One of the first things I did after leaving my old job was to initiate a rollover of my 401k to an IRA account. Since I already had my Roth IRA in a Vanguard mutual fund account, it was the easy choice.
I briefly considered moving everything to a Vanguard brokerage account because ETF expenses are lower than fund expenses in general, but then I realized that I will now qualify for Vanguard's Admiral share class in most of my investments (assuming I choose a fund with an Admiral share class option). The Admiral share classes have even lower expense ratios - as low or nearly as low as the ETF expenses in a comparable fund. So I decided to stay put. Besides, I like being able to see the 5+ year history on my account.
My 401k Rollover is now complete, and so for the first time in six years ALL of my retirement assets are in one place. Now I have to decide what to do with them! As a default I selected the Vanguard Total Stock Market Index for the initial transfer of my Roth 401k assets, just so I wouldn't be totally uninvested while I debate about how to allocate everything. My traditional 401k assets (employer matches and what I put in before my company rolled out a Roth option) are in cash (technically I now have 2 IRAs - my original Roth, into which I was able to roll my 401k Roth assets plus a new Traditional IRA into which they rolled the Traditional assets).
I have almost exactly $120,000 in my IRAs right now. Here's how it's allocated:
- Total Stock Market Index: $57,500
- Total International Stock Index: $21,100
- Prime Money Market Fund: $16,750
- Precious Metals & Mining Fund: $12,000
- Total Bond Market Index: $5,100
- REIT Index Fund: $4,200
- TIPS: $3,700
In cash you're wondering, that breaks down into 31% Large Cap US, 30% Small/Mid Cap US, 18% International Stock, 7% Bonds and 14% cash. The small/mid cap holding is skewed with the REIT and the Metals/Mining though, which I consider a separate "alternative' holding that totals 13%. Ultimately I want that to be more like 5-7% so I have no plans to add to those assets.
I will be eligible to contribute to my new 401k Plan in March, and I plan to max it out for the year. The only decent/cheap fund they offer is the Vanguard 500 Index, so I have set it up to put 100% of my contributions ($17000 for 2012) in that fund. My employer will match around $3000 so I'll have around $20,000 in that fund by the end of the year, assuming zero market appreciation. Therefore I need to slightly under-allocate large cap US stocks in my IRA.
SO the number one question is - what should my asset allocation be? Secondly, which fund should I choose to help me execute my allocation decision?
I am thinking 30% International, 50% US stocks, 15% bonds/cash, and 5% "other" including REITs and commodities. But as for the fund choices I'm torn a bit. Any suggestions??
3 comments:
Will be a great help for simplifying your finances to have all your retirement funds under one roof!
One question -- what are your thoughts about a Target Date retirement fund? Why not just put everything into a fund like Vanguard Target Retirement 2050 (VFIFX)?
It sounds like with every "windfall" or contribution into your retirement accounts, you're trying to figure out what your new asset allocation should be. Do you have an Investment Policy Statement [1]? The questions you're asking should be answered by that statement, instead of having to re-evaluate and do random things each time you add more money or re-arrange money within your retirement accounts.
What I like to do is to make an investing plan for the year that takes into account the existing funds in my retirement accounts and ALL funds that I plan on contributing throughout the year. That helps me to figure out how much to put into the various funds in my Roth IRA versus into the funds in my 401(k). This would be especially helpful when you only have one "good" fund in your 401(k).
[1] http://www.bogleheads.org/wiki/Investment_Policy_Statement
I agree you need to figure out what you asset allocation is and then proceed with an investman plan.
I had the same issue with my 401(k) - only one good fund SP 500 Index. My suggestion is once you figure out your AA, bite the bullet and invest in some of the other less attractive funds. By maxing out your 401(k) every year, eventually you will get extremely heavy in US equities and it will become very difficult to rebalance in a few years unless you plan to spend quite a bit of cash investment in taxable accounts for things like International funds.
You will be able to sell out of TSM in your Roth, but eventually that holding will be gone and you will still be adding to US equities.
Also, with your new higher income, you may bump into some of the income restrictions associated with ROTH IRA especially if you get an unpredictable windfall such as a bonus.
Also, do you really need an allocation to REIT given your high real estate holdings? You can take all my suggestions with a grain of salt given I'm an anonymous poster on the internet!
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