How to get "Total US Stock" and "Total US Bond" in my 403(b)

[Frenchy1011]

I had another quick question (I feel like every other day I'm asking somebody for help) about my asset allocation. I am working on doing a very basic asset allocation, and have included my thoughts below, and what accounts those will go in:

 

Roth IRA: Vanguard Total US Stock VTSMX (11.765% of my assets, maxing out Roth)

Spousal Roth IRA: REIT Index VGSIX (11.765% of my assets, maxing out Roth)

Non-Governmental 457(b): Vanguard Total International Stock Index Admiral VTIAX (19.25% of my assets, not maxing out yet, currently at $9000/yr)

 

Those are set and make sense to me. Now the following is where I'm not sure how to do it:

Employer-Contributed 403(b): I would like to have a "Total US Bond" Index Fund making up 26.20% of my total assets in this account as well as a "Total US Stock" Index Fund making up 31.02% of my total assets.

I currently have the 403(b) plan under Wells Fargo, and they do not offer a Vanguard Total Bond or Total US Stock Fund. There are a few that look similar, I have written them down below. Any help as to which of these funds, alone or in combination would allow me to have this Total Bond/Total Stock allocation?

Bond Funds Available:

Metropolitan West Total Return Bond Fund MWTSX

Federated Total Return Government Bond R6 FTGLX

Vanguard-Inflation Protected Sec Inst VIPIX

 

Stock Funds Available:

Vanguard Extended Market Index Inst VIEIX

Vanguard Institutional Index I VINIX

DFA US Targeted Value I DFFVX

 

Thank you so much for any response and help!!

 

[PhysicianOnFIRE]

VINIX + VIEIX = S&P 500 + small & mid caps. Together, they approximate the Total Stock Market at a ratio of about 81% VINIX / 19% VIEIX.

I don't know much about the bond funds, other than VIPIX sounds like a TIPS fund.

[Miss Bonnie MD]

I believe Vanguard Institutional Index I VINIX to Vanguard Extended Market Index Inst VIEIX in 4:1 closely mimics US total stock. I have these 2 funds in my 403b too and use them, but in a  slightly different ratio.

[childay]

Yes the extended market type funds are perfect for converting the large-cap s&p500 type funds to a more total stock.

Keep in mind of course you can hold funds across different accounts depending on availability etc.  In my case I have s&p500 in 403b and the extended market fund in a roth.

Can you post the expense ratios for your 403b?  Sounds like you have some good stock options at least

[Frenchy1011]

childay wrote:

Can you post the expense ratios for your 403b? Sounds like you have some good stock options at least

Click to expand...

Absolutely. I have added the expense ratios to the funds below. Thanks!

 

Bond Funds Available:

Metropolitan West Total Return Bond Fund MWTSX --- Expense Ratio 0.38%

Federated Total Return Government Bond R6 FTGLX --- ER Gross 0.45%, Net 0.30%

Vanguard-Inflation Protected Sec Inst VIPIX --- ER 0.07%

 

Stock Funds Available:

Vanguard Extended Market Index Inst VIEIX --- ER 0.07%

Vanguard Institutional Index I VINIX --- ER 0.04%

DFA US Targeted Value I DFFVX --- 0.37%

 

 

Would it make sense to use the VIPIX for my 26% Bond Fund? It definitely has the lowest expense ratio. Or would I be missing something that the Total US Bond has that I would need that I don't get with the VIPIX?

[childay]

Yes so the VIPIX is a TIPS fund which is totally different than a total bond fund.  Not to say you shouldn't invest in TIPS, but you might consider holding total bond in another account and having more stocks in the 403b.  The other bond funds appear to be actively managed with obviously higher expense ratios.

edit: just FYI I don't believe the total bond funds hold TIPS at all

[Frenchy1011]

childay wrote:

Yes so the VIPIX is a TIPS fund which is totally different than a total bond fund. Not to say you shouldn’t invest in TIPS, but you might consider holding total bond in another account and having more stocks in the 403b. The other bond funds appear to be actively managed with obviously higher expense ratios.

Click to expand...

Ok thanks.

 

Problem is I'm not sure where to put that Bond allocation. At this time I have a Roth IRA (holding Total US Stock), Spousal Roth (holding REIT Index), 457(b) plan (holding International Index) and my 403(b). If I max out those tax efficient accounts, I don't really see a need for anything else at this time (with employee contributions, that's almost $56K yearly at this stage, and it will only go up as my salary and employee matches go up). I'm pretty sure the 457 and 403 plans have the same funds available (and thus no Total Bond fund). The only other place to put those bonds would be into the Roths, which I didn't think was advisable. Not sure there is any other room to put those bonds.

[Frenchy1011]

As I was thinking of it more, I have another proposed option I have put below. Thoughts? I know that technically you should put riskier funds in the Roths, but this way would maximize the expense ratio savings, and put all my money into Total Market funds:

 

Roth IRA: 100% Vanguard Total Bond Market Fund (11%)

 

Roth IRA: 100% Vanguard Total Bond Market Fund (11%)

 

403b/457b: 25% into Vanguard Total International Stock and the rest into an 81/19 mix of VIMIX/VIEIX (54%)

 

Thoughts??

[ENT Doc]

I would be concerned about putting the asset class with the lowest expected return in the account that is the most tax advantaged.  I'd want my Roth balances to be as high as possible near retirement.  You could of course make it a bit more conservative over time to protect that money near retirement - buying incrementally more bonds over time.  Your updated allocation gives you what you wanted, but do you want to squander the opportunity to have more tax-free money?

[DMFA]

Frenchy1011 wrote:

childay wrote:

Yes so the VIPIX is a TIPS fund which is totally different than a total bond fund. Not to say you shouldn’t invest in TIPS, but you might consider holding total bond in another account and having more stocks in the 403b. The other bond funds appear to be actively managed with obviously higher expense ratios.

Click to expand…

Ok thanks.

 

Problem is I’m not sure where to put that Bond allocation. At this time I have a Roth IRA (holding Total US Stock), Spousal Roth (holding REIT Index), 457(b) plan (holding International Index) and my 403(b). If I max out those tax efficient accounts, I don’t really see a need for anything else at this time (with employee contributions, that’s almost $56K yearly at this stage, and it will only go up as my salary and employee matches go up). I’m pretty sure the 457 and 403 plans have the same funds available (and thus no Total Bond fund). The only other place to put those bonds would be into the Roths, which I didn’t think was advisable. Not sure there is any other room to put those bonds.

Click to expand...

Everyone above who said 4:1 is right.  VINIX at 87/13/0 and VIEIX at 4/46/50 in 4:1 comes out to 70.5/19.5/10, while VTSAX is 72/19/9.  Good enough, right?

I don't *always* agree with all-passive, all-index, all-the-time folks (just *almost* always).  I think placement in tax-free vs tax-deferred vs taxable is of greater importance than 0.30% of fees (assuming the active fund matches the index) between an active fund and, say, VBTLX.  MWTSX is, all things considered, a pretty acceptable bond fund (if you like bond funds).  I think you'd be better served letting equities be tax-free in the Roth and using MWTSX in your 403(b) if that's your only option.  It still captures government, corporate, and mortgage, has far more strong-credit holdings (67% AAA, with only 15% BBB or below), although it does have some more interest-rate sensitivity since it has more 15+ year maturity bonds than the norm. While not great in the past 12 months (+0.38% above the index for 67th %ile for interm-bond funds), at 5 and 10 years it's +1.4% above the index (6th %ile) with the same managers.  Compare that to VBTLX, which (exactly as designed) is always within 0.1% of the index, good for the middle third every time. FTRLX, while less active than MWTSX (33% turnover, to MWTSX's 303%), still costs just as much, is government-only, and has junkier bonds; however, it's used those junkier bonds (which have actually paid up) to generate above-average returns by 0.3-0.7% above the index and had a good year last year.

I would generally take the index since I'd hate to pay managers not to perform, but I wouldn't take away Roth space from equities to allow their greater return to be tax-free.

[Frenchy1011]

DMFA wrote:

I would generally take the index since I’d hate to pay managers not to perform, but I wouldn’t take away Roth space from equities to allow their greater return to be tax-free.

Click to expand...

I definitely see what you are saying. Thanks for all the good info. Sounds like even with the higher fees and less diversity/more actively managed, it is still more advisable to place my Bond allocation in the 403/457 accounts rather than the Roth accounts, even if the funds bought are not as good as the index ones I would be able to get in the Roths.