Help Finding Least Bad 401k option

[burley]

I recently changed jobs and used the opportunity to roll some older 401ks into an IRA and implement Golden Butterfly portfolio.

Now I'm thinking about what to do with my new employer's 401k plan. Like most 401k plans, the bond choices are very very limited. I initially created a 50/50 portfolio using:

25% S&P Index
25% Small Cap Value
50% Total US Bond Fund

I noticed however, that the bond fund is only about 40% U.S. Treasuries, the rest being things like corporate bonds and mortgage backed securities. I know most folks here (and Harry Browne) recommend against bonds with credit risk. On the other hand, the only option in my plan that's 100% (or even 50% for that matter) U.S. Treasuries is a short term bond fund with an average duration of 3 years.

The rest of the plans options consist of plenty of good equity index funds, and a few target date funds.

What my best options here? Right now I'm debating between the following options.

1. Keep the 50/50 equities/total bond fund portfolio with the non-treasuries since the credit quality is listed as high
2. Go 50/50 equities/Short-term treasuries and give up the convexity of long-duration bonds
3. Or is there something else I'm not thinking of?

[coasting]

Like most 401k plans, the bond choices are very very limited.

I have similar issue with limited 401K options. For stocks there is an excellent low cost Vanguard S&P 500 fund. For cash there is no Money Market Fund option, just a Stable Value Fund which does maintain $1 per share value, but current crediting rate of less than 3% is not competitive with current MMF yields. And for the bond portion I want this:
VLGSX Long-Term Treasury Index Fund Admiral Shares

VLGSX Stylebox.PNG (39.24 KiB) Viewed 2037 times

But I am offered this:
VBTLX Total Bond Market Index Fund Admiral Shares

VBTLX Stylebox.PNG (41.78 KiB) Viewed 2037 times

1. Keep the 50/50 equities/total bond fund portfolio with the non-treasuries since the credit quality is listed as high
2. Go 50/50 equities/Short-term treasuries and give up the convexity of long-duration bonds
3. Or is there something else I'm not thinking of?

Regarding option (1) I agree the credit quality is high. It's not so much the inclusion of investment grade corporate bonds (minor credit risk) or government-backed MBS (minor call risk), but rather the 6 year duration that bothers me. The bond portion should be hypersensitive to changes in long term interest rate. HB specified long term so that the bonds would be volatile like the stock portion, but along the inflation/deflation axis.

Regarding option (2) I would consider the short term bond fund a close substitute for the cash portion, not the bond portion.

Regarding option (3) can you load up the 401K with stocks and hold long term bonds and other assets in your rollover IRA account? That's what I do: treat it all as one big portfolio, just with multiple accounts. Some people prefer a PP in each account, but that won't fly for me where a substantial portion is in 401K account with limited asset choices. This does require tracking the overall total in a spreadsheet outside of each account/broker, but that is simple to update periodically after initial setup.

[Hal]

The rest of the plans options consist of plenty of good equity index funds, and a few target date funds.

What my best options here? Right now I'm debating between the following options.

1. Keep the 50/50 equities/total bond fund portfolio with the non-treasuries since the credit quality is listed as high
2. Go 50/50 equities/Short-term treasuries and give up the convexity of long-duration bonds
3. Or is there something else I'm not thinking of?

Common problem....

This link may give you some ideas => https://wiki.earlyretirementextreme.com ... )_lemonade

Could you go with a Target date fund which gives you a 2:1 Bond/Shares ratio and hold the gold outside of the 401K. Then use a SCV fund, inside your 401K if possible, to get your Golden Butterfly allocation? ie 20% SCV, 20% Gold, 60% Target date fund (2:1 Bonds/Shares)

[burley]

Thanks! I ended up doing what @coasting suggested and am buying TSM, SCV, and STT in my new 401k. I figure I can rebalance periodically to keep the allocations appropriate.

[Ugly_Bird]

What my best options here? Right now I'm debating between the following options.

Often 401k has garbage options with funds having rip off ERs.
Usually SP500 funds there have the lowest ER. You can contribute 100% in those (especially if you are young enough)
Ask your employer if they can open a brokerage window in the 401k plan. It will give you broader access and options to build better portfolios.
Or just contribute to 20XX target retirement plan (usually higher ERs). They are Boglehead like plans.

[mathjak107]

you have to see the yearly disclosure sheet that is required to be mailed to see your actual costs .

recently i pointed out to our cfo that our 401k actually had 10x the cost the funds show .

he was sure our vanguard institutional shares on the index fund were dirt cheap .

he never realized the actual costs only appear in the disclosure forms .

he thought voya was paid by the fund families….nope. … they come off the top of the 401k so there is no such thing as low cost funds because the fund er is not the whole story

[LucasMount]

Option 2 (50/50 equities/short-term treasuries) seems like a safer choice to avoid credit risk, but you could also consider splitting between short-term treasuries and equities to maintain a balanced risk profile.