Operation Retirement Boost needs help!

[StepRightUp]

Hi guys,

I want to boost my retirement savings and I need some help to do it wisely.

I'm 33, single, and rent. I have an EF of $9K and my only debt is student loan debt at 3%.

In addition, I have:
Fidelity Target 2040 Roth IRA balance of $48,500 that gets maxed every year at $5K.
TROWE Spectrum Income bond fund balance of $5,700 to which I contribute $100/mo
Vanguard Target 2040 403(b) (from an old employer) balance of $2150
TIAA-Cref Annuity (from an old employer) balance of $400

My current asset allocation for the above is roughly 70% stocks, 20% bonds, 10% cash.

I have taken a look at my finances and believe I can contribute an additional $300/mo to retirement.

Any recommendations?

For example, should my allocation be closer to 80% stocks?

What should I do with the bond fund? Someone on this forum recommended putting it in an IRA for tax reasons. Should I then stop contributing to the bond fund?

Should I have more than one IRA?

The Vanguard 2040 has a lower expense ratio by .6% and is more aggressive by about 5% more in stocks. Are these reasons enough to switch?

Where should I put the additional $300/mo for retirement?

Thanks a lot, everyone!

[bennkar]

Most target funds have (to the best of my knowledge) underperformed over time. The main reason is that target funds are usually a fund of funds, meaning you have extra layers of maintenance fees (fees = bad). Target funds are good for someone that doesn't want to pay attention to what they have, and will forget to slowly migrate their funds to less risky investements as they get older. At your age, and with (I'm assuming) a basic or better understanding of investing along with the determination to follow your investments regularly, there's no need for a target fund. I would recommend instead investing directly into the funds you believe in (whether that is large cap, small cap, international, or whatever... thats up to you). If you really want to go into automatic mode, and not look at your accounts for years, then the target date fund would be an "ok" choice, still not great.

Unless you truly can't afford it, you're at the age where boosting the amount you save will make a bigger difference to your final savings amount. $5,000 per year is nice, but the $3,600 will make a big difference. Do that for a year, and then see what more you can cut out without pain and up it again.

[krantcents]

Hi guys,

I want to boost my retirement savings and I need some help to do it wisely.

I'm 33, single, and rent. I have an EF of $9K and my only debt is student loan debt at 3%.

In addition, I have:
Fidelity Target 2040 Roth IRA balance of $48,500 that gets maxed every year at $5K.
TROWE Spectrum Income bond fund balance of $5,700 to which I contribute $100/mo
Vanguard Target 2040 403(b) (from an old employer) balance of $2150
TIAA-Cref Annuity (from an old employer) balance of $400

My current asset allocation for the above is roughly 70% stocks, 20% bonds, 10% cash.

I have taken a look at my finances and believe I can contribute an additional $300/mo to retirement.

Any recommendations?

For example, should my allocation be closer to 80% stocks?

What should I do with the bond fund? Someone on this forum recommended putting it in an IRA for tax reasons. Should I then stop contributing to the bond fund?

Should I have more than one IRA?

The Vanguard 2040 has a lower expense ratio by .6% and is more aggressive by about 5% more in stocks. Are these reasons enough to switch?

Where should I put the additional $300/mo for retirement?

Thanks a lot, everyone!

At your age, I would invest in a more aggressive way. I would consider 80-90% equity in broad based mutual funds. For example, Vanguard Total Stock Market fund. I would consider a portion perhaps 20% International, again Vanguard Global index, Total World Stock Index, or Total International Stock Index. These funds are broad enough to limit risk. It is something to think about. Good luck.

[disneysteve]

Most target funds have (to the best of my knowledge) underperformed over time. The main reason is that target funds are usually a fund of funds, meaning you have extra layers of maintenance fees (fees = bad).

This is not true, at least not for the major providers of these funds. For the Vanguard 2040 Fund, the expense ratio is a whopping 0.19%. That's damn near free as far as expense ratios go.

[MrPolarZero]

I think you already have a good set here. However, there still a few things that you need to fix here. In particular, the thing about an additional IRA would be a bit complicated.

[bennkar]

This is not true, at least not for the major providers of these funds. For the Vanguard 2040 Fund, the expense ratio is a whopping 0.19%. That's damn near free as far as expense ratios go.

Compared to my Institutional Index fund with an expense ratio of 0.05%, thats expensive . All kidding aside, I still contend that target date funds are for those that want to put their accounts on autopilot and are willing to accept lesser returns (or just aren't smart enough to do their own investing). YMMV however.

[disneysteve]

Compared to my Institutional Index fund with an expense ratio of 0.05%, thats expensive . All kidding aside, I still contend that target date funds are for those that want to put their accounts on autopilot and are willing to accept lesser returns (or just aren't smart enough to do their own investing). YMMV however.

I'm not disagreeing. I don't use a target fund personally, though they weren't really around when I started investing. I probably still wouldn't use one if I was starting out today.

I do use the equivalent of a target fund in my daughter's 529 plan with their age-adjusted portfolio. Like the retirement funds, it gets more conservative as the child nears college age.

I think a lot of investors do far worse on their own than they would do with a target fund, though. I totally support the move to make 401k participation mandatory and automatic with contributions going into a target fund. This is world's better than what most employees are doing. A high percentage don't even participate in the plans. Among those who do, most are way too conservative or, on the other hand, too aggressive particularly when it comes to how much company stock they hold. A target fund would be a very reasonable place for most people. Heck, I'd be happy if the government would invest all my Social Security money in a target fund.

[littleroc02us]

Actually the 2040 target fund has some great funds inside of them:

1 Vanguard Total Stock Market Index Fund 63.1%
2 Vanguard Total International Stock Index Fund 26.8%
3 Vanguard Total Bond Market II Index Fund Investor Shares†

I have #1 and last year it did 28.1%% and since inception it has averaged around 8.5%. Not crazy about the international one because it has only returned 5% since inception.

[StepRightUp]

Thanks, guys. You've given me a lot to think about. I'm leaning towards rolling over to Vanguard because I think it will give me a more aggressive allocation and a lower expense ratio. I will have to think more about the pros and cons of using a Target fund vs. managing my own group of funds.