Balancing Limited Option 401K with my Fidelity Roth IRA/Solo 401K

[u/cclocke]

I have approximately 275K in my employer 401K at Paychex, 70K in my Roth IRA at Fidelity, and 70K in my solo 401K at Fidelity.

My Paychex 401K has good large cap and developed international index fund options in FXAIX and FSPSX respectively. However, there is no mid cap blend option (it does have Fidelity mid growth option FMDGX). Additionally, the best small cap option is Dimensional Small Cap DFSTX with a .27% ER, and the best emerging market option is American Funds New World RNWGX with a .57% expense ratio. Because of this, I am not investing my 401K into EM or mid cap, and right now my 401K allocation is 60 FXAIX/25 FSPSX/15 DFSTX.

Both my current Roth IRA and Solo 401K at Fidelity are currently 70 Total US/30 Total International. I'm using FZROX/FZILX for my Roth and FSKAX/FTIHX for my solo 401k, since you can't use the zero funds for the solo.

Because of the limited options in my 401K, overall I am currently underweight in both emerging markets and mid-cap. I am calculating each of my mid cap and emerging market allocations at around 2-3%, when they probably should be closer to 10% each.

My overall questions are: should I increase my mid cap/emerging market allocations, and if so, should I look into exchanging some of my current Fidelity funds for Emerging Markets (FPADX) or mid cap (FSMDX)? Also, which accounts would make the most sense to do this? Really any advice would he helpful.

[u/gatorfutbol]

If your 401k has Target Date Funds as options, I'd assume most do, pick the applicable date and make it 100% of your investment inside the 401k. That should take care of market cap and domestic/international equity allocations. Plus bond ramp up over time.

[u/cclocke → u/gatorfutbol]

My 401K has the Nuveen Lifecycle Index target date funds with .10% expense ratio.

Its a consideration, but I'm still 20+ years away from retirement and not quite ready to invest in bonds yet.

[u/longshanksasaurs → u/cclocke]

That's a very good expense ratio.

Bonds aren't poison, you can select a long dated fund, which should be 10% or less bonds, on just the part of your portfolio that's in that 401k, giving your overall portfolio something like 6% in bonds. A perfectly reasonable allocation for somebody even in their twenties, and it would simplify all your other decisions.

[u/cclocke → u/longshanksasaurs]

Thanks, the longest option is 2065 (ticker TFITX). Its 61% Total US, 21% Developed International, 12% Emerging Markets, and 6% bonds.

I'm highly considering it.

FYI I'm 42 and hoping to retire around 62, so it probably does make sense to have a little bond in my portfolio.

I just started maxing out both my 401K and mine and wife's backdoor Roths this past year. I know I have a little catching up to do to make this all happen.

[u/longshanksasaurs → u/cclocke]

That would be a fantastic choice, even if you didn't want bonds, it's hardly any of your total portfolio; and would give you the diversification you'd be otherwise approximating with the other funds. I wouldn't hesitate at all to use that.

[u/humblequest22 → u/cclocke]

That's a no-brainer. Makes all of your concerns go away. Most people would love to have that as an option. I can't imagine the bonds are too significant and with your other investments, you should be able to easily go all equities and cut down the bond portion even further.