401(k) suggestions

**disneysteve** · 04-23-2007, 01:56 PM

Originally posted by anonymous_saver View Post

I have looked at most of these funds and many have front end loads.

Are you sure they have loads within the plan? My wife's 403b was with Oppenheimer. Their funds have loads normally, but there was no load charged for participants in the plan.

**Scanner** · 04-23-2007, 02:07 PM

Anonymous,

Currently, he has 100% of his Roth IRA with the Vanguard 500 Index ($5,500 total). He would like to go with a 85% Domestic/15% International or the 60% Domestic Large Cap/25% Domestic Small Cap/15% International mix.

So, he wants his portfolio to be that mix?

I would say pick an international fund for the time being since he's already got money in the Roth deployed in domestic and as he accrues money, he'll just have to rebalance it.

Try not to get too hung up on the loads, especially if his employer matches it. Figure if his employer even matches 25%, that's a guaranteed, no-risk 25% return on his money immediately.

God. . .the lesser of two evils? Front load or back load? I'd say back load. . .you would be losing compounding to me (or so it would seem) if you front load your investments.

BTW: An Editorial Edit: I think that's way too high for domestic. I think America will do "OK" in the next 20 years but I wouldn't put 85% of my eggs here. Just me. But he's not me and I'm not him.

**kv968** · 04-23-2007, 03:26 PM

Originally posted by anonymous_saver View Post

Would you suggest that he only uses the 500 Index for his 401(k) and includes more diversification with his Roth IRA (since he would have more access to other Index Funds)?

Or do you see some gems in his 401(k) offerings?

Suggestions/opinions are welcome. Thanks!

If his IRA has better offerings than the 401k then I'd say go 100% S&P 500 index in his 401k and balance out the rest with his Roth. However with only $5500 in his Roth, if he starts adding too many funds he won't meet all the fund's minimums and would most likely end up paying some sort of low account fee on them as well. It all depends if he absolutely wants all index funds or not. If he's willing to have managed funds as well, (which wouldn't be a bad idea) he should probably keep the S&P 500 where it's at and use the funds that are in his 401k since there are some decent ones in there. Of course you always have to make sure the allocation stays in balance as he adds money.

And like Steve said, I'd check on those loads. Many times with 401k plans they're either waved or you aren't getting the class "A" share but something like the "R" share you're getting with the American Funds Europacific (RERFX). Which by the way is an excellent fund especially since you won't have to pay the load fee.

**kv968** · 04-23-2007, 03:48 PM

Originally posted by Scanner View Post

God. . .the lesser of two evils? Front load or back load? I'd say back load. . .you would be losing compounding to me (or so it would seem) if you front load your investments.

Although either should almost always be avoided IMO, there really isn't any difference in front- or back-loads if the fee is the same. Although I don't think the back-load fee would be as high as the front in typical funds. And come to think of it, I haven't seen too many back-end load funds out there.

**wakkus** · 04-23-2007, 11:50 PM

i think people should be careful with their fund choices for 401Ks. banks, commericals, yahoo finance -- everyone -- says that you need to be diversified and have a bunch of funds. it's overkill and the reason that they're saying it is because inevitably you'll have to pick funds with loads or higher fees. that lines their pockets. worse, since it's a retirement fund, their fees, due to compound interest, get 20,30, or 40 years to erode more and more of your profits (i can explain why this is if you want)!!

in the end, the biggest thing that will hurt you are the fees. investing in the largest 500 US companies seems diversified enough to me. if you are worried about the future of the US and want to have an international fund, that's cool. however, i would absolutely not take it if it had an expense ratio over 0.5% - it's like throwing money away.

**disneysteve** · 04-24-2007, 04:39 AM

Originally posted by wakkus View Post

investing in the largest 500 US companies seems diversified enough to me. if you are worried about the future of the US and want to have an international fund, that's cool.

The reason to include international investments isn't because you are "worried about the future of the US" but rather because the US only makes up one part of our global economy. Many products that you use on a daily basis like cars, electronic equipment, prescription medications and more are produced by foreign companies. I think it makes perfect sense to spread my investment money around the world. Also, the economies of other countries rise and fall at different times than the US economy, so diversifying helps moderate the returns of your portfolio.

**jIM_Ohio** · 04-24-2007, 05:46 AM

I allocate each basket independantly of all baskets if choices are effective. meaning my 401k has a 75-25 allocation, my Roth has a 75-25 allocation and my wife's 401k has a 75-25 allocation.

This simplifies rebalancing to the single account... if jobs change, 401k plans change whatever.... the IRA portion would not need to be reallocated each time. I have worked for one employer over 10 years, I am on my third 401k, and will be getting a 4th in 2008. Wife has had 4 401ks in 7 years... if each of these 8 changes in employment required an IRA rebalance, that would be way too much work.

The same way you did not suggest your partner compliment your 401k holdings, I would recomend IRA and 401k each have a self contained 85-15 mix.

Within 401k, the best choices for your allocation appear to be (Is this a Paychex 401k plan- these choices look REAL familiar):

American Europacific R4 15%
Vanguard Index 500 Fund 60%
Columbia Small Cap Fund 25%

If you post tickers, I'll re-examine the small cap selection. My wife has the Europacific fund in her paychex 401k.

If you need a better understanding of where I am coming from, check my blog.

**anonymous_saver** · 04-24-2007, 07:58 AM

Davis NY Venture A = NYVTX
Fidelity Advisor High Yield Fund = FAHYX
Oppenheimer Global Fund = OPPAX
Van Kampen Comstock Equity Inc. = ACSTX
American Europacific R4 = RERCX
Baron Growth = BGRFX
Franklin Flex Cap Growth A = FKCGX
Vanguard Index 500 Fund = VFIAX
Met Life Stable Value Fund = MLIF1
PIMCO Total Return Fund = PTTAX
American Funds Growth Fund of America = RGACX
Columbia Small Cap Fund = CSMIX

I don't know if it is a Paychex 401(k) plan... I'll check.

**disneysteve** · 04-24-2007, 08:25 AM

Originally posted by jIM_Ohio View Post

I allocate each basket independantly of all baskets if choices are effective. meaning my 401k has a 75-25 allocation, my Roth has a 75-25 allocation and my wife's 401k has a 75-25 allocation.

This simplifies rebalancing to the single account.

But doesn't that mean that if international funds have a banner year, you need to rebalance 3 different accounts? If all of your international holdings were in one account, you'd only need to rebalance that one and not touch the others. I can see pros and cons either way.

**disneysteve** · 04-24-2007, 08:26 AM

Originally posted by rexdart

we'll have to agree to disagree on that one Jim, if the small cap options in my Roth are far better than what's available in my 401(k), no way I'm going to penalize myself for the sake of simplicity.

Jim did say "if choices are effective." If the choices are lousy, then you are certainly correct.

**jIM_Ohio** · 04-24-2007, 08:34 AM

Originally posted by anonymous_saver View Post

Davis NY Venture A = NYVTX large cap- expensive
Fidelity Advisor High Yield Fund = FAHYX
Oppenheimer Global Fund = OPPAX
Van Kampen Comstock Equity Inc. = ACSTX
American Europacific R4 = RERCX foreign, good fund
Baron Growth = BGRFX small cap, excellent fund
Franklin Flex Cap Growht A = FKCGX good fund- check out load
Vanguard Index 500 Fund = VFIAX large cap, cheap, OK returns
Met Life Stable Value Fund = MLIF1
PIMCO Total Return Fund = PTTAX
American Funds Growth Fund of America = RGACX large cap-expensive
Columbia Small Cap Fund = CSMIX small cap good fund

I don't know if it is a Paychex 401(k) plan... I'll check.

for a 60-25-15 mix, I would do

50% to VFIAX
10% to FKCGX
12% to BGRFX
13% to CSMIX
15% to RERCX

then franklin fund is a multi cap fund... the Baron fund is a closet mid cap fund and the Columbia fund is a value tilt to small caps. Between these 3 you get the other 10% large cap and broad small and mid cap exposure.

This is high risk. I did not see a good large cap value fund, which is how I reduce risk in my own portfolio. Some bond exposure might be warranted (5% position) to help rebalance some risky choices. I'd drop VFIAX to 45% in this case.

**jIM_Ohio** · 04-24-2007, 08:41 AM

Originally posted by disneysteve View Post

But doesn't that mean that if international funds have a banner year, you need to rebalance 3 different accounts? If all of your international holdings were in one account, you'd only need to rebalance that one and not touch the others. I can see pros and cons either way.

YES, I have to watch 3 different accounts and watch all 3... but in all cases I can look at one statement and handle that one account without waiting for the other 3-4 statements to arrive.

My 401k gets rebalanced twice a year. In June I adjust contribution percentages to holdings to achieve 45-15-15-15-10 mix (really 45-15-15-25 because I don't have a small cap foreign fund for a 10% position). The in December I rebalance to the 45-15-15-25 mix, and reset contributions to 45-15-15-25.

My Roth is rebalanced based on contributions 100% of the time. I only contribute to Roth for 6 months... so this is an easy thing to do. Meaning is I have to put $150 to a fund one month, then only $50 to it the next to keep it in line, that's what I do. Because most of my Roth is conservative equity, I have only had to adjust this once per year the last 2 years.

Wife's 401k is rebalanced once per year when I do income taxes.

**jIM_Ohio** · 04-24-2007, 08:56 AM

Originally posted by rexdart

we'll have to agree to disagree on that one Jim, if the small cap options in my Roth are far better than what's available in my 401(k), no way I'm going to penalize myself for the sake of simplicity. I keep everything fluid across the accounts.

the only exception is my HSA, as of now I do not factor those mutual funds into the overall allocation. I prefer to keep that separate from the retirement stuff (despite the fact it may someday be "retirement stuff.")

but then I don't find reallocation too much work at all, I rather enjoy it (but I'm a weirdo

)

for most people though, when I think about it, you've got the right idea.

If you don't have a good fund, you need to compromise. I do this within our accounts.

The allocation I shoot for within each

75% domestic equity
25% international equity

45% large cap domestic
15% mid cap domestic
15% small cap domestic
15% large cap foreign
10% small cap foreign/ emerging markets

For example, wife's 401k does not have a good small cap, so the 15% small cap allocation for her goes to mid caps (so she has 30% mid caps, not 15% like target allocation). Same with foreign- she does not have a foreign small or mid cap fund, so the 10% allocation to this is rolled into her foreign large cap fund (25% instead of 15%).

My 401k does not have a mid cap fund offered, so I put some into a Wilshire 4500 index (UGH!

) and some into another small cap... meaning my 401k is a 45-10-10-10-25 allocation (no international small cap fund either). It is really 30% small cap or broad index, but it comes close to what target allocation is. Because one small cap is a micro cap value fund and the other is a small cap growth bordering on mid cap... this was a good compromise, IMO.

**jIM_Ohio** · 04-24-2007, 09:00 AM

One other point- because fidelity, vanguard and T Rowe price all calculate "internal rates of return", and each porfolio has a similar allocation, it is easiest to compare rates of return of each account.

401k for wife is thru Fidelity
My 401k for me is thru Vanguard
Our Roths are with T Rowe Price

Granted my T Rowe account is older, to the rates of return are more "battle tested", but the point of if the Roth shows a 14% return and 401k shows a 9% return, I can clearly see the funds in one are better than the other.

That has not happened yet (differences that high), but it is something I do look at.

401(k) suggestions