401k - Investments skewed heavily in PP-unfriendly plan, help?

[Libregeek]

Hi Guys,

Looking for some 401k advice (ah, who isn't - I know, common thread!). I've lurked these forums for years at this point. Turned 30 this year and decided I need to get my shit together.

My investments are broken down by basically down into the following buckets:

401k - 75%
Roth IRA - 5%
Bullion Gold & Silver - 5%
Brokerage Account (Stock Index Fund/Bond Fund split) - 10%
Savings/Checking - 5%

I've read Fail-Safe investing, going to read the new Permanent Portfolio book very soon. I'm a believer in the PP Concept however I feel myself confused as all heck what to do with my giant bucket of 401k Savings.

I took a look here:

http://gyroscopicinvesting.com/forum/ht ... ic.php?t=2

To try to see what kind of funds I could perhaps pick from the 401k to align into a PP approach. Unfortunately, of everything listed there, the only one available is:

Vanguard 500 Index Signal (VIFSX)

My list of available funds in my 401k is:


American Funds Cap World Gr and IncR4 (RWIEX)  B
American Funds Fndmtl InvR4 (RFNEX)  B
American Funds Growth Fund of America R4 (RGAEX)  B
BlackRock Eqty Dividend A (MDDVX)
Fidelity Adv Leveraged Company Stock I (FLVIX)
Fidelity Advisor Freedom 2020 Fund T (FDTFX)
Fidelity Advisor Freedom 2030 Fund T (FTFEX)
Fidelity Advisor Freedom 2040 Fund T (FTFFX)
Fidelity Advisor Freedom 2050 Fund T (FFFQX)
Fidelity Advisor Small Cap Fund A (FSCDX)
Fidelity Contrafund Fund (FCNTX)
Guggenheim Mid Cap Value A (SEVAX)
Heartland Select Val Class Instl Inv (HRSVX)
MFS International Value Fund R4 (MINHX) 
MetLife GAC-25157 Class I
Needham Growth Fund (NEEGX)
Oppenheimer Developing Markets Y (ODVYX)
PIMCO Total Return Fund D (PTTDX)
Pioneer Fundamental Value Fund A (CVFCX)
Royce Low-Priced Stock Svc (RYLPX)  R
Thornburg International Value Fund R5 (TIVRX)
Vanguard 500 Index Signal (VIFSX)  B
Vanguard GNMA Inv (VFIIX)  B
Vanguard Mid Cap Index Signal (VMISX)  B
Vanguard Small Cap Index Signal (VSISX)  B
Vanguard Wellington Inv (VWELX)  B
Victory Small Company Opportunity Fund A (SSGSX)
Wells Fargo Advantage Growth Fund I (SGRNX)

Currently my distributions amongst them are scattered all over the place roughly equally into small/mid/large cap/international (I swear, it made sense to me when I did it at some point... now I just look at it and go "huh?")

So I find myself now wanting to fully embrace PP, but I've got basically a huge chunk of my savings/investments stuck in this not very friendly to PP 401k plan. I am completely skewed heavily into the 401k as far as my savings/investments go. My confusion lies in how do I treat this previously existing large 401k going forward.

Any opinions on what to do here? Do I stop contributing to employers 401k plan and just leave things where they lie, instead focusing those funds towards my own PP-themed individual investing?

Do I stay in this plan, reallocate, and put all future contributions at Vanguard 500 Index Signal and treat that as my 25% Stocks? (Wouldn't need to invest in stocks for quite a long time ...).

My concern in treating the entire 401k as my "Stock" part of the plan is that I'd like the flexibility to be able to draw on any savings in an emergency situation. Having all the stocks in a non-usable-without-penalties giant bucket isn't a real great idea to me, since they consist of such a huge part my savings.

[AdamA]

In your situation I would probably put the entire 401k in the Wellington fund and then split the other 25% between gold and cash.

You could modify it in the future.

[Libregeek]

In your situation I would probably put the entire 401k in the Wellington fund and then split the other 25% between gold and cash.

You could modify it in the future.

VWELX shows allocations of:

Stocks 64.79%
Bonds 32.72%

How's your math work out with your above? Confused ...

[Pointedstick]

AdamA was probably thinking (correctly) that the Wellington fund is one of the best non stock index offerings among that pile of turds. The Wellington fund is actually very good and compares favorably to PRPFX, though it has underperformed in the last 15 years. Add in some gold and I think you'd be doing great.

[AdamA]

Yeah...

The Wellington fund is more of a typical 60/40 Booglehead strategy.  Adding a bit of gold to it smooths out the ride a bit.  The cash is so you don't have panic sell in an emergency.

It's not the PP, exactly, but it's a very safe way to invest until you have some additional resources available. 

1.  It's indexed.
2.  Plenty of diversification.
3.  Simple
4.  Allows you to hold hard assets.

[Libregeek]

Yeah...

The Wellington fund is more of a typical 60/40 Booglehead strategy.  Adding a bit of gold to it smooths out the ride a bit.  The cash is so you don't have panic sell in an emergency.

It's not the PP, exactly, but it's a very safe way to invest until you have some additional resources available. 

1.  It's indexed.
2.  Plenty of diversification.
3.  Simple
4.  Allows you to hold hard assets.

Ah, gotcha. Thank you guys. So in my situation you would allocate the 401k holdings into Wellington, then use non-401k contributions to play catch-up to the 401k holdings via gold and cash categories? So functionally this ends up being:

401k: Stocks/Bonds (60/40 split)
Non-401k: Gold/Cash

Correct?

Pondering whether it is prudent to put a hold on the 401k contributions for a while and start plowing money into the cash/gold side of the equation in an attempt to balance out the overall distribution as a whole. And yes, my 401k plan is a giant pile of turds Wish I had realized this years ago...

[Ad Orientem]

Libregeek
First welcome to the forum.

Sometimes in life we have to settle for the good when the ideal is just not a viable option at the moment. 401ks are a real bear and it's rare that I have seen any that were really conducive to the HBPP. The PP is the ideal in this case and it probably is just not going to work out perfectly because of your available options. So in these situations you go with Plan B and settle for good but not ideal. A basic Boglehead portfolio is actually better than just good. I would call it very good. The Wellington fund is a much better option than I see in most 401ks. Just try to get somewhere in the ballpark of a 50/50 or 60/40 split between stocks and bonds, index if that's an available option and keep the fees and expenses as low as humanly possible. You can keep the cash and gold outside your 401k.

Don't get too wrapped up in exact numbers and percentages. In the card game of life you have to deal with the hand your dealt. If you have most of your retirement money in a Boglehead type arrangement in your 401k and you have some gold and cash outside it but maybe they don't add up to the ideal 25% for each, you are still way ahead of 90% of the rest of the investing population.

Congrats on your portfolio. I think it's better than most that I have seen.

[AdamA]

And yes, my 401k plan is a giant pile of turds Wish I had realized this years ago...

A lot of us have this issue.  Just do the best you can.  You'll be surprised at the options you discover once you get things going.

Do be aware that the bonds in the Wellington fund are not all Treasury bonds (most are not).  So if you ever do convert to a true 4 x 25% PP, you need to be aware of that. 

[Libregeek]

Sometimes in life we have to settle for the good when the ideal is just not a viable option at the moment. 401ks are a real bear and it's rare that I have seen any that were really conducive to the HBPP. The PP is the ideal in this case and it probably is just not going to work out perfectly because of your available options. So in these situations you go with Plan B and settle for good but not ideal. A basic Boglehead portfolio is actually better than just good. I would call it very good. The Wellington fund is a much better option than I see in most 401ks. Just try to get somewhere in the ballpark of a 50/50 or 60/40 split between stocks and bonds, index if that's an available option and keep the fees and expenses as low as humanly possible. You can keep the cash and gold outside your 401k.

Don't get too wrapped up in exact numbers and percentages. In the card game of life you have to deal with the hand your dealt. If you have most of your retirement money in a Boglehead type arrangement in your 401k and you have some gold and cash outside it but maybe they don't add up to the ideal 25% for each, you are still way ahead of 90% of the rest of the investing population.

Congrats on your portfolio. I think it's better than most that I have seen.

"So it goes." Thanks for the encouraging words. Surprisingly after reading up a bit more on Boglehead, it looks like I actually have been following the basic principles for quite a few years (even prior to reading Fail-Safe Investing ).

I'm going to sit down this weekend, read up a little more and probably make the suggested moves. Everyone's opinions about the Wellington being as good a match as I can get matches matches previous gut feelings/ideas I had about keeping it simple and easy to understand. It boggles (no pun intended) my mind to watch my poor co-workers pile into a conference room year after year to hear about all the fabulous new funds that no one can understand added, dropped, etc.

Only thing I'm still unclear of is whether to put my current 401k contributions on hold for a while and take the after-tax money via my paycheck to put into the cash/gold side. I bought a house 3 years back that while it isn't bankrupting me, isn't leaving me with any reasonable amount of money to put into cash/gold while still placing money into the Stock/Bonds split of the 401k at the same time.

I'm remedying the house situation soon by selling and going back to renting to cut living expenses. One guy and a dog don't need a house to themselves.

Pro-tip: Don't follow your heart to another state you didn't grow up in with no roots/obligations, and buy a house there. Relationships aren't forever... mortgages are much longer

[Libregeek]

And yes, my 401k plan is a giant pile of turds Wish I had realized this years ago...

A lot of us have this issue.  Just do the best you can.  You'll be surprised at the options you discover once you get things going.

Do be aware that the bonds in the Wellington fund are not all Treasury bonds (most are not).  So if you ever do convert to a true 4 x 25% PP, you need to be aware of that. 

Thanks for the pointer, did not realize that. The job isn't forever of course, so I'm going to be sure when I get a chance to migrate that 401k somewhere else I do it up right next time!

[AdamA]

Only thing I'm still unclear of is whether to put my current 401k contributions on hold for a while aknd take the after-tax money via my paycheck to put into the cash/gold side.

This is a personal decision and really just depends on what you're comfortable with.  If it were me, I don't think I'd completely abandon the 401k, although I'd certainly consider lowering the contributions if I had to in order to increase my exposure to other assets.

Tax deferral is one of the surest ways to improve your returns.

[Dieter]

Re continuing to contribute to your 401(k) - if you have a match, I'd consider continuing to contribute up to that amount. Then into a [Roth] IRA.

One thing I'd also look at would be the Vanguard GNMA fund in your 401(k) - 15ish percent would get you close to 50/50 stock/bond (even if none/few of the bonds are treasuries.)

[Libregeek]

Re continuing to contribute to your 401(k) - if you have a match, I'd consider continuing to contribute up to that amount. Then into a [Roth] IRA.

One thing I'd also look at would be the Vanguard GNMA fund in your 401(k) - 15ish percent would get you close to 50/50 stock/bond (even if none/few of the bonds are treasuries.)

Good call. Our "match" is a bit of a joke. 10% on the first 6% of compensation deferred. Otherwise known as "make a match so we can list it as a bullet point on employee hiring promotion materials". But hey, free money is free money ...

[Tortoise]

Only thing I'm still unclear of is whether to put my current 401k contributions on hold for a while and take the after-tax money via my paycheck to put into the cash/gold side. I bought a house 3 years back that while it isn't bankrupting me, isn't leaving me with any reasonable amount of money to put into cash/gold while still placing money into the Stock/Bonds split of the 401k at the same time.

Have you established a 6-month emergency fund in cash yet? If not, you may want to at least temporarily reduce your 401(k) contributions to build up that emergency fund as a top priority. PP or no PP, an emergency fund is a must. I actually hold a 12-month emergency fund, but I'm a bit more conservative than most people.

Aside from that, there have been some discussions on this forum recently (you may have seen them) where some folks made some interesting arguments in favor of diversifying one's money between tax-deferred, after-tax (Roth), and taxable accounts. There's no universal agreement on how much to contribute to each type, but the consensus seems to be that it's good to have a fair amount of money in each type if possible. Effectively, you hedge your bets regarding future taxes, potential legal changes regarding retirement accounts, etc., because you just don't know what the future holds.

Since it sounds like you'll probably be buying your gold outside of your 401(k), you can buy gold coins--the best and most secure way to own them!

Pro-tip: Don't follow your heart to another state you didn't grow up in with no roots/obligations, and buy a house there. Relationships aren't forever... mortgages are much longer

Wow... sorry to hear that, man. You learned a hard lesson, I guess. But it could have been much worse--you could have married her, gotten divorced, and then been forced to sell the house to give her half. At least you didn't have to deal with that.

[KevinW]

There's some good advice above.  That 401k fund list is pretty bad.

My advice is to prioritize funding your Roth over your 401k, but continue putting as much into the 401k as you can. Tax-deferred money in mediocre mutual funds beats "nothing" every time. Sometimes we get too wrapped up in optimizing everything and can't see the forest for the trees, IMO. I'd build a pure PP in the non-401k accounts, and emulate a conservative Boglehead portfolio in the 401k as best you can. IMO that is

1/3 Vanguard 500 (closest to TSM)
2/3 Vanguard GNMA (the only bond index fund available)

You could bump up the stock allocation but IMO anything over 50% is too aggressive.

IIRC Wellington is actually actively managed, and holds about 2/3 large cap value and 1/3 corporate bonds. I'm not a fan of those asset classes, or of active management, hence my suggestion to build your own index portfolio. Wellington does have low expenses and a good track record, though, so you could do a lot worse.