Need Advice on Bonds/Cash with Clunky 401k

[stuper1]

A lot of my money is in a 401k, and I can only access 25% of it with the brokerage window.  What this means is I have to allocate about $85k of less-than-ideal 401k funds, plus $70k of Roth IRA funds, to my bond ($95k) and cash ($60k) allocations.  I have about $35k in cash held taxable as an emergency fund.

Below are my "bond" options in the 401k.  Please advise on how you would allocate your bonds/cash using these options, plus the $70k in the Roth IRA.  Thanks!

Income Fund:  seeks to preserve principal, earn safe interest, and maintain a stable NAV of $1/share.  Uses the Citigroup 3-month T-bill Index + 1% as a benchmark.  ER = 0.34%.  The fund invests in benefit-responsive investment contracts issued by insurance companies and other financial institutions ("Contracts"), fixed income securities, and money market funds. Under the terms of the Contracts, the assets of the fund are invested in fixed income securities (which may include, but are not limited to, U.S. Treasury and agency bonds, corporate bonds, mortgage-backed securities, commercial mortgage-backed securities, asset-backed securities, and collective investment vehicles and shares of investment companies that invest primarily in fixed income securities) and shares of money market funds.

PIMCO Total Return Fund Institutional Class:  seeks maximum total return consistent with preservation of capital.  Weighted avg duration = 5.93 years.  ER = 0.46%.  Uses U.S. Aggregate Bond fund as a benchmark. The fund normally invests at least 65% of its total assets in a diversified portfolio of Fixed Income Instruments of varying maturities, which may be represented by forwards or derivatives such as options, futures contracts, or swap agreements. It invests primarily in investment-grade debt securities, but may invest up to 10% of its total assets in high yield securities ("junk bonds") rated B or higher by Moody's, or equivalently rated by S&P or Fitch, or, if unrated, determined by PIMCO to be of comparable quality.

BlackRock US Debt Index Fund:  Weighted avg duration = 6.34 year.  ER = 0.13%.  The Fund is an "index fund" that seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of a particular index (its "Underlying Index").  The Fund is a collective investment trust maintained and managed by BlackRock Institutional Trust Company, N.A. ("BTC"). The Fund shall be invested and reinvested primarily in a portfolio of debt securities with the objective of approximating as closely as practicable the total rate of return of the market for debt securities as defined by the Barclays Capital U.S. Aggregate Bond Index. The Fund will not engage in securities lending. BTC uses a "passive" or indexing approach to try to achieve the Fund's investment objective. Unlike many funds, the Fund does not try to outperform the index it seeks to track and does not seek temporary defensive positions when markets decline or appear overvalued.

WTC TIPS Portfolio:  weighted avg maturity = 5.55 years.  ER = 0.175%.  Seeks inflation protection and long-term total return in excess of the Barclays US 1-10 Year TIPs Index.  The portfolio will invest primarily in US Treasury inflation-protected securities (TIPS), which pay a real return plus the realized rate of CPI inflation

[KevinW]

None of those hold predominantly long term Treasury bonds, so none are really suitable for the PP bond allocation. You might consider these compromise measures:

- Merge cash and bonds into one 50% intermediate bond allocation. The Index Fund you listed is basically a total bond market fund, which is intermediate-term and mostly Treasuries, though does include some corporate bonds. It is IMO acceptable though not ideal for a 50% intermediate bond allocation.

- Maintain a strict 4x25 PP and hold bonds in an account that can hold them, e.g. taxable, even at the cost of tax efficiency.

- Give up on a 100% PP and use a different conservative strategy for the disagreeable part of the 401k. I suggest a conservative Boglehead-style stock/bond index portfolio.

All these have been discussed; try the search feature. 

[notsheigetz]

I think the only truly PP friendly thing you are likely to find in a company 401k is a stock index fund, hopefully with very low fees. At least that was true for both me and my wife. So what I did was use those funds and adjust all of our other holdings appropriately. Works out fine for us because we have less than 25% of our holdings in our 401k's but obviously it won't work for everyone. Also, if there happens to be a bull run in stocks you might reach the 35% highwater mark and find yourself out of options. Fortunately, I don't have that problem, because I am allowed in-service rollovers due to my age.