Options - T. Rowe Price 401k

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Options - T. Rowe Price 401k

Postby ckwDC » Wed Apr 17, 2013 1:13 am

I recently enrolled in my employers 401k plan, which is managed by T.Rowe Price. I've done a little research and it's my understanding that any kind of fund with a targeted retirement date is generally best avoided, however beyond that I'm not sure which of the remaining funds to go with. The complete list of funds I have to choose from is below, any advise as to which may be better options than others would be great.

T. ROWE PRICE PRIME RESERVE
T. ROWE PRICE INTERNATIONAL STOCK
T. ROWE PRICE INTERNATIONAL DISCOVERY
T. ROWE PRICE NEW HORIZONS
T. ROWE PRICE SMALL-CAP VALUE
T. ROWE PRICE SCIENCE & TECHNOLOGY
T. ROWE PRICE MID-CAP GROWTH
T. ROWE PRICE EQUITY INCOME
T. ROWE PRICE SPECTRUM INCOME
T. ROWE PRICE SPECTRUM GROWTH
T. ROWE PRICE EQUITY INDEX 500
T. ROWE PRICE BLUE CHIP GROWTH
T. ROWE PRICE HEALTH SCIENCES
T. ROWE PRICE RETIREMENT 2010
T. ROWE PRICE RETIREMENT 2020
T. ROWE PRICE RETIREMENT 2030
T. ROWE PRICE RETIREMENT 2040
T. ROWE PRICE RETIREMENT INCOME
T. ROWE PRICE RETIREMENT 2005
T. ROWE PRICE RETIREMENT 2015
T. ROWE PRICE RETIREMENT 2025
T. ROWE PRICE RETIREMENT 2035
T. ROWE PRICE RETIREMENT 2045


-CKW
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Re: Options - T. Rowe Price 401k

Postby bdpb » Wed Apr 17, 2013 9:30 am

List the Expense Ratio of each of these funds.

Use index funds, or TR if they are low cost.

Do you have IRAs?
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Re: Options - T. Rowe Price 401k

Postby Grt2bOutdoors » Wed Apr 17, 2013 9:42 am

Given the choices, I would select the TR fund that best approximates the level of equity risk you are willing and able to assume. Historically, the TR retirement funds from Trowe are more aggressive that other competitors, therefore, if you prefer less volatility and less equity, would take your age plus five or ten (say it's 25 - add 5 or 10 to it) and use the corresponding account to save in.
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Re: Options - T. Rowe Price 401k

Postby ckwDC » Fri Apr 19, 2013 6:07 am

Thanks for the replies.

So after a little research my thoughts are a three fund portfolio consisting of one of the international funds (I would assume the option with the lowest expense ratio?), a domestic index fund (Equity Index 500 here), and a bond fund (in this case the Spectrum Income fund).

I do not have an IRA currently but plan on getting a Roth this year.

Thoughts?

Expense ratios for each of these funds is:
T. ROWE PRICE PRIME RESERVE 0.56%
T. ROWE PRICE INTERNATIONAL STOCK 0.85%
T. ROWE PRICE INTERNATIONAL DISCOVERY 1.23%
T. ROWE PRICE NEW HORIZONS 0.81%
T. ROWE PRICE SMALL-CAP VALUE 0.97%
T. ROWE PRICE SCIENCE & TECHNOLOGY 0.90%
T. ROWE PRICE MID-CAP GROWTH 0.80%
T. ROWE PRICE EQUITY INCOME 0.68%
T. ROWE PRICE SPECTRUM INCOME 0.69%
T. ROWE PRICE SPECTRUM GROWTH 0.80%
T. ROWE PRICE EQUITY INDEX 500 0.30%
T. ROWE PRICE BLUE CHIP GROWTH 0.77%
T. ROWE PRICE HEALTH SCIENCES 0.82%
T. ROWE PRICE RETIREMENT 2010 0.61%
T. ROWE PRICE RETIREMENT 2020 0.70%
T. ROWE PRICE RETIREMENT 2030 0.75%
T. ROWE PRICE RETIREMENT 2040 0.78%
T. ROWE PRICE RETIREMENT INCOME 0.57%
T. ROWE PRICE RETIREMENT 2005 0.59%
T. ROWE PRICE RETIREMENT 2015 0.66%
T. ROWE PRICE RETIREMENT 2025 0.73%
T. ROWE PRICE RETIREMENT 2035 0.77%
T. ROWE PRICE RETIREMENT 20450.78%
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Re: Options - T. Rowe Price 401k

Postby beardsworth » Fri Apr 19, 2013 7:41 am

ckwDC,

I regret the time you spent compiling the expense ratios of all of these funds, as instructed by another poster above. If these are the only funds available in your employer plan, and no fund family other than Price is offered, then the expense ratios essentially become irrelevant, because you have a black-and-white decision--regardless of individual fund expense ratios--between using the plan and not using it at all. If your employer contributes matching funds to the plan, then--although IMO this fund lineup is certainly nowhere near ideal--I definitely think you should contribute to the plan rather than pass by the "free" employer money.

Similarly, if you are going to use this plan, then the same poster's advice to use index funds was also not helpful in this case. There is only one index funds on that list. Even if this plan offered you access to the entire TRP fund lineup--which it doesn't--your index options would still be extremely limited, as Price has skimpy offerings for indexing: on the domestic side, a U.S. total stock market index, an S&P 500 index, and an Extended Market index [the rest of U.S. stocks "after" the S&P 500]. On the foreign side, an International Equity Index of large company stocks in developed markets. And on the fixed income side, an "Enhanced" bond market index, meaning that there's a small amount of active management going on in the selection of securities. And that's it for T. Rowe Price index funds--with only the 500 index available in your plan.

If you have indeed listed the entire fund lineup available to you, then I think it's a strange lineup indeed, in particular because, other than Prime money market and Spectrum Income they've given you no other way to get access to bonds except for those offered within the Retirement series of funds.

A few comments:

Spectrum Income is a slightly strange bird and, notwithstanding its name, not even a fund entirely composed of bonds. About 15% of the fund is typically in the Equity Income Fund, large dividend paying U.S. stocks--although in my observation this Equity Income Fund doesn't necessarily limit itself to stocks with generous dividend payouts but, rather, more generally uses value stocks. The Equity Income Fund is already available to you separately in your plan. Spectrum Income also typically contains a substantial dash of junk ("high yield") bonds, so you would have to decide if that bothers you.

Spectrum Growth is a fine fund-of-funds, typically about 70% U.S. stocks and 30% foreign. Looking at the fund list in the rest of your plan's lineup, you would get a substantial amount of Equity Income, Blue Chip Growth, and International Stock within Spectrum Growth (i.e., there would be little point in using those funds separately if you used Spectrum Growth) as well as small amounts of New Horizons, Small-Cap Value, and Mid-Cap Growth.

International Discovery is an excellent foreign small/mid-cap fund, although like many T. Rowe Price funds, leans markedly toward growth stocks. The current manager has been in place since the late 1990s and is therefore one of the longest-serving managers in this fund category. While T. Rowe Price offers a range of small and mid-cap funds on the domestic side, with either growth or value leanings, International Discovery is the only TRP fund for non-large international stocks.

Since you give no information on your specific goals or desired allocation, it's difficult to say more. You could actually fashion a decent allocation simply by using Spectrum Growth and Spectrum Income in some proportion to one another, provided you like the U.S./foreign mix of the former and don't mind the dash of junk bonds in the latter (which, because it includes Equity Income, will also add a bit more to your U.S. holdings). Or, for another type of bond exposure, you could use Retirement Income, the most conservative (and fixed-allocation) of the Retirement funds, and then add some other stand-alone stock funds to it, keeping in mind, however, that Retirement Income itself is already about 40% stocks.

Or, if one of the other Retirement series funds approximates your desired allocation--ignore the year numbers in the fund names and look at the actual allocations themselves--you could just go for simplicity and use that one fund alone.

T. Rowe Price has a full lineup of bond funds: intermediate and long-term Treasury (but not short-term), GNMA, TIPS, international bonds, several corporate bond funds in various maturity types. Their absence from your plan is puzzling and imposes some odd choices for the participants.

Marc
Last edited by beardsworth on Fri Apr 19, 2013 9:31 am, edited 2 times in total.
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Re: Options - T. Rowe Price 401k

Postby JW Nearly Retired » Fri Apr 19, 2013 8:17 am

Your 401k choices could be a lot worse. TRP EQUITY INDEX 500 0.30% is a perfectly good SP500 fund with a fairly low expense ratio as 401k options go. You might start with that and put an international fund in your Vanguard IRA. What to use for bonds is a problem. Tough to pay 0.7% for something that earns 2%.
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Re: Options - T. Rowe Price 401k

Postby KyleAAA » Fri Apr 19, 2013 9:18 am

T Rowe Price's retirement date funds are actually pretty decent. I'd just go with one of those.
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Re: Options - T. Rowe Price 401k

Postby bdpb » Fri Apr 19, 2013 10:03 am

MarcMyWord wrote:I regret the time you spent compiling the expense ratios of all of these funds, as instructed by another poster above. If these are the only funds available in your employer plan, and no fund family other than Price is offered, then the expense ratios essentially become irrelevant, because you have a black-and-white decision--regardless of individual fund expense ratios--between using the plan and not using it at all. If your employer contributes matching funds to the plan, then--although IMO this fund lineup is certainly nowhere near ideal--I definitely think you should contribute to the plan rather than pass by the "free" employer money.

Similarly, if you are going to use this plan, then the same poster's advice to use index funds was also not helpful in this case. There is only one index funds on that list. Even if this plan offered you access to the entire TRP fund lineup--which it doesn't--your index options would still be extremely limited, as Price has skimpy offerings for indexing: on the domestic side, a U.S. total stock market index, an S&P 500 index, and an Extended Market index [the rest of U.S. stocks "after" the S&P 500]. On the foreign side, an International Equity Index of large company stocks in developed markets. And on the fixed income side, an "Enhanced" bond market index, meaning that there's a small amount of active management going on in the selection of securities. And that's it for T. Rowe Price index funds--with only the 500 index available in your plan.


You're not serious about the regrets, are you? This is a first time investor, he must learn the process of investing before he can make any decisions about what to invest in. That process includes knowing the ER of each of the funds available. Around here, that process also includes investing in index funds.

OP,

You need to provide more info. What is your marginal tax rate? Are you getting a company match in your 401k? How much are you saving per year?

Invest in your 401k up to the company match. If no match, skip this step.
Then invest in an IRA up to 5.5k. An IRA will be lower cost than your 401k.
If you have additional savings, put the rest in your 401k.

Once this info is known, then decide on an AA. How much do you want in stocks vs bonds? How much of your stocks do you want in International?

Then finally, you can decide which funds to locate your investments.

For example, let's assume you will save 10k this year and want an AA of 80/20 stocks/bonds with 30% of stocks in Intl. That would suggest something like:

56% Total US stock index
24% Total Intl stock index
20% Total US bond index

Then locate your funds. That would mean using the low cost SP500 index fund in your 401k and the other funds in your IRA.

Since you will not have enough to meet the minimums in these accounts in your IRA initially, just use TR funds that match your AA until you have enough to meet the minimums.
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Re: Options - T. Rowe Price 401k

Postby retiredjg » Fri Apr 19, 2013 10:16 am

Your 401k is not wonderful, but it is a long way from being bad enough to avoid. The S&P 500 fund is certainly fine at .30%. You don't seem to have a bond fund, but the Spectrum Income would probably do. I'd put your international allocation in a Roth IRA.

If you want more specific help, you'll need to post more information. See the link below for how to do that.
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Re: Options - T. Rowe Price 401k

Postby CyberBob » Fri Apr 19, 2013 11:14 am

If you don't care for Retirement funds, a combination of Spectrum Growth and Spectrum Income would make for a simple, easy to maintain portfolio that would cover all the essential asset classes.

Bob
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Re: Options - T. Rowe Price 401k

Postby daytona084 » Fri Apr 19, 2013 12:18 pm

Does your 401k offer the option of setting up a brokerage account, where you can invest in any mutual fund or ETF? That would solve any problem with limited offerings.
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Re: Options - T. Rowe Price 401k

Postby ckwDC » Tue Apr 23, 2013 4:43 am

Thanks for the replies and information, very helpful.

To answer some of your questions: Marginal tax rate is 28%, my employer matches 50% of my contributions up to 7% and I plan on saving about $15k annually.
I do not currently have an IRA although I plan on enrolling in a Roth later this month.

I am young (29) and don’t plan on retiring until I’m in my mid to late 60’s, so my AA would not need to be overly conservative in terms of risk exposure.

The advice I’m reading lately is “100 – Age” in stocks (split between domestic and foreign), with the rest in bonds. As I am a new investor I am leaning towards a fairly basic portfolio that would be easy to track/manage.
As a previous poster suggested, I am considering a 70/30 stock/bond split with the Equity Index fund and the Spectrum Income fund. The Equity Index fund has a fairly low ER (0.30%) and a strong return since inception. I would then put my foreign stocks in the IRA. Does this sound reasonable or am I way off base?
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Re: Options - T. Rowe Price 401k

Postby JW Nearly Retired » Tue Apr 23, 2013 7:40 am

ckwDC wrote:Thanks for the replies and information, very helpful.

To answer some of your questions: Marginal tax rate is 28%, my employer matches 50% of my contributions up to 7% and I plan on saving about $15k annually.
I do not currently have an IRA although I plan on enrolling in a Roth later this month.

I am young (29) and don’t plan on retiring until I’m in my mid to late 60’s, so my AA would not need to be overly conservative in terms of risk exposure.

The advice I’m reading lately is “100 – Age” in stocks (split between domestic and foreign), with the rest in bonds. As I am a new investor I am leaning towards a fairly basic portfolio that would be easy to track/manage.
As a previous poster suggested, I am considering a 70/30 stock/bond split with the Equity Index fund and the Spectrum Income fund. The Equity Index fund has a fairly low ER (0.30%) and a strong return since inception. I would then put my foreign stocks in the IRA. Does this sound reasonable or am I way off base?

Not off base at all. It's close to a classic Bogleheadish 3-fund portfolio: http://www.bogleheads.org/wiki/Three-fund_portfolio

Your plan looks fine to me. I would try to "max out" the 401k contribution if you can, i.e., $17,000 in contributions not including the employer match.
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Re: Options - T. Rowe Price 401k

Postby retiredjg » Tue Apr 23, 2013 9:44 am

Agreed. Not off base at all.
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Re: Options - T. Rowe Price 401k

Postby Regal 56 » Tue Apr 23, 2013 10:52 am

ckwDC wrote:I've done a little research and it's my understanding that any kind of fund with a targeted retirement date is generally best avoided,


Please don't pay much attention to whatever bad press you're reading about target retirement funds. Much of the criticism I've seen is irrelevant to your situation. The two main knocks against TR funds are these:

1) Some TR funds charge an additional fee on top of the expense ratio of the underlying funds.

Irrelevant to you, since T. Rowe Price doesn't do this.

2) TR funds include bond funds, which are tax inefficient.

Again, irrelevant to you, since this is a tax-advantaged 401K.

T. Rowe Price is a very good fund company. You could do far worse than simply picking one of their TR funds and being done with it.
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Re: Options - T. Rowe Price 401k

Postby btenny » Tue Apr 23, 2013 2:51 pm

Be very careful....... My daughter just enrolled in plan very similar to yours with a big west coast company. It includes almost the exact TR PRice funds you list plus a Pimco Total Bond fund. BUT the gotcha in her stuff is Equity Income Index Sp500 shows it as a "CL A" in the small print and lists the fund as a "trust" not a mutual fund. They show the symbol as XAT. She could not get a prospectus so we are not sure if this is a "Class A share" which includes an additional 5% load up front or some other amount in addition to the 0.3% annual load. Please review your data in detail to see if there are any other "expenses or loads"....

Also look for the Pimco fund. It is a good bond fund and would be better than the bond funds you listed.

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