Asset Allocation Help

[phatrabbitzz7]

I'm 24 and am interesting in getting advice regarding my 401k asset allocation.

My current mix is the following:
Vanguard Institutional Index (S&P 500) - 25%
Vanguard Total International Stock Index Fund;Investor -30%
Vanguard REIT Index Fund;Institutional - 5%
Vanguard Mid-Cap Index Fund;Institutional -10%
Fidelity Contrafund - 10%
Templeton Emerging Markets Fund - 10%
Vanguard Total Bond Market Index Fund - 10%

The following is a list of what my company offers:
Asset Allocation
Fidelity Freedom 2000 Fund
Fidelity Freedom 2010 Fund
Fidelity Freedom 2020 Fund
Fidelity Freedom 2030 Fund
Fidelity Freedom 2040 Fund
Fidelity Freedom 2050 Fund
Fidelity Freedom Income Fund
Fixed Income
Vanguard Admiral Treasury Money Market Portfolio
PIMCO Stable Value Fund
PIMCO Total Return Fund
Vanguard Total Bond Market Index Fund
Stock - (Growth/Income)
Vanguard Institutional Index (S&P 500)
Longleaf Partners Fund
LSV Value Equity Fund
Vanguard Mid Cap Index Fund
Vanguard Small Cap Index Fund
Vanguard REIT Index Fund
Stock - (Growth)
Fidelity Contrafund
Fidelity OTC Portfolio
Harbor Capital Appreciation Fund
Marsico Growth Fund
Royce Opportunity Fund
International - (Stock)
American New Perspective Fund
Fidelity Diversified International
Templeton Emerging Markets Fund
Vanguard Emerging Markets
Vanguard Total International Stock Index Fund

TIA

 

[DblDoc]

I'd suggest reading this: Bogleheads :: View topic - Asking Portfolio Questions

And then posting here using the format described above: Bogleheads :: View Forum - Investing - Help with Personal Investments


DD

 

[phatrabbitzz7]

Not sure why the format or the other details matters much since I'm 24 and probably won't touch that money until I'm in my 60's or so.

Having said that I'll play along...I have a 1 year emergency fund, no debt, and single.

 

[ats5g]

Why include Fidelity Contrafund and Templeton EM fund? Seems like they overlap with with the Vanguard Institutional Index (S&P 500) and Vanguard Total International Stock Index.

What's the expense ratio of the Templeton EM fund? If it's high and you still want more EM, I'd use Vanguard's EM fund.

Why no small caps? Seems like they'd provide better diversification than the Fidelity Contrafund.

 

[CitricAcid]

I would second ats5g's recommendation. At age 24, perhaps the small-cap fund will produce more diversification and the potential for great returns, considering your investment time period is very far in the future.

 

[jIMOh]

The overal allocation looks solid- 90% equites and 10% bonds, with an overweighting to large caps and emerging markets.

 

[phatrabbitzz7]

Why include Fidelity Contrafund and Templeton EM fund? Seems like they overlap with with the Vanguard Institutional Index (S&P 500) and Vanguard Total International Stock Index.

What's the expense ratio of the Templeton EM fund? If it's high and you still want more EM, I'd use Vanguard's EM fund.

Why no small caps? Seems like they'd provide better diversification than the Fidelity Contrafund.

The expense ratio on the Templeton EM fund is 1.41%, and I'm interested in more EM. I'm thinking about putting an additional 10% at Vanguard's EM fund.

In addition, I agree that small cap would be a better diversification than Fidelity Contrafund, and want to put 10% in that one as well. Question is where would I take the 10% from? I'm thinking of taking 5% from Vanguard Institutional Index (S&P 500) and Vanguard Total International Stock Index respectively.

So new mix will be the following:
Vanguard Institutional Index (S&P 500) - 20%
Vanguard Total International Stock Index Fund;Investor -25%
Vanguard REIT Index Fund;Institutional - 5%
Vanguard Mid-Cap Index Fund;Institutional -10%
Vanguard EM Fund - 10%
Templeton Emerging Markets Fund - 10%
Vanguard Total Bond Market Index Fund - 10%
Vanguard Small Cap Index Fund - 10%

 

[jIMOh]

The expense ratio on the Templeton EM fund is 1.41%, and I'm interested in more EM. I'm thinking about putting an additional 10% at Vanguard's EM fund.

In addition, I agree that small cap would be a better diversification than Fidelity Contrafund, and want to put 10% in that one as well. Question is where would I take the 10% from? I'm thinking of taking 5% from Vanguard Institutional Index (S&P 500) and Vanguard Total International Stock Index respectively.

So new mix will be the following:
Vanguard Institutional Index (S&P 500) - 20%
Vanguard Total International Stock Index Fund;Investor -25%
Vanguard REIT Index Fund;Institutional - 5%
Vanguard Mid-Cap Index Fund;Institutional -10%
Vanguard EM Fund - 10%
Templeton Emerging Markets Fund - 10%
Vanguard Total Bond Market Index Fund - 10%
Vanguard Small Cap Index Fund - 10%

You have 45% international with more than 20% of this in emerging markets.

If you use the index, you have basic EM exposure. You would not need an additional 20% to overweight.

EM is "overweighted" in my portfolio and I only contribute 10% to my EM fund. Take 10% from EM to get small caps.

You only need a small piece of EM- these are TINY companies and countries.

In the US a large cap is probably greater than 10 billion in market cap
a US mid cap is probably between 3 and 10 billion in market cap
a US small cap is probably less than 3 billion in market cap

most established foreign markets will use similar market caps.

with emerging markets you could be dealing with an entire COUNTRY whose GDP is less than 1 billion, and many companies which might have a market cap of 500 MILLION.

The scales you are dealing with are significant- keep the large cap investments where they are and watch out for making large bets on real small things. Overweight yes. Bet the house, no.

 

[LOL!]

You only need a small piece of EM- these are TINY companies and countries.

In the US a large cap is probably greater than 10 billion in market cap
a US mid cap is probably between 3 and 10 billion in market cap
a US small cap is probably less than 3 billion in market cap

most established foreign markets will use similar market caps.

with emerging markets you could be dealing with an entire COUNTRY whose GDP is less than 1 billion, and many companies which might have a market cap of 500 MILLION.

A little research shows the Emerging Markets is not equal to Foreign small caps. The average market cap of Vanguard Emerging Markets fund is $18 billion (data from Morningstar). These are NOT TINY companies and China, Brazil, Russia and India are NOT TINY countries.

 

[ats5g]

The expense ratio on the Templeton EM fund is 1.41%, and I'm interested in more EM. I'm thinking about putting an additional 10% at Vanguard's EM fund.

In addition, I agree that small cap would be a better diversification than Fidelity Contrafund, and want to put 10% in that one as well. Question is where would I take the 10% from? I'm thinking of taking 5% from Vanguard Institutional Index (S&P 500) and Vanguard Total International Stock Index respectively.

So new mix will be the following:
Vanguard Institutional Index (S&P 500) - 20%
Vanguard Total International Stock Index Fund;Investor -25%
Vanguard REIT Index Fund;Institutional - 5%
Vanguard Mid-Cap Index Fund;Institutional -10%
Vanguard EM Fund - 10%
Templeton Emerging Markets Fund - 10%
Vanguard Total Bond Market Index Fund - 10%
Vanguard Small Cap Index Fund - 10%

Well I was just thinking of just moving the 10% in Contrafund to small cap and totally ditching the Templeton EM fund. 1.41%?? IMO, that's way, way to high, especially compared to the 0.37% of the Vanguard EM fund.

Vanguard Institutional Index (S&P 500) - 25%
Vanguard Total International Stock Index Fund;Investor -30%
Vanguard REIT Index Fund;Institutional - 5%
Vanguard Mid-Cap Index Fund;Institutional -10%
Vanguard Small Cap Index Fund - 10%
Vanguard EM Fund - 10%
Vanguard Total Bond Market Index Fund - 10%

or if you want more EM

Vanguard Institutional Index (S&P 500) - 20%
Vanguard Total International Stock Index Fund;Investor -25%
Vanguard REIT Index Fund;Institutional - 5%
Vanguard Mid-Cap Index Fund;Institutional -10%
Vanguard Total Bond Market Index Fund - 10%
Vanguard EM Fund - 20%
Vanguard Small Cap Index Fund - 10%

- alec

 

[CitricAcid]

Well I was just thinking of just moving the 10% in Contrafund to small cap and totally ditching the Templeton EM fund. 1.41%?? IMO, that's way, way to high, especially compared to the 0.37% of the Vanguard EM fund.

Vanguard Institutional Index (S&P 500) - 25%
Vanguard Total International Stock Index Fund;Investor -30%
Vanguard REIT Index Fund;Institutional - 5%
Vanguard Mid-Cap Index Fund;Institutional -10%
Vanguard Small Cap Index Fund - 10%
Vanguard EM Fund - 10%
Vanguard Total Bond Market Index Fund - 10%

or if you want more EM

Vanguard Institutional Index (S&P 500) - 20%
Vanguard Total International Stock Index Fund;Investor -25%
Vanguard REIT Index Fund;Institutional - 5%
Vanguard Mid-Cap Index Fund;Institutional -10%
Vanguard Total Bond Market Index Fund - 10%
Vanguard EM Fund - 20%
Vanguard Small Cap Index Fund - 10%

- alec

If you can tolerate this risk profile, it seems pretty good. Based off of the first suggestion you have 85% equity, 10% bond, 5% REIT. Breaking it down a little more, it is 45% domestic, 40% international, 10% bond, 5% REIT. This is definitely a risk profile that I would tolerate, especially considering your age. Also, if you braek down the domestic and international, you have 3 to 1 Total internationl to emerging markets (a good balance) and a 55%-22%-22% (large (s&p), mid, small) breakdown for domestic, which mitigates some of the risk, but you could even go a little more overweight on the smallcap if you prefer. Anyway, the low ERs and solid balance makes this a good portfolio plan IMO.

 

[unclemick]

Don't read books!. Do not waste time thinking! Max your 401k into the Vanguard 500 Index. After thirty years consider adjusting your asset mix to fit your age and personal situation.

Of course - nobody can bring themselves to believe it's that screaming simple. My oldest Nephew lasted ten years(TSP 500 Index version) before he cracked - listened to his Navy buddies and read Four Pillars.

I suppose you could do the Fidelity lifecycle fund for your age - it's the politically correct thing to do nowadays. I mean I do Vanguard lifecycle cause I'm er old and retired.

heh heh heh - This post be tongue in cheek - but there is a hidden message here.

 

[Marquette]

Don't read books!. Do not waste time thinking! Max your 401k into the Vanguard 500 Index. After thirty years consider adjusting your asset mix to fit your age and personal situation.

Of course - nobody can bring themselves to believe it's that screaming simple. My oldest Nephew lasted ten years(TSP 500 Index version) before he cracked - listened to his Navy buddies and read Four Pillars.

I suppose you could do the Fidelity lifecycle fund for your age - it's the politically correct thing to do nowadays. I mean I do Vanguard lifecycle cause I'm er old and retired.

heh heh heh - This post be tongue in cheek - but there is a hidden message here.

I found your hidden message, uncle mick!

 

[unclemick]

I found your hidden message, uncle mick!

Looks like we 'may' have to change our secret decoder ring code.

heh heh heh - but I leave it up to the moderators. I always liked the Straight Arrow trading cards in Nabisco Shredded wheat.

 

[innova]

So new mix will be the following:
Vanguard Institutional Index (S&P 500) - 20%
Vanguard Total International Stock Index Fund;Investor -25%
Vanguard REIT Index Fund;Institutional - 5%
Vanguard Mid-Cap Index Fund;Institutional -10%
Vanguard EM Fund - 10%
Templeton Emerging Markets Fund - 10%
Vanguard Total Bond Market Index Fund - 10%
Vanguard Small Cap Index Fund - 10%

Not too bad. A few changes I'd suggest.

1) Ditch templeton EM fund. Stick with the low-cost vanguard fund. EM in a market allocation makes up around 20% of foreign holdings - you are significantly overweight to EM. That may be intentional and its not wrong, but make sure you understand why you are doing it.

2) Increase REIT slice to 10% and possibly 15% - excellent diversifier - offers equity-like returns with low correlations to large-cap funds.

Some may say midcaps are optional. When you look at returns, midcaps are highly correlated to large cap stocks and thus offer very little correlation benefit. Some would hold just s&p and small cap, perhaps in a 70/30 ratio to overweight smalls. I think this is just an academic exercise - no need to change what you're doing.

Also, perhaps the most important thing. Don't treat your 401k as a separate portfolio IF you have other accounts - Roths, taxable, etc. You should strive to treat all your money as ONE portfolio rather than X portfolios.

Last but not least. At 24, you have your head in the right place. Work hard at funding your retirement accounts and you'll be a rich man before you know it. I started when I was your age (man I sound old, I'm only 28) and I have already far surpassed where I thought I'd be just 4 years later.

 

[phatrabbitzz7]

K, so after reading the comments and some research I'm thinking about going with the following mix:
Vanguard Institutional Index (S&P 500) - 20%
Vanguard Total International Stock Index Fund;Investor -25%
Vanguard REIT Index Fund;Institutional - 13%
Vanguard Mid-Cap Index Fund;Institutional -5%
Vanguard EM Fund - 15%
Vanguard Total Bond Market Index Fund - 10%
Vanguard Small Cap Index Fund - 12%

Basically I did away with the high ER EM, and have 77% equity, 10% bond, 13% REIT, further breakdown shows 37% domestic, 40% international, 10% bond, 13% REIT. Breaking down domestic give a 54%-14%-32% (large (s&p), mid, small) balance.

Or perhaps this mix:
Vanguard Institutional Index (S&P 500) - 20%
Vanguard Total International Stock Index Fund;Investor -27%
Vanguard REIT Index Fund;Institutional - 13%
Vanguard Mid-Cap Index Fund;Institutional -5%
Vanguard EM Fund - 10%
Vanguard Total Bond Market Index Fund - 10%
Vanguard Small Cap Index Fund - 15%

 

[CitricAcid]

K, so after reading the comments and some research I'm thinking about going with the following mix:
Vanguard Institutional Index (S&P 500) - 20%
Vanguard Total International Stock Index Fund;Investor -25%
Vanguard REIT Index Fund;Institutional - 13%
Vanguard Mid-Cap Index Fund;Institutional -5%
Vanguard EM Fund - 15%
Vanguard Total Bond Market Index Fund - 10%
Vanguard Small Cap Index Fund - 12%

Basically I did away with the high ER EM, and have 77% equity, 10% bond, 13% REIT, further breakdown shows 37% domestic, 40% international, 10% bond, 13% REIT. Breaking down domestic give a 54%-14%-32% (large (s&p), mid, small) balance.

Or perhaps this mix:
Vanguard Institutional Index (S&P 500) - 20%
Vanguard Total International Stock Index Fund;Investor -27%
Vanguard REIT Index Fund;Institutional - 13%
Vanguard Mid-Cap Index Fund;Institutional -5%
Vanguard EM Fund - 10%
Vanguard Total Bond Market Index Fund - 10%
Vanguard Small Cap Index Fund - 15%

Definitely an acceptable AA, if you are risk tolerant. At your age, my personal opinion is you should be though

 

[unclemick]

Definitely an acceptable AA, if you are risk tolerant. At your age, my personal opinion is you should be though

Hormones? Resistance is futile. Especially when you are young.



heh heh heh -