403(b) Decisions

[anonymous_saver]

I have always put 25% of my income towards retirement. However, in the past couple of months I have a new job and now have more money to put towards retirement than the max. allowed for a Roth IRA. Therefore I am opening a 403(b) [possibly a 457, but not likely] at my job in June 2007. They do not match funds since I have a pension with them as well. I want some advice. Currently, I have $13,000+ in a Roth IRA at Vanguard with all of the money in the Total Stock Market Index Fund. I want to move towards the 85% Domestic & 15 % International fund combination. I already have $5,000 sitting at Emigrant for my 2008 Roth IRA contribution, so I am looking at the very least to do this for the rest of 2007, and all of 2008. I make $35,000 a year, and will be contributing 25% of my income towards the 403(b) account. My company has over 250 investment options through Vanguard, Fidelity, DWS Schudder, and Securian. I think it would just make sense for me to keep things with Vanguard – if someone thinks differently, I’m willing to listen. I am 25 years old and that is why I am aggressively saving only in stocks – although I’m fine if someone has advice otherwise. I also am a big fan of Index funds. So here is what my company offers for the 403(b).

Vanguard Domestic Index Stocks Offered:
500 Index
Dividend Appreciation Index
Extended Market Index
FTSE Social Index
Growth Index
High Dividend Yield Index
Large Cap Index
Mid Cap Index
REIT Index
Small Cap Growth Index
Small Cap Index
Small Cap Value Index
Total Stock Market Index
Value Index

Vanguard International Index Stocks Offered:
Developed Markets Index
Emerging Markets Stock Index
European Stock Index
Pacific Stock Index
Total International Stock Index

(1) For my domestic stock, I am undecided between the 500 Index, Extended Market Index, and the Total Stock Market Index. For my international stock I am trying to decide between the European Stock Index or the Total International Stock Index. I have looked at all of there prospectus, and I know a lot of the domestic ones are almost the same, but I am willing to listen to opinions/thoughts. The idea of having a Social Index makes me feel morally good but the returns do not. I also am thinking of getting a small percentage of some of the riskier funds like the REIT Index.

(2) Secondly, do you think I should start off with my 403(b) with the 85/15 mix or should I do something more like 60% domestic & 40% international since my Roth IRA is 100% domestic? That is, should I seek to have an 85/15 mix in my 403(b) AND my Roth IRA, or just an 85/15 mix between the two accounts? I would probably save a few dollars in fees if I did it between accounts since next year I wouldn’t have to pay the $10 maintenance fee for the international fund being less than the required amount for Vanguard (sorry if that is too confusing!).

[kv968]

I would suggest having a 85/15% mix between the accounts. Since it's going towards the same goal (ie. retirement), you want to have the entire portfolio balanced. Granted if you had a 85/15 mix in both of them, the percentages would practically come out the same, but it's easier to just treat it as one.

As far as your selections go, I would say go for the Total Stock Market Index since that will give you some mid-cap and small-cap exposure (72% large-cap, 19% mid-cap, 9% small-cap). Or, if you'd like more small and mid-cap exposure, you could split your money evenly between the S&P 500 Index and the Extended Market Index (48% large-cap, 31% mid-cap, 21% small-cap). You can come up with endless percentages and those are just two you can work off of.

I'd also say the Total Int'l Market Index instead of individual indexes since it's comprised of 58% European Index, 27% Pacific Index and 15% Emerging Markets Index. Unless you would like a different percentage in those markets why not just do it all with one fund?

A REIT fund would be ok too but I would keep that allocation down around 10% of your total portfolio.

Just my $.02

[disneysteve]

I say keep things simple. Total Stock Market index for domestic and Total International index for international. Why makes things complicated?

As for allocation, it is all one pie - Roth and 403b - so you want that 85/15 breakdown to be overall. It doesn't matter if it is in the Roth or the 403b or some combination of both, but there is no reason that each account needs to be 85/15 on its own.

I see nothing wrong with a 25 year old being 100% in stocks.

Does it make sense to keep everything with Vanguard? If you are sticking to index funds, I say yes. If, however, you decide to get into managed funds, then no. With managed funds, you want to find the best fund in each category, not just the best one company has to offer. Personally, we've got money in funds from Vanguard, Janus, Oppenheimer, Cohen and Steers and Heartland.