Investment options

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Topic Author
boognish
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Joined: Fri May 16, 2008 11:46 am

Investment options

Post by boognish »

I have a number of investment choices in my 401(k), but many have relatively high expense ratios with some approaching 1%. There are three index funds available, Vanguard 500 Index (VFIAX), Vanguard Mid Cap Index (VIMAX), and Vanguard Small Cap Index (VSMAX). I'm looking to put about 30% in the bond fund offered (WACPX). Does it make sense to put the remaining 70% in these three index funds? Maybe 50% VFIAX, 20% VIMAX, and 10% VSMAX?

My current allocation is:
-MKCPX, 5%
-MGRDX, 14%
-WACPX, 18%
-VFIAX, 25%
-RGAGX, 10%
-PEIIX, 5%
-VIMAX, 10%
-PIREX, 4%
-VSMAX, 5%
-SIBTZ, 4%

I'm 49 years old.
mikejuss
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Re: Investment options

Post by mikejuss »

Those 3 stock funds sound good. Is there a better bond fund? WACPX has a highish expense ratio of 0.45%.
50% VTSAX | 25% VTIAX | 25% VBTLX (retirement), 25% VTEAX (taxable)
Topic Author
boognish
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Re: Investment options

Post by boognish »

Unfortunately, that's all they offer. I could adjust my Roth IRA to be bond-heavy, but I kind of like keeping some balance between my taxable and non-taxable retirement accounts.
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retired@50
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Re: Investment options

Post by retired@50 »

boognish wrote: Thu Jan 27, 2022 1:10 pm I'm looking to put about 30% in the bond fund offered (WACPX). Does it make sense to put the remaining 70% in these three index funds? Maybe 50% VFIAX, 20% VIMAX, and 10% VSMAX?
What you propose above ^^^ seems reasonable to me, and certainly helps to lower the overall expense ratio and simplify the portfolio.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
exodusNH
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Re: Investment options

Post by exodusNH »

boognish wrote: Thu Jan 27, 2022 1:10 pm I have a number of investment choices in my 401(k), but many have relatively high expense ratios with some approaching 1%. There are three index funds available, Vanguard 500 Index (VFIAX), Vanguard Mid Cap Index (VIMAX), and Vanguard Small Cap Index (VSMAX). I'm looking to put about 30% in the bond fund offered (WACPX). Does it make sense to put the remaining 70% in these three index funds? Maybe 50% VFIAX, 20% VIMAX, and 10% VSMAX?

My current allocation is:
-MKCPX, 5%
-MGRDX, 14%
-WACPX, 18%
-VFIAX, 25%
-RGAGX, 10%
-PEIIX, 5%
-VIMAX, 10%
-PIREX, 4%
-VSMAX, 5%
-SIBTZ, 4%

I'm 49 years old.
I use WATFX, which is a different share class of WACPX similar fund.

Your proposed allocation to the Vanguard funds overweights the mid and small caps, which is fine if that's what you want. People will argue with the specific numbers but roughly, 80% S&P 500, 15% mid, 5% small gets you pretty close to the total market. Based on your numbers above, 70% in equities, you'd want more like 56/10/4.

Many people here would say that owning only the 500 fund is perfectly fine as most of the returns of the US market are driven by the top 500.

*Edit: fixed small typo
Last edited by exodusNH on Thu Jan 27, 2022 1:26 pm, edited 2 times in total.
mikejuss
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Re: Investment options

Post by mikejuss »

boognish wrote: Thu Jan 27, 2022 1:17 pm Unfortunately, that's all they offer. I could adjust my Roth IRA to be bond-heavy, but I kind of like keeping some balance between my taxable and non-taxable retirement accounts.
No biggie--those 4 funds are fine. Time to clean out the stables!
50% VTSAX | 25% VTIAX | 25% VBTLX (retirement), 25% VTEAX (taxable)
exodusNH
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Re: Investment options

Post by exodusNH »

boognish wrote: Thu Jan 27, 2022 1:17 pm Unfortunately, that's all they offer. I could adjust my Roth IRA to be bond-heavy, but I kind of like keeping some balance between my taxable and non-taxable retirement accounts.

Don't hold bonds in your Roth. Since that's tax-free, you want to maximize growth. Hold only equities there and proportionally more bonds in your 401k.
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retired@50
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Re: Investment options

Post by retired@50 »

boognish wrote: Thu Jan 27, 2022 1:17 pm Unfortunately, that's all they offer. I could adjust my Roth IRA to be bond-heavy, but I kind of like keeping some balance between my taxable and non-taxable retirement accounts.
I'd keep the bonds out of the Roth account if possible.

I'd live with the higher ER of the bond fund in the 401k, just so the Roth account has a better chance at tax free growth over the years.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
Topic Author
boognish
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Re: Investment options

Post by boognish »

exodusNH wrote: Thu Jan 27, 2022 1:19 pm
boognish wrote: Thu Jan 27, 2022 1:17 pm Unfortunately, that's all they offer. I could adjust my Roth IRA to be bond-heavy, but I kind of like keeping some balance between my taxable and non-taxable retirement accounts.

Don't hold bonds in your Roth. Since that's tax-free, you want to maximize growth. Hold only equities there and proportionally more bonds in your 401k.
That's interesting. It appears that I have my portfolio inverted then, with most of my bond holdings in my Roth. The total dollar amount in each account is approximately the same. So, perhaps I need to move all of my Roth bond funds into something like VTSAX and increase the percent of my contribution/current holdings that go into WACPX in my 401(k).
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retired@50
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Re: Investment options

Post by retired@50 »

boognish wrote: Thu Jan 27, 2022 1:59 pm
exodusNH wrote: Thu Jan 27, 2022 1:19 pm
boognish wrote: Thu Jan 27, 2022 1:17 pm Unfortunately, that's all they offer. I could adjust my Roth IRA to be bond-heavy, but I kind of like keeping some balance between my taxable and non-taxable retirement accounts.

Don't hold bonds in your Roth. Since that's tax-free, you want to maximize growth. Hold only equities there and proportionally more bonds in your 401k.
That's interesting. It appears that I have my portfolio inverted then, with most of my bond holdings in my Roth. The total dollar amount in each account is approximately the same. So, perhaps I need to move all of my Roth bond funds into something like VTSAX and increase the percent of my contribution/current holdings that go into WACPX in my 401(k).
What you propose above to fix this issue sounds right to me.

For details on the "asset location" issue, see this wiki page: https://www.bogleheads.org/wiki/Tax-eff ... _placement

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
exodusNH
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Re: Investment options

Post by exodusNH »

boognish wrote: Thu Jan 27, 2022 1:59 pm
exodusNH wrote: Thu Jan 27, 2022 1:19 pm
boognish wrote: Thu Jan 27, 2022 1:17 pm Unfortunately, that's all they offer. I could adjust my Roth IRA to be bond-heavy, but I kind of like keeping some balance between my taxable and non-taxable retirement accounts.

Don't hold bonds in your Roth. Since that's tax-free, you want to maximize growth. Hold only equities there and proportionally more bonds in your 401k.
That's interesting. It appears that I have my portfolio inverted then, with most of my bond holdings in my Roth. The total dollar amount in each account is approximately the same. So, perhaps I need to move all of my Roth bond funds into something like VTSAX and increase the percent of my contribution/current holdings that go into WACPX in my 401(k).
Yes.

Since your Roth is forever tax free1, you want to stuff your assets with the highest expected returns in it. This does mean that your asset allocation in each account is going to vary, but that's fine. You need to look at all of your funds as one big account.

For this reason, holding bonds here is not ideal because those will only grow by the amount of the interest payments, minus any temporary fluctuations based on market conditions.

As long as you have the space in a tax-deferred account, it should hold your entire bond allocation. Your Roth should hold equities. Your taxable account should hold equities.

If your bond needs overflow your tax-deferred space, then you'll need to hold some in either taxable or Roth. I'd probably choose taxable, since bond rates are really low. If you wouldn't have balked at getting 2% or 3% interest in a savings account, you should feel the same about bonds.

1: for practical purposes, but certainly subject to legislative fiat.
Topic Author
boognish
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Joined: Fri May 16, 2008 11:46 am

Re: Investment options

Post by boognish »

exodusNH wrote: Thu Jan 27, 2022 2:44 pm
boognish wrote: Thu Jan 27, 2022 1:59 pm
exodusNH wrote: Thu Jan 27, 2022 1:19 pm
boognish wrote: Thu Jan 27, 2022 1:17 pm Unfortunately, that's all they offer. I could adjust my Roth IRA to be bond-heavy, but I kind of like keeping some balance between my taxable and non-taxable retirement accounts.

Don't hold bonds in your Roth. Since that's tax-free, you want to maximize growth. Hold only equities there and proportionally more bonds in your 401k.
That's interesting. It appears that I have my portfolio inverted then, with most of my bond holdings in my Roth. The total dollar amount in each account is approximately the same. So, perhaps I need to move all of my Roth bond funds into something like VTSAX and increase the percent of my contribution/current holdings that go into WACPX in my 401(k).
Yes.

Since your Roth is forever tax free1, you want to stuff your assets with the highest expected returns in it. This does mean that your asset allocation in each account is going to vary, but that's fine. You need to look at all of your funds as one big account.

For this reason, holding bonds here is not ideal because those will only grow by the amount of the interest payments, minus any temporary fluctuations based on market conditions.

As long as you have the space in a tax-deferred account, it should hold your entire bond allocation. Your Roth should hold equities. Your taxable account should hold equities.

If your bond needs overflow your tax-deferred space, then you'll need to hold some in either taxable or Roth. I'd probably choose taxable, since bond rates are really low. If you wouldn't have balked at getting 2% or 3% interest in a savings account, you should feel the same about bonds.

1: for practical purposes, but certainly subject to legislative fiat.
Is there any reason to not make this change all at once? With the recent market drop it seems like a decent time to pick up a bunch of VTSAX for my Roth, and reallocate funds primarily into VFIAX (and WACPX, of course) in my 401(k). But I want to make sure I'm not overlooking anything, as it is a big reallocation of all my holdings.
exodusNH
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Re: Investment options

Post by exodusNH »

boognish wrote: Fri Jan 28, 2022 12:00 pm
exodusNH wrote: Thu Jan 27, 2022 2:44 pm
boognish wrote: Thu Jan 27, 2022 1:59 pm
exodusNH wrote: Thu Jan 27, 2022 1:19 pm
boognish wrote: Thu Jan 27, 2022 1:17 pm Unfortunately, that's all they offer. I could adjust my Roth IRA to be bond-heavy, but I kind of like keeping some balance between my taxable and non-taxable retirement accounts.

Don't hold bonds in your Roth. Since that's tax-free, you want to maximize growth. Hold only equities there and proportionally more bonds in your 401k.
That's interesting. It appears that I have my portfolio inverted then, with most of my bond holdings in my Roth. The total dollar amount in each account is approximately the same. So, perhaps I need to move all of my Roth bond funds into something like VTSAX and increase the percent of my contribution/current holdings that go into WACPX in my 401(k).
Yes.

Since your Roth is forever tax free1, you want to stuff your assets with the highest expected returns in it. This does mean that your asset allocation in each account is going to vary, but that's fine. You need to look at all of your funds as one big account.

For this reason, holding bonds here is not ideal because those will only grow by the amount of the interest payments, minus any temporary fluctuations based on market conditions.

As long as you have the space in a tax-deferred account, it should hold your entire bond allocation. Your Roth should hold equities. Your taxable account should hold equities.

If your bond needs overflow your tax-deferred space, then you'll need to hold some in either taxable or Roth. I'd probably choose taxable, since bond rates are really low. If you wouldn't have balked at getting 2% or 3% interest in a savings account, you should feel the same about bonds.

1: for practical purposes, but certainly subject to legislative fiat.
Is there any reason to not make this change all at once? With the recent market drop it seems like a decent time to pick up a bunch of VTSAX for my Roth, and reallocate funds primarily into VFIAX (and WACPX, of course) in my 401(k). But I want to make sure I'm not overlooking anything, as it is a big reallocation of all my holdings.
In tax-deferred/free accounts, no there's no reason to wait. With mutual funds, the buy and sell happen at the same time. If the fund you're selling is down 5%, you'll be buying at 5% cheaper in your other account.
Topic Author
boognish
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Joined: Fri May 16, 2008 11:46 am

Re: Investment options

Post by boognish »

I'm in the middle of restructuring my portfolio, as discussed above, upping the amount of bonds in my 401(k), and switching from bonds to all stocks in my Roth. I've made the change in my 401(k) but hadn't gotten around to my Roth yet. The majority of my Roth holdings are currently in VTTVX (Target Retirement 2025), and I was planning on moving everything there into VTSAX. With the market dropping again today, does it make sense to pull the trigger on that move today, or hold tight to see what unfolds with the Fed? Or, perhaps just move half of it over now and half later?
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retired@50
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Re: Investment options

Post by retired@50 »

boognish wrote: Thu Feb 10, 2022 1:04 pm I'm in the middle of restructuring my portfolio, as discussed above, upping the amount of bonds in my 401(k), and switching from bonds to all stocks in my Roth. I've made the change in my 401(k) but hadn't gotten around to my Roth yet. The majority of my Roth holdings are currently in VTTVX (Target Retirement 2025), and I was planning on moving everything there into VTSAX. With the market dropping again today, does it make sense to pull the trigger on that move today, or hold tight to see what unfolds with the Fed? Or, perhaps just move half of it over now and half later?
I don't think it matters in the long run. You're 49 and probably won't be touching the Roth or 401k money for a decade or more. Just make the switch and don't let "the Fed" dictate your investing plans.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
Topic Author
boognish
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Joined: Fri May 16, 2008 11:46 am

Re: Investment options

Post by boognish »

retired@50 wrote: Thu Feb 10, 2022 2:04 pm
boognish wrote: Thu Feb 10, 2022 1:04 pm I'm in the middle of restructuring my portfolio, as discussed above, upping the amount of bonds in my 401(k), and switching from bonds to all stocks in my Roth. I've made the change in my 401(k) but hadn't gotten around to my Roth yet. The majority of my Roth holdings are currently in VTTVX (Target Retirement 2025), and I was planning on moving everything there into VTSAX. With the market dropping again today, does it make sense to pull the trigger on that move today, or hold tight to see what unfolds with the Fed? Or, perhaps just move half of it over now and half later?
I don't think it matters in the long run. You're 49 and probably won't be touching the Roth or 401k money for a decade or more. Just make the switch and don't let "the Fed" dictate your investing plans.

Regards,
Thanks for the feedback.
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ruralavalon
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Re: Investment options

Post by ruralavalon »

boognish wrote: Thu Jan 27, 2022 1:10 pm I have a number of investment choices in my 401(k), but many have relatively high expense ratios with some approaching 1%. There are three index funds available, Vanguard 500 Index (VFIAX), Vanguard Mid Cap Index (VIMAX), and Vanguard Small Cap Index (VSMAX). I'm looking to put about 30% in the bond fund offered (WACPX). Does it make sense to put the remaining 70% in these three index funds? Maybe 50% VFIAX, 20% VIMAX, and 10% VSMAX?

My current allocation is:
-MKCPX, 5%
-MGRDX, 14%
-WACPX, 18%
-VFIAX, 25%
-RGAGX, 10%
-PEIIX, 5%
-VIMAX, 10%
-PIREX, 4%
-VSMAX, 5%
-SIBTZ, 4%

I'm 49 years old.
Please always give fund names, tickers and expense ratios, not just tickers alone. Using tickers alone means that members who want to try to help you are forced to look up what you are talking about. What is "SIBTZ"?

In my opinion at age 49 an asset allocation of 30% fixed income is within the range of what is reasonable.

I suggest using:
1) 70%, Vanguard 500 Index Fund Admiral Shares (80% of U.S. stock market) (VFIAX) ER 0.04%; and
2) 30%, Western Asset Core Plus Bond Institutional (diversified, intermediate-term, investment-grade bonds, with lower than average expense ratio) (WACPX) ER 0.45%.

I did not notice a good low cost international stock fund to use.

In my opinion a S&P 500 index fund is good enough by itself for investing in U.S. stocks. It covers 80% of the U.S. stock market investing in stocks of selected large-cap and mid-cap 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. Portfolio Visualizer, 1993-2022. In my opinion it is not necessary to add a small-cap fund or a mid-cap fund.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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