40+ years to retirement allocation

[BlueberryPie]

My son in his early 20s now eligible for a 401(k) and proudly opened a Roth 401(k) with a 10% contribution and 5% match. Great for him!

The managed target fund for 2060 and 2065 had quite an expensive expense ratio, so we picked some cheaper funds for the following allocation:
70% US Large Cap
5% US Small Cap
21% International developed
4% International emerging

Or 100% equity with 25% international with small riskier tilts.

Any thoughts on that? I think the important part is that he started the 401(k)

 

[Ready]

Have you considered index funds like VTSAX and VTIAX? They have a better distribution of companies rather than trying to go with large cap and small cap and missing everything in between.

 

[BlueberryPie]

Not offered in his 401(k) unfortunately.
The large cap tracks the sp500 without calling it that.

The company system offers an "automatic suggestion" but it was slanted towards higher ERs and had really weird suggestions, it mixed 3 target funds and some focused funds. They also have a "we'll manage it for you" option for "only" 65 basis points. At least going DIY you stay under 15 basis points per fund, and really lower since the SP500 one even cheaper.

 

[BlueberryPie]

My own 401(k) in a completely different company similarly does not offer global/total funds but a slew of more targeted funds. I think because they are trying to scare people into hiring their financial services, offered at extra cost. I had to use 8+ funds to cover the equivalent of VTI, VXUS, and BND but at least mine are in line with the best ETFs and Admiral shares when it comes to ERs.

 

[finnski1]

My son in his early 20s now eligible for a 401(k) and proudly opened a Roth 401(k) with a 10% contribution and 5% match. Great for him!

The managed target fund for 2060 and 2065 had quite an expensive expense ratio, so we picked some cheaper funds for the following allocation:
70% US Large Cap
5% US Small Cap
21% International developed
4% International emerging

Or 100% equity with 25% international with small riskier tilts.

Any thoughts on that? I think the important part is that he started the 401(k)

I think you are correct and the important part is he started a savings regimen young and is contributing a decent amount to that. Good on him and you.
The details can be constantly tweaked with time but the advantage of compounding at a younger age are pretty tough to beat.

 

[street]

I will say. he is starting out on the right foot and will be in great shape to retire ealy if he can stay on track.

Can't help much on what funds are best or what % you want. I had a very similar menu when starting out. I picked more different funds to invest in when I did it.

Like some % in Mid Cap, Growth Fund and S&P and was all over the board with a some of each. I'm not saying that is ideal but that is what I did instead of heavy investing in one fund.

 

[VanWinkle]

The enemy of a good plan is a "perfect plan" and it appears you have a good plan. I think it will serve him well into the future. A 10% bond allocation is said to reduce risk without changing the returns. Either way he is fine with all of those years to compound. Congrats for having a son start on the path so young.

VW

 

[Animorph]

Perfectly fine. Probably a little light on the non-S&P 500 U.S. stocks versus a U.S. total stock index. S&P 500 is about 80% of U.S. stocks.

 

[Aerides]

He's in his early 20's so it's almost impossible to get it perfect, or get it very wrong. Best to teach him what those funds mean so he can do his own changes and selections later on.

 

[BlueberryPie]

Thanks for the comments everyone

 

[The Cosmic Avenger]

He's basically in an index fund, which is my mainstay (I hope his expense ratio on that first one is as low as an index fund, in the 0.01-0.05% range), and he's a little riskier than I would be, which is appropriate for his age. Sounds like a solid plan!

 

[targatom2019]

very solid funds and glad he has no bonds for that age. Do they offer midcap funds ?

 

[BlueberryPie]

For some reason the midcap was 0.4% when the small cap was less than half. It's a small % of the overall portfolio but we still went with small.

Also the system had an option to rebalance every month, or rebalance manually. I'm not a big fan of every month, I think 1-4 times a year is enough, but that was not an option. I'm trying to help my son get a set and almost-forget attitude, so for now monthly it is.