Do you complicate your portfolio to lower expense ratios?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.

Do you complicate your portfolio to lower ER?

Yes
26
45%
No
28
48%
Depends (see comment)
4
7%
 
Total votes : 58

Do you complicate your portfolio to lower expense ratios?

Postby C4NT » Wed Jan 30, 2013 12:40 pm

I know I may have to post specific portfolio information for better advice, but I just wanted to get a rough consensus on whether to think about changing my wife's portfolio.

Here is the breakdown:

She just switched jobs, so the majority (~99%) of her portfolio just got rolled over to Vanguard in both a ROTH and IRA. Her new place of employment has a generous match of 125% of the first 6% - which we are going to take advantage. Her AA is essentially age in bonds with 3% REIT replacing some bonds. We like lazy portfolios, so her funds are all in just four funds: Total Stock - VTSAX, Total International - VTMGX, Total Bond - VBTLX, and REIT Index - VGSLX.

The 401k is through Charles Schwaab and has a very limited number of choices (unless you pay $100 annually for wider selection - which we won't do until account grows large enough to make sense). She is currently putting her contributions into a target fund which has an ER of 0.45% (not bad, but not great). There are couple of funds with lower ERs (0.15-0.30), but they are more specific, i.e., large cap/small cap type of funds.

So my question is...Would you switch 401k funds and complicate her Vanguard holdings to keep AA in line with IPS to chase lower ERs? Do you do this type of thing in your portfolio? (for poll)

I am leaning on no, just stick with target fund mainly because I am lazy. However, if it is worth it I will put in the work (I'm not that lazy).

Thanks.
Last edited by C4NT on Wed Jan 30, 2013 12:53 pm, edited 1 time in total.
User avatar
C4NT
 
Posts: 66
Joined: 23 Aug 2011

Re: Do you complicate your portfolio to lower expense ratios

Postby retiredjg » Wed Jan 30, 2013 12:53 pm

Are you asking if she should use a target fund in her 401k (at .4%) instead of the 4 Vanguard funds listed?
retiredjg
 
Posts: 17126
Joined: 10 Jan 2008

Re: Do you complicate your portfolio to lower expense ratios

Postby C4NT » Wed Jan 30, 2013 1:01 pm

retiredjg wrote:Are you asking if she should use a target fund in her 401k (at .4%) instead of the 4 Vanguard funds listed?


No, the four vanguard funds are in her IRA. Her 401k does not offer these funds, but does offer lower ER funds (but more specific) than the target fund. So, I could choose a large cap fund with a lower ER, but that would necessitate the changing of funds in her Vangaurd account (IRA) to meet AA demands and to accommodate the large cap stocks.

Hope that clears that up.
User avatar
C4NT
 
Posts: 66
Joined: 23 Aug 2011

Re: Do you complicate your portfolio to lower expense ratios

Postby livesoft » Wed Jan 30, 2013 1:10 pm

I suppose that she will have a small percentage of the total family portfolio in her brand new (to her) 401(k) account because she is just starting to contribute to it. In this case, I would recommend just keeping that account simple and use only one fund. It doesn't matter whether it is a target retirement or balanced or lifecycle fund or a single asset class fund such as S&P500 index.

So I see that you all can probably not complicate things and have lower expense ratios if you want. When her 401(k) account has a larger value, then revisit the question.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
livesoft
 
Posts: 32446
Joined: 1 Mar 2007

Re: Do you complicate your portfolio to lower expense ratios

Postby retiredjg » Wed Jan 30, 2013 1:34 pm

It depends on things not shown.

    -If the difference in ER is big - yes I'd "complicate" and avoid the target fund. This is frequently the case if the target fund is the Fidelity Freedom Fund series. But notice that this might mean less complexity somewhere else.

    -If the difference in the ER is not big, I might use the target retirement type fund, but it depends on what the whole picture looks like.

    -If there is a taxable account (set aside for retirement), I probably would not use a target type fund in the 401k.
retiredjg
 
Posts: 17126
Joined: 10 Jan 2008

Re: Do you complicate your portfolio to lower expense ratios

Postby C4NT » Thu Jan 31, 2013 3:31 pm

Thanks to all for comments and votes.

As livvesoft and retiredjg pointed out it does depend on the size of the funds as well as the difference in ERs. Right now I we are going to stick with the target fund with the 0.45 % ER. Once the account grows we will put in the work to think about where else we could contribute to minimize ER.
User avatar
C4NT
 
Posts: 66
Joined: 23 Aug 2011

Re: Do you complicate your portfolio to lower expense ratios

Postby Sunny Sarkar » Thu Jan 31, 2013 4:14 pm

Do you complicate your portfolio to lower expense ratios?

Yes. Almost all my retirement assets are in tax-sheltered retirement accounts, and instead of simply owning a Life Strategy or TRF fund, I own the components in order to get the admiral shares. It don't bother me though - since the laws make me have more accounts than I have funds.
“Our life is frittered away by detail. Simplify, simplify.” ― Henry David Thoreau
User avatar
Sunny Sarkar
 
Posts: 2231
Joined: 2 Mar 2007
Location: Flower Mound, TX

Re: Do you complicate your portfolio to lower expense ratios

Postby archbish99 » Thu Jan 31, 2013 4:34 pm

Particularly when the 401k is a relatively small portion of your portfolio, just pick whatever's really low in the 401k and build around it in the other accounts. Likely, this looks like putting the 401k entirely in a really cheap S&P500 fund and putting a corresponding amount of Extended Market in the IRA. These two together are equivalent to TSM.

In my 401k, I hold VIIIX (S&P 500, 0.02% ER) plus VXF as an ETF, since the composite ER is less than VTI. You could probably do the same, except that you'll hold the Extended Market in a different account.
I'm not a financial advisor, I just play one on the Internet.
User avatar
archbish99
 
Posts: 1258
Joined: 10 Jun 2011

Re: Do you complicate your portfolio to lower expense ratios

Postby bottlecap » Thu Jan 31, 2013 4:47 pm

I do, but might not if it would complicate things too much.

JT
User avatar
bottlecap
 
Posts: 3218
Joined: 7 Mar 2007
Location: Tennessee

Re: Do you complicate your portfolio to lower expense ratios

Postby Default User BR » Fri Feb 01, 2013 2:13 am

I'll complicate it for almost any reason. I think complexity is the least important factor. I will only consider that if everything else is equal. I increased complexity to get brokerage bonuses. In this day, with the tools at our disposal, the complexity matters very little. A good aggregating spreadsheet takes care of things.


Brian
Default User BR
 
Posts: 7503
Joined: 17 Dec 2007

Re: Do you complicate your portfolio to lower expense ratios

Postby JW Nearly Retired » Fri Feb 01, 2013 10:09 am

So my question is...Would you switch 401k funds and complicate her Vanguard holdings to keep AA in line with IPS to chase lower ERs? Do you do this type of thing in your portfolio? (for poll)

A 0.10% ER versus a 0.45% ER is certainly worth a little complexity once you have a fairly sizable 401k. It would save you $700/yr on $200k. When the 401k is a small one then the contributions are dominating it's growth so the ER doesn't have much effect. You could choose the simplest approach for the time being.

On the other hand, no time like the present to start paying attention to low cost investing details. 401k choices seem to have massive inertia for many investors. She may keep this same target fund until she retires.
JW
Retired Summer 2013
JW Nearly Retired
 
Posts: 3829
Joined: 16 Dec 2007

Re: Do you complicate your portfolio to lower expense ratios

Postby dickenjb » Fri Feb 01, 2013 10:36 am

If she has a cheap S&P 500 fund at 0.1% ER I would buy that in the 401(k) and treat it as equivalent to VTSAX. When balance gets large, might balance with "completer index" at Vanguard.

I answered yes to the poll.

As others have pointed out, not really important until 401(k) balance is large but why not set it up right from the beginning?
Philly Chapter Coordinator
dickenjb
 
Posts: 2557
Joined: 5 Jan 2010
Location: Philadelphia PA

Re: Do you complicate your portfolio to lower expense ratios

Postby bertilak » Fri Feb 01, 2013 10:57 am

I did just the opposite -- accepted a slightly higher ER to simplify the portfolio. Thinking ahead to make things manageable by beneficiary.
No-one really listens to anyone else, and if you try it sometime you will see why. | -- Mignon McLaughlin
User avatar
bertilak
 
Posts: 3090
Joined: 2 Aug 2011
Location: East of the Pecos, West of the Mississippi

Re: Do you complicate your portfolio to lower expense ratios

Postby dbr » Fri Feb 01, 2013 10:59 am

Historically I have simplified my portfolio to get lower costs.

A somewhat ironic example is going to the brokerage link in the 401K (complication? -- not really) to buy a simple portfolio of Vanguard funds.
dbr
 
Posts: 13821
Joined: 4 Mar 2007

Re: Do you complicate your portfolio to lower expense ratios

Postby dianna » Fri Feb 01, 2013 11:13 pm

I've thought a lot about your question over the past 2 days. Our portfolio is much more simple and elegant than it used to be. I haven't complicated it based on ER's, but I do believe it is complicated (perhaps more than it needs to be, perhaps not) to try to make the holdings in the most ideal "space" (Tradition vs Roth vs Taxable), and this was done because we don't have enough space in any one of those buckets to complete our AA.

As I reviewed the portfolio today (for EOM January totals), I found myself looking for ways to streamline. Thank you for your question, as it has a (hopefully) positive influence for us.
User avatar
dianna
 
Posts: 178
Joined: 4 May 2011

Re: Do you complicate your portfolio to lower expense ratios

Postby Default User BR » Sat Feb 02, 2013 12:52 pm

dianna wrote:I've thought a lot about your question over the past 2 days. Our portfolio is much more simple and elegant than it used to be. I haven't complicated it based on ER's, but I do believe it is complicated (perhaps more than it needs to be, perhaps not) to try to make the holdings in the most ideal "space" (Tradition vs Roth vs Taxable), and this was done because we don't have enough space in any one of those buckets to complete our AA.

Are finding it difficult to analyze or manage your holdings? If so, then you are probably not using the right tools. If not, then why would you care about the complexity?


Brian
Default User BR
 
Posts: 7503
Joined: 17 Dec 2007

Re: Do you complicate your portfolio to lower expense ratios

Postby Aptenodytes » Sat Feb 02, 2013 2:46 pm

Normally the opposite holds.. The range of available funds shrinks as you constrain ERs, so lowering ERs usually goes hand in hand with simplification.
User avatar
Aptenodytes
 
Posts: 1992
Joined: 8 Feb 2011

Re: Do you complicate your portfolio to lower expense ratios

Postby dianna » Sat Feb 02, 2013 4:10 pm

Default User BR wrote:
dianna wrote:I've thought a lot about your question over the past 2 days. Our portfolio is much more simple and elegant than it used to be. I haven't complicated it based on ER's, but I do believe it is complicated (perhaps more than it needs to be, perhaps not) to try to make the holdings in the most ideal "space" (Tradition vs Roth vs Taxable), and this was done because we don't have enough space in any one of those buckets to complete our AA.

Are finding it difficult to analyze or manage your holdings? If so, then you are probably not using the right tools. If not, then why would you care about the complexity?


Brian


Good question. I haven't found it too difficult to analyze or manage holdings (thanks in large part to xcel; if you have a better tool to recommend, I'm open!), but I'm also the one who monitors and maintains the AA across the different accounts (T-IRA, Roth IRA, T-401k, R-401k, taxable, etc not to mention the AA for the 529, Coverdell, Health Savings Account, etc). Perhaps I'm overthinking it, trying to make it ideal instead of just "very good."
User avatar
dianna
 
Posts: 178
Joined: 4 May 2011

Re: Do you complicate your portfolio to lower expense ratios

Postby nisiprius » Sun Feb 03, 2013 11:58 am

Well, gee. It depends. How much complication and how much of a difference in expenses? No, I'm not an absolutist. And I do put a fairly heavy weight on simplicity.

When I had an account at Fidelity and needed a TIPS fund, even though I dislike what I perceive as the complications of ETFs, I was willing to invest in the iShares TIP ETF instead of FIdelity's FINPX, because of the difference in expense ratio (and the $75 transaction fee to purchase Vanguard mutual funds in a Fidelity account).

I think I got a sort of lesson in perspective. Back when the minimum for Admiral shares was $100,000, I realized that I had over $40,000 in VBMFX and over $60,000 in VTSMX, and that the Vanguard Balanced Index Fund is just 40% Total Bond and 60% Total Stock. So, I exchanged them for Admiral shares of Balanced Index (VBIAX), complicating things slightly. I was congratulating myself on saving over $100 a year in expenses, and mentally deciding what to spend it on, when 2008-2009 hit and the fund lost about $30,000. Now, sure, the savings were still there, and some would say "the extra complication was totally worth it in order to lose $30,000 instead of $30,100." I am not one of those people.

Complexity is not cost-free. The chances of "losing the picture," overlooking things, and generally getting confused and making mistakes increases with complexity. And anyone who's had to take on the sad task of locating the assets of a deceased person knows that there is, absolutely, a real danger of the heir not finding everything.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
User avatar
nisiprius
Advisory Board
 
Posts: 24780
Joined: 26 Jul 2007
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry


Return to Investing - Help with Personal Investments

Who is online

Users browsing this forum: Dave55, Exabot [Bot], Google [Bot], springnr, zoombrowser and 56 guests