I'm weary of unitized funds...is it irrational?

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fantasytensai
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I'm weary of unitized funds...is it irrational?

Post by fantasytensai » Wed Jan 11, 2017 3:30 pm

Hi all, for my 401(k) account, my company offers a few unitized funds that appears to be very attractive. However, I find that I have this unexplanable fear of unitized funds. I believe the fear stems from the fact that unitized funds are not on the exchange and there is not a simple way to monitor its day-to-day performance (which I shouldn't even be doing as a Boglehead). Anyway, I currently invest my 401(K) in VITLX, which is the Vanguard Institutional Target Retirement Fund 2045, a very good fund in it's own right at 0.10% fee. However, target funds are inflexible, and I am tempted to switch the funds to 65% Total Stock Market Index (0.03%); 25% Int Stock Market Index (0.09%); and 10% Total Bond Market (0.06%). These funds are almost identical to the Vanguard equivalents in fees, and I am very tempted to move to these funds for greater flexibility. However I am restrained by this fear of unitized funds. Is it logical???

brad.clarkston
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Re: I'm weary of unitized funds...is it irrational?

Post by brad.clarkston » Wed Jan 11, 2017 3:42 pm

Probably ;)

I'd just leave it in the Target fund it's easier (no re-balance needed) and you can monitor it.

If you really want to run the index's open a personal ira/roth at VG or Fidelity and do your thing.

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dm200
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Re: I'm weary of unitized funds...is it irrational?

Post by dm200 » Wed Jan 11, 2017 4:38 pm

fantasytensai wrote:Hi all, for my 401(k) account, my company offers a few unitized funds that appears to be very attractive. However, I find that I have this unexplanable fear of unitized funds. I believe the fear stems from the fact that unitized funds are not on the exchange and there is not a simple way to monitor its day-to-day performance (which I shouldn't even be doing as a Boglehead). Anyway, I currently invest my 401(K) in VITLX, which is the Vanguard Institutional Target Retirement Fund 2045, a very good fund in it's own right at 0.10% fee. However, target funds are inflexible, and I am tempted to switch the funds to 65% Total Stock Market Index (0.03%); 25% Int Stock Market Index (0.09%); and 10% Total Bond Market (0.06%). These funds are almost identical to the Vanguard equivalents in fees, and I am very tempted to move to these funds for greater flexibility. However I am restrained by this fear of unitized funds. Is it logical???


While there were many aspects of a previous employer's 401k, I did not find these fund holdings (vs actual mutual funds) to be a problem. Perhaps their costs might be slightly less because they do not distribute dividends. I am no "expert" on this, though. I would be interested in seeing some credible and impartial views on the subject.

fantasytensai
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Re: I'm weary of unitized funds...is it irrational?

Post by fantasytensai » Thu Jan 12, 2017 9:38 am

Earl Lemongrab wrote:The solution to being weary is more rest.


I really am troubled by this and would appreciate an insightful response greatly.

dbr
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Re: I'm weary of unitized funds...is it irrational?

Post by dbr » Thu Jan 12, 2017 9:46 am

I think the widespread use and good history of unitized funds should assure you, but it is understandable that the lack of documentation and lack of public marketplace can be unsettling. But a good question would be why is inflexibility in the target fund an issue? What benefit of "flexibility" do you have in mind? Also an option is to keep most of your assets in the target fund and adjust things around the edges using the other funds without a lot of exposure to your unsettling risk.

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CyclingDuo
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Re: I'm weary of unitized funds...is it irrational?

Post by CyclingDuo » Thu Jan 12, 2017 9:53 am

fantasytensai wrote:Hi all, for my 401(k) account, my company offers a few unitized funds that appears to be very attractive. However, I find that I have this unexplanable fear of unitized funds. I believe the fear stems from the fact that unitized funds are not on the exchange and there is not a simple way to monitor its day-to-day performance (which I shouldn't even be doing as a Boglehead). Anyway, I currently invest my 401(K) in VITLX, which is the Vanguard Institutional Target Retirement Fund 2045, a very good fund in it's own right at 0.10% fee. However, target funds are inflexible, and I am tempted to switch the funds to 65% Total Stock Market Index (0.03%); 25% Int Stock Market Index (0.09%); and 10% Total Bond Market (0.06%). These funds are almost identical to the Vanguard equivalents in fees, and I am very tempted to move to these funds for greater flexibility. However I am restrained by this fear of unitized funds. Is it logical???


Have you calculated the difference between the ER of 100% .1 in the 2045 fund compared to the ER's of 65% in .03/25% in .09/10% in .06 combination in terms of the difference in cost over 10 - 30+ years? In your case, it's not huge. However, if you would be more comfortable - or at ease - with the switch and be able to take advantage of the slightly lower fee costs... :sharebeer

We are currently moving from one of our unitized funds in a 401k to the lower cost Vanguard funds for not only similar reasons you mention, but more to do with lowering the ER currently being paid of .71 for the TIAA unitized fund. So a larger change in the ER for us to move to the Vanguard Admiral shares of capturing a similar investment strategy of what the unitized fund provides.
Last edited by CyclingDuo on Thu Jan 12, 2017 9:59 am, edited 1 time in total.

retiredjg
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Re: I'm weary of unitized funds...is it irrational?

Post by retiredjg » Thu Jan 12, 2017 9:55 am

fantasytensai wrote:I really am troubled by this...

I think the unitized funds are probably fine and your concern is likely unjustified. But...that doesn't make it go away. You've got a great choice that does not involve the unitized funds. Just use it and be comfortable.
Last edited by retiredjg on Thu Jan 12, 2017 10:12 am, edited 2 times in total.

clemrick
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Re: I'm weary of unitized funds...is it irrational?

Post by clemrick » Thu Jan 12, 2017 9:59 am

fantasytensai wrote:
Earl Lemongrab wrote:The solution to being weary is more rest.


I really am troubled by this and would appreciate an insightful response greatly.


Weary = tired of
Wary = concerned by, afraid of

fantasytensai
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Re: I'm weary of unitized funds...is it irrational?

Post by fantasytensai » Thu Jan 12, 2017 10:43 am

clemrick wrote:
fantasytensai wrote:
Earl Lemongrab wrote:The solution to being weary is more rest.


I really am troubled by this and would appreciate an insightful response greatly.


Weary = tired of
Wary = concerned by, afraid of


Alas, it was my misuse of the English language that drew the ire of my fellow man.

Thanks for the advice. I think the consensus is that these are both good options and it really doesn't matter which one to use.

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telemark
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Re: I'm weary of unitized funds...is it irrational?

Post by telemark » Thu Jan 12, 2017 11:11 am

Those are great choices and I would not hesitate to use any of them.

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Earl Lemongrab
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Re: I'm weary of unitized funds...is it irrational?

Post by Earl Lemongrab » Thu Jan 12, 2017 12:09 pm

fantasytensai wrote:Alas, it was my misuse of the English language that drew the ire of my fellow man.

"Ire"? You think someone was angry with you?
This week's fortune cookie: "You will do well to expand your horizons." Ow. Passive-aggressive and vaguely ominous.

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Watty
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Re: I'm weary of unitized funds...is it irrational?

Post by Watty » Thu Jan 12, 2017 12:45 pm

fantasytensai wrote:and I am very tempted to move to these funds for greater flexibility.


If you want a different asset allocation you can buy a target date fund with a different date.

"Flexabily" might not be a good thing. It also includes a risk that when it is time to rebalance you will agonize over if the market is too high or to low and if you should try to time the market and change your target asset allocation. From the tone of your post I would suspect that this a very real risk for you.

A target date fund is automatically rebalanced so if something happens like there is a 20% drop in the stock market it will automatically "Buy low and sell high" without trying to second guess the stock market.

The target date fund also includes international bonds so it is more diversified so it should be less volatile.

fantasytensai
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Re: I'm weary of unitized funds...is it irrational?

Post by fantasytensai » Thu Jan 12, 2017 12:59 pm

Earl Lemongrab wrote:
fantasytensai wrote:Alas, it was my misuse of the English language that drew the ire of my fellow man.

"Ire"? You think someone was angry with you?


I give up.

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BolderBoy
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Re: I'm weary of unitized funds...is it irrational?

Post by BolderBoy » Thu Jan 12, 2017 1:13 pm

fantasytensai wrote:
Earl Lemongrab wrote:
fantasytensai wrote:Alas, it was my misuse of the English language that drew the ire of my fellow man.

"Ire"? You think someone was angry with you?


I give up.

Don't give up. But please educate me: what is a "unitized fund"?
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

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Earl Lemongrab
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Re: I'm weary of unitized funds...is it irrational?

Post by Earl Lemongrab » Thu Jan 12, 2017 1:25 pm

fantasytensai wrote:I give up.

All I can is that words have meaning. If you use words in unusual ways, then people can get confused.
This week's fortune cookie: "You will do well to expand your horizons." Ow. Passive-aggressive and vaguely ominous.

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Earl Lemongrab
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Re: I'm weary of unitized funds...is it irrational?

Post by Earl Lemongrab » Thu Jan 12, 2017 1:25 pm

BolderBoy wrote:But please educate me: what is a "unitized fund"?

https://www.bogleheads.org/wiki/Collective_Investment_Trusts
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jhfenton
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Re: I'm weary of unitized funds...is it irrational?

Post by jhfenton » Thu Jan 12, 2017 1:27 pm

BolderBoy wrote:
fantasytensai wrote:
Earl Lemongrab wrote:
fantasytensai wrote:Alas, it was my misuse of the English language that drew the ire of my fellow man.

"Ire"? You think someone was angry with you?


I give up.

Don't give up. But please educate me: what is a "unitized fund"?

I've never heard that term either, but from the context I assumed that the term referred to a CIT (Collective Investment Trust), a mutual-fund-like pooled investment trust in a qualified retirement plan.

We have a Fidelity S&P 500 CIT in our 401(k) at 4 bp. (the Fidelity U.S. Equity Index Commingled Pool Class 1). I use it without hesitation. It's a bit annoying for my spreadsheet and for M*'s portfolio manager that prices aren't publicly available. But I can check it through my Fidelity 401(k) website, and in my portfolio spreadsheet, I just use Fidelity 500 Index Institutional (FXSIX) as a proxy (with a formula that I only have to adjust whenever FXSIX makes a distribution). The calculated price is occasionally off by a penny due to rounding, but never more than that.

fantasytensai
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Re: I'm weary of unitized funds...is it irrational?

Post by fantasytensai » Thu Jan 12, 2017 1:55 pm

Earl Lemongrab wrote:
fantasytensai wrote:I give up.

All I can is that words have meaning. If you use words in unusual ways, then people can get confused.


Grammar mistake! Gotcha!

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Barry Barnitz
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Re: I'm weary of unitized funds...is it irrational?

Post by Barry Barnitz » Thu Jan 12, 2017 2:09 pm

Here are some reading materials via google search:

DB vs. DC: How unitized accounting can make a difference - Pensions & Investments

from Fidelity glossary:

Unitized Shares:
When a stock fund is unitized, a participant’s balance in the fund is expressed in “unitized shares” or “units” instead of shares per se. Unitized funds operate similarly to a mutual fund, in that they are composed of stock, and a small percentage of cash or another short-term interest-bearing vehicle. The inclusion of cash provides liquid assets to allow for the daily processing of transfers, loans and withdrawals. The value of a unit in a unitized stock fund is based on the Net Asset Value (NAV), which is the value of the underlying common stock and the cash piece held by the fund, divided by the number of units outstanding. Therefore, the NAV of the fund (the “unit price”) will, as a rule, be different from the closing price of the underlying stock on the applicable exchange.


from ERIC - NACUBO's Guide to Unitizing Investment Pools. Second Edition, National Association of College and University Business Officers (NJ3), 2011

The National Association of College and University Business Officers' (NACUBO's) "Guide to Unitizing Investment Pools" addresses the principles and concepts for administering a consolidated investment pool. Unitization is the mechanism by which investment funds are pooled to maximize investment efficiencies and provide information for donors, investment committees, or other interested stakeholders. This second edition of a unique industry resource leads readers through the steps to establish a unitized pool and reveals what it takes to make this procedure work in the real world. It has been fully updated to reflect policies and reporting that comply with FASB (Financial Accounting Standards Board), GASB (Governmental Accounting Standards Board), UPMIFA (Uniform Prudent Management of Institutional Funds Act), and the Revised IRS 990. NACUBO's "Guide to Unitizing Investment Pools" evaluates the pros and cons of unitizing a consolidated investment pool, offers three different models for unitization, and illustrates a non-unitized (or "dollar-ized") alternative approach. Purchase of the book provides access to spreadsheets that illustrate the formulas and can serve as the starting point for building one's own unitization model. Appended are: (1) Glossary of Terms; (2) Cross Walk: FASB Standards Superseded by FASB Codification; and (3) Resources for Additional Information. (Contains 31 tables and 11 footnotes.) [Funding for this book was provided by GrantThornton.]
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raysfan12
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Re: I'm weary of unitized funds...is it irrational?

Post by raysfan12 » Fri Jan 13, 2017 1:58 pm

I hold those three unitized funds in my 401k account (Total Stock Market Index (0.03%), Int Stock Market Index (0.09%), Total Bond Market (0.06%)). Vanguard is the fund manager for the Total Stock Market Index fund. If we had VTSAX, VTIAX, and VBTLX available, I would probably go with those instead. I can't complain though, the overall plan is pretty solid with a lot of good options.

Easy Rhino
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Re: I'm weary of unitized funds...is it irrational?

Post by Easy Rhino » Fri Jan 13, 2017 3:48 pm

Ya know, I just looked at my own 401k, there was a collective trust "Core bond" fund that I had investments in. The short description was that it was to meet or beat the aggregate bond index, when when I glanced at holdings, it was actually weighted very heavily to corporates, and very heavily to the lowest credit quality available where it didn't dip below the funds minimum standards.

Fortunately my 401k recently started offering Vanguard Total Bond Index, which made me happy.

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Earl Lemongrab
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Re: I'm weary of unitized funds...is it irrational?

Post by Earl Lemongrab » Sat Jan 14, 2017 12:39 pm

Easy Rhino wrote:Ya know, I just looked at my own 401k, there was a collective trust "Core bond" fund that I had investments in. The short description was that it was to meet or beat the aggregate bond index, when when I glanced at holdings, it was actually weighted very heavily to corporates, and very heavily to the lowest credit quality available where it didn't dip below the funds minimum standards.

Fortunately my 401k recently started offering Vanguard Total Bond Index, which made me happy.

And my plan has an aggregate bond index fund. Just as there are active and index mutual funds, there are active and index CITs. The CIT part has nothing to do with that. My plan has a mix of the two. I use the index Russell 2000, S&P 500, and bond index, plus the active stable value.
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