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Rollover to a Revamped Investment Strategy


Finally!  I finished rolling over my 401(k) to ETrade last week. It was a bit complicated because I had to fill out some paper work for the employer contribution portion of the 401(k). It’s done now and all the funds are in the IRA and Roth IRA at ETrade. I was undecided between ETrade and Vanguard, but in the end I went with ETrade and I’ll rollover to Vanguard in about a year or so. I choose ETrade because they offered me a $1,000 rollover bonus. This is currently higher than the $600 you can get from signing up through their website , so call ETrade if you are planning to do the same. This will also give me a chance to write about the experience of rolling over to Vanguard in early 2014.

Rolling over my 401(k) feels great because it gave me a clean slate. With Intel’s 401(k), I didn’t have full control over the funds. The employer contribution portion is restricted to investing in a private hedge fund. I had control only over the investment that I contributed. The portion I controlled was up about 10% this year and I think Intel’s private hedge fund was up around 5%. Now that the IRA is at ETrade, I can do anything I want. Yes, it’s a bit dangerous, but I also have a new (more conservative) investment strategy to try.

As you recall, I had a complementary financial planning session with Personal Capital and I learned quite a few things. They recommended the sector weighted investing strategy for my stock investment. I did some research and found that the equal sector weighting strategy is less volatile than investing in the SP500 index. This is because some stable sectors such as material and utilities are grossly under-represented in the SP500. The SP500 is also over weighted toward technology and financial services which have been the most volatile sectors over the past 10 years.

Market Cap Diversification

market capitalization cap investing strategyMy previous strategy was to diversify through market capitalization. I used the classic Morningstar Style box as a guide and started with VFINX (Vanguard SP500 fund.) Then I back filled with FLPSX (mid cap), PENNX (small cap), DODFX (foreign developed), and VWO (emerging markets.) This gave me diversification through mid cap, small cap, and international equities.

Here is my old investment target.

  • Large cap: 35%
  • Mid Cap: 5%
  • Small Cap: 10%
  • Foreign Developed: 15%
  • Emerging Market: 15%
  • Bond: 10%
  • Cash and others: 10%

This wasn’t bad, but I would like to reduce volatilities now that I’m not adding to my retirement portfolio anymore. At some point I would like to start contributing again, but right now it doesn’t make sense with the level of money I’m making.

Updated Investment Strategy

Michelle, the financial planner at Personal Capital, went over our total portfolio (free) and came up with a personalized plan for us.

rollover  revamp investment strategy

This is similar to my original allocation. The biggest difference is the reduced emerging market exposure (see next picture.) They suggested alternative investments instead and I think this is a good idea and should further reduce volatility in our overall portfolio.

rollover investment strategy

The biggest piece of the puzzle here is the domestic equities. It is a major portion of the pie and this is where the equal sector weighting strategy comes in. I’m going to use Vanguard sector specific ETFs for this purpose. This is where having an IRA at Vanguard would be advantageous. If I’m with Vanguard, I wouldn’t have to pay the transaction fee when I rebalance. However, ETrade gave me 90 days of free trades so I’ll get everything set up and mostly leave it alone until I transfer to Vanguard in 2014. Anyway, the majority of the portfolio will be in the sector specific ETFs. I’ll also put a portion in VB and VWO to get small cap and foreign market exposure. Fixed income looks expensive to me right now so I’m going to put that allocation into VPU (utilities) for now until I feel it’s a good time to move it over.

Morningstar XRay

I plugged in my target holdings into Morningstar XRay and here is the result.

equal sector weighted investment strategy

You can see that the different sectors are much more equally weighted than if I just invested in VFINX (SP500.) I’ll do an update every quarter to see how this portfolio compares to VFINX and RSP. RSP is an index fund with equal weighting strategy, but the expense ratio is twice that of the Vanguard ETFs – 0.4%. If you are interested in the Holdings Detail, you can click here to see it. We don’t have any Foreign Developed holdings in this portfolio. I’ll back fill them in Mrs. RB40’s IRA.

Fees & Expenses

I’ll pay 0.19% mutual fund expense ratio to Vanguard for this portfolio. This will cost about $700, which is much better than the $1754.91 that I was paying previously (My Overdue Portfolio Checkup.) That’s $1,000 in my pocket per year instead of Fidelity’s and Royce’s. I’ll probably have to pay the transaction fee to convert the portfolio to cash when I rollover to Vanguard in 2014. That will probably cost around $100.

Whew, that was a long post. I hope it was useful and/or entertaining for some of you. (Mrs. RB40, our chief editor, fell asleep a few times before getting here.) My current target is less volatility while keeping the long term gain by staying invested in the stock market. We’ll see how this strategy pans out in the next few years. Please share any advice or criticism; I would love to hear them.

Sign up with Personal Capital through this link.


Disclosure: I am not a financial advisor and I don’t even play one on TV. I’m just a regular Joe investor who consistently added to our stock market investments over the years. You should consult a professional before making a big financial move like this.

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Joe started Retire by 40 in 2010 to figure out how to retire early. He spent 16 years working in computer design and enjoyed the technical work immensely. However, the job became too stressful and Joe retired from his engineering career to become a stay-at-home dad/blogger at 38. Today, he blogs about financial independence, early retirement, investing, and living a frugal lifestyle.

Passive income is the key to early retirement. This year, Joe is increasing his investment in real estate with CrowdStreet. He can invest in projects across the U.S. and diversify his real estate portfolio. There are many interesting projects available so sign up and check them out.

Joe also highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help DIY investors analyze their portfolio and plan for retirement.

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{ 25 comments… add one }
  • Frank June 21, 2014, 6:10 am

    One issue in rolling over your 401k to an IRA is that you lose ERISA protection and may be exposed to liability claims on your IRAs. IRAs are protected by state law rather than federal so your protection varies based on your state

  • Rachel June 21, 2014, 5:53 am

    Can you suggest some basic websites or reading materials to START to learn about retirement accounts? Retirement accounts for Dummies foe example.I am finding all the information overwhelming and feel I need to start with the basics. I am over 40 and would like to retire ASAP.
    Thanks. Rachel

    • retirebyforty June 22, 2014, 5:05 pm

      This basic guide from CNN money is pretty good.
      It can be a bit overwhelming to jump in. I’d start with a 401k account if that’s available from work. If that’s not available, then start with a Roth IRA. You can call Vanguard to open an account and they should help you get started.
      Here is an article I wrote for people just starting out – https://retireby40.org/start-investing-early/
      Good luck!

      • Crystal Lockridge November 2, 2014, 6:32 am

        Thanks for the information. I too am very new to investing and excited about reading your article.

  • Gary Z June 17, 2014, 9:17 am

    The 1% cash seems too light. I like the 10% cash you you previous kept to further minimize volatility and to take advantage of the occasional recessionary market slides.

  • Dalton Taylor May 23, 2013, 9:32 am

    All good information but I have decisions to make quite soon as I will retire in Jan 2014. My plan at present is to roll over to a Vanguard IRA, buy Vanguard Wellington Fund, Vanguard Strategy Moderate Growth Fund and an as yet to be determined fund. I will use Vanguard’s vehicle of putting 12 months of money in their Money Market Fund and withdraw each month. If it works well I will rebalance continue next year. Your thoughts?

    • retirebyforty May 23, 2013, 11:37 pm

      You should try the Personal Capital folks. They will run your info through their program and at least you’ll see what the industry would like you to do. Your plan sounds good to me, but I’m an aggressive investor. Most financial advisors probably would suggest more bonds assuming your are in your mid 60s. I think Vanguard’s financial advisors can also help you figure out your asset allocation and strategy.

  • 101 Centavos December 4, 2012, 3:26 am

    Props to your tireless editor. A good mix of investments. What are the core holdings of your foreign income?

    • retirebyforty December 4, 2012, 10:04 pm

      It will be Vanguard ETF. I haven’t parse out the bonds portion quite yet.

  • Aram Durphy December 3, 2012, 9:12 am

    I’m glad to see your focus on ETFs. Mutual fund fees (both stated and hidden) can be such a drain on a retirement portfolio’s rate of return. With compound interest, just 1 percentage point can make significant difference in the eventual size of the portfolio.

  • Wayne @ Young Family Finance November 30, 2012, 6:42 pm

    You have more guts than I. I just can’t manage that level of risk. Of course, my precarious financial position may have something to do with it. Maybe someday when the student loans are paid off and I have some breathing room I will feel more adventurous, and thanks to you I will know where to go. Let us know how it works out for you!

  • The Passive Income Earner November 29, 2012, 1:09 pm

    I like how you approach it from a couple of different angles as it really can highlight inefficiencies. It’s also nice to see the tools you use for understanding what’s in your mutual funds. I am mostly in stock so I know what I buy.

    • retirebyforty November 29, 2012, 3:50 pm

      I’m going to put most of our retirement funds into ETFs. I’ll use my after tax account for dividend stocks. This is so I can take dividend if I need. I would like our retirement funds to be more stable.

  • Paul @ The Frugal Toad November 28, 2012, 6:47 pm

    Agree with KC! Volatility is not an issue for me as I have roughly 10 years before I retire. Keep in mind that the market recovered all of the lost equity just 2 years after the crash of 2008. Dollar cost average so your average cost per share will be lower and rebalance your portfolio at least each quarter to reduce your over-exposure to certain asset classes.

    • retirebyforty November 29, 2012, 3:47 pm

      The market did recovered, but my portfolio would have done much better if I had say 25% in bonds. Asset allocation and rebalancing is the key.
      I won’t be able to dollar cost average in as much because I’m not working full time anymore.

  • krantcents November 28, 2012, 2:34 pm

    The most imortant element of investing long term is time. Time cures all the ills such as mistakes in asset allocation or bad choices. Keeping your expenses low is importantt too. I am less concerned about volatility than steady growth. Every year I check my investment return to see if it matches the various indeces.

    • retirebyforty November 29, 2012, 3:45 pm

      I used to not care about volatility much either, but now I think it’s a mistake. I should have invested in more bonds in the past. Higher volatility will increase risk and decrease returns according to investopedia. Not sure if this is really correct or not though.

  • RichUncle EL November 28, 2012, 11:39 am

    Thanks for this post I enjoy reading about what other moves people are making. I will give Morningstar x ray a shot as I have never heard of that service. It’s nice to save a thousand dollars a year on your investments.

    • retirebyforty November 29, 2012, 3:38 pm

      Morningstar Xray is pretty cool. I like it a lot and the free version is quite good already.

  • Steve November 28, 2012, 10:24 am

    You realize it’s possible to calculate a rough balance of your 401(k) based on the expense ration and total yearly expense?

    • retirebyforty November 29, 2012, 3:38 pm

      Yes, it’s pretty simple. You can also add it all the investments up in the morningstar portfolio I linked to. I decided to be more transparent on my IRAs.

    • David @ VapeHabitat August 15, 2018, 9:19 am

      Can you share your experience in calculating it?

  • SavvyFinancialLatina November 28, 2012, 7:27 am

    I always like your posts because they are very informational! For example, I never would have realized the importance of expense fees. I actually asked one of my coworkers if he had looked at the expense fees in our company retirement funds and he said no, because he doesn’t think he has enough money in the account to matter. Plus, he also said he’s paying JP Morgan, our retirement owner, to manage his portfolio. Sigh….We only have like 10-15 funds to choose. It astonished me.

    • retirebyforty November 28, 2012, 8:47 am

      Thank you! It’s difficult to make informational posts readable to regular investors. Mrs. RB40 really did fall asleep a couple of time editing this. 🙂

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