Hey everyone, it’s Finance Fridays. First of all, I apologize that this is late. I’m working nights this week and after waking up to help my wife get the kids ready for daycare, I slept in past my normal alarm. Nonetheless, today we’re going to continue talking about Roth 401k/403b in Residency Portfolios.

Stock Photo from: Pexels

In my prior post Roth 401k/403b in Residency How To, I went over the basics of putting together a Roth 401k/403b. Remember that the take home lesson is:

“The most important part of saving, whether it’s Roth 401k/403b, etc. isn’t the asset allocation or the portfolio types. The single most important thing is saving as much as possible as early as possible.”

That said, I think it’s important to provide a prototype for what you might see when you get your big packet of papers from your residency program.

For those of you doing residency Albany Medical Center, you’re in luck, as I’m going to use their current fund options for this post. I also must say that that I enjoyed my time at Albany Medical Center during my residency. There were tough days and nights sometimes, but overall, it was a great experience, and I met many, many great people.

Here is their list of fund offerings (as of 4/7/2017):

I have also provided links to their information on the ticker.

Target

T. Rowe Price Balanced Fund TRRIX
T. Rowe Price Retirement 2010 TRRAX
T. Rowe Price Retirement 2015 TRRGX
T. Rowe Price Retirement 2020 TRRBX
T. Rowe Price Retirement 2025 TRRHX
T. Rowe Price Retirement 2030 TRRCX
T. Rowe Price Retirement 2035 TRRJX
T. Rowe Price Retirement 2040 TRRDX
T. Rowe Price Retirement 2045 TRRKX
T. Rowe Price Retirement 2050 TRRMX
T. Rowe Price Retirement 2055 TRRNX

International

American Funds EuroPacific Gr R5 RERFX
Parametric Emerging Mkts Instl EIEMX
Hartford World Bond Y HWDYX
Vanguard Total Intl Stock Index Admiral VTIAX

Specialty

Morgan Stanley Inst Glbl Real Estate I MRLAX

(this is essentially a Real Estate Investment Trust [REIT])

Small Cap

Goldman Sachs Small Cap Value Instl GSSIX
Loomis Sayles Small Cap Growth N LSSNX

Mid Cap

Goldman Sachs Mid Cap Value Instl GSMCX
Touchstone Mid Cap Growth Inst TEGIX

Large Cap

Dodge & Cox Stock Fund DODGX
Harbor Capital Appreciation Instl HACAX
Vanguard Total Stock Mrk Index – Admiral VTSAX

Bond

Metropolitan West Total Return Bond I MWTIX
T. Rowe Price High-Yield Bond PRHYX
Vanguard Inflation-Protected Secs Adm VAIPX
Vanguard Total Bond Market Index Adm VBTLX

Other

SA 661 Stable Value Account (Fixed)
TD Ameritrade SDB Sweep Program (Brokerage)
TD Ameritrade SDB Securities (Brokerage)

Wow… that’s a lot of… numbers and letters…

Yup. However, remember what my prior posts. The “default” route at this stage isn’t too difficult.

Just decide:

Target Fund or Stock/Bond Allocation?

If you decide to go Target Fund, then this is pretty easy:

Just dump 100% of your contribution ($100 or $200) into the Target Date which about 35 years in the future (when you plan to retire), for many of you. So it’s 2017, if you add 35 years, you’re at 2052. So you can go either T. Rowe Price Retirement, 2050 or 2055, depending on whether you plan to retire a little more or less than 35 years from now. However, for those of you are a little older, you may opt for an earlier target date, such as the T. Rowe Price Retirement 2045.

Target Fund Commentary:

The T. Rowe Price Target isn’t a horrible option for those who want to “set it and forget it”. However, its expense ratio is 0.76, which is kind of high, in comparison to the next option I will go over. However, if you see yourself putting all your money into one fund and then not touching it until retirement, this isn’t a bad option, since it will rebalance for you.

If you decide to go Stock/Bond Allocation, then it’s slightly more difficult, but not much:

First decide on how you want to ratio of stocks/bonds. Do you want 80/20 or 70/30 or even 100/0?

After you decide that, do you want to have any international stocks, or not? The allocation I like is the three fund portfolio, so I opt to use at least some international funds.

Ok, so if you decided on 80/20 and wan to use some international stocks, then do this:

Stocks (80%):

Vanguard Total Stock Mrk Index – Admiral VTSAX
Vanguard Total Intl Stock Index Admiral VTIAX

Bonds (20%):

Vanguard Total Bond Market Index Adm VBTLX
or
Vanguard Inflation-Protected Secs Adm VAIPX

Then decide how much tilt you want for your US versus International Stocks. If you want even-steven, then go 40/40/20. Or if you want a slight US tilt, go 50/30/20.

Interestingly, AMC offers a Vanguard TIPs option, which is an inflation protected security, occupying the same space as Bonds. So if you want, you can consider using either Vanguard Total Bond Market Index Adm VBTLX or Vanguard Inflation-Protected Secs Adm VAIPX, or a mix of the two.

If you want to do 70/30, it’s not too different:

Stocks (70%):

Vanguard Total Stock Mrk Index – Admiral VTSAX
Vanguard Total Intl Stock Index Admiral VTIAX

Bonds (30%):

Vanguard Total Bond Market Index Adm VBTLX
or
Vanguard Inflation-Protected Secs Adm VAIPX

If you want to go even-steven, you’ll do 35/35/30. Or if you want a slight US tilt, you can go 45/25/30 or something like that.

If you want to go 100% Stocks then do this:

Stocks (100%):

Vanguard Total Stock Mrk Index – Admiral VTSAX
Vanguard Total Intl Stock Index Admiral VTIAX

You can go even-steven 50/50 or you can tilt US and go 60/40 or 70/30 or whatever you like.

***Only consider going 100% stocks if you are comfortable with rebalancing later. Leaving this at 100% for most of your career, or forgetting it until retirement might hurt you.

Why go through the hassle of choosing those Vanguard funds and rebalancing myself every year?

Well, the Vanguard funds above have ridiculously low expense ratios:

Stocks:

Vanguard Total Stock Mrk Index – Admiral VTSAX is 0.04%
Vanguard Total Intl Stock Index Admiral VTIAX is 0.11%

Bonds/TIPs:

Vanguard Total Bond Market Index Adm VBTLX is 0.05%
Vanguard Inflation-Protected Secs Adm VAIPX is 0.10%

All of those ratios are significantly lower than the 0.76% of the T. Rowe Price Target Funds. However, it requires you to rebalance the funds yourself, preferably on the yearly basis. For some of you, you just want to “set it and forget it”. For this reason, I have provided both.

Ideally, I would prefer that none of you need to use a Target Fund and try to follow a lazy portfolio in order to keep expense ratios down, so every cent of your money goes toward compound interest. However, some of you may have difficulty approximating a portfolio with the fund offerings you’re given. As such, utilizing a Target Fund is a reasonable alternative.

Wait.. what about all the other fund options?

Right? There was a ton of options, but we only used a few of them. That’s because the other options aren’t necessary for the simplistic options I’ve given you. For those who are interested in learning more, please go through the Finance Fridays Roadmap. In particular, I’d recommend reading Talking the Talk and The Philosophy. If you want to understand what Small Cap, Large Cap, etc mean, then read this post, The Coffeehouse Portfolio. Then if you want to try to approximate your own portfolio using your fund options, read this post, Approximating a Portfolio.

I will do a more detailed review of the other fund offerings next week. Also, you have the option to use TIPS and REITs if you  want.

-Sensei

Agree? Disagree? Questions, Comments and Suggestions are welcome.

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