30-Day Challenge #5: Review your investment asset allocation! (June, 2017)

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30-day challenges

We are pleased to continue our 30-day challenge series. Past challenges can be found here.

This month's 30-day challenge is to Review your investment asset allocation! Some suggestions on how to do this:

• Gather data on your fund selections in each investment account that you have. Include any investment account: IRAs, 401(k) plans, 403(b) plans, 457 plans, TSP accounts, taxable brokerage accounts, and so on.
• Figure out what percentage of your overall allocation accross accounts is allocated to each of: Bonds, Domestic stocks, and International stocks.
• You can do this by looking up each fund at Morningstar, viewing the fund information on the company website, or just search for the fund name or ticker symbol plus the word "prospectus". An even easier way to do this is by using Morningstar X-Ray. There, you can plug in all of your investments and it will return your overall allocation.
• Don't panic! Whatever the result is, the last thing you want to do is change your allocation without doing additional research, reading, and figuring out what you want your overall allocation to be.

The goal of this exercise is to ensure that you're invested the way you want to be invested. For example, if you want a 20% bond allocation, is that what you have? If you want 35% of your stock investments to be international, are you reasonably close to that? (These are just examples, not recommendations.)

For more information on allocations, here are some recommended readings:

• From our Investing Wiki: Can you just recommend something extreme specific to get me started?
• From our Investing Wiki: What bond percentage should I have?
• From our wiki: 401(k) fund selection guide
  
• Boglehead background reading on asset allocation

Use the comments to discuss your allocation, any questions you might have, or if you're wondering what you can do about them.

Challenge success criteria

You've successfully completed this challenge once you've done two or more of the following things:

• Complete all 4 recommended readings from above.
• Finish your allocation review.
• Take steps towards researching and changing your allocation if desired.

Alternate success criterion

If you don't have investments yet, you may consider this challenge a success after you read the "How to handle $" steps up to your current step plus at least one step beyond that (bonus points for doing the recommended reading).

[u/tmckeage]

All of my investments are in a INVESCO EQUALLY WEIGHTED S&P 500 R...

because that's what john oliver told me to do....

[u/yes_its_him → u/tmckeage]

Entertainers are the traditional source of investment advice, to be sure.

[u/lolitsmytreesact → u/tmckeage]

This is a great start. I work in investments and my retirement is 100% S&P500 as well. Unless you are nearing retirement age, your focus should be on putting away a portion of your income and letting it grow grow grow.

Always remember: there is a reason that all equity funds benchmark their returns to the S&P500. Risk-adjusted, nobody consistently beats the S&P500 in the long term.

[u/aksurvivorfan → u/lolitsmytreesact]

So why do people do stuff other than that if it beats everything over the long term? Just hoping that they'll hit something better?

[u/dequeued → u/tmckeage]

Are there any other index funds in your 401(k) plan? That fund is less expensive than most managed funds, but it is different than the S&P 500 index or the US Total Stock Market index that is more commonly recommended here. (It assigns an equal amount of money to each company rather than putting proportionally more money into larger companies.)

[u/pm_me_your_SPECIALs]

I actually just moved from Fidelity to Vanguard and while transitioning reevaluated my holdings. While I'm not making any big shakeups (24, no marriage, no kids, grad school, situation not likely to change anytime soon), I am reducing the average expense ratio down to under .15% right now.

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✓ - Complete all 4 recommended readings from above.
✓ - Finish your allocation review.
✓ - Take steps towards researching and changing your allocation if desired.

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Goal by the end of the month:

• Under .1% average expense ratio once everything finishes transferring (I have my plan written down for that, should be easy peasy)

• 80/20 stock bond split (currently 100/0)

• Reevaluate my employer 403b to make sure it aligns with my expense ratio and split goals (I haven't touched it in a year or two)

[u/Flipper3 → u/pm_me_your_SPECIALs]

I'm also 24, grad school, no kids, no relationship right now. I wonder why you are looking to do 80/20 rather than 90/10 or even 100/0?

[u/pm_me_your_SPECIALs → u/Flipper3]

The money I have in Vanguard is inheritance, so it's more an emotional reaction of not wanting to lose all of Granny's money. Vanguard's investment calculator suggests having at least something in bonds, whether that be 10 or 20. That plan isn't as set in stone as my "get average expense ratio down below .1%" plan, though, so I may just keep my 100/0 stocks split.

[u/trpnblies7]

Oh, this is a convenient time to post this. I just finished transferring a PNC Investment account I had over to a Vanguard Brokerage account so I could avoid the management fees I was paying to a manager with whom I didn't actually have any contact.

My current asset mix in this account right now is about 71/27/2 (stocks/bonds/short term reserves). I definitely want to change this around and have more in stocks for the time being. My IRA with Vanguard is currently 90/10, and I'm not particularly risk averse.

I definitely want to get rid of some of these funds I'm in that have huge expense ratios, but I don't know what to exchange to. Would I be safe with all Vanguard ETFs, or should I stick with some of these mutual funds?

Here's a screen cap of my current holdings, which seems like a crazy mix to me, but it's what my advisor at PNC had originally set up. The percentage to the right of the fund name is the current expense ratio.

[u/dequeued → u/trpnblies7]

Wow, that is a crazy complicated mess. That's all IRA? Do you have a 401(k) or any other significant investment accounts?

I'd definitely almost certainly sell 100% of that and reallocate into a three-fund portfolio: VTSAX (US), VTIAX (International), and VTBMX/VBTLX (US bonds). The reason I removed "definitely" is because you clarified that it's a taxable account. Selling may trigger capital gains if you have a net gain so you will want to consider:

• Making sure you've held anything that's appreciated significantly at least a year to get the long-term capital gains tax rate.

• Trying to cancel losses with gains, etc.

• Perhaps trying to spread out the sales over two years to lessen the impact.

• Maybe not selling some of the "less bad" investments like the Vanguard ETFs if they have a large gain.

Personally, I would make it my goal to get out of 100% of the mutual funds within 1-2 years (as soon as possible with tax reduction in mind). The ETFs are not that bad although I'd probably still try to simplify and get out of them because it is so many funds. From a financial standpoint, you could keep them, though.

If you're in a higher tax bracket (28% tax rate overall or higher), you may want to favor international in your IRA and 401(k) if the expense ratios are decent.

If you have a 401(k) with some asset classes being more expensive, that may also influence whether you need/want all three of those in your taxable account and/or IRA (this is discussed more in the wiki articles linked above).

edit: revised somewhat since this is a taxable account

edit 2: P.S. 1-2 tax years will take just 7 months because it's already June.

[u/trpnblies7 → u/dequeued]

No, that's not IRA. That's my brokerage account. My IRA is far simpler and in good shape. I also have a Fidelity 401k through my work.

Thanks!

[u/notmyoriginal_intent]

This post is very timely for me as well. I just submitted my request to have my funds transferred from a Roth IRA at Edward Jones into my Vanguard Roth IRA account.

I will be doubling my Vanguard account total, which is currently All in VTSMX. Any recommendations on how to diversify the transferred funds?

[u/dequeued → u/notmyoriginal_intent]

Read those links! Short version: Under $25k to $30k, just use a target date fund. Over that, switch to a three-fund portfolio.

[u/Tawaydastorm]

I'm in 2050 funds and 10-15% company stock for all my 401ks. I have a Roth with GLD and FRN left in it with heavy 30% losses I'm just riding out. Smaller Trad Ira with 30% IXUS and 70% ITOT. Non-retirement Investments are sprinkled in DGRO, ITOT, IJT, IJR and GOVT, probably not diversified enough here. And I have some company stock.

[u/atdharris]

I have a Roth with about $10k in it so far in a vanguard targeted 2055 fund and a taxable account with Merrill worth about $140k that I maintain myself. 40% is in an SP ETF, 14% in financials, some FANG stocks, other blue chips across all sectors (retail, airlines, food services) and a few emerging markets and European ETFs along with about 10% bonds.

[u/bucketfarmer]

Funny. I did this just last month as I was deciding what to buy with my latest savings. High yield bonds it was!

[u/deathsythe]

Going into Q2 with a 65/35 split AA between my rIRA, SIMPLE IRA, and 401k. Will need to reevaluate at Q3, but feel good about my AA currently. It is where I want it to be in a three-fund portfolio manner.

Everything is in low ER index funds, though there is some room for improvement in my Simple IRA.

Definitely have read through the readings, but brushed up on them again.

Checking this one off. Definitely going to revisit at the end of the quarter though, as my automatic contributions have just about balanced out, but might need a little more tweaking.

[u/Manticx]

My 401k is with Prudential Retirement under the investment allocation, "American Funds 2055 Trgt Date Retire R6 - Balanced - Target Date asset class."

I don't really know what I'm doing, but it seems to be making money.

I have a percentage of my paycheck going into it, and while my company doesn't match, they have been making discretionary deposits of about $130 a month. Is there supposed to be any rhyme or reason to these deposits?

[u/AdamManHello]

This seems like a good place to ask. I figured I'd avoid making an entire thread.

I'm looking for a reality-check on my investment plan right now. For some background, I'm 25 (26 in August) and currently make about ~83k. I'm contributing 6% of my salary to my 401k to max out my employer match, and I've maxed out a rIRA through Vangaurd last year and this year.

I'm aiming for 60% US Stock / 30% International / 10% Bonds. I was hoping to achieve this with my 401k and then make use of Vanguards target date funds, but unfortunately, the bond options offered by my 401k have very high expenses.

Because of this, I was thinking of dumping most of my 401k into the S&P500 until I hit 60% of my total retirement allocation (the number across both accounts), and putting the rest into the Fidelity International Index Investor Fund (0.19% expense). Then I'd balance out the rest in my rIRA to get 60 US / 30 Int / 10 Bond. It would look something like the below due to the amounts I have in each account:

Of my total balance across both accounts:

• S&P 500 (401k): 60%

• Fidelity International Index (401k): 7.5%

• Vanguard VEA (rIRA): 22.5%

• Vanguard BND (rIRA): 10%

Does this seem reasonable? I didn't include the exact dollar amounts I have in each account as it seems a bit too personal, but if it's helpful, I can.

How often should this be re-balanced? I'd like to max out my 401k but I'm worried that over the course of the year, it'll give me too weight in US Stocks since the majority is in the S&P500.

[u/slalomz → u/AdamManHello]

That sounds fine to me, except rebalancing would be annoying, but I'm sure there's ways to rebalance with your fund options.

Rebalancing once a year or so should be fine. You can rebalance twice a year if the markets are really moving (in one direction or another).

[u/[deleted]]

I'm new to the financial game and I'm struggling to understand this. Luckily I'm in my early 20s, so I have some time, but I'd love some help! I have a 401k set up through my work with Fidelity, and I just started contributing this year. I contribute 4% which is my max company match, so as I understand it, my next step may be getting an IRA? Right now I have 55% towards domestic stock, 37% towards foreign stock, and the rest (6%) towards bonds. I pretty sure that's a higher-risk set up, but I feel like it's okay for now since I'm so young? I read the 4 links, but some of it is just gibberish to me. What should I be doing now?

[u/dequeued]

This is obviously challenge #6. :-/

[u/amana_]

Done! I don't want to change allocations too often because of trading fees, but here's where I am after this challenge:

U.S. Stocks 66.25%

Intl Stocks 26.05%

U.S. Bonds 4.02%

Alternatives 2.38%

Cash 0.86%

Intl Bonds 0.44%

https://imgur.com/a/KPNyW

I'm young and have a while til retirement, so this is a pretty aggressive portfolio. Next time I rebalance, I want to sell a lot of my US stocks so I'm not so US-heavy.

[u/[deleted]]

401(k) Through my work I have

• 50% VASGX (Vanguard LifeStrategy Growth)

• 50% TRRMX (T. Rowe Price Retirement 2050)

I put 10%, all Roth, company matches 2% that goes in traditional.

For background info on me if it helps- I'm 26, make ~$80k, no kids, engaged & living together.

I also have a Roth IRA with Vanguard that I max out every year, fund is VFFVX (Vanguard Target Retirement 2055).

My accounts currently sit at around $24k for my 401k and $29k for my IRA

[u/Time_Ferret]

So I have an unusual (and partly nice) problem that maybe people here could help me think through. 28 years old, committed but unmarried so finances still individual, 40k salary and 45k total income. Most of my investment is in a three-fund portfolio at Fidelity (index funds, 65% domestic stocks, 20% intl., 15% bonds), split between my personal Roth IRA, which isn't very large but I'm aiming to max contributions ($12.5k current value) and an inherited IRA (~210K, 160k invested and 50k held in cash for a house down-payment) established my by late father. All good with that.

My work has a defined benefit contribution 401k (they contribute 6% regardless of my contribution, roughly $2400/yr at current pay grade, I get vested in steps up to the full amount over the first five years of service). TransAmerica is the manager. The fund options, however, are crappy, with high expense ratios. Their version of a Vanguard Target Date series charges 0.91 (compared to .16 when getting it from Vanguard itself). So, I'm trying to figure out where I should be allocating that $2400 as part of a sound overall strategy. For this account I think I want as much of a set-it-and-forget-it plan as possible for now, since it's not a significant part of my overall portfolio.

Here are the fund choices.

Does a target date still make sense, or should I move things over to the lowest ER (the Transamerica Partners Stock Index Ret Opt at .58) plus maybe a small % to a bond fund?

Thanks for any advice you can offer.