401k Advice Sought

[stuper1]

Like so many 401k plans, mine is a mixture of good and bad.  I guess I should be happy about the good, because some plans don't have much of that.

Here's the good:  I can put 25% of my money in a brokerage account to buy gold ETFs, directly held long-term bonds, or other things.  For the regular 401k offerings, there is a S&P 500 index fund with a 0.05% expense ratio.  Also, there are all-in-one target date funds with low expense ratios of about 0.12%.  The most conservative of these has 36% stocks, 51% intermediate-term bonds, and 13% cash.

And the bad:  no good bond offerings in the regular 401k.  There is an overall US debt (government/corporate) index fund with a 0.12% expense ratio (5.06-year duration).  Or the PIMCO Total Return Fund institutional class with a 0.46% expense ratio (5.33-year duration).  Or a Wellington TIPs fund with a 0.18% expense ratio (5.28-year duration).

I'm thinking I will use the brokerage account to buy 25% gold, maybe IAU.

My dilemma is what to do in the regular 401k with the other 75% of my money.  Should I just put it all in the conservative target-date fund?  Or should I use 1/3 of that money to buy the S&P 500 index fund, and the other 2/3 to buy the US debt index fund?  Or is there some other good idea I haven't thought of.

[madbean]

You're right, you should be happy that you have the brokerage window. Most 401 K's seem to be designed with the Bogleheads type investor in mind such as mine and the other 75% of yours. Interesting that they think they can only trust you to do what you want with 25% of your money.

Is that your total PP, or do you have other investments? That would make a big difference in answering your question.

[stuper1]

My wife and I each have separate Roth IRAs.  We plan to do standard PP in each of those.

[madbean]

My wife and I each have separate Roth IRAs.  We plan to do standard PP in each of those.

My wife and I both have Roth IRAs at Vanguard and both are filled with VWINX (Vanguard Wellesley) which I count in the PP as 40% stock and 60% "Other", the "Other" is because the 60% is corporate bonds and thus not recommended for the PP. I am currently doing the same with the target retirement fund in my 401k. I try to determine what percentage is identifiable as stock, LTT, and cash, and lump all the rest into the "Other" bucket. I did my yearly checkup last night and came up with about 10% of my portfolio being in OTHER which is something I can live with.

It was a pain in the ass trying to figure this out which is one reason I only do it once a year. The good news last night however, was that I had WAY more money than I thought I had. Must have been a good year for the PP.

Definitely on track for retirement next year. Keep it up PP (and likewise OTHER).

[stuper1]

Here's what I'm leaning toward:

37.5% US stocks index fund (in regular 401k)
37.5% US bonds index fund (in regular 401k)
15% gold ETF (IAU) (in brokerage window)
10% extended duration treaury bond ETF (EDV) (in brokerage window)

My thinking on the brokerage window stuff is that I want at least 15% gold, but I also want some long bonds to counter the lack of long bonds in the US bonds index fund.  Since I can only buy 10% of long bonds in the brokerage window (after buying 15% gold), I thought I would go with EDV to get the longest duration possible.

Does anyone care to comment on this allocation?

[sapperleader]

That looks really good, seems to be a nice mix.  My 401k is one of those awful ones that until recently the lowest and best choice I had was a ugly TRowe target retirement at a cost of 1.29%.  I now have some new lower fee indexes and I will be setting up a boglehead portfolio style instead.

It is awesome you can make this mostly work with the brokerage window, but if it doesn't work out you can always do PP in taxable/IRA's and treat your 401k as variable.  We mostly pretend my 401k doesn't exist when it comes to balancing/tracking and let it do its own thing.  It helps that I have a rollover IRA and my wife's SEP has full access to all of Fidelity/Vanguard options that we can implement the PP within.

[ochotona]

I thought I was free from my ex-employer's 401(k). I was all ready to roll it to my brokerage firm. Turns out if I want a pro-rata share of any 2015 profit sharing, I have to be in the plan on 1/1/2016 !!! Son of a $%*(!<!

[ochotona]

I thought I was free from my ex-employer's 401(k). I was all ready to roll it to my brokerage firm. Turns out if I want a pro-rata share of any 2015 profit sharing, I have to be in the plan on 1/1/2016 !!! Son of a $%*(!<!

That sucks, but I think it's pretty typical with big corporations.

More 401(k) acrobatics. Their 2020 target fund is 40% stocks, 60% fixed income. Their 2025 target fund is fund is 60% / 40%. I'm trying something I haven't done here before, I'm going to combine them halfsies and get 50% / 50%, then layer on cash, then have gold outside somewhere... just for another year. It will do. I had already gone to 100% cash when I found out about this rule.

[hoost]

I thought I was free from my ex-employer's 401(k). I was all ready to roll it to my brokerage firm. Turns out if I want a pro-rata share of any 2015 profit sharing, I have to be in the plan on 1/1/2016 !!! Son of a $%*(!<!

That sucks, but I think it's pretty typical with big corporations.

More 401(k) acrobatics. Their 2020 target fund is 40% stocks, 60% fixed income. Their 2025 target fund is fund is 60% / 40%. I'm trying something I haven't done here before, I'm going to combine them halfsies and get 50% / 50%, then layer on cash, then have gold outside somewhere... just for another year. It will do. I had already gone to 100% cash when I found out about this rule.

You can always access the brokerage window if necessary to get the balance you want, although it does add cost.

Keep in mind if you go with a fund like this, the bonds are in intermediate term bond funds, which is essentially a bullet.  The PP uses a barbell approach.

So: the PP has 50% in bonds, 25% LT and 25% ST.  The equivalent would be roughly 50% Intermediate Term bonds. 

It may be simpler to do 25% in the equity fund, 50% in the intermediate bond fund, and 25% gold through the brokerage window.  Or adjust accordingly if you're going to hold gold elsewhere. 

You could also get EDV in the brokerage window to adjust the duration up on your bond holdings.  Half EDV/Half Intermediate term would get you a similar duration to TLT.

[ochotona]

401(k) lemonade. Employer 401(k), Self-Directed 401(k) window, independent brokerage accounts... arghhhh. I cannot wait until it's all in one place.