401k Options (25 yr old)

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cal91
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401k Options (25 yr old)

Post by cal91 » Wed Jan 25, 2017 5:32 pm

Hello, new to the forums and to investing.

I just became eligible to take part in the company 401k plan. I am wanting to simply put it all in the Target 2060 (Principal Lifetime Hybrid 2060 CIT).

I know it's a good choice if the expense ratio is under 1%. Whats surprised me is every single option in our 401k has an expense ratio under 1%, and most under 0.4%. Do I really have great 401k options or am I misunderstanding? The Target 2060 has an expense ratio of 0.34%.

Below is a screenshot of some of my options. The Last column "Total Inv. Expense Gross" is the expense ratio, correct?

Image

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Duckie
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Re: 401k Options (25 yr old)

Post by Duckie » Wed Jan 25, 2017 7:41 pm

cal91 wrote:Do I really have great 401k options or am I misunderstanding? The Target 2060 has an expense ratio of 0.34%.

Below is a screenshot of some of my options. The Last column "Total Inv. Expense Gross" is the expense ratio, correct?
Correct. You probably have a good plan. Just make sure there aren't any extra management fees on top of the expense ratios.

aristotelian
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Re: 401k Options (25 yr old)

Post by aristotelian » Wed Jan 25, 2017 7:52 pm

1% is actually pretty bad these days. These are fees they are taking off the top just for moving your money where you want it. I would say 0.25% is good, but you should really aim for 0.10% or less. As your portfolio grows, those costs add up.

Post your whole list if you want specific advice. The ones you posted would mostly be for someone who is close to retirement looking for fixed income rather than growth.

cal91
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Re: 401k Options (25 yr old)

Post by cal91 » Thu Jan 26, 2017 12:06 pm

Thanks for the help! Here's my options. Also, I have about $4000 in a Roth IRA through Capital one, all in the SP 500.

FIXED INCOME

DFA Inflation Protected Securities I Fund 0.12%

Income Separate Account  0.30%

Legg Mason Brandywine Global Opportunities Bond IS Fund  0.56%

High Yield Separate Account 0.49%

Vanguard Intermediate-Term Bond Index Admiral Fund   0.09%



BALANCED/ASSET ALLOCATION

Principal LifeTime Hybrid Income CIT 0.36%

Principal LifeTime Hybrid 2010 CIT   0.35%

Principal LifeTime Hybrid 2015 CIT 0.34%

Principal LifeTime Hybrid 2020 CIT   0.34%

Principal LifeTime Hybrid 2025 CIT 0.34%

Principal LifeTime Hybrid 2030 CIT  0.34%

Principal LifeTime Hybrid 2035 CIT  0.32%

Principal LifeTime Hybrid 2040 CIT  0.32%

Principal LifeTime Hybrid 2045 CIT 0.33%

Principal LifeTime Hybrid 2050 CIT   0.33%

Principal LifeTime Hybrid 2055 CIT   0.34%

Principal LifeTime Hybrid 2060 CIT 0.34%



LARGE US EQUITY

American Funds AMCAP R6 Fund 0.37%

DFA US Large Cap Value I Fund   0.37%

JP Morgan Disciplined Equity R6 Fund  0.35%

LargeCap S&P 500 Index Separate Account 0.05%



SMALL/MID U.S. EQUITY

DFA U.S. Targeted Value I Fund  0.37%

DFA US Small Cap I Fund 0.37%

MidCap S&P 400 Index Separate Account], 0.05%

SmallCap S&P 600 Index Separate Account 0.05%

Vanguard Explorer Admiral Fund 0.35%

Vanguard Mid-Cap Growth Index Admiral Fund  0.08%

Vanguard Mid-Cap Value Index Admiral Fund   0.08%

Vanguard REIT Index Admiral Fund  0.12%

Vanguard Strategic Equity Inv Fund 0.21%



INTERNATIONAL EQUITY

DFA Emerging Markets Institutional Fund  0.67%

Diversified International Separate Account  0.39%

Vanguard Developed Markets Index Admiral Fund  0.09%



OTHER

Ivy Science & Technology R6 Fund 0.83%

T. Rowe Price Health Sciences Fund 0.76%

Valdeselad
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Re: 401k Options (25 yr old)

Post by Valdeselad » Thu Jan 26, 2017 12:10 pm

Looks like you have a fantastic plan with many low cost options.

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ruralavalon
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Re: 401k Options (25 yr old)

Post by ruralavalon » Thu Jan 26, 2017 12:36 pm

You have some very good funds offered in your 401k. You are fortunate.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

cal91
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Re: 401k Options (25 yr old)

Post by cal91 » Thu Jan 26, 2017 12:37 pm

Would it be better (because the expense ratios are much lower) to do the following instead of 100% Target 2060?

10% Vanguard Intermediate-Term Bond Index Admiral Fund 0.09%

45% LargeCap S&P 500 Index Separate Account 0.05%

15% Vanguard Mid-Cap Growth Index Admiral Fund 0.08%

15% Vanguard Mid-Cap Value Index Admiral Fund 0.08%

15% Vanguard Developed Markets Index Admiral Fund 0.09%

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ruralavalon
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Re: 401k Options (25 yr old)

Post by ruralavalon » Thu Jan 26, 2017 12:39 pm

At age 25 my suggestion would be 20% bonds with 20 - 30% of stocks in international stocks.The funds I suggest are these:

20% Vanguard Intermediate-Term Bond Index Admiral Fund 0.09%

60% LargeCap S&P 500 Index Separate Account 0.05%

20% Vanguard Developed Markets Index Admiral Fund 0.09%
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Valdeselad
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Re: 401k Options (25 yr old)

Post by Valdeselad » Thu Jan 26, 2017 12:49 pm

ruralavalon wrote:At age 25 my suggestion would be 20% bonds with 20 - 30% of stocks in international stocks.The funds I suggest are these:

20% Vanguard Intermediate-Term Bond Index Admiral Fund 0.09%

60% LargeCap S&P 500 Index Separate Account 0.05%

20% Vanguard Developed Markets Index Admiral Fund 0.09%
I think @ruralavalon has provided you with an excellent blueprint - simple, low-cost, tax efficient and well diversified.

My only additional suggestion would be that, over time, you view your 401k as one part of your entire portfolio, would may include IRA's, taxable accounts, etc...

In other words, don't view these pieces in isolation - they should all work together as part of an overall asset allocation and portfolio strategy.

cal91
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Re: 401k Options (25 yr old)

Post by cal91 » Thu Jan 26, 2017 12:54 pm

No small-mid cap? And roughly Age-10 for % bonds?

Also, are some of these funds more tax efficient than others? I don't understand why tax efficiency is something to look at in the options- I thought that anything in a 401k would be the same tax efficient? (I know I've got a lot to learn!)

Thanks again for your help

Valdeselad
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Re: 401k Options (25 yr old)

Post by Valdeselad » Thu Jan 26, 2017 1:05 pm

cal91 wrote:No small-mid cap? And roughly Age-10 for % bonds?

Also, are some of these funds more tax efficient than others? I don't understand why tax efficiency is something to look at in the options- I thought that anything in a 401k would be the same tax efficient? (I know I've got a lot to learn!)

Thanks again for your help
You are correct, the 401k allows tax-deferred growth of your portfolio. Broadly speaking, you would generally put more tax-inefficient assets like bonds, REITS, etc. into a 401k/IRA compared to a taxable account -- this is why it's important to view the 401k as just one part of your portfolio, especially as it grows over time.

My comment above was based more on how you should consider thinking about your overall portfolio, and tax efficiency and asset placement is a big part of that. Where you position your assets (and a 401k is included in this), can help you optimize your tax efficiency.

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ruralavalon
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Re: 401k Options (25 yr old)

Post by ruralavalon » Thu Jan 26, 2017 1:27 pm

cal91 wrote:No small-mid cap? And roughly Age-10 for % bonds?

Also, are some of these funds more tax efficient than others? I don't understand why tax efficiency is something to look at in the options- I thought that anything in a 401k would be the same tax efficient? (I know I've got a lot to learn!)

Thanks again for your help
The S&P 500 index account covers about 80% of the U.S. stock market, including large cap and some mid cap.

In general I favor using a total stock market index fund if available, but none is offered in your 401k. A S&P 500 index fund will be good enough for domestic stocks. In the 25 years since the creation of the first total stock market index fund, the performance of the two types of funds has been almost identical. So it seems that historically adding a bit more mid cap and some small cap has added little if anything to portfolio performance.

About 20% in bonds is about the minimum I ever suggest, even for young investors. Historically that has been enough to substantially reduce portfolio volatility (risk) with only a relatively slight impact on expected portfolio growth.

With everything in your 401k and Roth IRA, you don't need to be concerned about tax efficiency. That only comes into play when you have a taxable account.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

TIAX
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Re: 401k Options (25 yr old)

Post by TIAX » Thu Jan 26, 2017 1:49 pm

What does "separate account" mean? I assume it means it's a homegrown fund. How well does it track the index?

cal91
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Re: 401k Options (25 yr old)

Post by cal91 » Thu Jan 26, 2017 8:02 pm

Yeah, it tracks the index fairly well.

Thanks for the advice. I'll go with the 60/20/20 recommended :)

Because I have good options, should I max out my 401k before contributing to a Roth or traditional IRA?

Also, my 401k has a Roth option which I am using. - Is this a good idea, or would it be better to do traditional?

TIAX
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Re: 401k Options (25 yr old)

Post by TIAX » Fri Jan 27, 2017 12:59 am

cal91 wrote: Because I have good options, should I max out my 401k before contributing to a Roth or traditional IRA?

Also, my 401k has a Roth option which I am using. - Is this a good idea, or would it be better to do traditional?
Yes, you should max out the 401k before going to IRA. What's your marginal tax rate (federal and state)?

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ruralavalon
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Re: 401k Options (25 yr old)

Post by ruralavalon » Fri Jan 27, 2017 10:30 am

cal91 wrote:Yeah, it tracks the index fairly well.

Thanks for the advice. I'll go with the 60/20/20 recommended :)

Because I have good options, should I max out my 401k before contributing to a Roth or traditional IRA?
That would be reasonable, unless there is some fund that you would like which is not offered in your 401k. For example, an emerging markets index fund, a REIT Index Fund, etc.
cal91 wrote:Also, my 401k has a Roth option which I am using. - Is this a good idea, or would it be better to do traditional?
What is your tax bracket? Will you be eligible for a significant pension?

For most people traditional deductible contributions are usually better than Roth contributions. However the ultimate tax benefit analysis is different if you will receive a pension.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

cal91
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Re: 401k Options (25 yr old)

Post by cal91 » Fri Jan 27, 2017 11:16 am

I make 75k a year in California, married filing jointly. Wife is SAHM. So 15% Federal, 6% State, I believe.

I don't have a pension, just a 4% match to the 401k. Also, the company just became an ESOP last year, but I'm not entirely sure how it works. I think every year we get some percentage of our salary in company stock ownership. Not sure what the percentage is. But basically we're buying out the owner/CEO who is retiring in 10 years. I do expect my salary to increase a lot (roughly be 200k in 10 years).

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ruralavalon
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Re: 401k Options (25 yr old)

Post by ruralavalon » Fri Jan 27, 2017 11:48 am

cal91 wrote:I make 75k a year in California, married filing jointly. Wife is SAHM. So 15% Federal, 6% State, I believe.

I don't have a pension, just a 4% match to the 401k. Also, the company just became an ESOP last year, but I'm not entirely sure how it works. I think every year we get some percentage of our salary in company stock ownership. Not sure what the percentage is. But basically we're buying out the owner/CEO who is retiring in 10 years. I do expect my salary to increase a lot (roughly be 200k in 10 years).
Because you expect your salary to increase a lot it may be better to make Roth 401k contributions now.

When your salary increases it may be better to switch to traditional 401k contributions.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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