Retirement portfolios

[MillCreek]

I recently moved my 403(b) to a 401(k) with Merrill Edge.  I wrote a rollover check from the 401(k) to purchase a fixed annuity that starts paying me $ 1000/month in June 2021.  The annuity cost me $ 202,400. 

That left me with about $ 635,000 to invest in the 401(k).  After doing much research, I have settled on the following three fund portfolio:

PREIX: A T. Rowe Price S&P 500 index fund
TRRBX: a T. Rowe Price 2020 target date fund
VIABX: A Vanguard 60/40 split index fund

I am moving toward an allocation of 20% PREIX, 50% TRRBX and 30% VIABX.  The TRRBX has a bit more of an aggressive glide path in terms of percentage of equities as the fund moves out from 2020.  The current allocation is 55% equities and 45% bonds.  It ultimately ends up at 20% equities and 80% bonds. PREIX is my 'mad money' fund in terms of earning money; if successful in terms of decent returns, I will periodically harvest money from it and transfer to TRRBX.  VIABX is well-regarded for producing steady returns over time at a very low cost.  I am using it primarily in terms of generating returns over time so I don't outlive my investments. TRRBX is the only actively-managed fund, since I have come to believe the index/passively-managed funds generally beat active management, especially when fees/expense ratios are taken into account.

I will be interested to see how this asset allocation works out.  I have not yet decided on the optimum strategy for when it comes time to start withdrawing money from the portfolio. So if anyone has any brilliant ideas on this, I am all ears.

[Ron]

Would your portfolio  be considered a pretty aggressive allocation for a typical retirement portfolio?

My 401k money has all been allocated into index funds for a long time, I was very influenced by Bob Brinker 😀

How come you still chose to have some money being actively managed?

Before the 16 election I modified my 401k’s into a much more conservative allocation. With the Trump market run up these last couple years I would have been in a much better place financially with my previous allocation.

That I guess is the price you pay for a little more peace of mind and financial robustness.

[brimic]

Before the 16 election I modified my 401k’s into a much more conservative allocation. With the Trump market run up these last couple years I would have been in a much better place financially with my previous allocation.

I did the same- I had pretty much everything in cash months before the election.
As of January 2017, I changed my 401K to a S&P index with 20% (maximum allowable in my plan) going into company stock (TMO). My 401K value has doubled since 2016.

[K Frame]

My only thought on the TRRBX is that the expense ratio is pretty high, well above the sector average.

Take a look at Vanguard's similar fund: VTWNX

Overall the Vanguard 2020 has somewhat higher returns, as well.


Just for grins, also check out the Vanguard 500 Index Fund: VFIAX

Similar returns over time (as would be expected for an index fund), but an expense ratio that is 5 times lower than the T. Rowe Price fund.

I am, as you might imagine, a HUGE fan of Vanguard offerings. They've made me far wealthier at this point than I thought I'd ever be.

[cordex]

I agree with Mike.  Why T. Row Price vs Vanguard index fund?

[brimic]

I agree with Mike.  Why T. Row Price vs Vanguard index fund?

Or even SPY? It has very low fees, and very high liquidity.

[MillCreek]

I agree with Mike.  Why T. Row Price vs Vanguard index fund?

I think at the time of my research, I was seeing somewhat higher returns for the T. Rowe Price offerings than with the Vanguard offerings, and I felt that the difference in expense ratios was not that significant.  Especially with the 2020 target fund, since TRP had a higher percentage of equities vs. bonds on the glide path. Perhaps I will look again at the Vanguard equivalents.  I am also pondering if I want to be in a S&P 500 index vs. a total US stock market return index.  But again, I am seeing higher returns over time with the S&P 500 index funds.

Edited to add: I have seen a number of people recommend a single fund portfolio with VBIAX with the classic 60/40 split, and I am just not sure I want to put all the eggs into that basket as I approach 60.

[brimic]

I am also pondering if I want to be in a S&P 500 index vs. a total US stock market return index.  But again, I am seeing higher returns over time with the S&P 500 index funds.

The S&P is heavily driven by the FAANGs, which have had outstanding returns over the last 10 years or so... I can take a quick glance at AAPL/GOOG/NFLX/ etc, and with a high degree of confidence tell which way the S&P is moving in any particular day. The downside is, that these stocks tend to plummet fast a few times per year, pulling the S&P down with them.

[K Frame]

You're what, 60?

At this moment in time you shouldn't be chasing returns.

You should be chasing a combination of low-to-moderate risk combined with steady growth.

Truth is, any index fund, or index-based fund, is going to compare very favorably with those from other companies. Yes, you'll occasionally get the outlier where the management team screwed up allocations and they're leading the pack in losses, or the team took some leaps of faith and they're now the hottest thing on wheeles.


Also, on similar product offerings that post very similar returns the expense ratio can quickly turn those gains into relative losses as compared against a similarly performing fund with a much lower expense ratio.

And don't just look at the cost involving the expense ratio...

Look at the exercise cost -- what does it cost you to either sell or buy?

Also, how often can you sell our buy? Is there an exercise penalty if, say, 3 weeks after you buy in you need to sell a bunch (not common, but they're out there).

Also, if you do sell, are you locked out of buying back in for X days, weeks, months?

[K Frame]

"Edited to add: I have seen a number of people recommend a single fund portfolio with VBIAX with the classic 60/40 split, and I am just not sure I want to put all the eggs into that basket as I approach 60."

That I agree with.

Here's a strategy to consider, one I've talked about with friend of mine over the years, and I really think it makes some sense...

For this, I'm going to use the Vanguard Target Retirement funds. Most companies have funds that are similar, with the basic premise is that you pick the fund that is closest to your retirement date and, as you contribute money over the years, Vanguard slowly changes the fund mix from more aggressive (when you're young) to more conservative (as you get closer to retirement).

Divvy your money up.

Put, say, 40% of it into a fund that actually matches your retirement window, say the Vanguard 2025 Target Retirement Fund.

Put another 40% (or 30, whatever) in the 2045 fund. More aggressive and keyed towards growth.

Finally, put your last post of money into the 2065 fund. Even more aggressive.

That way your money is pretty broadly diversified and you have a fairly well balanced level of risk and growth vs conservation of capital.

[BobR]

^^^^

That sounds a lot like TSP with their Life funds. You can also move stuff around within the different funds. I started moving my stuff into government securities a few years ago. I am retiring next year so I started going more conservative. I still play around in the stock funds and a couple of other funds within TSP.

bob

[K Frame]

That's exactly what those funds are.

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[MillCreek]

Would your portfolio  be considered a pretty aggressive allocation for a typical retirement portfolio?

Right now, I am at approximately 65% equities, 33% fixed income and 2% cash, between all three funds.  PREIX is of course 100% equities, TRRBX is 55% equities and 45% fixed income and VBIAX is 60% equities and 40% fixed income.  In the future, as PREIX reaches a certain balance, I am going to sweep cash from that into TRRBX to decrease my total equities percentage.

[MillCreek]

https://seekingalpha.com/article/3587526-4-portfolio-recipes-consistently-beat-lazy-portfolios

I was interested to read this, albeit the financial data is a few years out of date.

[MillCreek]

I think I am going to exchange all of PREIX for VTSAX.

[p12]

Tagging for reference


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[Ben]

^^^^

That sounds a lot like TSP with their Life funds. You can also move stuff around within the different funds. I started moving my stuff into government securities a few years ago. I am retiring next year so I started going more conservative. I still play around in the stock funds and a couple of other funds within TSP.

bob

I highly recommend the L Fund (just plain L) over the G. The L is heavily weighted in G, but also still has some stocks and bonds to protect you from inflation. If you check the long term returns at the TSP site, you'll see it doesn't fluctuate greatly, but still pays out better than just plain G.


Millcreek - you might also check into the Vanguard Wellesley fund. There are a ton of people on the FIRE forum that are comfortably successful with 50% Vanguard Total Stock and 50% Wellesley and setting cruise control. I like the Wellesley in my retirement for the dividends. It's my only managed fund, but fees are reasonable.

[MillCreek]

^^^VWINX for the Vanguard Wellesley?

[Ben]

^^^VWINX for the Vanguard Wellesley?

Or VWIAX for the Admiral shares, which drop the fees down a good deal.

[MillCreek]

Or VWIAX for the Admiral shares, which drop the fees down a good deal.

For some reason, I was not eligible to buy the Admiral shares, but did buy VWINX.

[K Frame]

Minimum investment on the Wellesley Income Fund Admiral shares is $50,000.

I ran into that with one of my income fund investments. I wanted to convert to Admiral shares, and was going to move some money around to get to what I thought was the minimum threshold... until I realized the minimum was $50k.

[K Frame]

Oh, and one other thing... If you don't want to tie that much money up in an Admiral mutual fund, Vanguard has a lot of ETFs that mirror their Admiral funds that have no minimum investment and, quite a few of which don't have commissions or fees with either the purchase or sale.

A friend of mine has been touting the Vanguard Real Estate Index Fund Admiral Shares (VGSLX) as one of his investments, but I wasn't comfortable putting in the base amount of $3k right now with the roof and all.

But, the Vanguard Real Estate ETF (VNQ) mirrors the VGSLX in composition and performance and has the same expense ratio... All with no minimum purchase level and with no commission fees.

[dogmush]

No offense to the hive mind, who seem well read and have interesting points, but do you not have a financial advisor?

Retirement funds are the kind of thing (IMHO) it's worth having a professional keep an eye on.

[K Frame]

No offense to the hive mind, who seem well read and have interesting points, but do you not have a financial advisor?

Retirement funds are the kind of thing (IMHO) it's worth having a professional keep an eye on.

Generally not a bad idea, but that's one thing that I really like about Vanguard. They make diversification very easy through a huge range of funds and their educational materials are second to none. And, you also have the ability to use them for a more actively managed role.

I don't agree with them 100%, though. They've been, for a long time, pushing active management for my retirement account. So, just for grins and giggles I did their automatic "account review." And holy crap was I not happy.

My retirement through my previous employer includes a bunch of "core" funds that are Vanguard funds and any number of add on funds, one of which is the Dodge & Cox Stock fund.

D&C has been the single best wealth generator for me over 20 years of my 401k, far and above what anything else has done for me.

Well, Vanguard tagged my ownership of that fund (and yes, I have quite a bit of it) as a huge risk!

I also have a few other supplemental (non Vanguard) funds in my 401k, including some company stock.

Oddly enough, Vanguard tagged all of those as huge risks, as well.

Then they tried to hard sell me on active management with language that wasn't far off from "YOU'RE GOING TO LOSE ALL OF YOUR MONEY AND WILL HAVE TO EAT OUT OF GARBAGE CANS FOR THE REST OF YOUR LIFE!"

Yes, I'm getting a lot closer to retirement age, but I have a much higher risk tolerance than most people AND I fully intend to work well into my 70s. So I feel that I can afford to take bigger risks. That's not to say that I've not been moving some of my money into less risky investments -- I have been, but it's been a slow roll.

Needless to say, I didn't take Vanguard up on its offer...

Oh, I didn't even mention the price they wanted to charge... I THINK, but I'm not sure, at the time I looked into it a couple of years ago, it would have cost me somewhere between $300 and $500 a MONTH (it's done by percentage of your holdings, so it's a sliding scale) just for them to get rid of my biggest wealth generator and dump it all into Vanguard funds.

Holy hell I can do that myself.

Hard no thanks, Vanguard.

[Ben]

No offense to the hive mind, who seem well read and have interesting points, but do you not have a financial advisor?

Retirement funds are the kind of thing (IMHO) it's worth having a professional keep an eye on.

We'll be his financial advisers, and he'll like it!