Okay, I’m not betting the ranch; you need only read my posts about paying off the mortgage to know that. Nor am I desperate other than for readers, so if this catchy title got you here, subscribe to my blog and spread the word! Now down to business.
Over the last couple of years I focused on paying off our mortgage. While I still invested in the equities during that time and contributed to my 401k, I was not maxing out my 401k. With the mortgage out of the way, now, I am maxing out my 401k. I invest in Vanguard Target Retirement 2045 Fund (VTIVX).* Here’s a description:
Vanguard Target Retirement Funds offer a diversified portfolio within a single fund that adjusts its underlying asset mix over time. The funds provide broad diversification while incrementally decreasing exposure to stocks and increasing exposure to bonds as each fund’s target retirement date approaches. The funds continue to adjust for approximately seven years after that date until their allocations match that of the Target Retirement Income Fund. Investors in the funds should be able to tolerate the risks that come from the volatility of the stock and bond markets. You may wish to consider this fund if you’re planning to retire between 2043 and 2047.
| VTIVX Allocation | ||
|---|---|---|
| Vanguard Total Stock Market Index Fund Investor Shares | 53.10% | |
| Vanguard Total International Stock Index Fund Investor Shares | 35.50% | |
| Vanguard Total Bond Market II Index Fund Investor Shares** | 7.90% | |
| Vanguard Total International Bond Index Fund Investor Shares 1 | 3.40% | |
| Vanguard Total International Bond II Index Fund | 0.10% | |
| 100.00% |
I like the diversification of VTIVX between stocks and bonds, foreign and domestic. I especially appreciate the exposure to foreign investments because they are particularly difficult for the individual investor to navigate. Further, I like that the fund adjusts the allocation gradually toward the target retirement date to reduce risk. Finally, I like the general idea of a target date; it takes an obscure notion of being able to retire someday and slaps a concrete timeframe on it.
As to 401ks, generally, I like the company match, tax-free growth, and lowering gross income. For 2022, employees under 50 can contribute up to $20,500 and those 50 and over can add $6,500 to that. That’s a nice chunk of change to shield from current income tax.
Further I like the automation of 401ks. Twice a month money from my paycheck goes into my investments like clockwork. That allows me to dollar-cost average over time. Also the automation keeps me from doing something stupid with the money. The money is gone before I can get to it.
Speaking of protecting myself from my own stupidity, once the money is in the 401k it is hard to get it out. Per regulations and plan rules, 401k funds are difficult and/or expensive to access prior to age 59.5. Even after age 59.5, withdrawal options can be limited and costly if I one is still working for the same employer. The blessing of these restrictions is that they help to keep the funds invested instead of slipping through one’s fingers.
Finally, beyond 401k funds being protected from myself, they are protected from others. 401ks fall under the Employee Retirement Income Security Act (ERISA) and thus generally are protected from seizure by creditors. And unlike Arizona’s homestead exemption, there is no limit on the amount of wealth that is protected in a 401k.
In many ways, utilizing a 401k is an exercise in surrender: surrender to third party investment management, surrender to automation, and surrender of access to funds. If Michael Singer ever writes a book about investing, maybe he’d advocate for the 401k approach. I find wisdom in surrender.
I also find wisdom and joy in not surrendering. Accordingly, I maintain several brokerage accounts that are managed by me, not automated, and accessible to varying degrees. Lately in those accounts, I have been accumulating shares and long dated call options in Intel. Intel is a great American company that is in the nascent stages of a multi-year turnaround led by an amazing man named Pat Gelsinger. Myopic analysts are punishing the stock and thus creating opportunity for those of us who patiently are taking a bigger picture, longer term view. That, though, is a story for another post…..
With Love,
P. Gustav Mueller, author of The Present.
*Within my 401k, I also maintain a small reserve in a Vanguard Stable Value Fund. This reserve lies in wait for the next black swan event and will be deployed at a time of maximum fear.
Relevant Links:
Vanguard Target Retirement 2045 Fund (VTIVX)
Employee Retirement Income Security Act (ERISA)
Got Home Equity? Is it Protected?
Michael Singer, author of The Untethered Soul and The Surrender Experiment