401(k)/403(b) fund help

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Topic Author
SoDakJeff
Posts: 97
Joined: Mon Mar 13, 2017 11:48 am

401(k)/403(b) fund help

Post by SoDakJeff »

Good morning,

My wife currently has a 401(k) that she contributes to at Principal, and an old, inactive 403(b) at Principal. I'm in the process of changing the AA in that portfolio to 75% stock/25% bond. Right now, the 401(k) has about $165k, and the 403(b) has about $185k. I would appreciate some advice/suggestions on funds.

Right now, the 401(k) has:
VINIX - Vanguard Institutional Index er .04
VFIUX - Vanguard Intermediate-Term Treasury er .10
Principal MidCap S&P 400 Index er .05
Principal SmallCap S&P 600 Index er .05

Other available funds include:
They have a number of Target Date funds, which I'm not interested in at this time.
MFBKX - MFS Corporate Bond er .46
PTTRX - PIMCO Total Return er .47
VWEAX - Vanguard High-Yield Corporate er .13
RERGX - American Funds EuroPacific Growth er.50
ODVIX - Oppenheimer Developing Markets er.88

Right now, the 403(b) has:
100% in VINIX - Vanguard Institutional Index er .04

Other available funds include:
Again, a number of Target Date funds
DHOIX - Delaware High-Yield Opportunities er .89
MFBJX - MFS Corporate Bond er .57
PTTRX - PIMCO Total Return er .47
SGVIX - Wells Fargo Government Securities er .55
PEIIX - Principal Equity Income er .52
PLGIX - T.Rowe Price LargeCap Growth er .64
Principal MidCap S&P 400 Index er .20
Principal SmallCap S&P 600 Index er .21
RERGX - American Funds EuroPacific Growth er .50
ODVYX - Oppenheimer Developing Markets er 1.07

I guess my questions are:
I think I can get to 75/25 easily enough with the funds I have, but do you think the funds I have are appropriate, given my choices?
Is there any real value in keeping the two Principal funds - MidCap 400 and SmallCap 600, as long as I have the VINIX?
I'd like to get some International in there. Does anyone think the international offerings are worth the costs?
Any other suggestions?

BYW, I'm 63, wife is 56. All of our other retirement accounts are at Vanguard. I'm keeping this portfolio separate from that one, but allocating it to mirror what we have at Vanguard.

Thanks.
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retiredjg
Posts: 53990
Joined: Thu Jan 10, 2008 11:56 am

Re: 401(k)/403(b) fund help

Post by retiredjg »

SoDakJeff wrote:I think I can get to 75/25 easily enough with the funds I have, but do you think the funds I have are appropriate, given my choices?
Fund choices are fine. I have to wonder, though, why people your ages want to be at 75/25. There could be good reasons, but it seems very aggressive.
Is there any real value in keeping the two Principal funds - MidCap 400 and SmallCap 600, as long as I have the VINIX?
This is a matter of opinion. Some people want the whole market. Some are happy with just the 500 index.
I'd like to get some International in there. Does anyone think the international offerings are worth the costs?
The international funds are not great, but certainly OK enough to use some if you want. A better choice would be to hold the international in the Vanguard accounts but that does not follow your mirror approach.

Have you considered consolidating those two accounts? I don't see much of a reason to keep them separate.
Topic Author
SoDakJeff
Posts: 97
Joined: Mon Mar 13, 2017 11:48 am

Re: 401(k)/403(b) fund help

Post by SoDakJeff »

retiredjg wrote:
SoDakJeff wrote:I think I can get to 75/25 easily enough with the funds I have, but do you think the funds I have are appropriate, given my choices?
Fund choices are fine. I have to wonder, though, why people your ages want to be at 75/25. There could be good reasons, but it seems very aggressive.
Is there any real value in keeping the two Principal funds - MidCap 400 and SmallCap 600, as long as I have the VINIX?
This is a matter of opinion. Some people want the whole market. Some are happy with just the 500 index.
I'd like to get some International in there. Does anyone think the international offerings are worth the costs?
The international funds are not great, but certainly OK enough to use some if you want. A better choice would be to hold the international in the Vanguard accounts but that does not follow your mirror approach.

Have you considered consolidating those two accounts? I don't see much of a reason to keep them separate.
Thanks for the reply!

For a variety of reasons, my wife and I decided to enroll in the Vanguard PAS (at least for now) The advisor came up with the 75/25, since we're both willing to take on a little more risk while my wife continues to work for at least another 10 years. The 75/25 will drop to 70/30 in one year, and then to 65/45 a couple years after that, and so on over the next 10 years. We have a little catching up to do.

Principal said we couldn't consolidate the two. We'll be moving the 403(b) over to Vanguard as soon as my wife turns 59 1/2.
User avatar
CyclingDuo
Posts: 5989
Joined: Fri Jan 06, 2017 8:07 am

Re: 401(k)/403(b) fund help

Post by CyclingDuo »

SoDakJeff wrote:Good morning,

My wife currently has a 401(k) that she contributes to at Principal, and an old, inactive 403(b) at Principal. I'm in the process of changing the AA in that portfolio to 75% stock/25% bond. Right now, the 401(k) has about $165k, and the 403(b) has about $185k. I would appreciate some advice/suggestions on funds.

Right now, the 401(k) has:
VINIX - Vanguard Institutional Index er .04
VFIUX - Vanguard Intermediate-Term Treasury er .10
Principal MidCap S&P 400 Index er .05
Principal SmallCap S&P 600 Index er .05

Other available funds include:
They have a number of Target Date funds, which I'm not interested in at this time.
MFBKX - MFS Corporate Bond er .46
PTTRX - PIMCO Total Return er .47
VWEAX - Vanguard High-Yield Corporate er .13
RERGX - American Funds EuroPacific Growth er.50
ODVIX - Oppenheimer Developing Markets er.88

Right now, the 403(b) has:
100% in VINIX - Vanguard Institutional Index er .04

Other available funds include:
Again, a number of Target Date funds
DHOIX - Delaware High-Yield Opportunities er .89
MFBJX - MFS Corporate Bond er .57
PTTRX - PIMCO Total Return er .47
SGVIX - Wells Fargo Government Securities er .55
PEIIX - Principal Equity Income er .52
PLGIX - T.Rowe Price LargeCap Growth er .64
Principal MidCap S&P 400 Index er .20
Principal SmallCap S&P 600 Index er .21
RERGX - American Funds EuroPacific Growth er .50
ODVYX - Oppenheimer Developing Markets er 1.07

I guess my questions are:
I think I can get to 75/25 easily enough with the funds I have, but do you think the funds I have are appropriate, given my choices?
Is there any real value in keeping the two Principal funds - MidCap 400 and SmallCap 600, as long as I have the VINIX?
I'd like to get some International in there. Does anyone think the international offerings are worth the costs?
Any other suggestions?

BYW, I'm 63, wife is 56. All of our other retirement accounts are at Vanguard. I'm keeping this portfolio separate from that one, but allocating it to mirror what we have at Vanguard.

Thanks.
You could run it all through the free Blooom analysis to see what they would recommend.
"Save like a pessimist, invest like an optimist." - Morgan Housel | "Pick a bushel, save a peck!" - Grandpa
User avatar
retiredjg
Posts: 53990
Joined: Thu Jan 10, 2008 11:56 am

Re: 401(k)/403(b) fund help

Post by retiredjg »

SoDakJeff wrote:For a variety of reasons, my wife and I decided to enroll in the Vanguard PAS (at least for now) The advisor came up with the 75/25, since we're both willing to take on a little more risk while my wife continues to work for at least another 10 years. The 75/25 will drop to 70/30 in one year, and then to 65/45 a couple years after that, and so on over the next 10 years. We have a little catching up to do.
That makes sense.
Principal said we couldn't consolidate the two. We'll be moving the 403(b) over to Vanguard as soon as my wife turns 59 1/2.
Since it is an inactive 403b, I wonder why you have wait for her to turn 59.5. However, it's a good plan, so I don't see any harm in leaving it there either.
Topic Author
SoDakJeff
Posts: 97
Joined: Mon Mar 13, 2017 11:48 am

Re: 401(k)/403(b) fund help

Post by SoDakJeff »

retiredjg wrote:
SoDakJeff wrote:For a variety of reasons, my wife and I decided to enroll in the Vanguard PAS (at least for now) The advisor came up with the 75/25, since we're both willing to take on a little more risk while my wife continues to work for at least another 10 years. The 75/25 will drop to 70/30 in one year, and then to 65/45 a couple years after that, and so on over the next 10 years. We have a little catching up to do.
That makes sense.
Principal said we couldn't consolidate the two. We'll be moving the 403(b) over to Vanguard as soon as my wife turns 59 1/2.
Since it is an inactive 403b, I wonder why you have wait for her to turn 59.5. However, it's a good plan, so I don't see any harm in leaving it there either.
The wife's current employer has retained fiduciary control of the 403(b), so I guess that means they can say where it can and can't be transferred, at least until she turns 59.5. Then it will come over to Vanguard. When she retires, the 401(k) will come over, and life will be a little easier.
User avatar
ruralavalon
Posts: 26297
Joined: Sat Feb 02, 2008 9:29 am
Location: Illinois

Re: 401(k)/403(b) fund help

Post by ruralavalon »

SoDakJeff wrote:Good morning,

My wife currently has a 401(k) that she contributes to at Principal, and an old, inactive 403(b) at Principal. I'm in the process of changing the AA in that portfolio to 75% stock/25% bond. Right now, the 401(k) has about $165k, and the 403(b) has about $185k. I would appreciate some advice/suggestions on funds.

Right now, the 401(k) has:
VINIX - Vanguard Institutional Index er .04
VFIUX - Vanguard Intermediate-Term Treasury er .10
Principal MidCap S&P 400 Index er .05
Principal SmallCap S&P 600 Index er .05

Other available funds include:
They have a number of Target Date funds, which I'm not interested in at this time.
MFBKX - MFS Corporate Bond er .46
PTTRX - PIMCO Total Return er .47
VWEAX - Vanguard High-Yield Corporate er .13
RERGX - American Funds EuroPacific Growth er.50
ODVIX - Oppenheimer Developing Markets er.88

Right now, the 403(b) has:
100% in VINIX - Vanguard Institutional Index er .04

Other available funds include:
Again, a number of Target Date funds
DHOIX - Delaware High-Yield Opportunities er .89
MFBJX - MFS Corporate Bond er .57
PTTRX - PIMCO Total Return er .47
SGVIX - Wells Fargo Government Securities er .55
PEIIX - Principal Equity Income er .52
PLGIX - T.Rowe Price LargeCap Growth er .64
Principal MidCap S&P 400 Index er .20
Principal SmallCap S&P 600 Index er .21
RERGX - American Funds EuroPacific Growth er .50
ODVYX - Oppenheimer Developing Markets er 1.07

I guess my questions are:
I think I can get to 75/25 easily enough with the funds I have, but do you think the funds I have are appropriate, given my choices?
In general, yes your fund choices are good in my opinion.

As mentioned below I would not use the domestic mid/small stock funds, and would add international stocks somewhere. If you want a bond fund the old 403b, then my suggestion would be PIMCO Total Return Institutional Class (PTTRX) ER 0.47%.


SoDakJeff wrote:Is there any real value in keeping the two Principal funds - MidCap 400 and SmallCap 600, as long as I have the VINIX?
In my opinion, no I don't see a real value in keeping the mid/small funds in the current 401k. But the expense ratios of those funds in the current 401k (0.05%) are very low, so there is no harm in them.

But in the old 403b the expense ratios of those funds are high enough (0.20-21%) that they could eat up the little historically expected diversification benefit from adding mid/small stocks.

For domestic stocks I suggest using a total stock market index fund where available; otherwise an S&P 500 index fund is good enough for domestic stocks. "In a 401(k) plan with limited choices one might very well opt for an S&P 500 index fund to serve as the domestic stock component of a three-fund portfolio." Wiki article, Three-fund portfolio, "Other considerations". An S&P 500 index fund covers 80% of the U.S. stock market, and in the 25 years since the creation of the first total stock market fund the performance of the two types of funds has been almost identical. Morningstar “growth of $10k” graph, VFINX vs VTSMX. See also Allan Roth, CBS Moneywatch, "John C. Bogle on the S&P 500 vs. the Total Stock Market". So it seems that adding a little in mid/small cap stocks trying to mimic the holdings of a total stock market fund has historically added little in performance.


SoDakJeff wrote:I'd like to get some International in there. Does anyone think the international offerings are worth the costs?
Yes, in my opinion it's worth it to add an international fund. American Funds EuroPacific Growth (RERGX) ER 0.50% is offered in both the current 401k and the old 403b. Although an actively managed fund, it is well diversified (covers larger companies in both emerging and developed markets, including Canada) with a moderate expense ratio. The expense ratio is low enough that it should not destroy the historically expected diversification benefit (0.75%) from adding international stocks to a portfolio.

I suggest around 20 - 30% of stocks in international stocks. Vanguard paper (March 2012), "Considerations for investing in non-U.S. equities". Historically, allocating 20% of an equity portfolio to non-U.S. stocks would have captured about 84% of the maximum possible diversification benefit, and allocating 30% of an equity portfolio to non-U.S. stocks would have captured about 99% of the maximum possible diversification benefit (p. 6).


SoDakJeff wrote:Any other suggestions?
It is often best to look at all accounts together as a single unified whole, rather than consider each account separately. Start fund selection by choosing only the one or two best funds (diversified + low ER) in the Principal work-based accounts, where the choices offered are limited. Then complete the rest of the asset allocation using the nearly unlimited choices available in the Vanguard accounts.

For example in the Vanguard accounts you could use Vanguard Total International Stock Index Fund Admiral Share (VTIAX) ER 0.11%, instead of American Funds EuroPacific Growth (RERGX) ER 0.50% in the current 401k and the old 403b. The Vanguard international fund gives you an index fund with a little broader diversification (including smaller company stocks) and a significantly lower expense ratio.


SoDakJeff wrote: . . . I'm in the process of changing the AA in that portfolio to 75% stock/25% bond . . .
. . . . .
BYW, I'm 63, wife is 56. All of our other retirement accounts are at Vanguard. I'm keeping this portfolio separate from that one, but allocating it to mirror what we have at Vanguard.
It is often best to look at all accounts together as a single unified whole, rather than consider each account separately. Start fund selection by choosing only the one or two best funds (diversified + low ER) in the Principal work-based accounts, where the choices offered are limited. Then complete the rest of the asset allocation using the nearly unlimited choices available in the Vanguard accounts.

For example in the Vanguard accounts you could use Vanguard Total International Stock Index Fund Admiral Share (VTIAX) ER 0.11%, instead of American Funds EuroPacific Growth (RERGX) ER 0.50% in the current 401k and the old 403b. The Vanguard international fund gives you an index fund with a little broader diversification (including smaller company stocks) and a significantly lower expense ratio.

At ages 63 and 56 (average = 60) I suggest a significantly higher bond allocation, rather than your 25% target. Somewhere around 40% bonds would be more reasonable in my opinion. Historically this is expected to greatly decrease your portfolio risk, as you near retirement age. Graph, "An Efficient Frontier: the power of diversification". Please see the wiki articles Bogleheads® investment philosophy, "Never bear too much or too little risk", and "Asset allocation".
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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