Help me with 401k asset allocation

[tcu2003]

I realized it's been awhile since I looked at asset allocation in my 401k. I have some thoughts on what I want to do, but figured I would also ask this group. Background info:

Family of 4 (me - 43, DH - 48, DS - 12, DD - 8)
DH and I work for the same company, so if you would recommend same or different 401k asset allocations, tell me your thoughts and why!
DH says he wants to retire by 60; I will likely at least work 1-2 years after him, and possibly more if I'm still enjoying work. We are both engineers by degree, and work in an office.

Current NW is about $3.7M.
Cash - 6.7%
House - 18%
401ks - 63.6% (mix of regular and Roth 401ks, about 55% is DH's and 45% is mine)
Roth IRAs - 4.2%
Brokerage - 2.9%
529s - 3.8%
ESOP (Company) Stock - 0.6% (this is low as it's only a few years, but expect this to grow somewhat significantly over the next 10 years as we each get given stock each year)

I don't include our cars because we live in the land of suburbia, and typically drive them for 10+ years, so we would just buy a new one if something happened to one, or when we need to replace them.

Also relevant - we fully fund our 401k accounts each year, as well as backdoor Roth IRAs. We contribute $6k to each kid annually for their 529 account. We just started a brokerage account right about 2 years ago, and are trying to be better about moving cash over to it, though that is definitely a work in progress.

As you can see, the bulk of our NW is tied up in 401k accounts, so I should probably be better checking our current asset allocation more often. Here are the options we have:


Day One IncomeFlex Target Balanced Asset Allocation N/A

American Funds American Balanced R6 Balanced Funds RLBGX

Lord Abbett Bond Debenture R6 Bond Funds LBNVX

PGIM Absolute Return Bond R6 Bond Funds PADQX

Nuveen Core Impact Bond R6 Bond Funds TSBIX

Core Plus Bond / PGIM Fund Bond Funds N/A

American Funds New Perspective R6 International Funds RNPGX

American Funds New World R6 International Funds RNWGX

Calvert International Responsible Idx R6 International Funds CDHRX

Vanguard International Growth Adm International Funds VWILX

Vanguard International Value Portfolio International Funds VTRIX

American Funds American Mutual R6 Large Cap Funds RMFGX

American Funds Growth Fund of Amer R6 Large Cap Funds RGAGX

Vanguard FTSE Social Index Admiral Large Cap Funds VFTAX

Vanguard Institutional Index Instl Large Cap Funds VINIX

Vanguard Growth Index Institutional Large Cap Funds VIGIX

Vanguard Value Index I Large Cap Funds VIVIX

Calvert US Mid Cap Core Rspnb Idx R6 Mid Cap Funds CMCRX

Janus Henderson Enterprise N Mid Cap Funds JDMNX

Vanguard Mid Cap Index Ins Mid Cap Funds VMCIX

Vanguard Mid-Cap Value Index Admiral Mid Cap Funds VMVAX

Victory Sycamore Established Value R6 Mid Cap Funds VEVRX

Calvert Small-Cap R6 Small Cap Funds CALRX

Vanguard Explorer Adm Small Cap Funds VEXRX

Vanguard Small Cap Index Instl Small Cap Funds VSCIX

Vanguard Small Cap Value Index Admiral Small Cap Funds VSIAX

Guaranteed Income Fund Stable Value Fund N/A

[tcu2003]

My current 401k investments are:

64.45% Large Cap
28.5% Mid Cap
7.05% Int'l

And for DH:
55.57% Large Cap
34.82 Mid Cap
9.61 Int'l

[sadlebred]

First off I'd look at the Expense ratio of each fund you want to put money into before you balance. Stick with lower cost funds. If you want to "set it and forget it," do you have a Target Date retirement fund? Also, is there a management option that your company offers aka a 3rd party or robo advisor to re-balance the portfolio?

[Poppy]

Agree, the expense ratios are important.
First, I would do 10% bonds. Not sure which bond fund, TBH. I'd look at expenses and diversification to decide.

I am guessing the Vanguard funds are lower expense wise. That assumption leads to the following recs:
If it were me, I would shoot for 25-35% international. So probably 13% Vanguard a international growth and 13% Vanguard international value.

With the remaining 64%, I would do a mix of the Small, Medium, and Large Cap Index funds similar to the US market distribution.

[midwestmama]

I also look at expense ratio first. I also look at the general information provided for each fund. (My 401k is through Fidelity and they provide a variety of information on each fund - expense ratio, Morningstar rating, historical performance.) However, is there an opportunity for you to meet with a consultant from the provider (assuming Vanguard, given the fund options) to discuss the investment options and mix that might work best for you? We have the opportunity multiple times a year to meet with Fidelity consultants to ask questions about retirement in general or investment options.

I believe I have 10% of my portfolio in bonds, with a mix of international, small cap, mid cap, and large cap funds (highest % in large cap). I review my funds 1-2x a year, or if we happen to have changes to investment funds. I also have the auto-rebalancer turned on and set to quarterly.

[mae0111]

Agree with expense ratios. Target Date funds can be deceiving - you're not only paying a fee to manage the fund of funds, but you also have to pay the fees of the underlying funds. I tend to stay away from those.

As far as allocation - a lot of this depends on your risk tolerance. I tend to be pretty aggressive, so my retirement accounts are like 75-80% US Stock funds (heavily weighted toward large cap), 15% International stock funds, and the rest in bonds. I will be 49 in a couple of weeks. That's probably too aggressive for most people, but I'm fine with it.

For bond funds, I like corporate bonds over government or municipal bonds. I also shy away from high yield/junk bonds. Again, that's preference.

[tcu2003]

Thanks! I will take a look at expense ratios.

A local firm manages the 401k options for my employer, and I have met with them before, but it’s been a few years. They have recommended we move somewhat more conservative, but don’t recommend specific funds. And usually ends with telling us we’re doing fine and don’t need to worry, which isn’t super helpful.

[bdubs419]

Not really an answer to your question, but just curious, are you aiming for a certain net worth # for retirement? I only ask because we are somewhat similar (net worth around 4M and somewhat similar ages + kid ages) and I really struggle with what our goal is.

[fortnightlily]

Sept 23, 2024 11:21:23 GMT -5 bdubs419 said:

Not really an answer to your question, but just curious, are you aiming for a certain net worth # for retirement? I only ask because we are somewhat similar (net worth around 4M and somewhat similar ages + kid ages) and I really struggle with what our goal is.

I'm not who you asked, but in Financial Independence circles the ballpark is that you should plan to have between 25x and 33x your expected annual spending in retirement saved in the accounts you plan to withdraw from (i.e. net worth tied up in home equity or anything else you don't plan to liquidate doesn't count). The math behind this is that withdrawing 3-4% each year should preserve the balance enough with investment returns that you don't run out of money.

[tcu2003]

Sept 23, 2024 11:21:23 GMT -5 bdubs419 said:

Not really an answer to your question, but just curious, are you aiming for a certain net worth # for retirement? I only ask because we are somewhat similar (net worth around 4M and somewhat similar ages + kid ages) and I really struggle with what our goal is.

No, and I feel your struggle. We’re close to the 25x if we looked at today’s spending dollars (with 401k and savings and investments removed). I’m assuming we’ll be spending way less on kids, outside of including them on vacations if they want to come and anything we may want to gift them for weddings or other life events, but also assuming our travel expenses will go up. And almost certainly healthcare as well. We’ve tried to be more intentional over the last year or two to take the trip and do the things, as well as increase our charitable giving, but at some point, we’ll still have more than I can imagine needing or wanting.

[marathon55]

Wow, it’s crazy how close we are to the same age and number of kids and net worth. The only difference is we want to stop working much sooner and don’t have expensive tastes for retirement.

But we just tossed all our are money into VOO (s&p 500 index fund) a few years ago. It’s been easy and stress free. We used to use target funds and tried to diversify but the more we researched the pros and cons we just are using the sp500 for our main investments.

[jobofferae]

If you're using both brokerage and 401k at retirement (or just brokerage if retiring before retirement age), should you be rebalancing at that point to be a lot more conservative, so that if the market goes down, you're not affected? But then you're hit with the capital tax gains all at once.

For those retiring earlier, say 50, should you then aim for 40x your annual expenses in all liquid accounts? So then you move to conservative (bonds) investments at 50 and are basically completely out of the market?

[tcu2003]

Sept 28, 2024 8:28:31 GMT -5 marathon55 said:

Wow, it’s crazy how close we are to the same age and number of kids and net worth. The only difference is we want to stop working much sooner and don’t have expensive tastes for retirement.

But we just tossed all our are money into VOO (s&p 500 index fund) a few years ago. It’s been easy and stress free. We used to use target funds and tried to diversify but the more we researched the pros and cons we just are using the sp500 for our main investments.

This is what I’ve mostly done with our brokerage accounts. Do you plan to ever move any of it to bonds, or think you’ll stay invested in index funds for the long haul? That’s something I definitely struggle with, so at this point, we have no bonds.

[marathon55]

Sept 28, 2024 22:41:08 GMT -5 tcu2003 said:

Sept 28, 2024 8:28:31 GMT -5 marathon55 said:

Wow, it’s crazy how close we are to the same age and number of kids and net worth. The only difference is we want to stop working much sooner and don’t have expensive tastes for retirement.

But we just tossed all our are money into VOO (s&p 500 index fund) a few years ago. It’s been easy and stress free. We used to use target funds and tried to diversify but the more we researched the pros and cons we just are using the sp500 for our main investments.

This is what I’ve mostly done with our brokerage accounts. Do you plan to ever move any of it to bonds, or think you’ll stay invested in index funds for the long haul? That’s something I definitely struggle with, so at this point, we have no bonds.

I’m going to likely just stay, along with DH. I know there is some risk but I feel the upside opportunity is better than the risk of moving to bonds too early. But who knows maybe in our 60s we will feel different but of all the diversification of small caps, sectors, international, bonds etc…we have always done better in basic us ETFs. Either s&p or growth funds.

[marathon55]

We have a slightly higher net worth but very close. We just purchase a s&p 500 index fund in our 401ks. Just keeps things easier.