Fund choices for 457(b)

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Fund choices for 457(b)

Postby Countermoon » Wed Feb 13, 2013 11:31 pm

Hi all,

I'm a 24 year old government employee, fairly new to the workforce. I've decided to sign up for the state 457(b) and have some very basic questions on the fund choices. First, I'd like to keep it simple; index funds and some bonds. At this age, I feel comfortable doing an 85/15 AA, but suggestions to the contrary are very welcome.

Here are the best choices I have in my plan:

Vanguard Total Bond Market Index (VBMPX)
Vanguard Institutional Index (VIIIX)
Vanguard Mid Cap Index (VMCIX)
Vanguard Small Cap Index (VSCIX)

Any recommendations? Again, risk tolerance is high. There are also target date funds available (T. Rowe Price) but I've read a lot of dissenting opinion on the value of those funds.

Thanks in advance.
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Re: Fund choices for 457(b)

Postby Johm221122 » Thu Feb 14, 2013 12:53 am

A few questions
Do you have emergency fund or high debt?
Do you want international?
But if you don't want international
Total bond 15%
Vanguard institutional (vinix?)70%
Vanguard small cap index? 15%
John
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Re: Fund choices for 457(b)

Postby Keep It Simple » Thu Feb 14, 2013 7:41 am

I would suggest 85% Stock at your age split between 70% Institutional Index and 30% International index if it is offered at a reasonable cost in your plan. Then 15% Total Bond Market and you are done.

Good luck!

K.I.S.
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Re: Fund choices for 457(b)

Postby Countermoon » Thu Feb 14, 2013 10:12 am

Johm221122 wrote:A few questions
Do you have emergency fund or high debt?
Do you want international?
But if you don't want international
Total bond 15%
Vanguard institutional (vinix?)70%
Vanguard small cap index? 15%
John


I have $5K credit card debt (interest-free due to a balance transfer) that is being paid down rapidly thanks to a higher salary at a new job. Emergency fund is low, $1.5K, but I'm socking away each paycheck.

I would like international but the fund choices don't look good. See here: https://www.nysdcp.com/tcm/nysdcp/stati ... ptions.pdf

There aren't even ticker symbols for the int'l funds. I don't know their makeup, which makes me hesitant.
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Re: Fund choices for 457(b)

Postby Johm221122 » Thu Feb 14, 2013 11:13 am

I agree with being hesitant with a fund with no ticker.But I would use international index fund.
Total bond market 15%
Small cap index 12%
International index 18%
Vanguard institutional index 55%
John
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Re: Fund choices for 457(b)

Postby retiredjg » Thu Feb 14, 2013 12:52 pm

You have some excellent choices.

It is a bit confusing about what index the international fund follows (does it contain emerging markets?) so it is difficult to know whether you should add on some emerging markets or not. However, if you look at the index on page 2, it shows that the international index is listed under "Established Markets" which might imply what we usually call "developed markets".

Perhaps you can find out something from the website referenced on the cover of the document. Emerging markets is an important asset class, but you definitely don't want the one offered in your plan (the expense ratio is too high).

I'd suggest you either hold your international in an IRA/Roth IRA in the form of Vanguard's Total International Stock Index VGTSX, or use the International Index fund in the 457 and add on some emerging markets in an IRA/Roth IRA.

If this is not possible now, just use something like Johm's recommendation for now, but try to add on a complete international fund or an emerging markets fund sometime a few years from now. For the long run, you don't want to be missing the emerging markets, but it's really no big deal for the time being.
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Re: Fund choices for 457(b)

Postby Peter Foley » Thu Feb 14, 2013 2:16 pm

IMHO if you are just starting out your don't need to invest small amounts in a number of funds. I would start out the first year with Total bond at 15% and put the balance in institutional. Consider adding another fund in the second year - international? - and additional funds in the future. Once you have $10,000 to $20,000 invested you should start to pay closer attention to diversification beyond bonds and equities.
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Re: Fund choices for 457(b)

Postby Countermoon » Thu Feb 14, 2013 4:35 pm

Thanks folks. As several said, I'm not too concerned about where the money is going right this moment because the amounts are so small. But I'm trying to learn so that I can adjust allocation when the time comes.

Thanks for your help.
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Re: Fund choices for 457(b)

Postby Duckie » Thu Feb 14, 2013 9:42 pm

Countermoon, the International Equity Fund - Index Portfolio (0.20%) is a developed markets fund. I recommend skipping the international fund in the 457 plan and buying (VGTSX) Vanguard Total International Stock Index Fund Investor Shares (0.22%) in a Roth IRA. It has developed markets, emerging markets, small-caps, and Canada. Virtually everything.
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Re: Fund choices for 457(b)

Postby Countermoon » Thu Feb 14, 2013 11:16 pm

Thanks for the suggestion. In that case, I think I'll go with the VIIX and when I open a Roth IRA (won't be before this April's deadline, unfortunately...but definitely by next year) I'll go with VGTSX.

For bonds, VBMPX is a good choice?

And finally, it makes sense to stick with Roth in my situation, right? As I said I'm 24, gross income is $45K/year. I really don't expect to be in a lower tax bracket at retirement. Seems like the logical choice for both IRA and 457.
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Re: Fund choices for 457(b)

Postby Johm221122 » Fri Feb 15, 2013 2:00 am

Here is Wiki link Roth vs traditional
http://www.bogleheads.org/wiki/Traditional_versus_Roth
You can also search forum there are lots of posts
You did not mention if your married or kids.If you are check out savers credit
viewtopic.php?f=2&t=88879
If your able to get this you may want traditional
John
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Re: Fund choices for 457(b)

Postby retiredjg » Fri Feb 15, 2013 9:30 am

Countermoon wrote:For bonds, VBMPX is a good choice?

Yes.


And finally, it makes sense to stick with Roth in my situation, right? As I said I'm 24, gross income is $45K/year. I really don't expect to be in a lower tax bracket at retirement. Seems like the logical choice for both IRA and 457.

What usually makes sense is to use traditional 457 and Roth IRA. There are some exceptions. If you expect to have a pension in retirement, you might choose to use some or maybe all Roth 457. Or if you are just starting a high paying career and expect big increases in your tax bracket in the future, you might want to use Roth 457 because now could be your best opportunity to get something into Roth status.

http://thefinancebuff.com/case-against-roth-401k.html

http://thefinancebuff.com/most-tsp-part ... h-tsp.html

Otherwise, consider traditional 457 and Roth IRA combined. Or some combination of traditional and Roth 457 if you don't make enough to completely fill both the 457 and the IRA.
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