Help with new 401k options, please

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Topic Author
allocator
Posts: 94
Joined: Sun Dec 23, 2012 11:10 am

Help with new 401k options, please

Post by allocator »

Hi all. My wife's 401k has surprisingly added a couple of indexing options and I could use some help deciding on possible changes. We've got a 70/30 Stock bond split with a small/value tilt.

First, we have about 20% of our bond allocation in Vanguard's Intermediate Treasury fund (VFIUX) (the rest is in TIPS funds and municipal bonds and tax-exempt funds). When I opted for that fund, the only other option in the category was Pimco Total Return. Now the plan has added Vanguard Total Bond. Any thoughts on a switch from VG Intermediate to Total Bond?

Second, Over the last couple of years we've made the switch from passive to active in both taxable and tax-favored accounts. The one active fund we've held - and the only equity fund in our 401k, also in the 401k, is Royce Opportunity Fund (RYPNX), about 2.5% of our total portfolio. We made the decision to hold onto the fund because it occupies a hard to reach space in a taxable account: small/micro value ($628M market cap, price to book 1.2). It was also the best of a mediocre lot in the plan, but with a high ER of 1.17%. Volatile as can be: 5 yr SD 31.55, mean 8.6. The new potential replacement fund is Fidelity Spartan Extended Mkt Advantage class (FSEVX), ER .07%, a mid/small blend leaning towards growth. A switch to this fund would certainly lower expenses, but would also reduce our value and small exposure. I'd appreciate any thoughts you might have.

Thanks!
Beantown85
Posts: 1264
Joined: Wed Oct 07, 2009 9:11 am

Re: Help with new 401k options, please

Post by Beantown85 »

1. You don't list the ERs of the Intermediate Treasury and Total Bond, but all things equal I would prefer Total Bond, as it gives you a more diversified bond exposure. Plenty of people choose to stick with treasuries for their bond holdings, so either choice is probably fine. The deciding factor could very well be ER.

2. With an ER difference of >1%, this switch would be a no-brainer for me. There are plenty of ways to get small value exposure without paying 1.17% for an active fund. Keep in mind though, at 2.5% of your portfolio, this is a pretty insignificant issue.
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sometimesinvestor
Posts: 1271
Joined: Wed May 13, 2009 6:54 am

Re: Help with new 401k options, please

Post by sometimesinvestor »

I confess am not a fan of the intermediate treasury in this climate and there is an argument that at this time when Total bond could be thought of as having a lot of low interest treasury's which could lead to a poor return in the next few years that you might be better with the short term fund or even an active fund like total return where the manager is presumerably trying to manage away the issue.. If there was a GNMA fund (best when interest rates stay flat ) that might be the best option and perhaps a seperate IRA account might work for that investment.
Topic Author
allocator
Posts: 94
Joined: Sun Dec 23, 2012 11:10 am

Re: Help with new 401k options, please

Post by allocator »

Thanks for responding.
1. You don't list the ERs of the Intermediate Treasury and Total Bond, but all things equal I would prefer Total Bond, as it gives you a more diversified bond exposure. Plenty of people choose to stick with treasuries for their bond holdings, so either choice is probably fine. The deciding factor could very well be ER.
Both are Vanguard funds, with expense ratios of .10%. I appreciate your reminding me of Total Bond's diversification. I feel pretty good either way. Almost better not the have the choice - certainly easier!
2. With an ER difference of >1%, this switch would be a no-brainer for me. There are plenty of ways to get small value exposure without paying 1.17% for an active fund. Keep in mind though, at 2.5% of your portfolio, this is a pretty insignificant issue.
Agreed on both points. Thanks.

I confess am not a fan of the intermediate treasury in this climate and there is an argument that at this time when Total bond could be thought of as having a lot of low interest treasury's which could lead to a poor return in the next few years that you might be better with the short term fund or even an active fund like total return where the manager is presumerably trying to manage away the issue.. If there was a GNMA fund (best when interest rates stay flat ) that might be the best option and perhaps a seperate IRA account might work for that investment.
I've thought repeatedly of the PIMCO fund, with Bill Gross "managing the issue". Even the bond king has been wrong for some time now.

Thanks again.
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