Where to invest $10,000 for Retirement - Please Advise

[G-Man]

Any comments on the following Vanguard funds listed below. These are choices available in my retirement plan.

VHCAX - Vanguard Capital Opportunity Fund - Admiral Shares
VPMAX - Vanguard Primecap Fund - Admiral Shares
VBMPX - Vanguard Total Bond Market Index Fund - Institutional Shares

I will post more information on the index funds in the upcoming days.

Thanks

 

[growing_older]

What about any index funds from any other provider? Are there any low cost funds in the options available?

 

[pb4uski]

Anymore feedback?

See post #19.

The equity index and international funds have relatively low ERs and would seem to be good choices if they do track their indices closely.

Is the interest income fund a stable value fund? If so, and if it pays a decent rate of interest it would be my choice as it would not have any interest rate risk.

 

[G-Man]

See post #19.

The equity index and international funds have relatively low ERs and would seem to be good choices if they do track their indices closely.

Is the interest income fund a stable value fund? If so, and if it pays a decent rate of interest it would be my choice as it would not have any interest rate risk.

You are correct about the Interest Income Fund. It is a stable share value fund. The annualized performance over the last 10 years are as follows:

1 yr - 2.95%
3 yrs - 3.12%
5 yrs - 3.35%
10 yrs - 4.04%

This fund is benchmarked against the iMoneyNet First Tier Retail Money Fund Index and has outperformed it.

I will post the annualized performance of the equity funds and company stock in another post.

 

[G-Man]

You are correct about the Interest Income Fund. It is a stable share value fund. The annualized performance over the last 10 years are as follows:

1 yr - 2.95%
3 yrs - 3.12%
5 yrs - 3.35%
10 yrs - 4.04%

This fund is benchmarked against the iMoneyNet First Tier Retail Money Fund Index and has outperformed it.

I will post the annualized performance of the equity funds and company stock in another post.

Below is the information for the company stock and equity funds:

Company Stock
1 yr - 6.68%
3 yrs - 27.35%
5 yrs - 18.39%
10 yrs - 19.08%

US Large Cap Equity Fund
1 yr - 20.57%
3 yrs - 18.43%
5 yrs - 7.01%
10 yrs - 7.31%

Fund is benchmarked against the S&P 500 stock index and the performance is roughly the same.

US Mid/Small Cap Equity Fund
1 yr - 25.30%
3 yrs - 19.27%
5 yrs - 8.66%
10 yrs - no data

Fund is benchmarked against the Russell Small Cap Completeness Index and the performance is roughly the same.

International Equity Fund
1 yr - 17.65%
3 yrs - 6.64%
5 yrs - 0.50%
10 yrs - 7.67%

Fund is benchmarked against the MSCI AC Wld ex-US and Foreign Large Fund and the performance is roughly the same.

Are these better choices than the Vanguards funds?

 

[pb4uski]

....Are these better choices than the Vanguards funds?

I'm not sure it really matters as those are the choices you have.

Even if Vanguard were better (I'll let you do your own research), so what?

In any event it would be better than concentrated in a single company stock.

 

[G-Man]

I'm not sure it really matters as those are the choices you have.

Even if Vanguard were better (I'll let you do your own research), so what?

In any event it would be better than concentrated in a single company stock.

There seem to be some overlap with the Equity Funds and the Vanguard Funds.

For example, the US Large Cap Equity Fund is very similar to the Vanguard PRIMECAP Fund (VPMAX). The Vanguard Fund has a higher Expense Ratio (0.36% vs 0.02%) but a better 1, 3, 5, and 10 Annualized Performance (27.61% vs 20.57%, 18.99% vs 18.43%, 7.28% vs 7.01%, 10.21% vs 7.31%)

The US Mid/Small Cap Equity Fund is very similar to the Vanguard Capital Opportunity Fund (VHCAX). The Vanguard Fund has a higher Expense Ratio (0.41% vs 0.045%) but a similar 1, 3, 5, and 10 Annualized Performance (34.07% vs 25.30%, 19.04% vs 19.27%, 7.95% vs 8.66%, 11.21% vs N/A).

The Interest Income Fund is very similar to the Vanguard Total Bond Market Index Fund. The Vanguard Fund has a lower Expense Ratio (0.05% vs 0.314%) and a lower 1, 3, 5, and 10 Annualized Performance (-0.81% vs 2.95%, 3.45% vs 3.12%, N/A vs 3.35%, N/A vs 4.04%).

 

[G-Man]

I also want to learn more about Tax-Efficient Fund Placement while I rebalance my retirement portfolio.

 

[ER Eddie]

I also want to learn more about Tax-Efficient Fund Placement while I rebalance my retirement portfolio.

Here's something on that, which was recommended to me earlier, and which I still haven't gotten around to digesting.

Principles of Tax-Efficient Fund Placement - Bogleheads

 

[G-Man]

Here's something on that, which was recommended to me earlier, and which I still haven't gotten around to digesting.

Principles of Tax-Efficient Fund Placement - Bogleheads

I assume that all of the dollars in my 401K plan is considered tax deferred dollars. Please confirm?

 

[G-Man]

Below is the information for the company stock and equity funds:

Company Stock
1 yr - 6.68%
3 yrs - 27.35%
5 yrs - 18.39%
10 yrs - 19.08%

US Large Cap Equity Fund
1 yr - 20.57%
3 yrs - 18.43%
5 yrs - 7.01%
10 yrs - 7.31%

Fund is benchmarked against the S&P 500 stock index and the performance is roughly the same.

US Mid/Small Cap Equity Fund
1 yr - 25.30%
3 yrs - 19.27%
5 yrs - 8.66%
10 yrs - no data

Fund is benchmarked against the Russell Small Cap Completeness Index and the performance is roughly the same.

International Equity Fund
1 yr - 17.65%
3 yrs - 6.64%
5 yrs - 0.50%
10 yrs - 7.67%

Fund is benchmarked against the MSCI AC Wld ex-US and Foreign Large Fund and the performance is roughly the same.

Are these better choices than the Vanguards funds?

As you can see, the company stock has done very well for me over the last 10 year. I have owned the stock for 15 years but I realize I need to start diversifying as I approach retirement which is 10 years away. My investment goal is to have over $1M in my 401K plan when I retire in 10 years. Half way there, but I need help from the folks on this forum.

 

[ER Eddie]

I assume that all of the dollars in my 401K plan is considered tax deferred dollars. Please confirm?

That's how 401K's usually operate, yes. You'll pay the tax later, when you take the money out, at which point you will presumably be in a lower tax bracket. There are limits on how much you can contribute, though. I think it's 23K/yr if you're over 50. But don't take my word for it. You should do your own research.

 

[Animorph]

There seem to be some overlap with the Equity Funds and the Vanguard Funds.

For example, the US Large Cap Equity Fund is very similar to the Vanguard PRIMECAP Fund (VPMAX). The Vanguard Fund has a higher Expense Ratio (0.36% vs 0.02%) but a better 1, 3, 5, and 10 Annualized Performance (27.61% vs 20.57%, 18.99% vs 18.43%, 7.28% vs 7.01%, 10.21% vs 7.31%)

The US Mid/Small Cap Equity Fund is very similar to the Vanguard Capital Opportunity Fund (VHCAX). The Vanguard Fund has a higher Expense Ratio (0.41% vs 0.045%) but a similar 1, 3, 5, and 10 Annualized Performance (34.07% vs 25.30%, 19.04% vs 19.27%, 7.95% vs 8.66%, 11.21% vs N/A).

The Interest Income Fund is very similar to the Vanguard Total Bond Market Index Fund. The Vanguard Fund has a lower Expense Ratio (0.05% vs 0.314%) and a lower 1, 3, 5, and 10 Annualized Performance (-0.81% vs 2.95%, 3.45% vs 3.12%, N/A vs 3.35%, N/A vs 4.04%).

The PRIMECAP funds are well respected, but they are actively managed. Hence the higher expenses and probably larger deviations from the benchmarks. Using them is a matter of philosophy. If you don't fully buy into index fund buy and hold, you might see if these funds look interesting to you. They can be used along with index funds as well.

Everything in your 401k is tax deferred. You didn't pay any income taxes on the amounts contributed. You will pay later. Hopefully withdrawals will be made at a lower tax rate than you currently pay.

 

[G-Man]

Here's something on that, which was recommended to me earlier, and which I still haven't gotten around to digesting.

Principles of Tax-Efficient Fund Placement - Bogleheads

So, as I go through this exercise of rebalancing my 401K Retirement account, should I be concerned about Tax Efficient Placement since all my funds in my 401K account is tax deferred. Please advise.

 

[G-Man]

I really appreciate all the feedback from the forum members so far. Over the last several days, this forum has opened my mind up to asset allocation. I have been researching this topic a lot over the past several days.

Based on the information I have provided so far, my goal is to retire in 10 years. As you have read so far, I am pretty aggressive and my risk tolerance level is high when it comes to investing (maybe too high or stupid - all my retirement funds in company stock). I would like to break down my 401K asset allocation in 2 five year phases. Here is what I am thinking from an asset allocation point of view:

Next 5 years (2013 - 2018) Asset Allocation
- The investment goal is to be somewhat aggressive during this time period. The risk tolerance level will be medium to high.
- Asset Allocation (80% stocks, 20% bonds)
- 80% Stocks (US Large Equity Index (??%), US Mid/Small Equity Index (??%), International Equity Index (??%), Company Stock (10%)
- 20% Bonds (Not sure which fund(s) yet. I don't have many choices within my 401K plan to choose from)

Next 5 years (2019 - 2004) Asset Allocation
- The investment goal is to be less aggressive during this time period as I near retirement. The risk tolerance level will be medium to low.
- Asset Allocation (60% stocks, 40% bonds)
- 60% Stocks (US Large Equity Index (??%), US Mid/Small Equity Index (??%), International Equity Index (??%), Company Stock (10%)
- 40% Bonds (Not sure which fund(s) yet. I don't have many choices within my 401K plan to choose from.)

Please provide your feedback on my 10 year strategy and asset allocation options.

 

[Spudd]

You are correct that you don't have to worry about tax-efficient placement if all your funds are in your 401k.

I would recommend just going for the cheapest index funds they have available.

 

[Animorph]

One thing you might consider as an aggressive investor. You can stay close to 100% equities right up until you retire, if your retirement date is flexible. Just keep working until you reach your desired level of FI, then retire. It might get you there earlier (the average returns would say so), but might also delay it a bit. After you retire and start making withdrawals you need to have the more conservative portfolio in place to help with any sequence of returns problems.

 

[G-Man]

One thing you might consider as an aggressive investor. You can stay close to 100% equities right up until you retire, if your retirement date is flexible. Just keep working until you reach your desired level of FI, then retire. It might get you there earlier (the average returns would say so), but might also delay it a bit. After you retire and start making withdrawals you need to have the more conservative portfolio in place to help with any sequence of returns problems.

My objective is to have over $1M in my retirement account when I retire in 10 years.. Now I need help in trying to achieve that based on rebalancing my 401K account.. As I stated earlier I am already at $500K.

Is there a tool or spreadsheet app that someone has developed where I can project what my retirement account will be based on investing in certain funds? I am trying to do some comparison as I pick various funds to invest in to see what the numbers will be in 10 years based on the historical performance over the last 10 years for that fund.

 

[G-Man]

I really appreciate all the feedback from the forum members so far. Over the last several days, this forum has opened my mind up to asset allocation. I have been researching this topic a lot over the past several days.

Based on the information I have provided so far, my goal is to retire in 10 years. As you have read so far, I am pretty aggressive and my risk tolerance level is high when it comes to investing (maybe too high or stupid - all my retirement funds in company stock). I would like to break down my 401K asset allocation in 2 five year phases. Here is what I am thinking from an asset allocation point of view:

Next 5 years (2013 - 2018) Asset Allocation
- The investment goal is to be somewhat aggressive during this time period. The risk tolerance level will be medium to high.
- Asset Allocation (80% stocks, 20% bonds)
- 80% Stocks (US Large Equity Index (??%), US Mid/Small Equity Index (??%), International Equity Index (??%), Company Stock (10%)
- 20% Bonds (Not sure which fund(s) yet. I don't have many choices within my 401K plan to choose from)

Next 5 years (2019 - 2004) Asset Allocation
- The investment goal is to be less aggressive during this time period as I near retirement. The risk tolerance level will be medium to low.
- Asset Allocation (60% stocks, 40% bonds)
- 60% Stocks (US Large Equity Index (??%), US Mid/Small Equity Index (??%), International Equity Index (??%), Company Stock (10%)
- 40% Bonds (Not sure which fund(s) yet. I don't have many choices within my 401K plan to choose from.)

Please provide your feedback on my 10 year strategy and asset allocation options.

If I wanted to avoid investing in the bond funds for now, what other fund should I considered based on the options I have in my 401K plan. I believe I have some stable value funds in my 401K plan.. Please advise.

 

[RunningBum]

I haven't been following this thread too closely, but there are some major tax advantages to hanging onto the company stock until you retire, correct? Have you looked into protecting that investment with puts? I've heard of people using puts to protect employee stock options that they can't yet exercise.

I'm no expert on this but the way I understand it is that you'd buy puts at a price that would put a floor on a drop in price, ideally covering all of your shares. Like all insurance, you hope you never need it and pay a cost just to have the unneeded insurance, but at least you'd be protected from the falls that hit Enron, Lucent, Cisco, etc. The things you'd have to look into are:

- Does your company allow it, since you are essentially selling short, even if it is covered?

- You still won't be diversified, but at least you are protected from the risks of a single stock failure. But if the stock is flat while the rest of the market rises, you aren't taking part in the bull market with most of your money.

- Is the cost of the puts worth the tax advantages? I don't know how much puts cost, and how much of a tax advantage you gain using NUA (which I'm not that familiar with), so you may find that just diversifying is better.

- Can you use puts to cover the 10 years you are looking for? I don't know how long the contracts go, but I guess you can just buy new puts as the old ones expire.

 

[Animorph]

If I wanted to avoid investing in the bond funds for now, what other fund should I considered based on the options I have in my 401K plan. I believe I have some stable value funds in my 401K plan.. Please advise.

I believe the stable value fund would be perfect for that. Probably no other option anyway.