BH portfolio in 401k

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foglifter
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BH portfolio in 401k

Post by foglifter » Thu Jul 23, 2015 8:32 pm

My PP is a Frankenstein-esque tapestry of 6 accounts. My 401k is the biggest part of the portfolio and since I'm maxing it out annually it gets the bigger part of my retirement contributions, which makes it hard to maintain a 4x25 PP allocation. The only PP-friendly investment option offered is S&P 500 index CIT, the rest is a bunch of actively-managed funds. Recently the plan provider made some changes on the fixed income side: they removed a handful of bond funds (including PIMCO Total Return) and added a decent total return fund from Metro West.

Having been inspired by Pointedstick's revolutionary idea of "PP in every account" I decided to single out my 401k from the PP and use it as a separate portfolio. Since it's not PP-friendly the only option I see is to build a Bogleheads-type portfolio. Aside from actively-managed stock funds there are 2 bond funds and the S&P 500 index:

  BNY Mellon S&P 500 Index (no ticker)                ER 0.05
  Metropolitan West Total Return Bond (MWTRX)  ER 0.68
  John Hancock Income R4 (JSNFX)                      ER 0.69

I have about 20 years until retirement so I was thinking maybe doing 40/60 or 30/70 mix of S&P 500 index and MWTRX. Or I could split the bond part evenly between MWTRX and JSNFX. JSNFX is more volatile as it has some foreign government bonds and more corporates in the portfolio.

Any thoughts/ideas from my fellow PP faithful?
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Pointedstick
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Re: BH portfolio in 401k

Post by Pointedstick » Thu Jul 23, 2015 9:25 pm

Those are some lousy bond funds, but your instinct seems right. If you truly will not touch this account for 20+ years, the high stock percentage also seems to make sense, even more so because those bond funds will be costing you a lot of money with their high expense ratios. The inability to withdraw and constant bi-weekly purchases should act as a good incentive not to panic sell if it all goes to shit for a few years.
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KevinW
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Re: BH portfolio in 401k

Post by KevinW » Thu Jul 23, 2015 10:05 pm

Agreed that those are poor options but you seem to be making the best of it.

Based on Morningstar, MWTRX looks like the lesser of evils. JSNFX resembles a short term junk bond fund, while MWTRX is more moderate on quality and duration. The expense ratios are a wash.

If it were me I'd probably do 40% S&P 500 and 60% MWTRX.

It might be worth asking if they could add one bond index fund, if you haven't already. That's a pretty standard thing to have available in 401k's these days.
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Re: BH portfolio in 401k

Post by Ad Orientem » Thu Jul 23, 2015 10:18 pm

Concur with Pointed's criticism of your bond funds. If you are going to go with a BH portfolio, I'd go with BND or something similar for your bonds. BND is cheap and if not all US Gov't, it is over weighted with Treasury debt (63%).
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Re: BH portfolio in 401k

Post by foglifter » Fri Jul 24, 2015 12:34 am

Thanks everyone for your suggestions. Looks like going with MWTRX for the bond part is the way to go. Neither brokerage window, nor any other bond fund is available in my plan. It's a shame that they added a retail version of the fund.

I discussed the badness of my plan here a couple years ago and don't want to repeat this exercise. I actually made some steps to introduce my employer to Employee Fiduciary, I even got a proposal and gave it to our HR. It turned out the administrative costs would double with EF, although $1500 a year shouldn't be a dealbreaker. Of course the upside is the complete freedom of choice including low-cost Vanguard funds and brokerage window, but it's harder to make the case when the big wigs only look at the company costs and care less about the hidden costs employees pay through high expense ratios. Another problem is the fact that our 401k is part of the package along with health insurance and it's possible that we're getting a discount because of the package. Removing 401k from the deal might increase or costs. I don't lose hope and will continue pushing for a better 401k - it's just not easy.
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Matthew19
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Re: BH portfolio in 401k

Post by Matthew19 » Fri Jul 24, 2015 11:00 pm

pointedstick, can you recap the advantage of the PP in every account?
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Re: BH portfolio in 401k

Post by Desert » Sat Jul 25, 2015 6:59 am

foglifter wrote: Thanks everyone for your suggestions. Looks like going with MWTRX for the bond part is the way to go. Neither brokerage window, nor any other bond fund is available in my plan. It's a shame that they added a retail version of the fund.

I discussed the badness of my plan here a couple years ago and don't want to repeat this exercise. I actually made some steps to introduce my employer to Employee Fiduciary, I even got a proposal and gave it to our HR. It turned out the administrative costs would double with EF, although $1500 a year shouldn't be a dealbreaker. Of course the upside is the complete freedom of choice including low-cost Vanguard funds and brokerage window, but it's harder to make the case when the big wigs only look at the company costs and care less about the hidden costs employees pay through high expense ratios. Another problem is the fact that our 401k is part of the package along with health insurance and it's possible that we're getting a discount because of the package. Removing 401k from the deal might increase or costs. I don't lose hope and will continue pushing for a better 401k - it's just not easy.
It's really hard to convince an uneducated but confident HR group of anything reasonable regarding 401k plans.  I had a really poor plan like yours for about 10 years, in two startup/small companies.  I still think it makes sense to take advantage of that tax deferred space, and look forward to the day when you can roll it over into an IRA. 

On a related topic, are there any intelligent people in HR groups, anywhere?  That was mean, wasn't it. 
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Re: BH portfolio in 401k

Post by Pointedstick » Sat Jul 25, 2015 11:39 am

Matthew19 wrote: pointedstick, can you recap the advantage of the PP in every account?
If the accounts have different rules for contributions, withdrawals, and tax treatments, a portfolio that spans them can become difficult to rebalance and keep the proportions of the assets. For example if you keep all your gold in an IRA, you're limited to adding $5,500 a year of gold, but if your stocks are in a 401k, you can add $17,500 of stocks. You;d quickly become underweight gold. With a PP in each account type, you can target each of them for a different time horizon and keep each account as a self-contained PP that works as intended.
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