Correct my allocations

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
rehpyc
Posts: 4
Joined: Sun Nov 28, 2021 10:42 pm

Correct my allocations

Post by rehpyc »

Emergency funds: Have 6 months worth sitting in cash
Debt: No real debt beyond minimal, monthly credit spend - paid in full at due date
Tax Filing Status: Single
Tax Rate: 24% Federal, 0% State
State of Residence: TN
Age: 36

Desired Asset allocation: Appetite for risk, but not sure what split is ideal Edit 20211129: With 25+ years until retirement, very much considering 100% stocks. I can stomach downturns in the market (I use major downturns like March '20 as long-term buy opportunities)
Desired International allocation: See above Edit 20211129:I'm open to what's widely suggested here, without knowing much myself

Approximate size of total retirement portfolio: Low six-figures (unfortunately started quite late w/ retirement investments)

Retirement Accounts

401K at Principal
Edit 20211129: * Current allocation is the result of a risk 10 profile quiz, looking to simplify between 401K & Roth as a whole
4.26% Morley Capital Management Principal Stable Value Z Fund (Unknown) (0.33%)
7.86% Western Asset Core Plus Bond I Fund (WACPX) (0.45%) Edit 20211129: Erroneously put as 13.0% expense
4.32% Fidelity 500 Index Fund (FXAIX) (0.02%)
5.58% Wilmington Large Cap Growth R1 Fund (Unknown) (0.29%)
7.85% Wilmington Large Cap Value R1 Fund (Unknown) (0.29%)
5.42% Fidelity Mid Cap Index Fund (FSMDX) (0.03%)
2.11% Principal Mid Cap Separate Account (Unknown) (0.82%)
2.12% T.Rowe Price Small Cap Stock Fund (OTCFX) (0.88%)
5.42% Wells Fargo Special Mid Cap Value R6 Fund (WFPRX) (0.71%)
14.93% Dodge & Cox International Stock Fun (DODFX) (0.63%)

Roth IRA at Wealthfront
* Considering moving to Fidelity (Edit 20211129: Currently have a 0.25% expense for robo advisor service, which I'll be dropping)
Edit 20211129: * Current allocation is the result of a risk 10 profile quiz with their robo advisor, looking to simplify between 401K & Roth as a whole
14.99% Vanguard Total Stock Market ETF (VTI) (0.03%)
9.57% Vanguard FTSE Developed Markets ETF (VEA) (0.05%)
6.08% Vanguard FTSE Emerging Markets ETF (VWO) (0.1%)
4.95% Vanguard Real Estate ETF (VNQ) (0.12%)
4.44% iShares JP Morgan USD Emerging Markets Bond ETF (EMB) (0.39%)
0.12% Cash

Contributions

401K: $15K + $4K company match annually
Roth IRA: $6K at the start of each year

Available Funds

401K
Morley Capital Management Principal Stable Value Z Fund (Unknown) (0.33%)
Vanguard Long-Term Treasure Investment Fund (VUSTX) (0.20%)
Western Asset Core Plus Bond I Fund (WACPX) (13.0%)
Fidelity 500 Index Fund (FXAIX) (0.02%)
Wilmington Large Cap Growth R1 Fund (Unknown) (0.29%)
Wilmington Large Cap Value R1 Fund (Unknown) (0.29%)
Fidelity Mid Cap Index Fund (FSMDX) (0.03%)
Fidelity Small Cap Index Fund (FSSNX) (0.03%)
Principal Mid Cap Separate Account (Unknown) (0.82%)
Principal Real Estate Securities Separate Account (Unknown) (0.96%)
T.Rowe Price Small Cap Stock Fund (OTCFX) (0.88%)
Wells Fargo Special Mid Cap Value R6 Fund (WFPRX) (0.71%)
Dodge & Cox International Stock Fun (DODFX) (0.63%)
Fidelity Advisor International Small Cap Opportunity I Fund (FOPIX) (1.30%)
Invesco Developing Markets A Fund (ODMAX) (1.22%)

Roth IRA
Any really, and as indicated above, may be moving it to Fidelity

Additional Investment Accounts
* Percentages are independent from the above, as the account isn't part of my retirement portfolio, but let me know if it should be inclusive.

Car
42.91% Vanguard Total Stock Market ETF (VTI) (0.03%)
23.39% Vanguard Total Bond Market Index Fund ETF (BND) (0.035%)
23.29% Vanguard Total International Stock ETF (VXUS) (0.08%)
10.04% Vanguard Total International Bond ETF (BNDX) (0.08%)
0.37% Cash

Questions

1. With a stomach for volatility (I threw in more to investments after the large drop in March '20), what would be the ideal stock/bond mix between the accounts. I've done some reading here that bonds shouldn't really be part of my Roth IRA, instead being solely part of my 401K?

2. Short of putting in $5K to my company 401K to get the $4K match (100% first 3%, 50% 4-5%), how should I allocate the rest of $16K between the 401K/Roth that'll be put away annually. I may also be increasing the amount put towards retirement in the very new future.

3. If I were to increase the amount I'd save each paycheck/month, I'd presume it'd be ideal to work towards maxing out both the 401K & Roth before worrying about a separate taxable investment account?

4. I'm pretty sure my portfolio for my car investment is crap and should be revisited. Looking at 4, possibly 5, years until purchasing a car. Given the possible ROI of investments in place, likely would finance the car at a small interest rate and pull a little out of my investments to cover the monthly payments. Sane?

As you'll notice, this is my first post here, so hopefully I've provided everything that'd be of help, but if not just let me know! Thank you in advance for giving your time and insight.
Last edited by rehpyc on Mon Nov 29, 2021 11:47 pm, edited 4 times in total.
tashnewbie
Posts: 4284
Joined: Thu Apr 23, 2020 12:44 pm

Re: Correct my allocations

Post by tashnewbie »

Welcome to the forum!

You're doing well to have no debt and be saving good amounts into tax-advantaged accounts!! I'm a similar age as you and I didn't really start getting serious about investing until I was 34. You've got time!
rehpyc wrote: Sun Nov 28, 2021 11:41 pm 1. With a stomach for volatility (I threw in more to investments after the large drop in March '20), what would be the ideal stock/bond mix between the accounts. I've done some reading here that bonds shouldn't really be part of my Roth IRA, instead being solely part of my 401K?
Asset allocation is a very personal decision. You're correct that tax-efficient placement principles would say stocks should be in the Roth IRA as a priority, ahead of bonds. See this wiki for more information about that: link.

I read something about asset allocation from one forum member that really struck me as sound advice: until you've been through a prolonged market downturn, you don't practically know your risk tolerance. Therefore, it would be wise to have a bond allocation when you're a new investor (say 20%). Then when you experience the downturn, you can assess your risk tolerance and adjust your asset allocation accordingly.

You'll have to decide your personal risk tolerance is, which many on the forum frame as your need, ability, and willingness to take risk. Some might say if your portfolio is low six-figures that having a bond allocation may not make much difference because the swings in your portfolio wouldn't be a large dollar amount. Those dollar amounts might be large for the specific person though, so you have to decide what you think you can stomach.
2. Short of putting in $5K to my company 401K to get the $4K match (100% first 3%, 50% 4-5%), how should I allocate the rest of $16K between the 401K/Roth that'll be put away annually. I may also be increasing the amount put towards retirement in the very new future.

3. If I were to increase the amount I'd save each paycheck/month, I'd presume it'd be ideal to work towards maxing out both the 401K & Roth before worrying about a separate taxable investment account?
If you can afford to max the 401k and your Roth IRA, then I would do that before doing any taxable investing (aside from your emergency fund and short-term spending money).

I think you should reduce the number of holdings in your 401k. I think these are the best funds to use:

Fidelity 500 Index Fund (FXAIX) (0.02%) -- represents >80% of US stock market. Can use this for US stock exposure by itself.
Fidelity Small Cap Index Fund (FSSNX) (0.03%) -- if you want to approximate the total US stock market, you could combine the 500 index fund and this one in an 80/20 ratio.
Morley Capital Management Principal Stable Value Z Fund (Unknown) (0.33%)
Maybe -- Western Asset Core Plus Bond I Fund (WACPX) (13.0%)

Is there a guaranteed interest rate on the stable value fund? If not, what's it currently paying? Some people have found that stable value funds are providing higher returns than bond funds in today's environment. The interest rates of the stable value funds tend to lag bond funds when rates change. Eventually their returns will probably decrease, so it might be better to hold the bond funds then. You may or may not want to bother using a stable value fund for this short (?) period.

Looks like you have a typo with the expense ratio of WACPX. Is it 1.3% or 0.13%?

I would hold any desired international stock funds in your Roth IRA.
4. I'm pretty sure my portfolio for my car investment is crap and should be revisited. Looking at 4, possibly 5, years until purchasing a car. Given the possible ROI of investments in place, likely would finance the car at a small interest rate and pull a little out of my investments to cover the monthly payments. Sane?
Seems too complicated to me. You'd likely be able to get a low interest rate on a car loan in the future.

Is this money in a taxable brokerage account currently?

It looks like you're about 75% stock/25% bonds with this money. If you want to invest this money, I would probably just hold the desired bond allocation in I bonds (can purchase $10k/year/person [there are other ways to get more such as through tax refund and buying with a trust, but I wouldn't bother with that for this use case]), which are illiquid for the first 12 months and incur 3 months' interest penalty if sold within first 5 years. Great fixed income option in today's low rate environment. Then I would put the rest in something like VTI. There's risk with this approach and you may not have the amount of money you want when you want to buy the car. But I think that risk is tolerable because you'd likely be able to get low cost financing.

Be mindful of taxes before you make any changes to this account (assuming it's a brokerage account). I probably wouldn't change the current investments but would divert new money into whatever you decide you want to use for this purpose.
User avatar
ruralavalon
Posts: 26352
Joined: Sat Feb 02, 2008 9:29 am
Location: Illinois

Re: Correct my allocations

Post by ruralavalon »

Welcome to the forum :)

rehpyc wrote: Sun Nov 28, 2021 11:41 pm Emergency funds: Have 6 months worth sitting in cash
Debt: No real debt beyond minimal, monthly credit spend - paid in full at due date
Tax Filing Status: Single
Tax Rate: 24% Federal, 0% State
State of Residence: TN
Age: 36

Desired Asset allocation: Appetite for risk, but not sure what split is ideal
Desired International allocation: See above
I suggest around 20% in fixed income (bond fund or Stable Value Fund).

I suggest around 20-30 of stocks (around 20% of portfolio) in international stocks.


rehpyc wrote: Sun Nov 28, 2021 11:41 pmApproximate size of total retirement portfolio: Low six-figures (unfortunately started quite late w/ retirement investments)
With low six figures at age 36, you do not have late start. You are well ahead of most of your peers.


rehpyc wrote: Sun Nov 28, 2021 11:41 pmRetirement Accounts

401K at Principal
4.26% Morley Capital Management Principal Stable Value Z Fund (Unknown) (0.33%)
7.86% Western Asset Core Plus Bond I Fund (WACPX) (13.0%)
4.32% Fidelity 500 Index Fund (FXAIX) (0.02%)
5.58% Wilmington Large Cap Growth R1 Fund (Unknown) (0.29%)
7.85% Wilmington Large Cap Value R1 Fund (Unknown) (0.29%)
5.42% Fidelity Mid Cap Index Fund (FSMDX) (0.03%)
2.11% Principal Mid Cap Separate Account (Unknown) (0.82%)
2.12% T.Rowe Price Small Cap Stock Fund (OTCFX) (0.88%)
5.42% Wells Fargo Special Mid Cap Value R6 Fund (WFPRX) (0.71%)
14.93% Dodge & Cox International Stock Fun (DODFX) (0.63%)
In my opinion the better funds to consider using in your employer's 401k plan are:
1) Fidelity 500 Index Fund (over 80% of U.S. market) (FXAIX) ER 0.02%;
2) Dodge & Cox International Stock Fund (both developed and emerging markets) (DODFX) ER 0.63%;
3) Morley Capital Management Principal Stable Value Z Fund;
4) Western Asset Core Plus Bond I Fund (intermediate-term, investment-grade bonds) (WACPX) ER 13.0%????;
5) Vanguard Long-Term Treasury Fund (VUSTX) ER 0.20%.

It is not necessary or desirable to have all elements of your desired asset allocation in each account.

What is the expense ratio charged in your employer's 401k plan for Western Asset Core Plus Bond I Fund (WACPX)?

What is the interest rate currently being paid on Morley Capital Management Principal Stable Value Z Fund? What interest rate if any is guaranteed?


rehpyc wrote: Sun Nov 28, 2021 11:41 pmRoth IRA at Wealthfront
* Considering moving to Fidelity
14.99% Vanguard Total Stock Market ETF (VTI) (0.03%)
9.57% Vanguard FTSE Developed Markets ETF (VEA) (0.05%)
6.08% Vanguard FTSE Emerging Markets ETF (VWO) (0.1%)
4.95% Vanguard Real Estate ETF (VNQ) (0.12%)
4.44% iShares JP Morgan USD Emerging Markets Bond ETF (EMB) (0.39%)
0.12% Cash
Instead of separate funds for developed and emerging markets I suggest Vanguard Total International Stock ETF (VXUS) ER 0.08%.

I would use that exchange traded fund (ETF) for the international stock allocation, rather than Dodge & Cox International Stock Fund (DODFX) ER 0.63% in your 401k account, because the ETF is an index fund, and is more diversified with a lower expense ratio.

I suggest NOT using the emerging markets bond fund. Bernstein: Don’t Bother With Int'l Bonds | ETF.com.

It is not necessary or desirable to have all elements of your desired asset allocation in each account.



rehpyc wrote: Sun Nov 28, 2021 11:41 pmContributions

401K: $15K + $4K company match annually
Roth IRA: $6K at the start of each year


Questions


1. With a stomach for volatility (I threw in more to investments after the large drop in March '20), what would be the ideal stock/bond mix between the accounts. I've done some reading here that bonds shouldn't really be part of my Roth IRA, instead being solely part of my 401K?
That depends on what fixed income investments are available in your employer's 401k plan.

What is the expense ratio charged in your employer's 401k plan for Western Asset Core Plus Bond I Fund (WACPX)?

What is the interest rate currently being paid on Morley Capital Management Principal Stable Value Z Fund? What interest rate if any is guaranteed?



rehpyc wrote: Sun Nov 28, 2021 11:41 pm2. Short of putting in $5K to my company 401K to get the $4K match (100% first 3%, 50% 4-5%), how should I allocate the rest of $16K between the 401K/Roth that'll be put away annually. I may also be increasing the amount put towards retirement in the very new future.
That depends on what fixed income investments are available in your employer's 401k plan.

What is the expense ratio charged in your employer's 401k plan for Western Asset Core Plus Bond I Fund (WACPX)?

What is the interest rate currently being paid on Morley Capital Management Principal Stable Value Z Fund? What interest rate if any is guaranteed?


rehpyc wrote: Sun Nov 28, 2021 11:41 pm3. If I were to increase the amount I'd save each paycheck/month, I'd presume it'd be ideal to work towards maxing out both the 401K & Roth before worrying about a separate taxable investment account?
That is correct. It's usually better to make maximum annual contributions to all available tax-advantaged accounts as a priority ahead of contributions to a taxable brokerage account.

Wiki article, "Prioritizing investments".


rehpyc wrote: Sun Nov 28, 2021 11:41 pm4. I'm pretty sure my portfolio for my car investment is crap and should be revisited. Looking at 4, possibly 5, years until purchasing a car. Given the possible ROI of investments in place, likely would finance the car at a small interest rate and pull a little out of my investments to cover the monthly payments. Sane?
I do not understand this question.

Please elaborate.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
MattB
Posts: 1228
Joined: Fri May 28, 2021 12:27 am

Re: Correct my allocations

Post by MattB »

Welcome to Bogleheads. Your first post is very well done. You shouldn't worry about having a late start or not. You can't change the past. Only the future. And you're well on your way to doing very well financially.
rehpyc wrote: Sun Nov 28, 2021 11:41 pm Emergency funds: Have 6 months worth sitting in cash
Debt: No real debt beyond minimal, monthly credit spend - paid in full at due date
Tax Filing Status: Single
Tax Rate: 24% Federal, 0% State
State of Residence: TN
Age: 36

Desired Asset allocation: Appetite for risk, but not sure what split is ideal
Desired International allocation: See above

...
rehpyc wrote: Sun Nov 28, 2021 11:41 pm 1. With a stomach for volatility (I threw in more to investments after the large drop in March '20), what would be the ideal stock/bond mix between the accounts. I've done some reading here that bonds shouldn't really be part of my Roth IRA, instead being solely part of my 401K?
You're received good advice here: Asset allocation is very personal and you, more than anyone on the internet, need to decide "the ideal stock/bond mix" for yourself.

My perspective, which is shared by some on this forum, but not all, is that most people don't need to hold bonds until they are 10 or 15 years from retirement. At 36, that may or may not be you. Others will suggest you hold between 10 and 30 percent during the accumulation phase of your life. What you can take from this, is that any allocation between 0 and 30 percent is very reasonable for you right now. The key, I think, is to find an allocation that you can regularly contribute to without feeling the need to tinker when the market is up or down.
rehpyc wrote: Sun Nov 28, 2021 11:41 pm 2. Short of putting in $5K to my company 401K to get the $4K match (100% first 3%, 50% 4-5%), how should I allocate the rest of $16K between the 401K/Roth that'll be put away annually. I may also be increasing the amount put towards retirement in the very new future.
A reasonable goal would be to max both your traditional 401k each year and a Roth IRA, in that order. The benefits of deferring taxes generally outweigh the benefits of paying them now until you've saved a significant amount, say $1m+, in your deferred accounts.
rehpyc wrote: Sun Nov 28, 2021 11:41 pm 3. If I were to increase the amount I'd save each paycheck/month, I'd presume it'd be ideal to work towards maxing out both the 401K & Roth before worrying about a separate taxable investment account?
Yes. Period.

Your lifetime Roth space is limited by what you can contribute each year, and the benefits and flexibility of a Roth IRA far outweigh the benefits of a taxable. (E.g., You can withdraw your contributions to a Roth account without taxes or penalties.)
rehpyc wrote: Sun Nov 28, 2021 11:41 pm 4. I'm pretty sure my portfolio for my car investment is crap and should be revisited. Looking at 4, possibly 5, years until purchasing a car. Given the possible ROI of investments in place, likely would finance the car at a small interest rate and pull a little out of my investments to cover the monthly payments. Sane?
This question is interesting because it suggests you have separate savings buckets for different things. Some people do this. Others do not.

Three things you should think about.

1. You should generally avoid putting money into the stock market that you might need in 2-3-5-.... years. The outer bound is ill-defined. The risk of a long and protracted down turn means that you might not have money when you need it.

2. You will suffer tax inefficiencies by using two taxable accounts. So, you're roth should come first. But if you're going to have taxable account, you will be best served by having only one taxable account.

3. You might consider saving money for a new car (or other short term needs) in i-bonds. I-bonds don't lose much to inflation (after taxes). And they have no risk of capital loss. You can read more here: viewtopic.php?t=358732
MattB
Posts: 1228
Joined: Fri May 28, 2021 12:27 am

Re: Correct my allocations

Post by MattB »

rehpyc wrote: Sun Nov 28, 2021 11:41 pm
Retirement Accounts

401K at Principal
4.26% Morley Capital Management Principal Stable Value Z Fund (Unknown) (0.33%)
7.86% Western Asset Core Plus Bond I Fund (WACPX) (13.0%)
4.32% Fidelity 500 Index Fund (FXAIX) (0.02%)
5.58% Wilmington Large Cap Growth R1 Fund (Unknown) (0.29%)
7.85% Wilmington Large Cap Value R1 Fund (Unknown) (0.29%)
5.42% Fidelity Mid Cap Index Fund (FSMDX) (0.03%)
2.11% Principal Mid Cap Separate Account (Unknown) (0.82%)
2.12% T.Rowe Price Small Cap Stock Fund (OTCFX) (0.88%)
5.42% Wells Fargo Special Mid Cap Value R6 Fund (WFPRX) (0.71%)
14.93% Dodge & Cox International Stock Fun (DODFX) (0.63%)

Roth IRA at Wealthfront
* Considering moving to Fidelity
14.99% Vanguard Total Stock Market ETF (VTI) (0.03%)
9.57% Vanguard FTSE Developed Markets ETF (VEA) (0.05%)
6.08% Vanguard FTSE Emerging Markets ETF (VWO) (0.1%)
4.95% Vanguard Real Estate ETF (VNQ) (0.12%)
4.44% iShares JP Morgan USD Emerging Markets Bond ETF (EMB) (0.39%)
0.12% Cash
I just noticed you're playing the "a little bit of everything game" with the fund's your invested in.

You may be better served by picking one or two low-cost funds in each account and directing all contributions to that.

E.g., Your 401k could be 100% in the Fidelity 500 index. This will save you on fees and expenses over the long term.
User avatar
Alto Astral
Posts: 970
Joined: Thu Oct 08, 2009 10:47 am

Re: Correct my allocations

Post by Alto Astral »

rehpyc wrote: Sun Nov 28, 2021 11:41 pm Additional Investment Accounts
* Percentages are independent from the above, as the account isn't part of my retirement portfolio, but let me know if it should be inclusive.

Car
42.91% Vanguard Total Stock Market ETF (VTI) (0.03%)
23.39% Vanguard Total Bond Market Index Fund ETF (BND) (0.035%)
23.29% Vanguard Total International Stock ETF (VXUS) (0.08%)
10.04% Vanguard Total International Bond ETF (BNDX) (0.08%)
0.37% Cash
What is this? Is this the amount you are saving for a car purchase? Your 401k+IRA adds up-to 100% and you've mentioned that these percentages are independent from them. Let me assume this is, say, $30k, that you've invested as above. I believe this is connected your question 4 below:
rehpyc wrote: Sun Nov 28, 2021 11:41 pm 4. I'm pretty sure my portfolio for my car investment is crap and should be revisited. Looking at 4, possibly 5, years until purchasing a car. Given the possible ROI of investments in place, likely would finance the car at a small interest rate and pull a little out of my investments to cover the monthly payments. Sane?
It's safer to put funds that you will need in 10 years outside the equity markets. Folks a lot smarter than me have run numbers over many rolling 10 year periods to give this recommendation. I would invest that amount in ibonds over the next 3 years maxing out the annual limit. I would also make it a part of your portfolio.
Topic Author
rehpyc
Posts: 4
Joined: Sun Nov 28, 2021 10:42 pm

Re: Correct my allocations

Post by rehpyc »

Appreciate the thoughtful responses! I've made a few edits to my original post in blue to make things easier for those of you who've already been helpful, as well as new people reading the OP. Unfortunately the excessive mixed bag of allocations per 401K and Roth are the result of risk profiles, with the Roth at Wealthfront being managed by a robo advisor. I'll definitely be dropping the robo advisor service to save on .25% fees, with possibly moving the Roth to Fidelity. I want to make sure wherever I move it to will automatically invest new contributions or re-invest dividends and such, based on the specified portfolio mix. I also should have considered that at 36, with ~25 years until retirement (if early), I do have the stomach for a high-risk portfolio and can stomach major downturns.

Principal Stable Value Z Fund

For some details on the Principal Stable Value Z Fund, below are some PDFs I was able to grab via Principal:
- General details?: https://docdro.id/3uHWa4K
- Possibly performance details?: https://docdro.id/7UfWQxA
- Holdings: https://docdro.id/CS9m2VB

401K & Roth

- If I've followed correctly, it's best for me to max out my 401K first, then worry about the Roth? I started the Roth ~4 years ago when I was probably 2 tax brackets lower, which I want to say back then I read it was more favorable than the 401K? This will also make it a bit easier to throw additional amounts in towards the end the year should I desire (i.e. unexpectedly higher year-end bonuses, spending well under budgeted amounts throughout the year, etc.), as my company isn't exactly fast-acting with desired changes to my paycheck allocations for my 401K.

- What is the often suggested international % of total stock allocations - 20%? If I were to go 100% stocks between the 401K and Roth, what are the funds and allocations I should use between what my 401K provides and what I could use in my Roth. From some reading and a suggestion here, perhaps the 20% (or X%) of international should be in VXUS in my Roth, as the 401K offerings have much higher ERs?

- If I were to do 90% stocks / 10% bonds (and continuing the 80/20 for US/Int stocks), what would the ideal funds and allocations between the 2 accounts be? While I likely wouldn't do this now, I want to know what's optimal in the next 1-3+ years as I begin moving towards the inclusion of bonds.

As this site/board has taught me to treat these 2 accounts as one retirement portfolio vs. separate things, I presume the types of funds and allocations thereof should also be simplified and treated as one portfolio.

Car

As some have noted, my future car fund saved (to purchase in ~4-5 years) doesn't really have any business being invested in the market. Though, in part this was with knowing (or educated gambling, ha..) 2020 & 2021 would be recovery years off March 2020's lows. The bond allocation was to help buffer against any downturn, though I admit this may not have been a fully-informed decision. The idea has been to take $30K saved now, have it grow over the next ~4-5 years, purchase a car mostly financed at a very low interest rate (i.e. hopefully 0% - 0.9%), and slowly cash out the total investment for the monthly payments over the 5-6 year financing. Understandably this would have some LT capital gain tax implications that I'd be cognizant of.

I like the idea of using i-bonds that some of you have suggested, as these weren't something I knew of before suggested here and continuing to doing some learning from this amazing message board! With still being a few years out until starting to purchase a car, and then with my idea of financing over several years after (assuming a very low interest rate), this also works out with the i-bond purchases over the next 3 years (understood $10k/yr max).

Thank you again for those who've already helped, and hopefully my edits and this extra information / follow-up questions provide more context!
Topic Author
rehpyc
Posts: 4
Joined: Sun Nov 28, 2021 10:42 pm

Re: Correct my allocations

Post by rehpyc »

Quick update of a possible account allocation between 401k & Roth, if following 100% stocks (80% US, 20% Int.). The idea would be to use the 401K predominantly for US stocks and Roth for international (Roth VXUS .08% ER vs. 401k DODFX .63% ER). However, as the 401k would be contributed much more than the Roth (i.e. $23K w/ company match to 401k and $2K to Roth), some allocation of DODFX in the 401K likely would be needed to mainain a proper 80/20 balance. To match a full US market index in my 401k, I'd use 83% FXAIX, 10% FSMDX, 7% FSSNX respectively, to make up the 80% in overall US stocks of the collective portfolio.

Now if I were to do a 90% stock (still 80/20) and 10% bond.. definitely still need help there.
tashnewbie
Posts: 4284
Joined: Thu Apr 23, 2020 12:44 pm

Re: Correct my allocations

Post by tashnewbie »

The links you provided for the Stable Value Fund (SVF) appear to be corrupted (I'm getting random popups), so I can't get any information about it. Dig into the documentation provided by the 401k to see what interest rate the fund is currently paying and if any rate is guaranteed. If you don't want to have any fixed income allocation currently, then this is sort of a moot discussion. If you want to add fixed income in a few years, then you should evaluate the options at that time and choose the one that makes the most sense then. It might not be the stable value fund. For me personally, I currently have a fixed income allocation, and I use the stable value fund in my 403b because it is currently paying a higher rate than the bond index fund that's available. When the bond index fund starts yielding more than the stable value fund, I'll probably switch some of my fixed income allocation to the bond index fund. So in your shoes, I would use the stable value fund now if it's yielding more than other fixed income options in the 401k, and in the future I'd probably use the Vanguard Treasury Fund instead of or in addition to the SVF.
rehpyc wrote: Tue Nov 30, 2021 12:17 am - If I've followed correctly, it's best for me to max out my 401K first, then worry about the Roth? I started the Roth ~4 years ago when I was probably 2 tax brackets lower, which I want to say back then I read it was more favorable than the 401K? This will also make it a bit easier to throw additional amounts in towards the end the year should I desire (i.e. unexpectedly higher year-end bonuses, spending well under budgeted amounts throughout the year, etc.), as my company isn't exactly fast-acting with desired changes to my paycheck allocations for my 401K.

- If I were to do 90% stocks / 10% bonds (and continuing the 80/20 for US/Int stocks), what would the ideal funds and allocations between the 2 accounts be? While I likely wouldn't do this now, I want to know what's optimal in the next 1-3+ years as I begin moving towards the inclusion of bonds.
These wiki articles may be helpful:

1. Investing Priority: link

Can you afford to max both the 401k and Roth IRA? If so, it doesn't really matter the order in which you do it. If you can't afford to max both, then I would probably capture the full 401k match, then max Roth IRA, then go back to the 401k with whatever other money you can afford to invest (per the wiki). Also, you have until tax filing deadline (usually April 15) to make a Roth IRA contribution for that tax year.

2. Tax-Efficient Fund Placement: link

In general, it's best to put bonds in tax-deferred accounts (e.g., traditional 401k/IRA) and stocks in Roth accounts (e.g., Roth 401k/IRA). Look at your portfolio as one consolidated whole across all the accounts. You don't have to mirror your desired asset allocation in each account. You can use the best available funds in each account, taking tax efficiency into account.
As some have noted, my future car fund saved (to purchase in ~4-5 years) doesn't really have any business being invested in the market. Though, in part this was with knowing (or educated gambling, ha..) 2020 & 2021 would be recovery years off March 2020's lows. The bond allocation was to help buffer against any downturn, though I admit this may not have been a fully-informed decision. The idea has been to take $30K saved now, have it grow over the next ~4-5 years, purchase a car mostly financed at a very low interest rate (i.e. hopefully 0% - 0.9%), and slowly cash out the total investment for the monthly payments over the 5-6 year financing. Understandably this would have some LT capital gain tax implications that I'd be cognizant of.
My own personal risk tolerance and desire to streamline my life as much as reasonably possible would dictate investing in taxable per my desired asset allocation while being tax efficient. That means I would be using funds like VTI and VXUS in taxable with any additional money I wanted to invest, only after maxing traditional 401k and Roth IRA. I would cash flow the purchase of a new vehicle by using low cost financing (as you said, hopefully 0-0.9%), or I would sell from taxable to fund the purchase. I think those options would be the same if the market was down when I needed to buy the car -- I would either get the financing and/or would sell in taxable. You have to decide what's comfortable for you. Perhaps you could save half of the purchase price in a safer vehicle such as I bonds, and invest the rest according to your overall portfolio asset allocation.
- What is the often suggested international % of total stock allocations - 20%? If I were to go 100% stocks between the 401K and Roth, what are the funds and allocations I should use between what my 401K provides and what I could use in my Roth. From some reading and a suggestion here, perhaps the 20% (or X%) of international should be in VXUS in my Roth, as the 401K offerings have much higher ERs?
Quick update of a possible account allocation between 401k & Roth, if following 100% stocks (80% US, 20% Int.). The idea would be to use the 401K predominantly for US stocks and Roth for international (Roth VXUS .08% ER vs. 401k DODFX .63% ER). However, as the 401k would be contributed much more than the Roth (i.e. $23K w/ company match to 401k and $2K to Roth), some allocation of DODFX in the 401K likely would be needed to mainain a proper 80/20 balance. To match a full US market index in my 401k, I'd use 83% FXAIX, 10% FSMDX, 7% FSSNX respectively, to make up the 80% in overall US stocks of the collective portfolio.

Now if I were to do a 90% stock (still 80/20) and 10% bond.. definitely still need help there.
There's no consensus on the forum about international stock allocation. Numbers range from 0% to 50% (latter is approximately current market weight). I picked a number in the middle because it seemed like a good goldilocks compromise position (20%) and an early 2000s Vanguard white paper said 20-30% (I think) provides the maximum diversification benefit, and I don't have a strong opinion about it one way or the other. The way I view it is, no matter what the market does, I'm at least half right or only half wrong.

Once your Roth IRA is too small to hold your desired international stock allocation, you'd have to put it in other accounts. Either your 401k and/or taxable brokerage (assuming you still have one). I would probably acquiesce and use DODFX in the 401k if that was the only option.

I would probably just use FXAIX in the 401k for US stock and wouldn't bother trying to replicate the total stock market. If I were to try to approximate TSM, I would just use FXAIX and FSSNX. See this wiki for details about the current ratios to use to approximate TSM: link.
User avatar
ruralavalon
Posts: 26352
Joined: Sat Feb 02, 2008 9:29 am
Location: Illinois

Re: Correct my allocations

Post by ruralavalon »

Asset allocation.
I urge you to consider including a fixed income allocation, around 20% of your portfolio.

Being age 36 now you probably did not have any large amount in investments during the last prolonged market crash in 2008 when you were just 23 years old. I don't think you have had a real test of your risk tolerance ("stomach for volatility"). I suggest that you read the book Your Money and Your Brain, by Jason Zweig, link.


Please see:
1) wiki article, "Asset allocation";
2) wiki article, "Bogleheads® investment philosophy";
3) White Coat Investor, "In Defense of Bonds";
4) Ben Carlson, "Why would anyone own bonds now?" .

In my opinion an allocation of 5% to a real estate fund, as you have now, is reasonable.


Fund selection.
In selecting funds to use strive for a combination of both broad diversification (to reduce risk) and low expense ratios (to increase your net returns).

U.S. stocks.
In my opinion an S&P 500 index fund is good enough by itself for investing in large -cap and mid-cap U.S. stocks. It covers over 80% of the U.S. stock market investing in stocks of selected U.S. companies. In the 29 years since the creation of the first total stock market index fund the two types of funds have had almost identical performance. Sometimes one type was a little bit ahead, sometimes the other. Portfolio Visualizer, 1993-2021. I used the oldest share classes to get the longest period for comparison. I would not bother with adding a small-cap fund.


International stocks.
Dodge & Cox International Stock Fund (DODFX) (0.63%) is a good, diversified (both developed and emerging markets), actively managed, international stock fund, with a "below average" expense ratio. DODFX has performed well compared to a total international stock index fund. Portfolio Visualizer, 2002-2021. I suggest using a good, very diversified index fund with a very low expense ratio when possible, which you can do in your Roth IRA. I prefer a good index fund over a good actively managed fund. But I would not hesitate to use this fund in your 401k account if necessary.


Fixed income.
It looks like Morley Capital Management Principal Stable Value Z Fund currently pays just 0.40% with no guarantee. I don't think that Fund is a viable option for a fixed income investment.

Western Asset Core Plus Bond I Fund (WACPX) (0.45%) is a good, actively managed, diversified (29% government bonds, 31% corporate bonds, 19% securitized), intermediate-term (effective duration = 7.42 years), investment-grade (credit quality = BBB) bond fund with a "below average" expense ratio. WACPX has performed well compared to a total bond market index fund. Portfolio Visualizer, 1999-2021. I suggest using this fund in your employer's 401k plan.

I suggest using only stock funds in your Roth IRA.



rehpyc wrote: Tue Nov 30, 2021 12:17 amI'll definitely be dropping the robo advisor service to save on .25% fees, with possibly moving the Roth to Fidelity. I want to make sure wherever I move it to will automatically invest new contributions or re-invest dividends and such, based on the specified portfolio mix.
In your Roth IRA at Fidelity consider using Fidelity index funds. Wiki article, "Fidelity".

Using regular mutual funds rather than exchange traded funds (ETFs) will make it easy to set up automatic reinvestment of dividends.

I suggest NOT using an international bond fund. Bernstein: Don’t Bother With Int'l Bonds | ETF.com.


Example Portfolio, 80/20.
Here is an example portfolio to consider, with an 80/20 asset allocation. Total portfolio = "low six-figures". New annual contributions = "$23K w/ company match to 401k and $2K to Roth".

All percentages are rounded off. The percentages are percentages of the total portfolio, not percentages of any particular account. The suggestion is to switch both the existing balances and the new annual contributions to the funds inducated. Sometimes I state 00% to indicate funds you might want to add later as necessary.

401K (60% of total portfolio; adds $23k annually = 92% of new annual contributions)
40%, Fidelity 500 Index Fund (80% of U.S. stock market) (FXAIX) (0.02%)
00%, Dodge & Cox International Stock Fund (both developed and emerging markets) (DODFX) (0.63%)
20%, Western Asset Core Plus Bond I Fund (intermediate-term, investment-grade bonds) (WACPX) (0.45%) OR Vanguard Long-Term Treasury Fund (VUSTX) ER 0.20%

Roth IRA @ Fidelity, ex-Wealthfront (40% of total portfolio; adds $2k annually = 08% of new annual contributions)
15%, Fidelity Total Market Index Fund (FSKAX) ER 0.015%
20%, Fidelity Total International Index Fund (FTIHX) ER 0.06%
05%, Fidelity Real Estate Index Fund (FSRNX) ER 0.07%


Example Portfolio, 100/00.
Here is an example portfolio to consider, with an 100/00 asset allocation. Total portfolio = "low six-figures". New annual contributions = "$23K w/ company match to 401k and $2K to Roth".

All percentages are rounded off. The percentages are percentages of the total portfolio, not percentages of any particular account. The suggestion is to switch both the existing balances and the new annual contributions to the funds inducated. Sometimes I state 00% to indicate funds you might want to add later as necessary.

401K (60% of total portfolio; adds $23k annually = 92% of new annual contributions)
60%, Fidelity 500 Index Fund (80% of U.S. stock market) (FXAIX) (0.02%)
00%, Dodge & Cox International Stock Fund (both developed and emerging markets) (DODFX) (0.63%)

Roth IRA @ Fidelity, ex-Wealthfront (40% of total portfolio; adds $2k annually = 08% of new annual contributions)
15%, Fidelity Total Market Index Fund (FSKAX) ER 0.015%
20%, Fidelity Total International Index Fund (FTIHX) ER 0.06%
05%, Fidelity Real Estate Index Fund (FSRNX) ER 0.07%


I hope that this helps.

If you have any questions just ask.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
rehpyc
Posts: 4
Joined: Sun Nov 28, 2021 10:42 pm

Re: Correct my allocations

Post by rehpyc »

Appreciate the continued help! Just 2 additional questions I have:

1. By going with mutual funds for my Roth, i.e. FSKAX or VTSAX, I think I understand that these kind of lock you in to their respective brokerages? And if I wanted to transfer to another brokerage at some point, I'd just need to contact the brokerage I'm at, have them convert the shares to the comparable ETF, then work w/ the new brokerage to transfer my account over? For something like FSKAX/VTSAX, FXNAX/VBTLX, etc. specific to a brokerage, does it really come down to preference of Vanguard vs. Fidelity for most here, or do some things sway your decision of one vs. the other?

2. With having the funds on hand to do so, I intend to max out my Roth at the start of 2022. If I'm then intending to have $230 automatically taken out of each of my 26 paychecks, to eventually max out my Roth at the start of 2023, what are the thoughts of putting this in a taxable account? Understandably I'd have to realize the capital gains (or losses) when I liquidate the shares to transfer the funds to my Roth.
User avatar
ruralavalon
Posts: 26352
Joined: Sat Feb 02, 2008 9:29 am
Location: Illinois

Re: Correct my allocations

Post by ruralavalon »

rehpyc wrote: Sat Dec 04, 2021 7:44 pm Appreciate the continued help! Just 2 additional questions I have:

1. By going with mutual funds for my Roth, i.e. FSKAX or VTSAX, I think I understand that these kind of lock you in to their respective brokerages? And if I wanted to transfer to another brokerage at some point, I'd just need to contact the brokerage I'm at, have them convert the shares to the comparable ETF, then work w/ the new brokerage to transfer my account over? For something like FSKAX/VTSAX, FXNAX/VBTLX, etc. specific to a brokerage, does it really come down to preference of Vanguard vs. Fidelity for most here, or do some things sway your decision of one vs. the other?
No, you do not lock yourself in to a particular brokerage.

You can make changes inside your Roth IRA with no tax consequences. In your Roth IRA you can sell your regular mutual funds or exchange traded funds (ETFs) funds and rollover the cash to a Roth IRA at another fund firm or brokerage, then buy different regular mutual funds or exchange traded funds (ETFs).

You can move regular mutual funds or exchange traded funds (ETFs) funds "in-kind" in a rollover to a Roth IRA at another fund firm or brokerage. At many brokerages there will be a commission for additional purchases of regular mutual funds of another fund firm, but often no commission for additional transactions in ETFs.



rehpyc wrote: Sat Dec 04, 2021 7:44 pm2. With having the funds on hand to do so, I intend to max out my Roth at the start of 2022. If I'm then intending to have $230 automatically taken out of each of my 26 paychecks, to eventually max out my Roth at the start of 2023, what are the thoughts of putting this in a taxable account? Understandably I'd have to realize the capital gains (or losses) when I liquidate the shares to transfer the funds to my Roth.
Will your employer withhold from your paychecks and automatically make transfers to an IRA? If not then you can set up automatic transfers from your bank account to an IRA.

I suggest investing in a taxable account using very tax-efficient stock index funds during 2022.

I suggest leaving that investment in a taxable account intact.

Then in 2023 have $230 automatically taken out of each of your 26 paychecks, to eventually max out my Roth at the by the end of 2023. Repeat each following year.

I suggest NOT saving up to make the maximum annual IRA contribution in January of the following year. Instead invest whenever you have extra money available to invest.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Post Reply