401k PP integration

[nex0661]

Need some help. Looking to implement PP across a 401k and several Roth IRA/IRA accounts. Problem is choices in GW 401k are limited and a brokerage window would cost $2500/year.

Here are the amounts:
GW 401k: $175,000
Other accounts total: $300,000

Good news is GW 401k has a SP500 option (I included other relevant plan options at the bottom), so I was thinking:

Option 1:
Allocate the other accounts into 3 parts of about $100k each Gold/Cash/30 year bond, then allocate $100k of the $175k GW into the SP500 option while splitting the remaining $75k into $25k PIMCO Total Return, $25k SP500, $25k Oakmark Equity & Income II.

The problem with that is there is no way to really rebalance the stocks portion if all of it is in the GW 401k. And handling monthly contributions would be a pain.


So option 2:
The GW 401k account has short term bond funds: Thompson Plumb Bond THOPX, Great-West Short Duration Bond Init MXSDX
There is also something that doesn't publicly trade and I'm not sure I fully understand called the Key Guaranteed Portfolio Fund which I believe pays 1.45%/year (offered by the 401k plan provider, not sure I like this part "This fixed fund is offered through a group fixed and variable deferred annuity contract issued by Great-West Life & Annuity Insurance Company. A ticker symbol is not available for this investment option. The Key Guaranteed Portfolio Fund is backed by the general assets of Great-West Life & Annuity Insurance Company.")

The problem is the short term bond options hold all kinds of paper (some junk bonds) and I am not sure if this is a valid replacement for cash. They seem risky. And this Key Gauranteed Portfolio Fund sounds like something I don't want to put my money in -- what if the plan sponsor faces financial difficulties or some unexpected "accounting error"?

I graphed MXSDX vs. SHY vs. SHV vs. THOPX
Looks like THOPX is more risky/higher volatility than MXSDX and SHY and SHV (see below for descriptions of what each one holds)

http://www.google.com/finance?chdnp=1&c ... BM6iiAK2Iw



What do you suggest?

Thank you!



More Information


Great-West Short Duration Bond Init MXSDX
Principal Investment Strategies
The Fund will, under normal circumstances, invest at least 80% of its net assets (plus the amount of any borrowings for investment purposes) in investment grade bonds. The Fund will select securities based on relative value, maturity, quality and sector. The Fund will maintain an actively managed portfolio of bonds selected from several categories, including U.S. Treasuries and agency securities, commercial and residential mortgage-backed securities, asset-backed securities, and corporate bonds. The Fund will maintain an average duration between one and three years based on the portfolio manager’s forecast for interest rates. The Fund may invest up to 20% its net assets in securities of below investment grade quality (“high yield-high risk”? or “junk”?) bonds. For purposes of pursuing its investment goals, the Fund may, from time to time, enter into derivative contracts, including futures contracts on U.S. Treasury securities.


Thompson Plumb Bond THOPX
Principal Investment Strategies
Principal Investment Strategies of the Fund. The Bond Fund normally invests at least 80% of its net assets plus any borrowing for investment purposes in a diversified portfolio of bonds, including corporate bonds of domestic issuers and of foreign issuers payable in U.S. dollars, short-term debt instruments, mortgage- and asset-related securities, bonds of foreign government issuers (including its agencies and instrumentalities) payable in U.S. dollars, and U.S. Treasury securities and other debt securities issued or guaranteed by the U.S. Government (including its agencies and instrumentalities). Although the Bond Fund invests primarily in investment-grade debt securities (i.e., those rated in the four highest rating categories by S&P or Moody’s), it may invest up to 10% of its net assets in bonds rated below investment grade (commonly referred to as “junk”? or “high-yield”? bonds). In the aggregate, these below-investment-grade bonds, along with the other bonds in the Fund’s portfolio, will comprise at least 80% of the Fund’s net assets plus any borrowing for investment purposes. The Bond Fund may invest up to 20% of its net assets in other non-debt securities, which include convertible bonds, common stocks and variable-rate demand notes. The dollar-weighted average portfolio maturity of the Bond Fund will normally not exceed 10 years. The Bond Fund does not purchase securities with a view to rapid turnover.



Key Guaranteed Portfolio Fund
Investment Objective & Strategy
As a general account product, participant principal and interest are fully guaranteed by the entire general account assets of GWL&A, which as of December 31, 2011, were $26 billion and include $1.99 billion in shareholder equity and accumulated surplus. This means that GWL&A holds an additional 7.7% in reserves for every dollar of liability we have. These assets are primarily high-quality, fixed income bonds, with 99% rated investment grade and 33% rated AAA.




Other GW 401k options:

Large Blend
Maxim S&P 500 Index Portfolio - MXVIX

Moderate Allocation
Oakmark Equity & Income II - OARBX

Intermediate Bond
Metropolitan West Total Return Bond M - MWTRX
Wells Fargo Advantage Ttl Return Bond Ad - MNTRX
PIMCO Total Return Admin - PTRAX
Maxim Federated Bond Portfolio - MXFDX
American Funds Bond Fund of Amer R3 - RBFCX

Inflation-Protected Bond
PIMCO Real Return Admin - PARRX

Intermediate Government
PACE Government Secs Fixed Income Y - PFXYX
Maxim US Government Mort Secs - MXGMX
BlackRock US Government Bond Inv A LW - CIGAX.lw



Short-Term Bond
Thompson Plumb Bond THOPX
Great-West Short Duration Bond Init MXSDX
Key Guaranteed Portfolio Fund

[rhymenocerous]

The Key Guaranteed Portfolio Fund sounds like a Stable Value Fund.  None of the other bond funds seem appropriate for the PP, since they hold a lot of corporate and agency bonds.  I would do the following:

GW 401k:
$118.75k Maxim S&P 500 Index Portfolio - MXVIX (Stocks)
$56.25k Key Guaranteed Portfolio Fund (Cash)

Other accounts:
$118.75k LTTs
$118.75k Gold
$62.5k Cash

In your 401k, direct 100% of new contributions to the Key Guaranteed Portfolio Fund until it is time to rebalance.

[sophie]

That might work - for a while.  One important missing piece of info:  how much are you contributing (relatively) to the 401K as opposed to the other accounts?  If the 401K grows more quickly than the rest of the portfolio, you'll eventually find it impossible to keep the portfolio balanced.  Same thing could happen if the stocks outgrow the other components.

This is where Craig's maxim "don't let the perfect be the enemy of the good" comes into play.  You have a few options:

1. Accept the off-balance portfolio.
2. Pick one of the intermediate government funds in the 401K and count it as 65% bonds, 35% cash.
3. Use only part of the 401K for the PP.

Whichever you pick will be fine.

[AdamA]

1. Accept the off-balance portfolio.

I like this option. 

It keeps things simple, and probably won't change the return or the volatility very much. 

Just try to add to the other portions as much as you can when you get the chance. 

[TripleB]

Please clarify on the $2500 cost to have a brokerage window? Is it a 1.5% expense ratio or a fixed fee? I have a hard time believing they will charge a $2500 fixed fee, so I imagine it's some kind of expense ratio.

Considering the shitty options in your 401k, that likely have expense ratios of 1% to 2%, you would likely be better off paying the 1.5% for brokerage access, and using ETFs.

If it were me, I would bite the bullet and pay the $2500 for brokerage access because even at a cost of 1.5%, the PP will be better than the random crap you have access to.

I would also seriously consider switching jobs, or at least setting up a deal that allows you to temporarily leave the job so you can roll the money out. I'm guessing you've been at this company for 10 to 20 years based on your 401k levels, so you may be able to convince management to let you go temporarily and rehire you back.

Alternatively, if you are thinking of leaving the job, think of it as an immediate $2500 post-tax salary increase (which might be worth $4k in gross income that you get to save by being able to roll the money elsewhere and avoid the 1.5% brokerage fee.

This all assumes you've investigated the possibility of an in-service rollover and it's not an option. Obviously that's your best bet by far but many plans don't offer it.

[nex0661]

Don't like the idea of paying $2500 per year for brokerage access.

Now ran into an issue. Only allocating into 401k accounts. Of about $470k, have $244k in accounts where only cash or stocks are an option (e.g. no gold and no 30 year bond)

And about to hit the rebalancing band with gold crashing and cash piling up in the 401k accounts. Problem is I can't buy gold in the 401k accounts, so I can't really rebalance into it.

Was thinking if it makes sense to just treat $70k of the funds as separate from the PP and allocate that across stocks + cash + PIMCO bonds or something of that nature.

Then take the remaining $400k and allocate that across PP. I may still face the issue of not being able to rebalance into gold if it hits another rebalance point.


Thoughts?

[stuper1]

You listed three bond funds under "Intermediate Government".  Two of those (not the mortgage one) might work as PP bond funds where you imagine the money as half cash and half bonds.  You'll have to check and see what those funds hold.  I'm doing something similar with my 401k, although in my case I have a bond index fund that tracks both government and corporate bonds, so your case might even be better than mine.  If you're splitting your PP across accounts, I think you need at least 3 of the 4 asset classes in each account in order to make rebalancing work later.