested, go all in on VTI in all accounts. If you can't in your 401k, choose the lowest ER fund you have access to. When you get to $100k invested, then start looking into 3 fund and AA.
Out of curiosity, why one fund? Wouldn't I lose diversification with that? Does it come with the possibly for higher returns, or would it be one fund in order to reduce complexity?

Thank you,

Josie
Topic Author
Missjosie444
Posts: 39
Joined: Mon Jul 26, 2021 9:51 pm

Re: Starting a 3-Fund Plan: How to allocate across 401K and Roth IRA?

Post by Missjosie444 »

rhubarbpie wrote: Tue Jul 27, 2021 2:07 pm You could use a target-date fund, but I don't love the ER on the one you have now. I'd KISS, with a three-fund approach, one in the IRA and two in the 401k. If you plan to max out the 401k and the IRA contributions each year, that's $19.5k for the 401k and $6k for the IRA. You don't want bonds in anything Roth, so put those in the 401k. $6k is about 24% of the total $25.5k per year, so that'd be close to your desired international allocation.

For example:
in Roth IRA, $6k VXUS = 24% international stock (or a little less VXUS plus a bit of VTI if you want to get precise with your AA, but at this point I don't think it's worth the fuss)
in 401k, $19.5k x :
85% Vanguard Institutional Total Stock Market Index Trust = $16575 = 65% US stock
15% Vanguard Institutional Total Bond Market Index Trust = $2925 = 11% bonds
Thank you for this idea. This is actually super compelling because it sounds easier than I thought it would be, and the 2 401k trusts (Bond and Total Stock Market) have ER's of .02 each, which definitely beats out the TDF (ER .44) and actually is less riskier than the TDF I'm invested in anyway, which I wasn't entirely comfortable with.
Topic Author
Missjosie444
Posts: 39
Joined: Mon Jul 26, 2021 9:51 pm

Re: Starting a 3-Fund Plan: How to allocate across 401K and Roth IRA?

Post by Missjosie444 »

etfan wrote: Tue Jul 27, 2021 2:14 pm
rhubarbpie wrote: Tue Jul 27, 2021 2:07 pm You could use a target-date fund, but I don't love the ER on the one you have now. I'd KISS, with a three-fund approach, one in the IRA and two in the 401k.

...
Don't forget to rebalance.
Thank you for the reminder. That's the only part that's a little bit trickier for me across 2 accounts, but since it's only 3 funds I think I can manage that at least once a year (which I will probably learn how to do next week).

Sincerely,

Josie
Topic Author
Missjosie444
Posts: 39
Joined: Mon Jul 26, 2021 9:51 pm

Re: Starting a 3-Fund Plan: How to allocate across 401K and Roth IRA?

Post by Missjosie444 »

rsundaraz wrote: Tue Jul 27, 2021 2:36 pm
Missjosie444 wrote: Mon Jul 26, 2021 11:08 pm
I don't even know how much to allocate to the international stock market, I was hoping to run a Digital Advisor robo simulation to see what it would recommend and maybe go with that. I'm getting the idea that I should be aiming for 15-20%?
Regarding the VDA robo simulation, it has standard allocations within stocks/bonds sleeve. Once you take the risk questionnaire, your risk profile would be identified as one of very conservative, conservative, moderate, aggressive and very aggressive. You can change it two notches down or two notches up but not outside of that. Like you cannot change it from very aggressive to very conservative. This decides the stocks/bonds split. Once this is determined, it's just 60% US (VTI), 40% ex-US (VXUS) for stocks, and 70% US (BND) and 30% ex-US (BNDX) for bonds. I'm around your age and this what it did for me. Not sure if it reduces ex-US allocation as you get closer to retirement.
This is great, thank you for breaking that down for me. I actually just opted out of the Vanguard Managed Account (run by Edelman Financial Engines, which I didn't realize would have been a hit to my costs until I learned about the 3-Fund last week), so I can now look into the robo simulation.
etfan
Posts: 526
Joined: Sun May 16, 2021 4:22 pm

Re: Starting a 3-Fund Plan: How to allocate across 401K and Roth IRA?

Post by etfan »

Missjosie444 wrote: Tue Jul 27, 2021 7:17 pm
Jack FFR1846 wrote: Tue Jul 27, 2021 8:38 am My 2 cents on this?

Until you hit $100k invested, go all in on VTI in all accounts. If you can't in your 401k, choose the lowest ER fund you have access to. When you get to $100k invested, then start looking into 3 fund and AA.
Out of curiosity, why one fund? Wouldn't I lose diversification with that? Does it come with the possibly for higher returns, or would it be one fund in order to reduce complexity?
Some people believe that if you know for a fact you won't need your money for 10+ or 15+ years, you should invest in VTI only for faster (and more) growth and then start to building up your bond funds after that.

You just need to be sure you have enough time to go through a recession/market crash and recover in that time period.

VTI captures the US market so it's still pretty diversified (it's not like you're investing in a single company).

I personally like to keep 10-20% at least in bonds because even though I'd like to think I won't need the money for 15+ years, you just never know for sure.

There are also models showing that the difference in growth between 0% and 20% bonds in a well diversified portfolio is not worth the risk.

On the other hand, some people say 10-20% on bonds doesn't provide that much protection and you should at least have 40%!
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ruralavalon
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Re: Starting a 3-Fund Plan: How to allocate across 401K and Roth IRA?

Post by ruralavalon »

In my opinion a three-fund portfolio is an excellent idea. In selecting funds strive for a combination of both broad diversification (to reduce risk) and low expense ratios (to increase your net return). A three-fund portfolio achieves both goals. Please see:
1) Wiki article "Three-fund portfolio";
2) Forum discussion, "The Three-Fund Portfolio"; and
3) Taylor Larimore post, "Articles recommending the three-fund portfolio".


Missjosie444 wrote: Mon Jul 26, 2021 11:08 pmVanguard Institutional Total Stock Market Index Trust (ER .02)
Vanguard Institutional Total Bond Market Index Trust (ER .02)
EDIT: Vanguard Institutional Total International Stock Market Index Trust (ER .02)
Those are excellent funds to use for a three fund portfolio.

I don't see any problem in setting up a three fund portfolio.

Contribute the annual maximum, if practical for you, to both the 401k and Roth IRA.

. . . . .

At age 39 I suggest about 20% in bonds or other fixed income investments. This is expected to substantially reduce portfolio volatility (risk), with only a relatively modest decrease in portfolio return. Graph, "An Efficient Frontier: the power of diversification". Please see:
1) Wiki article Bogleheads® investment philosophy, part 3 "Never bear too much or too little risk";
2) Wiki article, "Asset allocation";
3) Morningstar (8/20/2019), "The Best Diversifiers for Your Equity Portfolio", link;
4) Morningstar (4/8/2020), "What's the Best Diversifier for Stocks?", link
5) White Coat Investor (9/23/2016), "In Defense of Bonds" link; and
6) Ben Carlson (8/2/2020), "Why Would Anyone Own Bonds Right Now?", link.

I suggest around 20 - 30% of stocks in international stocks. Vanguard paper (March 2012), "Considerations for investing in non-U.S. equities", available as an archived pdf. Historically, allocating 20% of an equity portfolio to non-U.S. stocks would have captured about 84% of the maximum possible diversification benefit, and allocating 30% of an equity portfolio to non-U.S. stocks would have captured about 99% of the maximum possible diversification benefit (p. 6). The diversification benefit has varied over time. (You can find lots of debate here on international allocation, opinions ranging all the way from 00% to 50% of stocks in international stocks. If you want more viewpoints on international stocks please try the Google search box, upper right, this page).

That works out to about 20% bonds, 20% international stocks, and 60% domestic stocks. Asset allocation is a very personal decision. You must decide on an allocation that is comfortable for you based on your own ability, willingness and need to take risk.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
Missjosie444
Posts: 39
Joined: Mon Jul 26, 2021 9:51 pm

Re: Starting a 3-Fund Plan: How to allocate across 401K and Roth IRA?

Post by Missjosie444 »

ruralavalon wrote: Wed Jul 28, 2021 2:32 pm In my opinion a three-fund portfolio is an excellent idea. In selecting funds strive for a combination of both broad diversification (to reduce risk) and low expense ratios (to increase your net return). A three-fund portfolio achieves both goals. Please see:
1) Wiki article "Three-fund portfolio";
2) Forum discussion, "The Three-Fund Portfolio"; and
3) Taylor Larimore post, "Articles recommending the three-fund portfolio".


Missjosie444 wrote: Mon Jul 26, 2021 11:08 pmVanguard Institutional Total Stock Market Index Trust (ER .02)
Vanguard Institutional Total Bond Market Index Trust (ER .02)
EDIT: Vanguard Institutional Total International Stock Market Index Trust (ER .02)
Those are excellent funds to use for a three fund portfolio.

I don't see any problem in setting up a three fund portfolio.

Contribute the annual maximum, if practical for you, to both the 401k and Roth IRA.

. . . . .

At age 39 I suggest about 20% in bonds or other fixed income investments. This is expected to substantially reduce portfolio volatility (risk), with only a relatively modest decrease in portfolio return. Graph, "An Efficient Frontier: the power of diversification". Please see:
1) Wiki article Bogleheads® investment philosophy, part 3 "Never bear too much or too little risk";
2) Wiki article, "Asset allocation";
3) Morningstar (8/20/2019), "The Best Diversifiers for Your Equity Portfolio", link;
4) Morningstar (4/8/2020), "What's the Best Diversifier for Stocks?", link
5) White Coat Investor (9/23/2016), "In Defense of Bonds" link; and
6) Ben Carlson (8/2/2020), "Why Would Anyone Own Bonds Right Now?", link.

I suggest around 20 - 30% of stocks in international stocks. Vanguard paper (March 2012), "Considerations for investing in non-U.S. equities", available as an archived pdf. Historically, allocating 20% of an equity portfolio to non-U.S. stocks would have captured about 84% of the maximum possible diversification benefit, and allocating 30% of an equity portfolio to non-U.S. stocks would have captured about 99% of the maximum possible diversification benefit (p. 6). The diversification benefit has varied over time. (You can find lots of debate here on international allocation, opinions ranging all the way from 00% to 50% of stocks in international stocks. If you want more viewpoints on international stocks please try the Google search box, upper right, this page).

That works out to about 20% bonds, 20% international stocks, and 60% domestic stocks. Asset allocation is a very personal decision. You must decide on an allocation that is comfortable for you based on your own ability, willingness and need to take risk.
Thank you very much for all of the resources. I ended up going with 60% Total US Stock Market, 20% Total International Stock Market, and 20% Total US Bonds.
rhubarbpie
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Re: Starting a 3-Fund Plan: How to allocate across 401K and Roth IRA?

Post by rhubarbpie »

Missjosie444 wrote: Thu Jul 29, 2021 9:30 pm Thank you very much for all of the resources. I ended up going with 60% Total US Stock Market, 20% Total International Stock Market, and 20% Total US Bonds.
Sounds like a solid choice. Hope it goes great!
Topic Author
Missjosie444
Posts: 39
Joined: Mon Jul 26, 2021 9:51 pm

Re: Starting a 3-Fund Plan: How to allocate across 401K and Roth IRA?

Post by Missjosie444 »

rhubarbpie wrote: Fri Jul 30, 2021 10:14 am
Missjosie444 wrote: Thu Jul 29, 2021 9:30 pm Thank you very much for all of the resources. I ended up going with 60% Total US Stock Market, 20% Total International Stock Market, and 20% Total US Bonds.
Sounds like a solid choice. Hope it goes great!
Thank you :). I appreciate that. I am very excited to *finally* be in this stage of my life, to move from poverty thinking to accumulating savings, it feels really good.
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