37 y/o needing help with my 401K choices, please!

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37 y/o needing help with my 401K choices, please!

Postby Trailbreaker1 » Fri Apr 05, 2013 1:30 pm

Hello,
I have one of those ADP 401K plans where I don't like most of the options available. As you will see the ER is pretty high on all of them. I would love some feedback as to which funds would be best for me to invest in. I have driven myself nuts thinking about what to do here and would appreciate and love to hear any suggestions from you.

Emergency funds: 3 Months worth
Debt: Car loan ($400/month) that will be paid off in January and Mortgage is 160K at 4.25% fixed 30 yr. No CC debt.
Tax Filing Status: Married Filing Jointly, no kiddos
Tax Rate: 25% Federal, 5% State
State of Residence: Kansas
Age: 37
Desired Asset allocation: 60% stocks / 30% bonds
Desired International allocation: 10% of stocks

size of my current total portfolio is high four-figures

Current retirement assets

Taxable:
Vanguard Total Stock Market Index: (VTSMX) (0.18%) = $3,200
Vangaurd Total International Index: (VGTSX) (0.22%) = $3,200
Vanguard STAR: (VGSTX) (0.34%) = $ $6,500

My current 401k funds:
AllianceBernstein Global Bond Fund - Class A (ANAGX) (0.94% ) 20% contribution

SSgA S&P 500 Index Securities Lending Series Fund - Class IX (no ticker) (0.71) 60% contribution

Invesco Global Health Care Fund - Class A (GGHCX) (1.21%) 8% contribution

SSgA REIT Index Non-Lending Series Fund - Class G (no ticker) (0.73%) 12% contribution

Company match is 4%.......I contribute 5% every paycheck


List of all Available funds in my 401K plan: ( I have the ones I currently own in bold)

SSgA Cash Series U.S. Government Fund - Class L (no ticker) (0.75)
JPMorgan Government Bond Fund - Class A (OGGAX) (1.04)
PIMCO Total Return Fund - Class A (PTTAX) (0.85)
Franklin Strategic Income Fund - Class A (FRSTX) (0.91)
AllianceBernstein Global Bond Fund - Class A (ANAGX) (0.94)
T. Rowe Price Retirement Income Fund - Class R (RRTIX) (1.07)
T. Rowe Price Retirement 2010 Fund - Class R (RRTAX) (1.11)
T. Rowe Price Retirement 2015 Fund - Class R (Rrtmx) (1.16)
T. Rowe Price Retirement 2020 Fund - Class R (RRTBX) (1.20)
T. Rowe Price Retirement 2025 Fund - Class R (RRTNX) (1.23)
T. Rowe Price Retirement 2030 Fund - Class R (RRTCX) (1.25)
T. Rowe Price Retirement 2035 Fund - Class R (RRTPX) (1.27)
T. Rowe Price Retirement 2040 Fund - Class R (RRTDX) (1.28)
T. Rowe Price Retirement 2045 Fund - Class R (RRTRX) (1.28)
T. Rowe Price Retirement 2050 Fund - Class R (RRTFX) (1.28)
T. Rowe Price Retirement 2055 Fund - Class R (RRTVX) (1.28)
BlackRock Global Allocation Fund, Inc. - Investor A Class (MDLOX) (1.16)
Calamos Growth and Income Fund - Class A (CVTRX) (1.09)
Invesco Comstock Fund - Class A (ACSTX) (0.88)
SSgA S&P 500 Index Securities Lending Series Fund - Class IX (no ticker) (0.71)
Franklin Growth Fund - Class A (FKGRX) (0.96)
Victory Established Value Fund - Class A (VETAX)(1.08)
SSgA S&P MidCap Index Non-Lending Series Fund - Class J (no ticker) (0.72)
Victory Small Company Opportunity Fund - Class A (SSGSX) (1.41)
Lord Abbett Developing Growth Fund - Class A (LAGWX) (1.12)
Thornburg International Value Fund - Class R4 (THVRX) (1.45)
Putnam International Capital Opportunities Fund - Class A (PNVAX) (1.41)
Oppenheimer Developing Markets Fund - Class A (ODMAX) (1.36)
Invesco Global Health Care Fund - Class A (GGHCX) (1.18)
Oppenheimer Gold & Special Minerals Fund - Class A (OPGSX) (1.22)
Fidelity Advisor Real Estate Fund - Class T (FHETX) (1.43)
SSgA REIT Index Non-Lending Series Fund - Class G (no ticker) (0.73)


Questions:
1). In your opinion, what do you consider the best funds to be in this 401K option I should invest in?

Key points: I will eventually get the Vanguard Total Bond Index fund next month and put that fund in a Roth IRA. Then I will sell off the STAR fund and allocate to the 3 fund index portfolio and invest monthly.

Thank you all in advance!!! :D
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Re: 37 y/o needing help with my 401K choices, please!

Postby Twins Fan » Fri Apr 05, 2013 1:43 pm

Yuck... those are some high fees all around in your 401k. I would invest in the S&P 500 index fund enough to get the match and that's it in the 401k. Then as you plan, fill out the rest of the three fund portfolio between a Roth and the taxable account.
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Re: 37 y/o needing help with my 401K choices, please!

Postby Trailbreaker1 » Fri Apr 05, 2013 1:53 pm

Haha! Ya that's bad when you have all those choices and your best option is to put all your money in just one fund. Ugh! Thank god I I found this site and read the Boglehead guide to investing.....otherwise I'd be clueless.

Thanks for the Comment Twins Fan. I think you have a good point!!!
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Re: 37 y/o needing help with my 401K choices, please!

Postby kenyan » Fri Apr 05, 2013 4:16 pm

I would still favor your 401k over taxable investing, just not over your IRA. It will take many years (decades) for expense ratios of 0.7-0.75 (so perhaps 0.6% over a low-cost index fund) to erase the tax benefit you would give up by eschewing your 401k. On top of that, if you ever leave this job, you can roll that money stuck in less-than-perfect funds into a nice IRA of your choice.

I would consider the PIMCO Bond fund, the 500 fund, REITs if you want them (not necessary), and the Mid-cap index. One option would be to purchase the 500 index and PTTAX in your 401k, filling out your asset allocation with Small Caps/Extended Market and international equities in your IRA/taxable, with some overlap to allow rebalancing.
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Re: 37 y/o needing help with my 401K choices, please!

Postby Trailbreaker1 » Fri Apr 05, 2013 4:24 pm

Much appreciated advice Kenyan!

I noticed on that fund you recommended the "PIMCO Total Return Fund - Class A (PTTAX) (0.85)" that it's a load fund of 3.75 and the turnover rate is 584.0% according to Morningstar. I'm still new to investing but does all that turnover affect anything with it being in a tax sheltered 401k?

Thank you so much!!
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Re: 37 y/o needing help with my 401K choices, please!

Postby kenyan » Fri Apr 05, 2013 4:40 pm

Trailbreaker1 wrote:Much appreciated advice Kenyan!

I noticed on that fund you recommended the "PIMCO Total Return Fund - Class A (PTTAX) (0.85)" that it's a load fund of 3.75 and the turnover rate is 584.0% according to Morningstar. I'm still new to investing but does all that turnover affect anything with it being in a tax sheltered 401k?

Thank you so much!!


The PIMCO fund is actively managed, leveraged, and will be "churned" by Bill Gross quite a bit - though turnover isn't nearly as much of a flag for bond funds as it is for stock funds. More transactions can lower the return of the fund, and and increase tax liability in a taxable account. Not a big deal in this case, as it is a bond fund, and tax liability doesn't matter inside your 401k. About the load - my assumption is that you won't have to pay the load, since those are typically waived in a 401k; you should confirm that. If it is not waived, go in a different direction - you will have to look at your plan documentation for this information, not what it tells you on Morningstar.

It's not an Index fund, but is reasonable cost compared to your other choices, and has historically performed just fine. I wouldn't count on its outperformance (as compared to an index fund) continuing, but it's not a bad choice.

A quick spreadsheet tells me that, using reasonable assumptions, you'd be ahead by investing in your 401k instead of a taxable account, even after paying the extra expenses, after 30 years.
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Re: 37 y/o needing help with my 401K choices, please!

Postby dbr » Fri Apr 05, 2013 4:43 pm

Trailbreaker1 wrote:Much appreciated advice Kenyan!

I noticed on that fund you recommended the "PIMCO Total Return Fund - Class A (PTTAX) (0.85)" that it's a load fund of 3.75 and the turnover rate is 584.0% according to Morningstar. I'm still new to investing but does all that turnover affect anything with it being in a tax sheltered 401k?

Thank you so much!!


Yes, it affects trading costs for the fund to buy and sell investments. This cost is not reported in the ER and would have to be found out by reading the fund annual reports and other documents. Supposedly for stock funds the cost can amount to about 1% for every 100% of turnover. I am not sure what the cost is for the kind of investments in that fund. There will surely be a cost very possibly more than the ER itself.
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Re: 37 y/o needing help with my 401K choices, please!

Postby Trailbreaker1 » Fri Apr 05, 2013 5:01 pm

Thank you both Kenyan and dbr!!

Ugh.... I just hate all these high ER's with these funds.

So far I'm liking the idea of doing these 3 things...

1). Continue to contribute up to my Company match (4%) in my 401K....but no more.
2). Pick one fund (SSGA index) .71% and go 100% all in. If I wanted to pick another I'd add prolly add 10% reit index.
3). Open the Vanguard total bond index in Roth IRA and contribute more towards that than any fund for my outside 401K investing. Essentially playing catch up w Bonds untill my AA is close to how I want it.

....If I'm crazy in this thinking please tell me. lol!!

Thanks again!
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Re: 37 y/o needing help with my 401K choices, please!

Postby Trailbreaker1 » Sat Apr 06, 2013 11:43 am

Sorry to bump this post again....

Just curious if the plan I want to do (listed above) is a good way to go about this? All these 401K options have way to high of ER's. I'm thinking of picking one or two of the "least bad" 401K funds...
1. SSga 500 index - .71% (92% contribution).
2. SSga Reit index - .73% ( 8% contribution).

....and fill in the rest of the gaps in my taxable and Roth w Vanguard (especially w Vanguard's Total Bond market index).

Thoughts? reccomendations?

Thank you all in advance! :)
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Re: 37 y/o needing help with my 401K choices, please!

Postby retiredjg » Sat Apr 06, 2013 12:03 pm

trailbreaker, there is no real probabem adding on a little REIT in place of some US stocks in your 401k. But for a portfolio to work right, you often have to have both a stock fund and a bond fund in the 401k, while holding your international allocation (and maybe some bonds) in Roth IRA.

It appears your taxable account is intended to be for retirement. You should not be using taxable space for retirement until you have filled both your 401k and an IRA of some kind. Two IRAs since you are married. The exception would be if you have really high expense ratios (you are not even close) and expect to be there a long time. So I would encourage you to increase your contributions to the 401k and the Roth IRAs. You can use the money in taxable for this, either by living on that money while you contribute more to the 401k or by selling something in taxable to fund your Roth IRA. Or Both.

You have not mentioned any accounts for your spouse. Those should be included in this evaluation and plan as well.

You said that your current portfolio is high four-figures. That would be $9,999 or less and your taxable account holds more than that, so there is some disconect there. The reason I mention this is that less than $10k saved for a couple approaching 40 would be concerning. You also say you are saving 5% a paycheck, but we don't know how much that is. I'm a little worried that you are not saving enough for your retirement, but there is really not enough information to know for sure.
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Re: 37 y/o needing help with my 401K choices, please!

Postby retiredjg » Sat Apr 06, 2013 12:06 pm

Trailbreaker1 wrote:All these 401K options have way to high of ER's.

Not really. Probably about average. Yes, it is more than you would pay in an idea world, but not high enough to stress over. I'd use these:

SSgA S&P 500 Index Securities Lending Series Fund - Class IX (no ticker) (0.71)
SSgA S&P MidCap Index Non-Lending Series Fund - Class J (no ticker) (0.72) maybe
SSgA REIT Index Non-Lending Series Fund - Class G (no ticker) (0.73) maybe
PIMCO Total Return Fund - Class A (PTTAX) (0.85)
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Re: 37 y/o needing help with my 401K choices, please!

Postby Trailbreaker1 » Sat Apr 06, 2013 12:38 pm

Thanks retiredjg!

I did say that my current portfoliol is high 4 figures n I was wrong. should have been 5 figures. I currently have @ $72K in 401K and @12K in taxable. Oops...my bad.

My wife just works part time (2 days/ week) n has no 401k or IRA of her own (she's on mine)....her paychecks just go to savings (emergancy fund etc).
I currently contribute 5% of my paycheck (My annual salary is $100K). Company matches up to 4%. so I contribute @ $740/ month in 401K.

.....I was looking at that Bond fund you recommend and saw it was a load fund and the turnover was over 500%. I'm going to read more about that fund and see if all that turnover increases the fee's even more. It apprears to be a solid bond fund otherwise....

Thanks so much again!
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Re: 37 y/o needing help with my 401K choices, please!

Postby dbr » Sat Apr 06, 2013 12:48 pm

[quote="Trailbreaker1"]

.....I was looking at that Bond fund you recommend and saw it was a load fund and the turnover was over 500%. I'm going to read more about that fund and see if all that turnover increases the fee's even more. /quote]

Turnover increases trading costs to the fund. Turnover is not related to fees. To find these costs you will have to find reports of brokerage/trading costs in the annual reports and/or reports of supplementary information.

Expense ratios are not all fees either. The expenses arise from the costs of running the fund even down to data processing costs, paper, and staples. There can also be fees in the expense ratio. PTTAX has a 12b-1 fee of 0.25%. That money is paid to your broker as a fee. If you are investing in a 401K, 12b-1 fees should be waived. Loads should also be waived in a 401K plan. You should be sure to get fee information from your 401K plan and not by finding data on the fund from public sources. A 401K plan that does not waive loads and 12b-1 fees is morally crooked if not actually illegal (I am not sure it is actually illegal, but I think it is unusual to collect these fees in an employer retirement plan.)
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Re: 37 y/o needing help with my 401K choices, please!

Postby retiredjg » Sat Apr 06, 2013 1:00 pm

Trailbreaker1 wrote:I did say that my current portfoliol is high 4 figures n I was wrong. should have been 5 figures. I currently have @ $72K in 401K and @12K in taxable. Oops...my bad.

In that case, things don't seem so grim.

My wife just works part time (2 days/ week) n has no 401k or IRA of her own (she's on mine)....

Your wife cannot be on your 401k or your IRA. Those are strictly individual accounts. Perhaps you mean she is the beneficiary. She can have her own IRA (even if not working, it could be based on your salary).

I currently contribute 5% of my paycheck (My annual salary is $100K). Company matches up to 4%. so I contribute @ $740/ month in 401K.

This is not enough for most people to save. Perhaps you have other obligations or plan to save more later. But the number should probably be closer to 15% of your salary than 5%.

.....I was looking at that Bond fund you recommend and saw it was a load fund and the turnover was over 500%. I'm going to read more about that fund and see if all that turnover increases the fee's even more. It apprears to be a solid bond fund otherwise....

Check with your 401k paperwork and/or your administrator. Loads are usually waived inside a 401k plan. Turnover is a real problem for investments held in a taxable account. Not an issue for a tax-advantaged account. Of the bond funds you have available, this is probably the best choice. Or you could use CDs in your taxable account if you want.
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Re: 37 y/o needing help with my 401K choices, please!

Postby Trailbreaker1 » Sat Apr 06, 2013 1:37 pm

You guy's are awesome! Thanks so much.

Your right, my wife is a beneficiary on my 401K account. I guess I do save @15% of my income. 5% in my 401K and 10% in Vangaurd index funds to "supplement" my retirment.

I looked into my 401K plan and the load fee is waived on the bond fund.

So far I like the idea of this set up...

1. 74% in SSgA S&P 500 Index (0.71)

2. 20% in PIMCO Total Return Fund - Class A (0.85)

3. 6% in SSgA REIT Index Non-Lending Series Fund - Class G (0.73)
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Re: 37 y/o needing help with my 401K choices, please!

Postby retiredjg » Sat Apr 06, 2013 2:13 pm

Trailbreaker1 wrote:1. 74% in SSgA S&P 500 Index (0.71)

2. 20% in PIMCO Total Return Fund - Class A (0.85)

3. 6% in SSgA REIT Index Non-Lending Series Fund - Class G (0.73)

This is fine. But the percentages are irrelevant if you don't include the other accounts (taxable and IRAs) and calculate the percentages all together.
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