Asset Allocation - 39 Years Old

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Topic Author
mattj2
Posts: 13
Joined: Fri Jan 28, 2022 2:56 pm

Asset Allocation - 39 Years Old

Post by mattj2 »

Hello -

First time posting here as I recently discovered the Bogleheads.

About us: 39 yrs old, wife is 30 (stay at home parent), 3 young children

- Roth 401(k) = $ 250,000 in T Rowe Target Date 2045 Retirement Fund (TRRKX)

- Traditional IRA = $ 50,000 (90 % VTI / 10 % BND)

- Roth IRA = $ 6,000 (100% VTI)

My questions are as follows:

1. The T Rowe 2045 fund is heavily weighted towards equities at the moment. Is it wrong to model my asset allocation for my Roth IRA and Traditional IRA after a 2045 retirement fund? Vanguard and T Rowe have a pretty similar glide path. My reason for asking is that I am quickly approaching 40 and I am starting to feel more risk adverse.

2. Based on my personal situation, is there a recommended asset allocation?

3. If I wanted to, could I move all of my 401k funds into a more conservative T Rowe Target Date fund; say 2035?

Thanks for your help in advance,

Matt
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JoeRetire
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Re: Asset Allocation - 39 Years Old

Post by JoeRetire »

mattj2 wrote: Fri Jan 28, 2022 3:32 pm 1. The T Rowe 2045 fund is heavily weighted towards equities at the moment. Is it wrong to model my asset allocation for my Roth IRA and Traditional IRA after a 2045 retirement fund?
No, it's not wrong.
2. Based on my personal situation, is there a recommended asset allocation?
Choose one that makes you feel comfortable enough so you don't feel compelled to change it.
3. If I wanted to, could I move all of my 401k funds into a more conservative T Rowe Target Date fund; say 2035?
You could.
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Doctor Rhythm
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Re: Asset Allocation - 39 Years Old

Post by Doctor Rhythm »

Welcome to the forum.

Your asset allocation is very personal, so it’s hard for us to say what’s appropriate for you.

Target date funds are a reasonable asset allocation model for most people, and might serve as a baseline case. In other words, if your allocation differs dramatically from what a TDF for your anticipated retirement year holds, you might want to take pause and make sure there’s a sound reason for this.

You can pick any TDF you want - not just the one that matches your retirement year. In fact, we like to say you should pick the TDF that most closely matches your desired allocation rather than your age. Frankly, it’s not very helpful advice for most investors who select a TDF precisely because they don’t know enough to devise and manage a portfolio.

Within an 401k, you can move investments around freely without incurring taxes. Doing so frequently usually means you don’t know what you’re doing.
Last edited by Doctor Rhythm on Fri Jan 28, 2022 4:17 pm, edited 1 time in total.
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retired@50
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Re: Asset Allocation - 39 Years Old

Post by retired@50 »

mattj2 wrote: Fri Jan 28, 2022 3:32 pm 2. Based on my personal situation, is there a recommended asset allocation?
Welcome to the forum. :happy

Have you tried taking the Vanguard Investor Questionnaire? It's basically a quiz, that might help you determine an appropriate asset allocation for your situation.

See link: https://retirementplans.vanguard.com/VG ... Step=start

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
jmanter
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Re: Asset Allocation - 39 Years Old

Post by jmanter »

My only question is if there is a less expensive option for a TDF. It seems that the one you have may have a .6+ ER depending on your 401k plan.
I'm currently mimicking the allocation for the 2045 TDF through the lowest cost index funds in my 403b.
Topic Author
mattj2
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Re: Asset Allocation - 39 Years Old

Post by mattj2 »

Unfortunately the 401k plan at my job doesn’t offer many funds.

They have a good option for the T Rowe S&P 500 Index Fund, but no options for Bond Index or Total Stock Market Index funds.
Last edited by mattj2 on Fri Jan 28, 2022 4:36 pm, edited 1 time in total.
jmanter
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Re: Asset Allocation - 39 Years Old

Post by jmanter »

You could maybe use only the low-cost S&P 500 index fund in your 401k and hold a higher allocation of bonds (and international equities) in your traditional IRA to maintain your asset allocation. Because the roth 401k is tax exempt, having more growth by holding equities there might be more tax efficient. You could still mimic the overall asset allocation of the TDF across your accounts.

That said, if you think the TDF will help you stay the course, there are many worse paths!
Topic Author
mattj2
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Re: Asset Allocation - 39 Years Old

Post by mattj2 »

Thanks for your guidance, very much appreciated.
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retired@50
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Re: Asset Allocation - 39 Years Old

Post by retired@50 »

mattj2 wrote: Fri Jan 28, 2022 4:29 pm Unfortunately the 401k plan at my job doesn’t offer many funds.

They have a good option for the T Rowe S&P 500 Index Fund, but no options for Bond Index or Total Stock Market Index funds.
If you want help in choosing funds in the 401k plan, you can add them to your original post by using the edit button (pencil icon) in the upper right corner.

Include fund names, expense ratios, and ticker symbols.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
jmanter
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Re: Asset Allocation - 39 Years Old

Post by jmanter »

retired@50 wrote: Fri Jan 28, 2022 4:38 pm
mattj2 wrote: Fri Jan 28, 2022 4:29 pm Unfortunately the 401k plan at my job doesn’t offer many funds.

They have a good option for the T Rowe S&P 500 Index Fund, but no options for Bond Index or Total Stock Market Index funds.
If you want help in choosing funds in the 401k plan, you can add them to your original post by using the edit button (pencil icon) in the upper right corner.

Include fund names, expense ratios, and ticker symbols.

Regards,
This would be helpful.
wetgear
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Re: Asset Allocation - 39 Years Old

Post by wetgear »

mattj2 wrote: Fri Jan 28, 2022 3:32 pm Hello -

First time posting here as I recently discovered the Bogleheads.

About us: 39 yrs old, wife is 30 (stay at home parent), 3 young children

- Roth 401(k) = $ 250,000 in T Rowe Target Date 2045 Retirement Fund (TRRKX)

- Traditional IRA = $ 50,000 (90 % VTI / 10 % BND)

- Roth IRA = $ 6,000 (100% VTI)

My questions are as follows:

1. The T Rowe 2045 fund is heavily weighted towards equities at the moment. Is it wrong to model my asset allocation for my Roth IRA and Traditional IRA after a 2045 retirement fund? Vanguard and T Rowe have a pretty similar glide path. My reason for asking is that I am quickly approaching 40 and I am starting to feel more risk adverse.

2. Based on my personal situation, is there a recommended asset allocation?

3. If I wanted to, could I move all of my 401k funds into a more conservative T Rowe Target Date fund; say 2035?

Thanks for your help in advance,

Matt
Welcome! What is your tax bracket? Roth 401k is not optimal for most people. What is the ER of your TDF and the ERs of other funds in your plan?
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CommitmentDevice
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Re: Asset Allocation - 39 Years Old

Post by CommitmentDevice »

Your current allocation avoids the biggest hazards.

Definitely - Double check you're taking on the right amount of risk (equity/bond ratios) for you
Maybe - Everything else recommended in this thread
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ruralavalon
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Re: Asset Allocation - 39 Years Old

Post by ruralavalon »

Welcome to the forum :) .

mattj2 wrote: Fri Jan 28, 2022 3:32 pm Hello -

First time posting here as I recently discovered the Bogleheads.

About us: 39 yrs old, wife is 30 (stay at home parent), 3 young children

- Roth 401(k) = $ 250,000 in T Rowe Target Date 2045 Retirement Fund (TRRKX)

- Traditional IRA = $ 50,000 (90 % VTI / 10 % BND)

- Roth IRA = $ 6,000 (100% VTI)

My questions are as follows:

1. The T Rowe 2045 fund is heavily weighted towards equities at the moment. Is it wrong to model my asset allocation for my Roth IRA and Traditional IRA after a 2045 retirement fund? Vanguard and T Rowe have a pretty similar glide path. My reason for asking is that I am quickly approaching 40 and I am starting to feel more risk adverse.

2. Based on my personal situation, is there a recommended asset allocation?

3. If I wanted to, could I move all of my 401k funds into a more conservative T Rowe Target Date fund; say 2035?

Thanks for your help in advance,

Matt
About how long until expected retirement? Are you eligible for both a pension and Social Security benefits? Why are you using a Roth 401k and Roth IRA? What is your tax bracket, both federal and state?

Decide on an asset allocation that will make you more comfortable ("quickly approaching 40 and I am starting to feel more risk adverse").
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
mattj2
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Re: Asset Allocation - 39 Years Old

Post by mattj2 »

ruralavalon wrote: Fri Jan 28, 2022 5:40 pm Welcome to the forum :) .

mattj2 wrote: Fri Jan 28, 2022 3:32 pm Hello -

First time posting here as I recently discovered the Bogleheads.

About us: 39 yrs old, wife is 30 (stay at home parent), 3 young children

- Roth 401(k) = $ 250,000 in T Rowe Target Date 2045 Retirement Fund (TRRKX)

- Traditional IRA = $ 50,000 (90 % VTI / 10 % BND)

- Roth IRA = $ 6,000 (100% VTI)

My questions are as follows:

1. The T Rowe 2045 fund is heavily weighted towards equities at the moment. Is it wrong to model my asset allocation for my Roth IRA and Traditional IRA after a 2045 retirement fund? Vanguard and T Rowe have a pretty similar glide path. My reason for asking is that I am quickly approaching 40 and I am starting to feel more risk adverse.

2. Based on my personal situation, is there a recommended asset allocation?

3. If I wanted to, could I move all of my 401k funds into a more conservative T Rowe Target Date fund; say 2035?

Thanks for your help in advance,

Matt
About how long until expected retirement? Are you eligible for both a pension and Social Security benefits? Why are you using a Roth 401k and Roth IRA? What is your tax bracket, both federal and state?

Decide on an asset allocation that will make you more comfortable ("quickly approaching 40 and I am starting to feel more risk adverse").

26 years until retirement. I am eligible for Social Security. I am using Roth options because I thought they were a better vehicle in general from the standpoint of growing tax free. Marginal Tax Bracket for Federal is 22 %, Effective is 10.4 %. State Tax Bracket is 5.25 %.[/i]
Topic Author
mattj2
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Re: Asset Allocation - 39 Years Old

Post by mattj2 »

wetgear wrote: Fri Jan 28, 2022 4:51 pm
mattj2 wrote: Fri Jan 28, 2022 3:32 pm Hello -

First time posting here as I recently discovered the Bogleheads.

About us: 39 yrs old, wife is 30 (stay at home parent), 3 young children

- Roth 401(k) = $ 250,000 in T Rowe Target Date 2045 Retirement Fund (TRRKX)

- Traditional IRA = $ 50,000 (90 % VTI / 10 % BND)

- Roth IRA = $ 6,000 (100% VTI)

My questions are as follows:

1. The T Rowe 2045 fund is heavily weighted towards equities at the moment. Is it wrong to model my asset allocation for my Roth IRA and Traditional IRA after a 2045 retirement fund? Vanguard and T Rowe have a pretty similar glide path. My reason for asking is that I am quickly approaching 40 and I am starting to feel more risk adverse.

2. Based on my personal situation, is there a recommended asset allocation?

3. If I wanted to, could I move all of my 401k funds into a more conservative T Rowe Target Date fund; say 2035?

Thanks for your help in advance,

Matt
Welcome! What is your tax bracket? Roth 401k is not optimal for most people. What is the ER of your TDF and the ERs of other funds in your plan?
My Marginal Tax Rate shows 22 %, with an effective Tax Rate of 10.4 %. The ER of my TDF is 0.62%. For TDF's in our plan, the expense ratio tapers down the closer you get to retirement. For instance, a 2030 TDF has an ER of 0.58 %. Unfortunately, there are no TDF Index options in our plan.

Why do you say a Roth 401k is not for most people?
Topic Author
mattj2
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Joined: Fri Jan 28, 2022 2:56 pm

Re: Asset Allocation - 39 Years Old

Post by mattj2 »

Doctor Rhythm wrote: Fri Jan 28, 2022 4:09 pm Welcome to the forum.

Your asset allocation is very personal, so it’s hard for us to say what’s appropriate for you.

Target date funds are a reasonable asset allocation model for most people, and might serve as a baseline case. In other words, if your allocation differs dramatically from what a TDF for your anticipated retirement year holds, you might want to take pause and make sure there’s a sound reason for this.

You can pick any TDF you want - not just the one that matches your retirement year. In fact, we like to say you should pick the TDF that most closely matches your desired allocation rather than your age. Frankly, it’s not very helpful advice for most investors who select a TDF precisely because they don’t know enough to devise and manage a portfolio.

Within an 401k, you can move investments around freely without incurring taxes. Doing so frequently usually means you don’t know what you’re doing.
Thank You for your insight, very much appreciated. I have not touched the plan since I first started investing in it. In hindsight, which is always 20/20, As you say, probably would have been more prudent to pick a TDF based on asset allocation vs. retirement date.
Topic Author
mattj2
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Joined: Fri Jan 28, 2022 2:56 pm

Re: Asset Allocation - 39 Years Old

Post by mattj2 »

retired@50 wrote: Fri Jan 28, 2022 4:16 pm
mattj2 wrote: Fri Jan 28, 2022 3:32 pm 2. Based on my personal situation, is there a recommended asset allocation?
Welcome to the forum. :happy

Have you tried taking the Vanguard Investor Questionnaire? It's basically a quiz, that might help you determine an appropriate asset allocation for your situation.

See link: https://retirementplans.vanguard.com/VG ... Step=start

Regards,
I have not taken this, but I will certainly do so. Thanks for sharing.
Topic Author
mattj2
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Re: Asset Allocation - 39 Years Old

Post by mattj2 »

retired@50 wrote: Fri Jan 28, 2022 4:38 pm
mattj2 wrote: Fri Jan 28, 2022 4:29 pm Unfortunately the 401k plan at my job doesn’t offer many funds.

They have a good option for the T Rowe S&P 500 Index Fund, but no options for Bond Index or Total Stock Market Index funds.
If you want help in choosing funds in the 401k plan, you can add them to your original post by using the edit button (pencil icon) in the upper right corner.

Include fund names, expense ratios, and ticker symbols.

Regards,
Should I include the other TDF's a well? Or only stock, bonds, and S&P 500 Index?
MrJedi
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Re: Asset Allocation - 39 Years Old

Post by MrJedi »

Unless you're going to have a lot of retirement income like a fat pension or something, you should start pumping your traditional / tax deferred accounts. Then you can at least withdraw some money at low or even zero tax during your low income / retirement years while getting the deduction up front.
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retired@50
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Re: Asset Allocation - 39 Years Old

Post by retired@50 »

mattj2 wrote: Fri Jan 28, 2022 7:31 pm
retired@50 wrote: Fri Jan 28, 2022 4:38 pm
mattj2 wrote: Fri Jan 28, 2022 4:29 pm Unfortunately the 401k plan at my job doesn’t offer many funds.

They have a good option for the T Rowe S&P 500 Index Fund, but no options for Bond Index or Total Stock Market Index funds.
If you want help in choosing funds in the 401k plan, you can add them to your original post by using the edit button (pencil icon) in the upper right corner.

Include fund names, expense ratios, and ticker symbols.

Regards,
Should I include the other TDF's a well? Or only stock, bonds, and S&P 500 Index?
I'd suggest you include the full line-up of funds available in the 401k plan. Don't hold anything back.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
dan7800
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Re: Asset Allocation - 39 Years Old

Post by dan7800 »

I'd suggest some ex us (IXUS) inside your taxable account.

Start buying up iBonds as well.
MattB
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Re: Asset Allocation - 39 Years Old

Post by MattB »

mattj2 wrote: Fri Jan 28, 2022 7:20 pm Why do you say a Roth 401k is not for most people?
Not Wetgear. But to the question:

Traditional 401ks are better for most people because they allow you to avoid taxes at your marginal tax rate now. This leaves you with extra money to invest now. And, in many cases, the traditional 401k contributions can be withdrawn later at lower tax rates.

This situation changes for people who will have high income in retirement, as their tax rates later may be higher than their tax rates now.

Most people will not have high enough income later to justify a Roth 401k now. And it doesn't appear that you will.

You've probably better off contributing to a traditional 401k and investing the tax savings in a Roth IRA, or in a taxable account if you and your wife's tax advantaged spaces are full for the year.
chassis
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Re: Asset Allocation - 39 Years Old

Post by chassis »

mattj2 wrote: Fri Jan 28, 2022 3:32 pm Hello -

First time posting here as I recently discovered the Bogleheads.

About us: 39 yrs old, wife is 30 (stay at home parent), 3 young children

- Roth 401(k) = $ 250,000 in T Rowe Target Date 2045 Retirement Fund (TRRKX)

- Traditional IRA = $ 50,000 (90 % VTI / 10 % BND)

- Roth IRA = $ 6,000 (100% VTI)

My questions are as follows:

1. The T Rowe 2045 fund is heavily weighted towards equities at the moment. Is it wrong to model my asset allocation for my Roth IRA and Traditional IRA after a 2045 retirement fund? Vanguard and T Rowe have a pretty similar glide path. My reason for asking is that I am quickly approaching 40 and I am starting to feel more risk adverse.

2. Based on my personal situation, is there a recommended asset allocation?

3. If I wanted to, could I move all of my 401k funds into a more conservative T Rowe Target Date fund; say 2035?

Thanks for your help in advance,

Matt
1. Target date funds are to be avoided in my view. They are far too conservative, more so than most people realize. With your age and nearly 30 years of market exposure I suggest you allocate strongly to equities which could mean 100% SPY or individual stocks.

2. 100% equities or as high an equity allocation as you are comfortable. You have time in the market on your side.

3. Yes. I don’t recommend this, see the two points above. Target date funds use bond and money market holdings which are a step below rubbish in this environment, in my view.
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dogagility
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Re: Asset Allocation - 39 Years Old

Post by dogagility »

mattj2 wrote: Fri Jan 28, 2022 7:20 pm The ER of my TDF is 0.62%. For TDF's in our plan, the expense ratio tapers down the closer you get to retirement. For instance, a 2030 TDF has an ER of 0.58 %. Unfortunately, there are no TDF Index options in our plan.
The best predictor of mutual fund performance is the expense ratio. Lower ER is associated with higher returns. https://sg.morningstar.com/sg/news/1544 ... turns.aspx

The corollary to this is that "modest" fees have a very significant effect on your portfolio growth over the long term. https://www.nerdwallet.com/blog/investi ... gs-impact/

What does this mean for you? Do not invest in those high ER TDFs in your 401k. Instead, choose index funds with lower ER that still achieves your desired asset allocation.

As others have noted, we need to see all of your 401k options to give informed advice. :beer
Make sure you check out my list of certifications. The list is short, and there aren't any. - Eric 0. from SMA
wetgear
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Re: Asset Allocation - 39 Years Old

Post by wetgear »

MattB wrote: Fri Jan 28, 2022 11:56 pm
mattj2 wrote: Fri Jan 28, 2022 7:20 pm Why do you say a Roth 401k is not for most people?
Not Wetgear. But to the question:

Traditional 401ks are better for most people because they allow you to avoid taxes at your marginal tax rate now. This leaves you with extra money to invest now. And, in many cases, the traditional 401k contributions can be withdrawn later at lower tax rates.

This situation changes for people who will have high income in retirement, as their tax rates later may be higher than their tax rates now.

Most people will not have high enough income later to justify a Roth 401k now. And it doesn't appear that you will.

You've probably better off contributing to a traditional 401k and investing the tax savings in a Roth IRA, or in a taxable account if you and your wife's tax advantaged spaces are full for the year.
+1 exactly what I was going to say.
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ruralavalon
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Re: Asset Allocation - 39 Years Old

Post by ruralavalon »

mattj2 wrote: Fri Jan 28, 2022 7:20 pm26 years until retirement. I am eligible for Social Security. I am using Roth options because I thought they were a better vehicle in general from the standpoint of growing tax free. Marginal Tax Bracket for Federal is 22 %, Effective is 10.4 %. State Tax Bracket is 5.25 %.[/i]
At age 39 and 26 years to retirement an aggressive asset allocation is reasonable in my opinion. I suggest around 75% stock and 25% bonds.

What funds are offered in your employer's 401k plan? Please give fund names, tickers and expense ratios.

Investments in traditional accounts grow tax-deferred. For most people traditional tax-deferred accounts where contributions are tax-deductible will likely be better than Roth accounts. Most people are in a lower tax bracket in retirement, so it makes sense to take the tax deduction (in your case a deduction of 27%).

You can use the money saved on taxes to increase your 401k contributions to the maximum, if not already making the maximum annual employee contributions.

If you are already making the maximum annual contributions to all tax-advantaged accounts, then you can invest the money saved on taxes in a regular brokerage account using very tax-efficient stock index funds, and use that as extra savings for retirement. Or use the tax savings to buy I-bonds every year.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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mattj2
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Re: Asset Allocation - 39 Years Old

Post by mattj2 »

ruralavalon wrote: Sat Jan 29, 2022 11:41 am
mattj2 wrote: Fri Jan 28, 2022 7:20 pm26 years until retirement. I am eligible for Social Security. I am using Roth options because I thought they were a better vehicle in general from the standpoint of growing tax free. Marginal Tax Bracket for Federal is 22 %, Effective is 10.4 %. State Tax Bracket is 5.25 %.[/i]
At age 39 and 26 years to retirement an aggressive asset allocation is reasonable in my opinion. I suggest around 75% stock and 25% bonds.

What funds are offered in your employer's 401k plan? Please give fund names, tickers and expense ratios.

Investments in traditional accounts grow tax-deferred. For most people traditional tax-deferred accounts where contributions are tax-deductible will likely be better than Roth accounts. Most people are in a lower tax bracket in retirement, so it makes sense to take the tax deduction (in your case a deduction of 27%).

You can use the money saved on taxes to increase your 401k contributions to the maximum, if not already making the maximum annual employee contributions.

If you are already making the maximum annual contributions to all tax-advantaged accounts, then you can invest the money saved on taxes in a regular brokerage account using very tax-efficient stock index funds, and use that as extra savings for retirement. Or use the tax savings to buy I-bonds every year.
The options in my 401k are as follows:

Stocks

Allsrping Spe Md Cap Val R (WFPRX) - ER 0.71%
AM Beacon SM Cap Val R5 (AVFIX) - ER 0.83 %
Balanced Fund (RPBAX) - ER 0.58 %
DFA US Large Cap Value I (DFLVX) - ER 0.22 %
DFA US Sustainability (DFSIX) - ER 0.20 %
Equity Index 500 Fund (PREIX) - ER 0.18 %
Growth Stock Fund (PRGFX) - ER 0.64 %
Loomis SM Cap Growth N (LSSNX) - ER 0.82 %
MFS Intl Diversification (MDIZX) - ER 0.73 %
Mid-Cap Growth Fund (RPMGX) - ER 0.73 %
New Horizons Fund (PRNHX) - ER 0.75 %

Bonds

Pimco High Yield Fund, ADM (PHYAX) - ER 0.81 %
Pimco Total Return Admin (PTRAX) - ER 0.72 %

Money Market

Stable Value Fund (SVF-E) - ER 0.45 %

TDF's (all T Rowe)

Retirement Fund 2005 (TRRFX) - ER 0.49 %
Retirement Fund 2010 (TRRAX) - ER 0.49 %
Retirement Fund 2015 (TRRGX) - ER 0.51 %
Retirement Fund 2020 (TRRBX) - ER 0.53 %
Retirement Fund 2025 (TRRHX) - ER 0.55 %
Retirement Fund 2030 (TRRCX) - ER 0.58 %
Retirement Fund 2035 (TRRJX) - ER 0.59 %
Retirement Fund 2040 (TRRDX) - ER 0.60 %
Retirement Fund 2045 (TRRKX) - ER 0.62 %
Retirement Fund 2050 (TRRMX) - ER 0.63 %
Retirement Fund 2055 (TRRNX) - ER 0.64%
Retirement Fund 2060 (TRRLX) - ER 0.64 %
Retirement Fund 2065 (TRSJX) - ER 0.64 %
T Rowe Retire Bal Inv (TRRIX) - ER 0.49 %
kada
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Re: Asset Allocation - 39 Years Old

Post by kada »

I'd stay 100% equities until ~ 10 years from retirement. Then dial it down until you have 5-10 years of living in bonds and the rest in equities. That's me, though, and assuming you can accumulate 25x or more of your annual expenses.

Edit: just saw what you posted above. I'd do it all in the s&p500 for now.
jmanter
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Re: Asset Allocation - 39 Years Old

Post by jmanter »

The S&P is definitely your best option in your 401k. I think the first step would be to determine your ideal asset allocation. Then, if you wish, you can hold your allocation among all your accounts.

If you want a 90/10 equity/bond allocation, you could split things up like this:

401k:
$250,000 S&P index

TRADITIONAL IRA:
$19,400 VTI/VTSAX
$30,600 BND

Roth:
$6,000 VTI/VTSAX

If you want to add international equities, it gets a little trickier. You could swap the VTI holdings in your IRAs for VXUS. That would make 9-10% of your equities international. Maybe not enough to move the needle, but you can decide.

But, again, I'd take the Vanguard survey others shared above and determine your ideal allocation. And if you're nervous about tinkering, it's probably fine to hold the TDF. It's just more expensive.
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ruralavalon
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Re: Asset Allocation - 39 Years Old

Post by ruralavalon »

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

In my opinion the best option in you employer's 401k may be "Equity Index 500 Fund (PREIX) - ER 0.18 %". This fund is very diversified with a low expense ratio.

What interest is currently being paid on the "Stable Value Fund (SVF-E) - ER 0.45 %"? What rate if any is guaranteed? That could be a good fixed income investment to use in your 401k account. In a Stable Value Fund the important number is the crediting rate, not the expense ratio. The stated interest rate is after deduction of expenses.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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mattj2
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Re: Asset Allocation - 39 Years Old

Post by mattj2 »

ruralavalon wrote: Sun Jan 30, 2022 3:25 pm In selecting funds to use strive for a combination of both broad diversification (to reduce risk) and low expense ratios (to increase net returns)

In my opinion the best option in you employer's 401k may be "Equity Index 500 Fund (PREIX) - ER 0.18 %". This fund is very diversified with a low expense ratio.

What interest is currently being paid on the "Stable Value Fund (SVF-E) - ER 0.45 %"? What rate if any is guaranteed? That could be a good fixed income investment to use in your 401k account. In a Stable Value Fund the important number is the crediting rate, not the expense ratio. The stated interest rate is after deduction of expenses.
Thanks for your thoughts. Fully agree that the Equity Index Fund is my best option for equities.

Based on what others have said, it makes good sense to me as to why I should use a traditional 401k; which I will do. This means I can max it out, which is great. The problem is that when contributing $ 20,500, as you have already pointed out, is that I still need to keep diversification in my portfolio. That is where is get cloudy in my mind, and why I haven't left the TDF. I have used the Vanguard tool that others have suggested, and my results came back as 80 % equities / 20 % FI.

The stable value fund is really hard to find anything on. It belongs to SVF Investments, but I cannot find anything on the ticker SVF-E. SVF-E is how it is listed in our 401k. I don't know how to answer your above questions, unfortunately.
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mattj2
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Re: Asset Allocation - 39 Years Old

Post by mattj2 »

jmanter wrote: Sat Jan 29, 2022 5:23 pm The S&P is definitely your best option in your 401k. I think the first step would be to determine your ideal asset allocation. Then, if you wish, you can hold your allocation among all your accounts.

If you want a 90/10 equity/bond allocation, you could split things up like this:

401k:
$250,000 S&P index

TRADITIONAL IRA:
$19,400 VTI/VTSAX
$30,600 BND

Roth:
$6,000 VTI/VTSAX

If you want to add international equities, it gets a little trickier. You could swap the VTI holdings in your IRAs for VXUS. That would make 9-10% of your equities international. Maybe not enough to move the needle, but you can decide.

But, again, I'd take the Vanguard survey others shared above and determine your ideal allocation. And if you're nervous about tinkering, it's probably fine to hold the TDF. It's just more expensive.
Thanks for your thoughts. I took the Vanguard survey and it recommended 80 % equities and 20 % FI.

Your plan above looks very good. I think my concern is this: I will switch to a traditional 401k, as other have suggested, which means I can max out my 401k. If I put everything into the S&P 500 Index Fund, then my portfolio balance will get dramatically skewed in favor of equities over the long haul. The lack of a good bond index fund in our 401k is really throwing me for a loop, because the other bond options don't seem very attractive.
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retired@50
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Re: Asset Allocation - 39 Years Old

Post by retired@50 »

mattj2 wrote: Sun Jan 30, 2022 7:30 pm The lack of a good bond index fund in our 401k is really throwing me for a loop, because the other bond options don't seem very attractive.
Unfortunately, this is an issue for plenty of 401k investors.

PTRAX looks like the "least bad" choice to me. You should also make certain to investigate the stable value fund. It could work too.

If you want to start down an uncertain path that might help, see this wiki link about improving the offerings in your 401k plan.
https://www.bogleheads.org/wiki/How_to_ ... 01(k)_plan

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
LiveItUpBySaving
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Re: Asset Allocation - 39 Years Old

Post by LiveItUpBySaving »

Agree with Pre-tax 401K to 20.5 K max out

Agree to invest it in S&P fund.

If you have poor Bond options, consider opening an account at US Treasury and purchasing Post-Tax Ibonds which are currently heavily favored and paying out >7% in the current environment. You can purchase 10K per year for yourself and an additional 10K per year for your spouse if she opens her own account.

Hope this helps
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ruralavalon
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Re: Asset Allocation - 39 Years Old

Post by ruralavalon »

mattj2 wrote: Sun Jan 30, 2022 7:25 pm
ruralavalon wrote: Sun Jan 30, 2022 3:25 pm In selecting funds to use strive for a combination of both broad diversification (to reduce risk) and low expense ratios (to increase net returns)

In my opinion the best option in you employer's 401k may be "Equity Index 500 Fund (PREIX) - ER 0.18 %". This fund is very diversified with a low expense ratio.

What interest is currently being paid on the "Stable Value Fund (SVF-E) - ER 0.45 %"? What rate if any is guaranteed? That could be a good fixed income investment to use in your 401k account. In a Stable Value Fund the important number is the crediting rate, not the expense ratio. The stated interest rate is after deduction of expenses.
Thanks for your thoughts. Fully agree that the Equity Index Fund is my best option for equities.

Based on what others have said, it makes good sense to me as to why I should use a traditional 401k; which I will do. This means I can max it out, which is great. The problem is that when contributing $ 20,500, as you have already pointed out, is that I still need to keep diversification in my portfolio. That is where is get cloudy in my mind, and why I haven't left the TDF. I have used the Vanguard tool that others have suggested, and my results came back as 80 % equities / 20 % FI.

The stable value fund is really hard to find anything on. It belongs to SVF Investments, but I cannot find anything on the ticker SVF-E. SVF-E is how it is listed in our 401k. I don't know how to answer your above questions, unfortunately.
In your 401k materials prob the 401k website there will be a short fact sheet about the Stable Value Fund. If you can't find it then as HR for a copy.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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mattj2
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Re: Asset Allocation - 39 Years Old

Post by mattj2 »

ruralavalon wrote: Mon Jan 31, 2022 12:45 pm
mattj2 wrote: Sun Jan 30, 2022 7:25 pm
ruralavalon wrote: Sun Jan 30, 2022 3:25 pm In selecting funds to use strive for a combination of both broad diversification (to reduce risk) and low expense ratios (to increase net returns)

In my opinion the best option in you employer's 401k may be "Equity Index 500 Fund (PREIX) - ER 0.18 %". This fund is very diversified with a low expense ratio.

What interest is currently being paid on the "Stable Value Fund (SVF-E) - ER 0.45 %"? What rate if any is guaranteed? That could be a good fixed income investment to use in your 401k account. In a Stable Value Fund the important number is the crediting rate, not the expense ratio. The stated interest rate is after deduction of expenses.
Thanks for your thoughts. Fully agree that the Equity Index Fund is my best option for equities.

Based on what others have said, it makes good sense to me as to why I should use a traditional 401k; which I will do. This means I can max it out, which is great. The problem is that when contributing $ 20,500, as you have already pointed out, is that I still need to keep diversification in my portfolio. That is where is get cloudy in my mind, and why I haven't left the TDF. I have used the Vanguard tool that others have suggested, and my results came back as 80 % equities / 20 % FI.

The stable value fund is really hard to find anything on. It belongs to SVF Investments, but I cannot find anything on the ticker SVF-E. SVF-E is how it is listed in our 401k. I don't know how to answer your above questions, unfortunately.
In your 401k materials prob the 401k website there will be a short fact sheet about the Stable Value Fund. If you can't find it then as HR for a copy.
I called T Rowe and they said the stable value fund is not publicly traded. When I look at the description is says:

"The Stable Value Fund's objective is to provide a competitive yield, while maintaining principal stability. It invests primarily in a diversified portfolio of synthetic investment contracts, bank investment contracts, guaranteed investment contracts, and separate account contracts issued by insurance companies and/or banks."

1 yr return = 1.59 %
3 yr return = 1.83 %
5 yr return = 1.83 %
10 yr return = 1.85 %
Since inception = 4.41%

ER = 0.45 %
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ruralavalon
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Re: Asset Allocation - 39 Years Old

Post by ruralavalon »

mattj2 wrote: Wed Feb 02, 2022 11:54 am I called T Rowe and they said the stable value fund is not publicly traded. When I look at the description is says:

"The Stable Value Fund's objective is to provide a competitive yield, while maintaining principal stability. It invests primarily in a diversified portfolio of synthetic investment contracts, bank investment contracts, guaranteed investment contracts, and separate account contracts issued by insurance companies and/or banks."

1 yr return = 1.59 %
3 yr return = 1.83 %
5 yr return = 1.83 %
10 yr return = 1.85 %
Since inception = 4.41%

ER = 0.45 %
1.59% last year is good but not outstanding. It doesn't appear that there is a guaranteed rate. For comparison the current SEC Yield on Vanguard Total Bond Market Index Fund (VBTLX) is just 1.81%, and currently high interest savings accounts pay around 0.5%, bankrate.com.

In my opinion you could use the Stable Value Fund in your current employer's 401k plan as a fixed income investment to add portfolio stability and also to diversify, in addition to the S&P 500 index fund.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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mattj2
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Re: Asset Allocation - 39 Years Old

Post by mattj2 »

ruralavalon wrote: Wed Feb 02, 2022 12:45 pm
mattj2 wrote: Wed Feb 02, 2022 11:54 am I called T Rowe and they said the stable value fund is not publicly traded. When I look at the description is says:

"The Stable Value Fund's objective is to provide a competitive yield, while maintaining principal stability. It invests primarily in a diversified portfolio of synthetic investment contracts, bank investment contracts, guaranteed investment contracts, and separate account contracts issued by insurance companies and/or banks."

1 yr return = 1.59 %
3 yr return = 1.83 %
5 yr return = 1.83 %
10 yr return = 1.85 %
Since inception = 4.41%

ER = 0.45 %
1.59% last year is good but not outstanding. It doesn't appear that there is a guaranteed rate. For comparison the current SEC Yield on Vanguard Total Bond Market Index Fund (VBTLX) is just 1.81%, and currently high interest savings accounts pay around 0.5%, bankrate.com.

In my opinion you could use the Stable Value Fund in your current employer's 401k plan as a fixed income investment to add portfolio stability and also to diversify, in addition to the S&P 500 index fund.
It seems very logical to use the S&P Index for the equities and the stable value for the FI. Is there anything I am overlooking by moving out of the TDF into just these two funds?
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Re: Asset Allocation - 39 Years Old

Post by TurtleBeatsHare »

Similar age boat. I think the right answer for anyone under 50 is 100% globally diversified equities, split 70 US/30 ex US for a non-emergency fund, if you don’t intend to retire until 65 or later, if you have properly insured against death and disability to eliminate the risk of needing the money sooner, and if you have the personality and temperament to not touch the money in a downturn. This allocation is low cost, highly diversified with respect to many risks, tax efficient, and provides the highest expected return over an extended time frame while more or less minimizing volatility at that expected return through international diversification (you can debate whether international should be 25-35 for optimization).

At your/our age, the primary risk to your retirement is not having enough assets accumulated, and therefore your strategy should be focused on accumulating those assets and maximizing growth. Once you have enough, you can think about reducing volatility, sequence of return risks, buying protection from inflation. But it is highly likely—almost certain—that you can rebalance the portfolio through good sale years and catch-up contributions in the 10 years preceding 65 (so 55-65). Historically, 3 of those years will be recessionary or bad sale years, leaving 7 to glide path to your volatility reducing asset allocation.
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ruralavalon
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Re: Asset Allocation - 39 Years Old

Post by ruralavalon »

mattj2 wrote: Thu Feb 03, 2022 10:08 am
ruralavalon wrote: Wed Feb 02, 2022 12:45 pm
mattj2 wrote: Wed Feb 02, 2022 11:54 am I called T Rowe and they said the stable value fund is not publicly traded. When I look at the description is says:

"The Stable Value Fund's objective is to provide a competitive yield, while maintaining principal stability. It invests primarily in a diversified portfolio of synthetic investment contracts, bank investment contracts, guaranteed investment contracts, and separate account contracts issued by insurance companies and/or banks."

1 yr return = 1.59 %
3 yr return = 1.83 %
5 yr return = 1.83 %
10 yr return = 1.85 %
Since inception = 4.41%

ER = 0.45 %
1.59% last year is good but not outstanding. It doesn't appear that there is a guaranteed rate. For comparison the current SEC Yield on Vanguard Total Bond Market Index Fund (VBTLX) is just 1.81%, and currently high interest savings accounts pay around 0.5%, bankrate.com.

In my opinion you could use the Stable Value Fund in your current employer's 401k plan as a fixed income investment to add portfolio stability and also to diversify, in addition to the S&P 500 index fund.
It seems very logical to use the S&P Index for the equities and the stable value for the FI. Is there anything I am overlooking by moving out of the TDF into just these two funds?
That is a good choice in my opinion. I don't think you have overlooked anything.

There is no low expense international stock fund offered. I would suggest an international stock fund if available, but that is not critical in my opinion.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
kada
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Re: Asset Allocation - 39 Years Old

Post by kada »

Those two are reasonable. You have 20 some years to determine the next step. Educate yourself not only to reinforce why what you are doing is reasonable, but to not be swayed by others whose careers are spent learning all the intricacies of investing possibilities and then using said knowledge to your supposed benefit for a fee. I am 35 and am seeing it already for many of my peers. Especially those highly educated in topics outside of finance. They are quite capable of learning finance for themselves but are limited in time. So like many other aspects of their lives they outsource things they are limited in time of. I am fortunate, and so are you, in the knowledge of compounding and how even a 1% management fee cripples your returns over a lifetime in comparison to a low cost ETF. But the emotional fortitude to stay the course is only reinforced by personal knowledge of the facts. Otherwise you will be lured by a financial entity using their own web of facts and figures that trade your financial gain for an emotional crutch. Some people need that crutch but that is not why we are here on this forum.
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