Rebalancing Retirement Funds - Help Wanted!

[virginia]

Hi everyone – It’s been a while since I’ve been on the forums, and am looking for some advice. I have several questions, but right now I’m concentrating on the 50 meter target.
I’m a year out from military retirement – I’ll go on terminal leave in 8 months. I’ve been on autopilot with my investments for a while, and realized this week that everything was out of balance. So, I’m taking the opportunity of a down market to rebalance and hopefully produce better returns. (I was invested too conservatively). I’d like your advice on a couple of things:

My bottom line of invested funds -
TSP $97,000
Vanguard $64,800 cashed out today (some bonds and the T2035 fund)
SGRAX – Wells Fargo Advantage Growth Fund Class A $17,400 (held at Vanguard)
GE stock $2700 (held at Vanguard).

Today I rebalanced the TSP from 100% L2040 fund to 40% C, 40% S, 20% I fund

As far as rebalancing Vanguard, my thought is to hold 55% of the total in small/mid cap stocks (VMGRX (Vanguard Strategic Equity), and VSMAX (Vanguard Small Cap Index Admiral)), 35% in large cap (U.S. Growth Fund and the Wells Fargo Advantage Growth Fund Class A shares). And 10% in VMVFX (Global Min Volatility). The funds I chose are based primarily on 5 and 10 year returns.

I welcome your thoughts on the percentages for both the TSP and the rebalanced Vanguard funds. The main issue I’m recognizing right now is that there will be overlap in the two large cap funds plus more overlap with the TSP. I would just add more into the Wells Fargo Fund, but the returns are about 2% lower historically than the Vanguard U.S. Growth Fund. Should I sell the Wells Fargo Fund and just keep one large cap Vanguard Fund?

There’d also be overlap I’m sure with the TSP – however in a year I’d be able to pull everything out of TSP and distribute better into my Vanguard account.

Any feedback is greatly appreciated.

 

[virginia]

Another Comment

Sorry - forgot to state - everything held at Vanguard is in a Roth...

 

[Nords]

Congratulations on retirement! Remember to get yourself thoroughly checked out during the retirement physical, including as many referrals as needed to satisfy your concerns.

You should also try to get as much of the VA claim done during the retirement physical as possible so that your VA claim is dated the same date you retire.

Here's a big-picture recommendation for your rebalancing:
1. Decide what your asset allocation is going to be. I don't mean the funds-- I mean how much in stocks, bonds, cash, large-cap stocks, international stocks, and so forth.
2. Fill as much of that AA as you can from the TSP. International and small-cap asset allocations are particularly cheap expense ratios with the TSP's I and S funds.
3. Fill the rest of that AA from Vanguard passive index funds with low expenses.
4. Ditching the Wells Fargo fund won't affect your taxes, and I bet that there's an equivalent Vanguard fund with lower expenses.

1.a. Since you have a military pension, as you decide on your asset allocation you should consider that pension to be a big bucket of I bonds. Your pension's bond-like income should force the rest of your AA toward equities (or real estate, or other assets).

2.a. If you decide that bonds should still be part of your retirement AA then you might get a better deal from the TSP F and G funds than from a Vanguard bond fund. But if you want income from those bonds then it's probably better to hold them in a taxable account.


The TSP has the world's lowest expense ratios. If I were you I'd hold on to the TSP account as long as you can, and then at the last minute transfer it to a traditional IRA or (for a Roth TSP account) a Roth IRA. If you decide that you want to turn your traditional TSP account into a Roth IRA before RMDs then you probably want to start the transfer/conversion process before you begin taking Social Security (and definitely before RMDs).

 

[pb4uski]

Nords, I'm not familiar with TSP... do they have a fixed income fund similar to a stable value fund with no interest rate risk? If so, I would use that for the bond allocation until rates normalize if it pays a decent rate of interest.

 

[jazz4cash]

Nords, I'm not familiar with TSP... do they have a fixed income fund similar to a stable value fund with no interest rate risk? If so, I would use that for the bond allocation until rates normalize if it pays a decent rate of interest.

I'm not Nords, but I do happen to know TSP has the G fund which is their version of stable value.

 

[Independent]

I think that any asset allocation strategy has to start with your goals. Is this ...
... money that you don't plan to touch for the next 30 years?
... your emergency fund?
... the price of a house that you plan to buy about 5 years from now?
... money that should provide regular income?

 

[Nords]

Nords, I'm not familiar with TSP... do they have a fixed income fund similar to a stable value fund with no interest rate risk? If so, I would use that for the bond allocation until rates normalize if it pays a decent rate of interest.

As Jazz says, it's the G fund.

As for that "normalize" comment, this is why people should have an asset allocation and stop trying to time the market. I don't know whether you saw the flashing bat signals or heard the bells ring, but interest rates have normalized. They've been normal for the last six years, and they're going to be normal for at least the next six. That's as normal as it gets.

I'm starting to see research that investing in bonds is still great for lowering overall portfolio volatility, but otherwise investment portfolios might be better served with SPIAs in place of bonds. SPIAs do a fantastic job of lowering volatility.

 

[pb4uski]

FWIW, I'm 40% fixed income.. it is just that I have looked to mitigate interest rate risk by using CDs (jumped on that 5 year 2% PenFed CD from a couple years ago) and target maturity bond funds rather than traditional bond funds. If I had access to a stable value fund I would probably use that almost exclusively. To me it makes no sense to take on interest rate risk without being compensated for it which is what many of today's bond funds offer IMO compared to CDs, SV funds and target maturity bond funds held to maturity.

 

[pb4uski]

....... I don't know whether you saw the flashing bat signals or heard the bells ring, but interest rates have normalized. They've been normal for the last six years, and they're going to be normal for at least the next six. That's as normal as it gets........

Some people who study interest rates for a living seem to have a different view that I found interesting.

Global interest rates are at their lowest point in around 5000 years with no prospects of improving in the near future, according to UK economists. (Bank of England)

Read more at Global interest rates at '5000-year' low - 9news.com.au

 

[sengsational]

FWIW, I'm 40% fixed income.. it is just that I have looked to mitigate interest rate risk by using CDs (jumped on that 5 year 2% PenFed CD from a couple years ago) and target maturity bond funds rather than traditional bond funds. If I had access to a stable value fund I would probably use that almost exclusively. To me it makes no sense to take on interest rate risk without being compensated for it which is what many of today's bond funds offer IMO compared to CDs, SV funds and target maturity bond funds held to maturity.

Luckily, I do have access to a stable value fund (inside my old work's 401k), and I've got my entire bond allocation in there. It's been getting 3.4% to 3.6% the last few years, net of expenses. As long as Metlife, Prudential, and Voya all stay afloat, I'm solid with this.

But yeah, when equities dropped precipitously, so did the regular bond funds, so why bother with them if they don't offer stability?