401(k) expense/management fee help

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401(k) expense/management fee help

Postby allie » Sun Jan 27, 2013 5:46 pm

Just starting to look at the expenses/mgmt fees within my 401(k).

I have three International fund options

FDIVX - Fidelity Diversifed International: expenses 1.01%, mgmt fee .76%
LZWMZ - Lazard Emerging Markets Equity fund class institutional: expenses 1.12%, mgmt fee 1%
TDEIX - Transamerica Diversified Equity Fund Class: exp 1.17%, mgmt fee .72%

About 25% of my 401(k) is in international funds - 21.4% in FDIVX and 3.94% in LZWMZ. FDIVX is the single largest fund in my 401(k). None of the other funds my 401(k) is in has expenses over 1%.

Should I be looking to move out of these funds to things with lower fees? Without other international fund options, what type of similiar risk asset class should I look at moving those $$ to?

I have a very small % of money in PRSVX - T Rowe Price Small Cap - which has .97% in expenses/.65% mgmt fee. That is the next highest expense/mgmt fee fund that I have. I think that should be moved also, right?
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Re: 401(k) expense/management fee help

Postby damjam » Sun Jan 27, 2013 6:26 pm

Your 401k's expenses are high.
Depending on your income and if you are not already contributing, you should consider investing some of your funds in a traditional IRA or a ROTH IRA instead of the 401k. This decision also depends on employer match limits.

Perhaps you could list the fund choices you have in your 401k. Also list if you have other accounts to work with.
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Re: 401(k) expense/management fee help

Postby hoppy08520 » Sun Jan 27, 2013 8:30 pm

Allie, I think those expense ratios are typical for international funds in many 401(k) plans; most 401(k) plans have higher fees in international funds, and lower fees in bond funds, and still lower fees for US stock funds. The first thing I'll say, though, is to make sure you've got the right number. Is there a column for "net expense ratio"? If so, that's probably what you're actually paying for the fund expenses. Although you might also pay other participant fees in the form of an overall percentage of all your assets. It depends on each plan.

I agree with damjam, can you post your whole list and other pertinent info and we can give you more insightful advice.
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Re: 401(k) expense/management fee help

Postby allie » Mon Jan 28, 2013 9:25 am

Let's try this again.

Here's the list of available funds:

American Beacon Large Cap AAGPX 0.96% *
Fidelity Contrafund FCNTX 0.81% *
Spartan 500 Index - Fidelity Advantage Class FUSVS 0.05%

Artisan Mid Cap Value ARTQX 1.20%
Fidelity Low Priced Stock Fund FLPSX 0.88%
Neuberger Berman Mid Cap Growth Fund Institutional Class NBMLX 0.76% *
Spartan Extended Market Index Fund FSEVX 0.07% *

T Rowe Price Small Cap PRSVX 0.97% *

Fidelity Diversified International FDIVX 1.01% *
Lazard Emerging Markets Equity LZEMX 1.12% *
TransAmerica Diversified Equity Fund Class I TDEIX 1.17%

T Rowe Price International Bond RPIBX 0.83%
T Rowe Price Short Term Bond Fund PRWBX 0.53%
Vanguard Total Bond VBTSX 0.10% *

Vanguard Inflation Protected Securities Fund VAIPX 0.11%


The * are the ones that I'm currently in.
I double checked the expenses - all but 2 of the fund selections have the same gross/net expense ratios. Is that normal?

I am currently putting 15% into my 401(k) - I have a 3% match and a 3% profit sharing contribution, so a total of 21%. I have been using my 401(k) instead of a ROTH to decrease my tax liablity. I'm single, no dependents and no big tax deductions. 2012 was the first time in a few years that I'm able to make contributions to TIRA, which I'll be putting into my rollover IRA (Vanguard Target Retirement Fund 2035 VTTHX that has a .18% expense ratio)
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Re: 401(k) expense/management fee help

Postby Grt2bOutdoors » Mon Jan 28, 2013 9:30 am

Consider using your IRA account to invest in the Vanguard Total International Index and reallocate your 401k allocations to eliminate those high cost funds. Assume you can contribute the full 17,500 this year - if you allocated 4K or so to the IRA-International fund, you could approximate your 25% allocation and cut the fees you are paying overall.
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Re: 401(k) expense/management fee help

Postby Khanmots » Mon Jan 28, 2013 10:15 am

Your 401k does have some excellent low-cost choices for bonds and domestic stocks. It's lacking in low-cost international options, but that can be addressed by opening an IRA. Since you state that you're wanting to decrease current tax liability, you could go with a traditional deductable IRA and instead of investing $X into the 401k invest the $X into the tIRA.

Within the 401k I'd be looking at using:
Spartan 500 Index - FUSVS
Spartan Extended Market Index - FSEVX
Vanguard Total Bond - VBTSX
Vanguard Inflation Protected Securities - VAIPX

These are all really low cost and excellent index funds.

The Spartan 500 Index tracks the S&P 500, which is essentially all large cap.
The Spartan Extended Market Index is a compliment to the above, providing the total domestic stock market minus the S&P 500. i.e, it provides the few large caps that aren't in the S&P 500 and then all the mid and small caps as well. I think roughly a 4:1 or 5:1 ratio of S&P500 to the Extended Market will approximate market weight. You can include more or less of Extended Market to adjust your exposure to mid/small caps.

Hold Total Bond and/or Inflation Protected for your bond holdings

Then get your international exposure within your new tIRA. If you set it up at Vanguard then Vanguard Total International as suggested by Grt2bOutdoors is a good choice. I believe Fidelity also has a good international Spartan fund if you set it up with them instead.
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Re: 401(k) expense/management fee help

Postby Khanmots » Mon Jan 28, 2013 11:29 am

I could be wrong, but from looking at your current allocation it seems that you don't have a well defined investment plan. It would be a good idea to think about what percentage of stocks and bonds you want and then what breakdown between domestic and international.
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Re: 401(k) expense/management fee help

Postby allie » Mon Jan 28, 2013 11:34 am

Khanmots wrote:I could be wrong, but from looking at your current allocation it seems that you don't have a well defined investment plan. It would be a good idea to think about what percentage of stocks and bonds you want and then what breakdown between domestic and international.


I would agree, Khanmots. I used the guide at Fidelity to determine risk tolerance/asset class mix and then picked funds within those suggestions. My rollover IRA fund was chosen as a target fund because I didn't have the time (at the time I needed to make a decision) to do what I'm hoping to do this year - which is get all of this *stuff* in order and make wise decisions.
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Re: 401(k) expense/management fee help

Postby retiredjg » Mon Jan 28, 2013 12:24 pm

You've got an excellent plan, but no good international fund, so it should go somewhere else. Unfortunately, you are not using some of the good stuff

    Spartan 500 Index - Fidelity Advantage Class FUSVS 0.05%
    Spartan Extended Market Index Fund FSEVX 0.07%
    Vanguard Total Bond VBTSX 0.10%
    Vanguard Inflation Protected Securities Fund VAIPX 0.11%

See the link below for how to get help with setting this up right, now that you are not in a hurry.
Last edited by retiredjg on Tue Jan 29, 2013 12:35 pm, edited 1 time in total.
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Re: 401(k) expense/management fee help

Postby jjbiv » Tue Jan 29, 2013 10:16 am

You should consider asking your employer to add an indexed international fund (e.g. Fidelity Spartan International, ACWI ex-US, Vanguard Total International,etc.) to the plan's investment lineup, especially since they've shown a willingness to do so for the other asset classes in the plan already.
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Re: 401(k) expense/management fee help

Postby allie » Tue Jan 29, 2013 3:01 pm

Since I'm new to making good decisions with this....2 people suggested the same funds. How would I *know* that those would be good choices? I'm assuming it's not just from the low expense ratios. I'm just starting to learn about all this - I downloaded both Bogelhead books yesterday and am looking forward to reading and learning.
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Re: 401(k) expense/management fee help

Postby retiredjg » Tue Jan 29, 2013 3:28 pm

Not to be a smart answer....but you'll find out in the first book. :D
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Re: 401(k) expense/management fee help

Postby Khanmots » Tue Jan 29, 2013 3:31 pm

allie wrote:Since I'm new to making good decisions with this....2 people suggested the same funds. How would I *know* that those would be good choices? I'm assuming it's not just from the low expense ratios. I'm just starting to learn about all this - I downloaded both Bogelhead books yesterday and am looking forward to reading and learning.


Generally you want to look for:
Indexed to a well known index and does a good job at tracking the index.
Highly diversified (i.e., not an index that's a small slice of a small slice...)
Matches an asset class you want exposure to
Low cost - if two things closely track the same index, why would you pay for the more expensive one?

What to avoid:
Actively managed
Low diversity
High Cost

What to be careful with:
Non-indexed passive management - can be ok, can be bad... case by case basis. Generally only needed for somewhat esoteric asset classes.

Low ER and Index funds typical are highly correlated, although there are some amazingly expensive index funds out there, so always check the ER! (I know of a S&P500 index at around 2.5% ER! Around 50 times a low-cost one!) The Fidelity Spartan funds and Vanguard funds you had available are well known (at least around here :P) for being solid index funds that track nicely, are very broadly diversified, and do so at rock bottom prices. They also match asset classes that you're interested in. So... they're the recommended ones.
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Re: 401(k) expense/management fee help

Postby BL » Tue Jan 29, 2013 3:36 pm

allie wrote:Since I'm new to making good decisions with this....2 people suggested the same funds. How would I *know* that those would be good choices? I'm assuming it's not just from the low expense ratios. I'm just starting to learn about all this - I downloaded both Bogelhead books yesterday and am looking forward to reading and learning.



The Wiki here has some good information. Here is a site that also would pick out similar funds from your 401k:
http://www.bogleheads.org/wiki/Three-fund_portfolio
The threee fund portfolio has total stock, total international, total bond and their equivalent in other companies.
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Re: 401(k) expense/management fee help

Postby retiredjg » Tue Jan 29, 2013 3:54 pm

Here's a little more. Nobody knows ahead of time what investments will do well. If you can't predict the good ones, you might as well just own it all. That way, you'll always be holding the winners and you will always get the market return (minus expenses).

If you try to pick what will be a good investment, sometimes you'll be right. Sometimes you'll be wrong. Sometimes you'll beat the market. Sometimes the market will beat you. So why not just invest in the whole market and get the market return?
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Re: 401(k) expense/management fee help

Postby Khanmots » Tue Jan 29, 2013 4:05 pm

retiredjg wrote:Here's a little more. Nobody knows ahead of time what investments will do well. If you can't predict the good ones, you might as well just own it all. That way, you'll always be holding the winners and you will always get the market return (minus expenses).

If you try to pick what will be a good investment, sometimes you'll be right. Sometimes you'll be wrong. Sometimes you'll beat the market. Sometimes the market will beat you. So why not just invest in the whole market and get the market return?

To expand a little on what retiredjg is saying:

Index funds get the average return of the market minus their (low!) expenses.
The collection of all active managers, by definition, gets an average return of the market... minus their (high!) expenses.

If you could pick only good managers, then maybe their cost would be worth it. The problem is that you can't identify successful managers ahead of time... if they did good in the past it's no indication that they'll do good in the future, and even long winning streaks aren't indicative (get enough people flipping coins and *someone's* going to have it come up heads 20 times in a row). There's all sorts of studies on this if you're really interested, and some of them are discussed in the recommended reading.

So your choice is
1) Pick active managers with no way to tell if they're good or not so you're expectation is to get the market return minus high expenses (with some other uncompensated risk tossed in from small sample size of managers in your portfolio)
2) Pick broadly diversified indexed funds that essentially guarantee the market return (they invest in *everything*) minus their low expenses.

Well... I like paying less for the same expected returns ;)
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