Let’s talk about my retirement account

OK, the oatmeal post was surprisingly popular. I didn’t think anyone would get past the first paragraph 🙂

I have a decision to make that’s a little more consequential than breakfast, though. My university is changing retirement plan administrators, and in the next month I have the opportunity to either do nothing (in which case, all my normal retirement contributions will keep going to a Vanguard lifecycle fund, which is a fund of funds that includes U.S. stocks, international stocks, and 10% domestic and international bonds) or do something (in which case, I’d likely pick out an index fund, probably one that mirrors the S&P 500 or the NASDAQ.) I’m far enough from retirement that I don’t know that I really care about having *any* bonds in my portfolio — I don’t really need the stability right now, I think?

When I first opened my IRA, I basically had no choice — I only had $2000, so the only thing I could do was invest in a lifecycle fund, which had a $1000 minimum as opposed to the $3000 minimums for other stuff.

I know, recency bias, but I keep looking at this mint chart, which shows how my lifecycle funds are doing relative to the NASDAQ (hint: not great):

Under no circumstances am I going to start trying to pick individual stocks, or move investments around on a regular basis — I definitely want to set it and forget it. The question is what kind of index fund do I set it and forget it in? And since the university is making me make a decision right now, I feel like I should try to get some advice and make one. What would you do?

10 thoughts on “Let’s talk about my retirement account

  1. Cindy Worth says:

    I found Jim Collins’ stock series to be incredibly helpful in choosing how to invest in my company’s 401(k) plan. You can leave comments on his blog and he’ll make recommendations based on the options available to you as well. http://jlcollinsnh.com/stock-series/

    1. I read the whole thing last night — that was SUPER helpful. I understood some of it already just from the reading I’ve done this year, but he really lays it out in terms I get and very convincingly. I appreciated the specificity of a lot of the advice, too. Thanks so much.

  2. Huy Tran says:

    The Lifecycle fund you have seems good.

    You mentioned possibly not having any bonds and that has got me thinking maybe I should do the same. My company uses Vanguard Target Retirement Date funds and mine’s in the 2055 one. I’m 24.

    I’d try to get the lowest expense ratio on your investments. Mine’s currently at 0.18%. Unfortunately a lot of the funds with lower expense ratios require a minimum of $10,000, but you’re almost there! Maybe I’ll split up my investments between US Stock and International Stock (70/30) and cut out the bonds and have expense ratios of 0.05% and 0.14%(VTSAX/VTIAX), respectively. It’d probably be worth the effort to re balance once a year.

    Great post!

    1. Yeah, I’m ten years older than you but still so far from retirement (I’m aiming for 65) that I just don’t know if I need the bonds yet. I have the Vanguard TRD fund too (2045) so in terms of distribution and fees we’re about the same. What I’m thinking right now is that I’ll leave them alone in the target date funds until I hit $10,000 in each account (I am almost there collectively, but I won’t hit $10K in the main work one until next April — the rest is in a Roth IRA) and then exchange them for VTSAX.

  3. I’d stick with the Lifecycle fund.
    1) No need to pay attention to the bonds at a later date. No bonds is OK now, but at some point you’ll want some bonds and you’d have to decide when that is.
    2) You have to figure out how what % of your portfolio to allocate to International funds
    3) You have to figure out what % between large, medium, and small companies
    4) You could use the same stock funds to get the correct company size distribution and the same international: domestic ratio as the Lifecycle fund, but then you’ll have to re-balance once a year.
    5) Just the S&P 500 or similar is a bad idea — no diversification between international/domestic and no diversification of company size.

    It seems better to pay a little more in terms of expense ratios and just stick to the Lifecycle fund.
    (BTW: Favorite investing book for beginners: Boglehead’s Guide To Investing)

    1. Huy Tran says:

      “Under no circumstances am I going to start trying to pick individual stocks, or move investments around on a regular basis — I definitely want to set it and forget it.”

      I must have missed this the first time through. I agree with Brooke and & Genevieve as long as the expense ratio on that Lifecycle fund is not too high.

    2. It’s totally true that the lifecycle fund removes ALL decision-making process, which is kind of nice…. You’re right that just the S&P 500 or the NASDAQ is a terrible idea, I knew it even as I posted it. Just had to get it out of my system by stating it openly, I guess 🙂 Thanks for the advice!

  4. I have the option of Target Date Funds (similar to Lifecycle I’m assuming, just under a different name). At some point I might move it over to doing it myself, but I don’t think I’m ready for that yet. I’d like to feel it out for a bit before then. It’s more about comfort level and getting yourself educated so you feel okay about it. You’re still doing all the right things… it just might cost a little bit more in MER.

    1. yeah, I may not be right about this (?) but I use target date and lifecycle interchangeably. The main question for me I think is, is it worth the extra effort involved in getting slightly more aggressive now (by removing the bonds) and having to deal with it later. After reading the series on Jim Collins’ blog that Cindy recommended above, I’m leaning towards waiting until each individual fund accumulates $10,000 and then moving them into a total stock market index fund — you get a crazy low expense ratio if you have that much, and I think he convinced me that that’s enough international exposure (as a U.S. investor) since the “U.S. companies” are really so global. Anyway, IF I do that, that means doing nothing now, which, being the path of least resistance, is also appealing. 🙂

  5. I’ve found that the Bogleheads guide to investing has been very informative and easy to understand for me. It stresses the importance of having the lowest expense ratio as possible and either just creating a “simple portfolio” based on index funds. Currently I don’t have enough money to do that, so I’m just using a Vanguard Target Retirement Fund which does it for me. Expense ratio is slightly higher but it’s still one of the lowest possible. Sounds similar to what you said in a different comment as once I have enough $$ to manually put it into each fund I’ll do that to have an even lower expense ratio.

    http://www.bogleheads.org/wiki/Main_Page

    For the bonds, it might be better to at least have 10% in bonds as this adds some stability to your portfolio during any down trends with the market. 100% stocks can lead to more growth but it also leads to more extremes in both directions as well.

    http://lazytraders.com/insights/stocks-vs-bonds-diminishing-returns-of-100-risk-allocations/

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