What's my 401k+Roth line?

[kdotsky]

Hi all,
I just started working full time and have been meaning to set up my asset allocation of what I have in my Roth and 401k. I'm 25 and would like an aggressive portfolio. I have 4k in my Roth for 2006 and will be putting in 4k for 2007 soon, so assume I have 8k in there. I have none in my 401k but will probably be putting in 9k over the course of the next year. Here's what's available in my 401k:

Vanguard Target Retirement 2005
Vanguard Target Retirement 2010
Vanguard Target Retirement 2015
Vanguard Target Retirement 2020
Vanguard Target Retirement 2025
Vanguard Target Retirement 2030
Vanguard Target Retirement 2035
Vanguard Target Retirement 2040
Vanguard Target Retirement 2045
Vanguard Target Retirement 2050
Domestic Stock Funds
Amer Funds Grth Fund R4
American Beacon SmCVl Pln
Vanguard 500 Index Fund Inv
Vanguard Explorer Fund Investor
Vanguard FTSE Social Index Inv
Vanguard Strategic Equity Fund
Vanguard Windsor II Fund Inv
International Stock Funds
Julius Baer Intl Eqty A

I was thinking of putting the Roth in international indexes since the 401k doesn't offer much of this asset (the one it does has fees over 1%), and distributing the 401k accross US stocks. Advice?

Thanks

[mtgordon]

Easy answer is Retirement fund that fits you (possibly 2050). However there's probably some extra value that you can squeeze out if you want to put in the effort. If you do check the threads on here about investing $X, etc.

[gull]

You have a very nice array of choices in your 401k. Many people get stuck with garbage.

The Target Retirement 2050 fund is probably the best choice of these. Behind that is probably the Vanguard 500 fund. Both are low-cost, but primarily large-cap stocks.

Your plan of investing internationally in your Roth is solid.

I would put the 9k in the 401k in Target Retirement 2050. It contains about 70% domestic, 20% foreign, and 10% bonds. I would use the 8k in the Roth to supplement this with a small-value tilt and more foreign equities.

A possible allocation would be the following:


401k (I broke down the 2050 fund): 46%*
33% Vanguard Total Stock Market Index Fund
4.8% Vanguard European Stock Index Fund
2.2% Vanguard Pacific Stock Index Fund
1.3% Vanguard Emerging Markets Stock Index Fund
4.6% Vanguard Total Bond Market Index Fund

Roth IRA (Best ETFs or Vanguard funds): 54%
15% Domestic Small-value (RZV or VISVX)
24% International small-value** (GWX/DLS or VTRIX)
15% Emerging Markets (VWO or VEIEX)

An allocation such as this would be very aggressive. It's 95% stocks, 5% bonds. The equities are split nearly 50/50 between domestic and international. In addition, this allocation has a small value and emerging markets tilt that should increase returns, but also volatility.



*assuming a 25% tax rate
*this is actually midcap-value in the case of GWX/DLS and large-value in the case of VTRIX, which btw is actively managed