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Over this past week I've sat down and looked into my husband's 401k offerings and I think I'm getting close to making some changes, but before I do I wanted to get your opinion on something.
So one of the offerings is Vanguard Target Retirement 2040 Fund Investor Shares (VFORX) and it's comprised of:
VT-Stock Market Index FIS: 53.1%
VT-International Stock Index FIS: 35.4%
VT-Bond Market II Index FIS: 8.1%
VT-International Bond Index FIS: 3.4%
What surprises me is that people in this age group are around 40 years old already and yet bonds are still under 15%... anyone???
While I am considering this fund for its Bogletastic simplicity, I am game for a little more complexity, so I've picked the following and prospective allocation percentages:
Vanguard FTSE Social Index (lg growth) VFTNX: 15%
Vanguard Windsor II Adm (lg value) VWNAX: 15%
Vanguard Explorer Adm (sm growth) VEXRX: 10%
American Beacon Sm Cap Val Inst (sm value) AVFIX: 10%
Vanguard Total International Stock Index I (blend) VTSNX: 30%
Vanguard Total Bond Market Index I (intermediate-term) VBTIX: 20%
My rational for these percentages:
I want my allocation to reflect that of the target retirement fund 2040, but with:
-further diversification in equities
-reduced exposure to fossil fuel extractors and processors
-more bonds
I would want less bonds because as interest rates go up the value of the bond goes down. If you were buying individual bonds and holding to maturity this would be better than a mutual fund which may sell before maturity.
Why do you want bonds? You do not need the safety now as you will not be forced to sell assets. Think of bonds when you are about 5 years before retirement.
Making decisions about changing your husband's 401K and asking strangers on CD what they think (assuming he is still alive and that it is his 401K?) -- What does HE think?
I would want less bonds because as interest rates go up the value of the bond goes down. If you were buying individual bonds and holding to maturity this would be better than a mutual fund which may sell before maturity.
Why do you want bonds? You do not need the safety now as you will not be forced to sell assets. Think of bonds when you are about 5 years before retirement.
I was actually thinking about this.... if it's in a 401k then I(we) really don't intend to withdraw from it for over 30 years. If we were talking about a taxable account then it would make more sense, or even an IRA, but not a 401k, especially since we're in a position to have many other sources of cash and income besides a 401k if an unfortunate drastic financial blow should arise. I'll give this more thought.
Making decisions about changing your husband's 401K and asking strangers on CD what they think (assuming he is still alive and that it is his 401K?) -- What does HE think?
He's not interested and he doesn't care. He might entertain the notion that retirement accounts and investing in the stock market are "necessary evils" in this country (he is not a native citizen), but he wiggles his way out of actively managing his accounts with purposeless and self-defeating statements like "I'm never going to retire" and "I'm not going to live long enough to retire anyway" (to be fair his 4 grandparents and mother all died of cancer... but dad is going strong in his mid-70s!).
As a homemaker I have no recourse: I have to plan for myself and that means planning for him if he's unwilling. He has an IRA because I set it up and and made the investment for him. With his first 401k he consulted me on initial allocation and we picked a target retirement fund together that having reviewed it this evening, is still a good choice... but his current one is really wonky... I think he asked me to help him, but I didn't at the time. Now I'm looking at it having reread a few books and it's clear that he just picked some stuff randomly without a plan. He has never read a book on retirement planning or investing while I've got 6 of them on my nightstand.
Also, maybe C-D isn't the right forum to ask. If I go to Bogleheads.org there I know I'll have helpful responses getting down to business. I had considered it, but I don't even have an account there and they're pretty specific on how you present information to be critiqued.
But you're making me think it might be worth the effort.
He's not interested and he doesn't care. He might entertain the notion that retirement accounts and investing in the stock market are "necessary evils" in this country (he is not a native citizen), but he wiggles his way out of actively managing his accounts with purposeless and self-defeating statements like "I'm never going to retire" and "I'm not going to live long enough to retire anyway" (to be fair his 4 grandparents and mother all died of cancer... but dad is going strong in his mid-70s!).
As a homemaker I have no recourse: I have to plan for myself and that means planning for him if he's unwilling. He has an IRA because I set it up and and made the investment for him. With his first 401k he consulted me on initial allocation and we picked a target retirement fund together that having reviewed it this evening, is still a good choice... but his current one is really wonky... I think he asked me to help him, but I didn't at the time. Now I'm looking at it having reread a few books and it's clear that he just picked some stuff randomly without a plan. He has never read a book on retirement planning or investing while I've got 6 of them on my nightstand.
Also, maybe C-D isn't the right forum to ask. If I go to Bogleheads.org there I know I'll have helpful responses getting down to business. I had considered it, but I don't even have an account there and they're pretty specific on how you present information to be critiqued.
But you're making me think it might be worth the effort.
Nothing wrong with using C/D if you ask the right people!
If you want it easy - then make it easy and be done with it. Get a Fidelity retirement date fund (example, Freedom 2040, and be done with it. They will automatically re-balance your portfolio. My wife has this one, she has no interest in following the markets.
On the other hand if you're willing to put some effort into it you should be able to do a bit better. I recommended PCN as the base for your IRA. I bought it in December and it's already up 5% and that doesn't include the dividends I've picked up as well. As I do think the markets are overvalued, and the political situation is muddled --- I would also put 20% of your IRA into something that protects you to the downside. My personal favorite is HDGE. Check it out. The markets simply do not go up forever. And there's no magic portfolio out there that entails no risk. They don't exist!
pcn is a risky play and can get crushed once bond rates start to go up . it definitely is not buy and forget if you do not want to monitor things all the time .
pcn is way over weighted in 20-30 year bonds for a safe set and forget core .
the issue with these target funds is not everyone has the same investment goals and pucker factor . many retain high equity allocations right through the early stages of l retirement . some at retirement age are still 60% or more in equity which today can be very very volatile , far more then many retirees have a stomach for.
when i was on the 401k committee at work target date funds were responsible for more of our newbees bailing out and staying out because the 90-100% equity's the funds had them at because they were young scared the crap out of them in 2008 .
pcn is a risky play and can get crushed once bond rates start to go up . it definitely is not buy and forget if you do not want to monitor things all the time .
pcn is way over weighted in 20-30 year bonds for a safe set and forget core .
the issue with these target funds is not everyone has the same investment goals and pucker factor . many retain high equity allocations right through the early stages of l retirement . some at retirement age are still 60% or more in equity which today can be very very volatile , far more then many retirees have a stomach for.
when i was on the 401k committee at work target date funds were responsible for more of our newbees bailing out and staying out because the 90-100% equity's scared the crap out of them in 2008 .
"once bond rates start to go up"....
We've been waiting on this for many years. The fed is showing no signs of doing anything other going to meetings, month after month.
If it does happen -- you are correct. And then the entire stock market will get pummeled as well. Which is why she needs to have downside protection.
it is not a question of if , only when and since interest rate cycles are not like stock cycles which tend to recover quickly it is a poor choice for a core .
it can be a fine speculation and play on rates , i do that often , but i would never make anything so volatile to interest rate changes a core holding .
on the other hand stocks do not get pummeled on rising bond rates . in fact they do okay because rising rates means the economy is humming . what is bad for stocks is fast climbing rates , slow rate increases have been fine for stocks . also where rates are when the rise happens is a big determining factor as to what stocks do .
We've been waiting on this for many years. The fed is showing no signs of doing anything other going to meetings, month after month.
If it does happen -- you are correct. And then the entire stock market will get pummeled as well. Which is why she needs to have downside protection.
if you want downside risk protection then buying a long term treasury bond fund is not the best way unless you are adding the other components like the permanent portfolio.
long term treasury's should be offset with gold ,stocks and cash . cash and long term bonds create a barbell effect .
with the outlook for markets tepid at best the heavy weight of long term treasury's holding the gains back if rates go up even slightly may not be the best idea .
playing with long term treasury's requires strong trends elsewhere to over come their pull when it is down .
there is little correlation between bonds go up when stocks go down . in fact just as many times they move opposite as with .
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