My 401K bond options are limited. I have Pimco Total Return A PTTAX and six T. Rowe Price Retirement Funds, Income-RRTIX, 2010-RRTAX, 2020-RRTBX, 2030-RRTCX, 2040-RRTDX, 2050-RRTFX.
I plan to increase the bond percentage of my 401K from less than 5% to about 15%. I currently only have bond exposure through RRTCX.
Which would you consider the better choice to increase the the percentage of bonds, Pimco, the 2010 or 2020.
Thanks in advance.
DPN
Comments
If you need more bonds, get PTTAX (assuming it is load waived in 401k). Alternatively, if you have been investing all your retirement monies in a target fund, you can step down the date to pick up more bonds.
BTW, If you are investing in a mix of funds yourself, then there is no point in also getting target fund.
The only exposure to bonds is in the 2030, so I am going100% to the PTTAX for a few months to build it up to 15%.
My company 401K is through ADP and ADP pretty much sucks in terms of service but I don't really know if the funds are quality or not. The complete list is:
I welcome all comments and observations.
Invesco Stable Asset Fund
RRTIX- T. Rowe Price Retirement Income R, + 2010-2050
PTTAX- PIMCO Total Return A
MVRRX-MFS Value R2
SVSPX- SSgA S&P 500 Index Instl
SRVEX- Victory Diversified Stock A
ALARX- Alger Capital Appreciation Instl I
FMIVX- Virtus Mid-Cap Value A
ATHAX- American Century Heritage A
PCVAX- Allianz NFJ Small Cap Value A
FSCTX- Fidelity Advisor Small Cap T
SSCRX- SSgA Small Cap R
PAIGX- T. Rowe Price Intl Gr & Inc Adv
JIGRX- Janus Overseas S
PTTAX- PIMCO Total Return A
PCVAX- Allianz NFJ Small Cap Value A
JIGRX- Janus Overseas S
I think you have some pretty decent fund choices to choose from. I would try taking 5-10% from one of the large cap equity funds and putting it into the Pimco Total Return fund to get the bond exposure you are looking for (that would be my preference over moving to a higher bond allocation target fund). I would try adding the PAIGX, the TRP International fund also to see how that bumps up your International exposure. Same for adding more small cap.
Do some playing in Instant Xray to get an idea where you want to be. God luck with your choices.
But what about those plans that are NOT through an insurance company? Where do the trustees find some of these truly horrible funds, and how do they justify them from a fiduciary standard? The truth is that they cannot justify them, and at some point one or more plan participant could file suit, and these folks would have no defense. And very few plans have any kind of Investment Policy Statement, either, which would at least provide some kind of investment guide and recognition of fiduciary responsibility.
The list of options in the plan above at least has 2-3 that are acceptable, but some are just crazy.
PTTAX carries a 3.75% front end load and a .90% ER. While the ER is a bit lower than RRTIX, keep in mind that with the Price fund you are also paying for the management of the stock portion.
A third option is to keep your cash and bond money in non-retirement accounts and include them with the retirement monies for allocation purposes. With the very low rates of interest available, your not gaining a whole bunch in the way of tax savings using a tax sheltered account for stable assets. Course that will change some day. Bonds vary alot, but in a stable short term bond fund or CD at current rates, it would take a number of years to earn the equivalent of the 3.75 Pimco load you'd pay up front. Not sure what the Pimco fund returned in recent years, but with rates as low as they are now, a repeat of recent performance seems unlikely. However, there is a tax break at the time you contribute to a 401K and so it may not be desirable from that standpoint to invest outside the plan. If you could do so through a separate Roth IRA (translate: lower fees and more control) it might make more sense to you. Hope this helps.
I am still learning about investing and found MikeM's comments about allocation very interesting. I decided not to go with the PTTAX for now and instead build up the small caps with PCVAX.
When considering allocation in relation to the % box on M*x-Ray LG/MED/SM Caps/Value/Blend/Growth, is there a middle of the road point from which to start? Then tune to your personal preferences and risk tolerance?
I understand it is different for the individual but I am trying to get a scenes of where to start and where to go given the choices in my 401K.
Thx all
I recall "working out" on a spreadsheet that the value of tax deferred investments - if tax rates don't change - is somewhere on the order of 80 - 100 bps.
Not sure if above is correct, but let's assume that it is.
So what I did is list my funds (the exact share classes I had access to) with their expense ratios.
I then compared those ratios - fund by fund - with the average fund expense ratio and index fund/etf fund ratios. If a fund (in an asset class that I was interested in) had an expense ratio of more than 80 bps higher than the "average" or "typical", then I eliminated it from consideration.
I ended up using 4 funds, with an average ER of 48 bps, in my 401k. I could "live" with that.
I'm sure other opinions may differ from mine, but again, I would pick the equity/fixed income percentages that you are comfortable with based on your age and risk tolerance. And the core of this portfolio could certainly be one of the TRP target date funds available to you. That would give you a good basis for diversification. If the 2030 fund is the allocation equity/fixed allocation you want (84% equities I see), put maybe 50% in that one fund and hold it as your diversified core. Then add to that a mix of a few of the better funds in your 401k. I'm not familiar with most of the funds you listed, but OOBY pointed out 3 pretty good ones in his post. And there is certainly nothing wrong with using the large and small cap index funds to get the mix you want. And then take another look at x-ray.
Just some ideas... good luck to you.