Lousy 401k question
Lousy 401k question
I'm a 42 year old who would love to retire at 55-57. I currently have 220k in a 401k and 100k in a Roth ira. The 401k is not so good. Most of the funds in the 401k have a management fee of over 1 percent. The only option for bonds are bond funds. For the life of me, I struggle investing in bond funds with the current interest rates where they are. Sorry for venting. My question is, would you recommend investing the 401k primarily in the mutual funds that hold stocks and using the Roth ira to invest a portion in bonds? Would you consider paying down the house as a 'bond type of investment'? What would be a good stock (mutual fund) and bond mixture for someone my age with my retirement goals? Thanks for your help in advance.
Re: Lousy 401k question
Can you post your options?
I'm not sure if you know this. With bond funds, low interest rates are good. When interest rates rise, bond funds go down.
I'm not sure if you know this. With bond funds, low interest rates are good. When interest rates rise, bond funds go down.
Re: Lousy 401k question
Why would you want a fund in a 401k to go down? This makes no sense.sawhorse wrote: I'm not sure if you know this. With bond funds, low interest rates are good. When interest rates rise, bond funds go down.
Re: Lousy 401k question
Thanks for some quick replies. Here are my options.
RERBX
RNGBX
RICBX
RWMBX
TEFX
RIDBX
ACEIX
RBFBX
RGVBX
RABXX
RBATX
RBJTX
RBCTX
RBBTX
RBETX
RBFTX
RBHTX
RBITX
RBMTX
RBNTX
Thanks for your help.
RERBX
RNGBX
RICBX
RWMBX
TEFX
RIDBX
ACEIX
RBFBX
RGVBX
RABXX
RBATX
RBJTX
RBCTX
RBBTX
RBETX
RBFTX
RBHTX
RBITX
RBMTX
RBNTX
Thanks for your help.
Re: Lousy 401k question
Please post the fund names and expense ratios.
Re: Lousy 401k question
I guess I wasn't clear. I've seen some misunderstanding with people not investing in bond funds because interest rates are low, so they think their bond yield will be low. That applies for individual bonds, but not bond funds. Low interest rates, like we have now, are good for bond funds but bad for individual bonds. And although the Fed has hinted for years at raising interest rates, they haven't done it, so the bond fund yields aren't falling except for TIPS but that's a different category.Beth* wrote:Why would you want a fund in a 401k to go down? This makes no sense.sawhorse wrote: I'm not sure if you know this. With bond funds, low interest rates are good. When interest rates rise, bond funds go down.
Re: Lousy 401k question
That doesn't make low interest rates good. Investors gain more in the long run if interest rates are not low. Changes from lower to higher create losses in the short run. Current low interest rates are one reason someone retiring today faces a greater challenge than someone retiring when rates are higher. There is also an effect on annuity payouts which is not helpful to the current retiree.sawhorse wrote:Can you post your options?
I'm not sure if you know this. With bond funds, low interest rates are good. When interest rates rise, bond funds go down.
Re: Lousy 401k question
Good point on the annuity payments. But high interest rates correspond to inflation, and that's bad for retirees too.dbr wrote:That doesn't make low interest rates good. Investors gain more in the long run if interest rates are not low. Changes from lower to higher create losses in the short run. Current low interest rates are one reason someone retiring today faces a greater challenge than someone retiring when rates are higher. There is also an effect on annuity payouts which is not helpful to the current retiree.
Re: Lousy 401k question
Some interesting comments so far. Here is a list of possible investments in the 401k plan and their expense ratios.
American funds euro pacific 1.57%
American funds new economy 1.57%
American funds investment company of America 1.37%
American funds Washington mutual 1.35%
Templeton foreign fund 1.41%
American funds income fund of America 1.37%
Invesco equity and income .80%
American funds bond fund of America 1.39%
American funds U.S. government sec 1.43%
American funds money market .65%
American funds 2010 1.41%
2015 1.40%
2020 1.42%
2025 1.45%
2030 1.47%
2035 1.48%
2040 1.49%
2045 1.49%
2050 1.54%
2055 1.52%
Thanks again for the once over.
American funds euro pacific 1.57%
American funds new economy 1.57%
American funds investment company of America 1.37%
American funds Washington mutual 1.35%
Templeton foreign fund 1.41%
American funds income fund of America 1.37%
Invesco equity and income .80%
American funds bond fund of America 1.39%
American funds U.S. government sec 1.43%
American funds money market .65%
American funds 2010 1.41%
2015 1.40%
2020 1.42%
2025 1.45%
2030 1.47%
2035 1.48%
2040 1.49%
2045 1.49%
2050 1.54%
2055 1.52%
Thanks again for the once over.
Re: Lousy 401k question
Ouch. Those are bad options. Are the loads waived?
Re: Lousy 401k question
No. They are not. Rough.
Re: Lousy 401k question
Are you sure? My husband found that some of the loads are actually waived when the prospectus said they aren't.Mnoga72 wrote:No. They are not. Rough.
Re: Lousy 401k question
I don't believe they are waived. Where is the best place to check to see if they are being waived?
Re: Lousy 401k question
Bond funds are nothing more than a collection of bonds. What is "good" for bond funds is "good" for bonds and what is "bad" for bonds is "bad" for bond funds. If/when interest rates increase, bond funds will have a yield increase and a temporary NAV decrease.sawhorse wrote:I guess I wasn't clear. I've seen some misunderstanding with people not investing in bond funds because interest rates are low, so they think their bond yield will be low. That applies for individual bonds, but not bond funds. Low interest rates, like we have now, are good for bond funds but bad for individual bonds. And although the Fed has hinted for years at raising interest rates, they haven't done it, so the bond fund yields aren't falling except for TIPS but that's a different category.Beth* wrote:Why would you want a fund in a 401k to go down? This makes no sense.sawhorse wrote: I'm not sure if you know this. With bond funds, low interest rates are good. When interest rates rise, bond funds go down.
Re: Lousy 401k question
You'll need to ask your HR person. They might not even know. Then you'll have to ask whoever is running the 401k on behalf of your employer.Mnoga72 wrote:I don't believe they are waived. Where is the best place to check to see if they are being waived?
Re: Lousy 401k question
Well, yes, however real interest rates are low now as well. I had considered sticking the term "real" in front of everything.sawhorse wrote:Good point on the annuity payments. But high interest rates correspond to inflation, and that's bad for retirees too.dbr wrote:That doesn't make low interest rates good. Investors gain more in the long run if interest rates are not low. Changes from lower to higher create losses in the short run. Current low interest rates are one reason someone retiring today faces a greater challenge than someone retiring when rates are higher. There is also an effect on annuity payouts which is not helpful to the current retiree.
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Re: Lousy 401k question
Given it is the only fund with a semi-acceptable ER I would probably just go with that. But....... are you getting these ERs from the 401k literature? I notice the Invesco fund retail ER listed in yahoo is exactly 0.80% too. Usually 401k ERs are different from retail numbers. Sometimes a lot different. You need to make your choices based on the 401k ERs.Mnoga72 wrote:Here is a list of possible investments in the 401k plan and their expense ratios.
American funds euro pacific 1.57%
American funds new economy 1.57%
American funds investment company of America 1.37%
American funds Washington mutual 1.35%
Templeton foreign fund 1.41%
American funds income fund of America 1.37%
Invesco equity and income .80% <--------------------- perhaps your best bet
American funds bond fund of America 1.39%
American funds U.S. government sec 1.43%
American funds money market .65%
(TR funds with 1.5% ERs omitted)
JW
Retired at Last
Re: Lousy 401k question
Something seems off in these expense ratio's. Can you get in touch with the person in your company that runs the 401k's? Is this a really small company you work for? Possibly they are adding in the extra cost (real ER) of managing the 401K PLUS the fund's regular ER. If that is the case at least they are telling the truth.
But possibly these are wrong if you work for a medium to large company.
I'd be relentlessly calling the 401k manager at work to double check, and if these are real, advocate for change with your employees.
These ERs are unacceptable for ANY company.
American Funds are good, and you could live with their usual 50 basis point ER's (estimated), but adding in the extra 1% as I see might be the management cost your company is passing onto it's employees. They could find a much better deal.
Let us know what you find out. I can't stomach even recommending based on these ERs, it makes me sick.
Sorry for your situation, but if you want, you can make change while still being nice.
Don't bother with your HR dept. except for finding who is running the 401k. HR won't know anything about it.
But possibly these are wrong if you work for a medium to large company.
I'd be relentlessly calling the 401k manager at work to double check, and if these are real, advocate for change with your employees.
These ERs are unacceptable for ANY company.
American Funds are good, and you could live with their usual 50 basis point ER's (estimated), but adding in the extra 1% as I see might be the management cost your company is passing onto it's employees. They could find a much better deal.
Let us know what you find out. I can't stomach even recommending based on these ERs, it makes me sick.
Sorry for your situation, but if you want, you can make change while still being nice.
Don't bother with your HR dept. except for finding who is running the 401k. HR won't know anything about it.
Re: Lousy 401k question
Paying down mortgage as bond investment is OK if you don't need liquidity. But if you do pay down the mortgage, only include extra principal payment that otherwise would have gone into investments.
Lar
Lar
Re: Lousy 401k question
Much to my disappointment, I have learned the above expense ratios to be correct. Would you put it all in the invesco fund with the .8 expense ratio? Thanks for the help.
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Re: Lousy 401k question
Do you have a Stable Value Fund option or an equivalent? I opted to place 100% of my 401(k) in a Stable Value Fund at 1.7% with 0% er to partially fill my total portfolio bond allocation since my options were poor as well in our old plan. There is a real problem with these employer-based institutional retirement plans. The regulators allow the participants to be gouged and ripped off by allowing the custodians to charged a fee that, to a Boglehead or anyone financially literate, is outrageous. Most participants of these plans do not realize how much the compounding of these excess fees are enriching the custodians at their expense. Our business is finally switching to a flat-fee based plan (per participant) with no AUM fees using Vanguard Admiral Class mutual funds with an average er of around 10 basis points. Lead a revolt to move your 401(k). It will pay off.
"Ignorance more frequently begets confidence than does knowledge" |
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Re: Lousy 401k question
I would. Then I would do the best I can to add other needed asset classes in your Roth and taxable accounts.Mnoga72 wrote: Much to my disappointment, I have learned the above expense ratios to be correct. Would you put it all in the invesco fund with the .8 expense ratio? Thanks for the help.
This isn't going to be forever. If you retire in 15 years you can roll it over to Vanguard and obtain anything you wish. Also, it's possible your 401k will improve before then, or you change jobs and the new employer has a great 401k.
JW
Retired at Last
- ruralavalon
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Re: Lousy 401k question
Yes, in the 401k invest it all in Invesco Equity and Income (ACEIX) ER 0.80%. It's a balanced fund, about 70/30 stocks/bonds. In your IRA include some additional bond fund, and an international stock index fund.Mnoga72 wrote:Much to my disappointment, I have learned the above expense ratios to be correct. Would you put it all in the invesco fund with the .8 expense ratio? Thanks for the help.
"Everything should be as simple as it is, but not simpler." - Albert Einstein |
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Re: Lousy 401k question
You do have a lousy 401k. One of the worst we've seen lately. However, it is worth using that Invesco fund for the tax-deferral unless you are in a very low tax bracket. I would not use anything else in that plan.
It's balanced - contains US and international stock and some bond and bond like investments. Apparently does have a load.
We don't know how much you are saving or what your tax bracket is. If you can contribute to Roth IRA I would do that and put whatever else you can save in the lousy 401k.
It's balanced - contains US and international stock and some bond and bond like investments. Apparently does have a load.
We don't know how much you are saving or what your tax bracket is. If you can contribute to Roth IRA I would do that and put whatever else you can save in the lousy 401k.
Link to Asking Portfolio Questions
Re: Lousy 401k question
Thanks for all the responses. This may be the coolest website on the Internet.
Re: Lousy 401k question
There is a lot to consider for the OP.
I'd advise on thinking what it would take to retire at 55, for the lifestyle you choose to live.
Then decide what actions are required to get there.
Keep saving the max and you ought to have at least double your current funds.
I used to assume 10% growth per year but don't any longer.
For the time frame in question, I'd favor all equities/mutual funds, not bonds, but I get a sense others know more about bonds than me.
Both my spouse and I are older than you, closer to FIRE, yet are still not in any bonds.
I'd advise on thinking what it would take to retire at 55, for the lifestyle you choose to live.
Then decide what actions are required to get there.
Keep saving the max and you ought to have at least double your current funds.
I used to assume 10% growth per year but don't any longer.
For the time frame in question, I'd favor all equities/mutual funds, not bonds, but I get a sense others know more about bonds than me.
Both my spouse and I are older than you, closer to FIRE, yet are still not in any bonds.
Pale Blue Dot
Re: Lousy 401k question
Mnoga, you still have to clarify the loads. The reason the American fund expense ratios are so high is they have a 0.75% ongoing commission embedded in the expense ratio (C class). This is a terrible choice for 401k plans and it pretty much says your 401k plan does not have to obey ERISA rules. These fees aren't ever waived.
The Invesco fund has an ER of 0.8%, but it is A class, meaning it has a front-end load (commission of 5.5%) instead of added fees in the expense ratio. Often, A share loads are waived in 401k plans, but your plan may not even do that. You will have to check specifically on this fund. If the load is applied, then it's really questionable if this plan is worth investing in at all. If there is a stable value option that might be OK. Who ever OKed this plan at work needs some serious education in the impact of costs.
Paul
The Invesco fund has an ER of 0.8%, but it is A class, meaning it has a front-end load (commission of 5.5%) instead of added fees in the expense ratio. Often, A share loads are waived in 401k plans, but your plan may not even do that. You will have to check specifically on this fund. If the load is applied, then it's really questionable if this plan is worth investing in at all. If there is a stable value option that might be OK. Who ever OKed this plan at work needs some serious education in the impact of costs.
Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
Re: Lousy 401k question
Whether you hold stocks or bonds in the 401(k) depends on the relative quality of the stock and bond funds.
The Invesco fund is by far the best of the bad choices. It appears to be 65% stock and 35% bonds; if this is more bonds than you want, you could put your whole Roth IRA into stocks.
What are the terms of your mortgage (APR, years left, tax rate if deductible)? Paying down a mortgage is equivalent to buying a bond, because it gives the same benefit; you pay a fixed amount of money now to get back a fixed amount of money at a known time (when the mortgage paid off). If you are in a 25% tax bracket (no state tax, or you don't deduct the mortgage interest on your state tax) and have 15 years left on your 3% mortgage, paying down the mortgage gives a risk-free return of 2.25%, which is decent, and may be better than investing in a bad 401(k).
The Invesco fund is by far the best of the bad choices. It appears to be 65% stock and 35% bonds; if this is more bonds than you want, you could put your whole Roth IRA into stocks.
What are the terms of your mortgage (APR, years left, tax rate if deductible)? Paying down a mortgage is equivalent to buying a bond, because it gives the same benefit; you pay a fixed amount of money now to get back a fixed amount of money at a known time (when the mortgage paid off). If you are in a 25% tax bracket (no state tax, or you don't deduct the mortgage interest on your state tax) and have 15 years left on your 3% mortgage, paying down the mortgage gives a risk-free return of 2.25%, which is decent, and may be better than investing in a bad 401(k).