Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Your Thoughts on DDs 401k Choices
Old 06-09-2009, 09:37 AM   #1
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
TromboneAl's Avatar
 
Join Date: Jun 2006
Posts: 11,198
Your Thoughts on DDs 401k Choices

DD just started her new engineering job; she's 21. She asked for my thoughts concerning her 401k selections.

Here are her choices:

Quote:
Principal Guaranteed Fund Contract- General -account backed, stable value contract w/ declared rate of 4.15%

High Yield Bond Allocation - Columbia High Yield Fund (CMHYX) and Neuberger Berman High Income Bond Fund (LBHBX). The portfolio may also invest in us government securities, mortgage-backed securities, such as certificates of deposit, treasury bills, and commercial paper.


Balanced Income Allocation - Vanguard Wellesley Income Fund (VWIAX)


Principal LargeCap S&P 500 Index Separate Account


Growth and Income Stock Allocation - 3 mutual funds: Brandywine Blue (BLUEX), Dodge & Cox (DODGX), and Vanguard Windsor II (VWNAX)


Small Cap Stock Allocation - Two mutual funds: Wasatch Small Cap Growth (WAAEX) and Munder Small Cap Value (MCVYX)


Science and Technology Stock Allocation - 3 mutual funds: Ivy Science and Technology I (ISTIX), Seligman Communications & Information (SLMCX), and Vanguard Health Care (VGHAX)


International Stock Allocation - 3 mutual funds: Artisan International (ARTIX), GE Institutional International Equity (GIEIX) and UMB Scout International (UMBWX)




Let me know what you think!


Also, it looks like Roth 401(k) is better, but more risky in case tax laws change...do you think I should do all Roth, or should I put some in a regular 401(k)?
What are your thoughts?

Thanks,
__________________

__________________
Al
TromboneAl is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 06-09-2009, 10:24 AM   #2
Full time employment: Posting here.
Kronk's Avatar
 
Join Date: Aug 2005
Location: Philly 'burbs
Posts: 547
100% S&P 500. At least for a couple of years. Not really concerned about diversification with a new account, and I wouldn't be thrilled with those choices.

I'm not sure I agree that a Roth 401k is the best choice. Looks like she'd be in the 25% bracket with a 60k income? I guess at that point you're just running a bet on whether your tax bracket will be higher or lower than that when you're in retirement. Even as a 21-year-old, I'd lean towards the tax deferral. Now, if some/all of the 401k contributions were at the 15% level, I'd probably opt for the Roth 401k.
__________________

__________________
Kronk is offline   Reply With Quote
Old 06-09-2009, 10:54 AM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2003
Location: Kansas City
Posts: 7,408
Yep - at age 21, 100% S&P 500.

Any company match?

heh heh heh - my Nephew lasted about ten yrs before he cracked and read Four Pillars and wife had their first child - so saving for a house down payment altered the 100% equity mindset.
__________________
unclemick is offline   Reply With Quote
Old 06-09-2009, 11:47 AM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
freebird5825's Avatar
 
Join Date: Feb 2008
Location: East Nowhere, 43N Latitude, NY
Posts: 9,017
Not qualifid to comment on regular 401(k) or Roth 401(k).

Age 21, just starting out, high salary growth potential, world by the......

85-90% S&P 500 with the remainder in one or more of the other 3 categories (small cap, S&T, or International) just for some fun and a little diversification out of the gate.
At a minimum, she might want to record what she thinks her AA plan should be (i.e. AA vs landmark ages) and file it somewhere for a revisit later on.
__________________
"All our dreams can come true, if we have the courage to pursue them." - Walt Disney
freebird5825 is offline   Reply With Quote
Old 06-09-2009, 11:58 AM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
travelover's Avatar
 
Join Date: Mar 2007
Posts: 9,888
And don't forget to look at expense ratios, even if it is just for her eduction.
__________________
Yes, I have achieved work / life balance.
travelover is offline   Reply With Quote
Old 06-09-2009, 12:03 PM   #6
Moderator Emeritus
Bestwifeever's Avatar
 
Join Date: Sep 2007
Posts: 16,375
I vote the S&P too at her age. And I vote non-Roth--no reason.
__________________
“Would you like an adventure now, or would you like to have your tea first?” J.M. Barrie, Peter Pan
Bestwifeever is offline   Reply With Quote
Old 06-09-2009, 12:14 PM   #7
Moderator
ziggy29's Avatar
 
Join Date: Oct 2005
Location: Texas
Posts: 15,612
Until she has enough in the account to make diversification worthwhile, just put it all into the S&P fund. I think down the road GIEIX might be a decent choice to include international exposure with a tolerable 0.55% expense ratio.

As far as diversification with small caps, WAAEX has been a good performer but its expense ratio is a bit on the high side.

As for Roth or conventional 401K, if she's in the 25% bracket or higher, I'd go conventional. In the 15% or lower, I'd go Roth.
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

RIP to Reemy, my avatar dog (2003 - 9/16/2017)
ziggy29 is offline   Reply With Quote
Old 06-09-2009, 12:24 PM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2005
Posts: 13,275
I vote she should go with a few mutual funds even though the others have a point with the low balance....

If you start her early on asset allocation and rebalance, then it will become part of what she does... if you stick her in one fund, who knows when she will look at it again...

As for regular vs ROTH... I would say it depends on tax bracket... if she is in the 25%, then enough to get to the bottom of it... if she is not, then ROTH...
__________________
Texas Proud is offline   Reply With Quote
Old 06-09-2009, 02:08 PM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,619
Even in a 401(k), I would not advocate 100% equities. However, the bond choices look like junk bond funds, so they don't really provide the diversification away from stocks like a good bond fund would.

Thus, I would lean to the S&P500 fund if the expense ratio was low enough for say 80% and 20% in the stable value fund. But that kinda neglects the important small cap and international equities for now.

Skip the Roth if she is in a higher tax bracket than 15%. If at 15%, it is probably a wash, but it's hard to say because some folks lose out on tax credits in that bracket, so a traditional is better even in the 15% bracket for them.

It's amusing that the "Growth and Income" option includes 2 value funds. A newbie looking at the choices could be easily thinking, "Yep, I want my 401(k) to grow and I want income from it as well, so give me Growth & Income!"

What are the expense ratios on all the options?
__________________
LOL! is offline   Reply With Quote
Old 06-09-2009, 03:31 PM   #10
Moderator
ziggy29's Avatar
 
Join Date: Oct 2005
Location: Texas
Posts: 15,612
Quote:
Originally Posted by LOL! View Post
Even in a 401(k), I would not advocate 100% equities. However, the bond choices look like junk bond funds, so they don't really provide the diversification away from stocks like a good bond fund would.
They don't seem too good, no.

If I were to add bonds to this I'd probably do it through Wellesley, considering Wellesley to be about 2/3 bonds. So if I wanted an 80/20 allocation (which seems reasonable for a 20-something), 70% in pure stock funds and 30% in Wellesley would do it.
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

RIP to Reemy, my avatar dog (2003 - 9/16/2017)
ziggy29 is offline   Reply With Quote
Old 06-09-2009, 03:34 PM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,619
I agree on the Wellesley advice.
__________________
LOL! is offline   Reply With Quote
Old 06-09-2009, 03:56 PM   #12
Thinks s/he gets paid by the post
 
Join Date: Jul 2005
Posts: 3,862
I'd like something along the lines of 20% S&P500, 20% dodgx, 20% waaex, 40% artix, just winging the percents without checking the balance at Morningstar. I use dodgx myself as well as other Artisan and Wasatch funds. I wouldn't want to forget foreign investment these days, so I wouldn't go all S&P500.

Your DD should be able to do a traditional 401k and a Roth IRA while she's still Roth IRA eligible. Get it in while you can, though Roth 401k may remain widely available in the future. Otherwise, you might want to split between Roth and traditional.
__________________
Animorph is offline   Reply With Quote
Old 06-09-2009, 05:08 PM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: Chicagoland
Posts: 11,974
I would be a lot more aggressive than all SP500 at age 21, but that's just me. What's her risk tolerance? I'd have a mix of small cap, foreign, large cap and no more than 20% Wellesley at her age - but I'd have to know expense ratios to give specific deployments. Not great choices, but I've certainly seen worse.

Wish her all the best in her new job from us. I started out as a Mech Engineer before Management pay lured me away...
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
Midpack is offline   Reply With Quote
Old 06-09-2009, 05:17 PM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,450
I'd certainly consider the UMB scout fund for portion say 30%. Morningstar 5* over every time period, below average risks, and reasonable .96% ER . AFAIK, there isn't much data either way to show that index international funds outperform actively managed international funds.

I invested my grand nephew and nieces small educational IRAs in it, mostly cause they had modest minimums.
__________________
clifp is offline   Reply With Quote
Old 06-09-2009, 06:15 PM   #15
Thinks s/he gets paid by the post
target2019's Avatar
 
Join Date: Dec 2008
Posts: 3,708
25% - Vanguard Wellesley Income Fund (VWIAX)
25% - Dodge & Cox (DODGX)
25% - Vanguard Health Care (VGHAX)
25% - GE Institutional International Equity (GIEIX)

02.55% Cash
45.58% U.S. Stocks
36.54% Foreign Stocks
14.79% Bonds
00.54% Other
__________________
target2019 is offline   Reply With Quote
Old 06-09-2009, 06:25 PM   #16
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,619
Sorry, I think I got confused. Can one pick ANY of the mutual funds listed? Or do they come as a package? That is is "Small Cap Stock Allocation" a 'fund of funds' or can one select a single fund out of those listed for small cap?
__________________
LOL! is offline   Reply With Quote
Old 06-09-2009, 06:46 PM   #17
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
TromboneAl's Avatar
 
Join Date: Jun 2006
Posts: 11,198
I think you have to pick the groups, but I don't know.
__________________
Al
TromboneAl is offline   Reply With Quote
Old 06-10-2009, 12:20 AM   #18
Thinks s/he gets paid by the post
 
Join Date: Aug 2004
Location: Laurel, MD
Posts: 2,951
I looked at a friend's plan the other day. It was a plan offered through Prudential.
How on earth do they come up with such a mish-mash of funds from umpteen various fund companies? My friends offerings were similar except each one used the description "seperate account" like the S&P 500 fund in your daughter's plan which I believe means it is not technically a mutual fund, but more of a clone. My friend's ER's were 1.3-1.5 for all the funds except the S&P which was about .8%, but I believe there may be hidden expenses in the clone funds as the disclosure requirements are not well defined (my opinion). It's easy to compare clone funds performance to the "real" fund or index to see how it compares. I think she should stick to the S&P and the stable value actually looks decent. Look into rollover options too.
__________________
...with no reasonable expectation for ER, I'm just here auditing the AP class.Retired 8/1/15.
jazz4cash is online now   Reply With Quote
Old 06-10-2009, 08:12 AM   #19
Full time employment: Posting here.
Kronk's Avatar
 
Join Date: Aug 2005
Location: Philly 'burbs
Posts: 547
Maybe I'm just spoiled by having several hundred thousand dollars in my portfolio, but it seems like slicing and dicing a portfolio under $20,000 seems like a needless complication. Especially when the choices are kind of middling. The choices I'd make for myself aren't the same choices I'd advise for her.

I just don't see the need to spend life energy allocating 20% here and 30% there and then keeping track of it (even just seeing it on quarterly reports) on an ongoing basis. If the market tanks again, having a bond allocation might keep her from losing, what, $100?

Give her a copy of Four Pillars as a gift, make her read it and reevaluate a year from now. How much she contributes is almost certainly going to be a lot more important than which of these she chooses. A year from now, she may have left the company or the 401k choices may have changed. Don't overthink it.
__________________
Kronk is offline   Reply With Quote
Old 06-10-2009, 08:26 AM   #20
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,619
I agree mostly with Kronk, but I also want to point that TIAA-CREF has shown that many folks set their 403(b) / 401(k) allocations when they are first employed and then never bother to ever change them. So I think it involves a more than cursory look, but it's true that whatever is done now won't make a big difference over the next couple of years.
__________________

__________________
LOL! is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Help for a friend's 401k Choices fatman22 FIRE and Money 2 01-26-2009 08:03 PM
DDs First Job Offer TromboneAl Other topics 13 11-16-2008 06:53 PM
401K Choices .. xtradoe Other topics 13 08-23-2008 03:22 PM
My 401K choices, help me "retire early" ! xtradoe Stock Picking and Market Strategy 4 01-14-2008 09:18 AM
Best of bad choices laurence FIRE and Money 17 05-17-2005 10:16 PM

 

 
All times are GMT -6. The time now is 10:38 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.