when current 401K options suck

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CB53HF
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when current 401K options suck

Post by CB53HF » Mon Oct 02, 2017 11:45 pm

Our background:
401k:
His 401k (age:34)
401k from employer-A ( former): 50K. 100% is in Vangurad target 2045 ( ER=0.06)
401K from employer-B ( current): 147K. 100% is in Fidelity Freedom 2050 ( ER=0.64%). { employer match-4% of annual base pay}
Her 401k ( age:31)
401k: 79k. 100% in Vanguard target 2055( ER=0.06). { employer match- 6% of annual base pay}
we both max out 401k each year.

Roth IRA
His Roth IRA at Betterment:
5,500 in stocks
Her Roth IRA at Wealthfront:
11,00 in stocks
( Betterment and Wealthfront have a long mix of stocks- US and International. So I am not sure how to list them here. Overall average expense ratio is ~0.08% in both the accounts)


Taxable account:
In addition to 401K, we have ~50K invested as follows in a vanguard account.
VANGUARD TOTAL INTL STOCK INDEX FUND ETF 10K
Vanguard 500 Index Fund Admiral Class 20k
VANGUARD TOTAL BOND MARKET ETF 20k

Cash:
cash holdings are ~$120K ( we havent yet separated out an emegency fund. But I expect a 55k here to be emegency & rest if available to be invested which we havent done yet).

Debt
house mortgage: 300K, 14 years remaining in a 15 year loan. 3.25% rate.

Federal tax rate: 28%, State tax: 9%. State of residence: oregon.
Tax filing status: married filing jointly.
No of kids=1

Question:

With my current employer's 401K, here are the options i see for <0.25% ( & which are not bonds):
Fidelity® 500 Index Fund - Institutional Class 0.03
Vanguard Small-Cap Index Fund 0.05
Vanguard Mid-Cap Index Fund Admiral 0.06
Vanguard Total International Stock Index Fund Admir 0.11
VANG VMMR-FED MMKT 0.11
Vanguard Windsor™ II Fund Admiral™ 0.25

My main question is - how to invest my current 401K, with reduced ER. Thanks a bunch!
Last edited by CB53HF on Sat Oct 07, 2017 11:56 am, edited 2 times in total.

mega317
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Re: when current 401K options suck

Post by mega317 » Tue Oct 03, 2017 12:03 am

I would choose the best fund available and build the rest of your portfolio around that. A target fund at 0.7% isn't good but it's usable. Good advice would require much more information. (Other funds available, is there a match, tax bracket, the rest of your portfolio, age, tax bracket, financial goals, and so on.)

See viewtopic.php?t=6212

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FiveK
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Re: when current 401K options suck

Post by FiveK » Tue Oct 03, 2017 12:41 am

CB53HF wrote:
Mon Oct 02, 2017 11:45 pm
My current 401K does not have any target retirement funds with low ER. we only have fidelity target funds which are all in 0.6-0.7% ER range. I like vanguard target retirement funds. My question is what do other folks do when their employer's 401K does not provide good options?
~0.65% isn't great, but probably still worth using. See 401(k) - Expensive_or_mediocre_choices.

Nate79
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Re: when current 401K options suck

Post by Nate79 » Tue Oct 03, 2017 12:54 am

Are you sure you do not have any low cost index funds at all?

VaR
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Re: when current 401K options suck

Post by VaR » Tue Oct 03, 2017 12:59 am

I've seen a lot of examples here on the forums where people find one low cost S&P 500 index fund in their 401k. The conventional wisdom is to put all your 401k money in it and then use other accounts to balance out to your desired asset allocation. The request from the poster mega317 is correct. If you post your 401k fund choices in the standard format and give information on your assets under (self) management in various kinds of accounts, you can get the best prescriptive advice. It's a common request here and you there are lots of posts you can read that give you the gist of the strategies.

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peterinjapan
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Re: when current 401K options suck

Post by peterinjapan » Tue Oct 03, 2017 2:51 am

I have only American funds, all obfuscated and all with a 1.3% expense rate or so. Does anyone know if you always have the right to transfer from one 401(k) providor to another, like to Vanguard?

David Scubadiver
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Re: when current 401K options suck

Post by David Scubadiver » Tue Oct 03, 2017 6:48 am

peterinjapan wrote:
Tue Oct 03, 2017 2:51 am
I have only American funds, all obfuscated and all with a 1.3% expense rate or so. Does anyone know if you always have the right to transfer from one 401(k) providor to another, like to Vanguard?
Very unlikely if you are still employed. Talk to your company’s HR representative and express your concern. They may be able to help.

petulant
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Re: when current 401K options suck

Post by petulant » Tue Oct 03, 2017 7:38 am

peterinjapan wrote:
Tue Oct 03, 2017 2:51 am
I have only American funds, all obfuscated and all with a 1.3% expense rate or so. Does anyone know if you always have the right to transfer from one 401(k) providor to another, like to Vanguard?
As the poster above said, you generally do not have the right to transfer as long as you're still employed at the plan provider. Another option may be useful to you if available. My 457 provider allows us to set up self-directed brokerage accounts, and if I chose to do that I could pay basic online broker fees to invest my 457 money in, say, ETFs rather than my plan's mutual funds. If I invest in three funds monthly at $10 per trade, that's $360 per year, which means I would break even at about $36,000 invested. Fortunately, my plan does have low-cost Vanguard, BlackRock, and BNY Mellon funds, so it is not a useful option to me. It may be useful to you once you have enough money invested, however.

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Kenkat
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Re: when current 401K options suck

Post by Kenkat » Tue Oct 03, 2017 7:47 am

If these are the non-index Fidelity Freedom target date funds, they are not that bad; performance of these has been comparable or better than Fidelity’s indexed versions. While that may not continue in the future, 0.6-0.7% ER is still on the lower side for active offerings and if this is your only choice, invest enough to get any company match and make the best of it.

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greg24
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Re: when current 401K options suck

Post by greg24 » Tue Oct 03, 2017 8:27 am

0.6 to 0.7% is above average. I suggest you invest as much as possible in the 401k.

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ruralavalon
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Re: when current 401K options suck

Post by ruralavalon » Tue Oct 03, 2017 11:37 am

CB53HF wrote:
Mon Oct 02, 2017 11:45 pm
My current 401K does not have any target retirement funds with low ER. we only have fidelity target funds which are all in 0.6-0.7% ER range. I like vanguard target retirement funds. My question is what do other folks do when their employer's 401K does not provide good options?

Thanks
CB53HF.
What are the 4-5 funds offered in your 401k which have the lowest expense ratios? There may be some better less expensive funds to consider.

Is there an employer match offered in your 401k? If so be certain to contribute at least enough to get the full employer match offered each year.

If eligible also open an IRA at a low cost provider like Vanguard, contribute the maximum allowed each year, and use their low ER funds.

If the Fidelity Target Retirement Funds at 0.6-0.7% are the lowest offered in your 401k, then it's still worth using the 401k and still worth contributing even more than the minimum required to get the employer match.

Please see the wiki article "prioritizing investments".
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

delamer
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Re: when current 401K options suck

Post by delamer » Tue Oct 03, 2017 2:59 pm

Some plans have a self-directed option, basically a brokerage account within the 401(k). With one, you get invest in anything.

It is worth checking to see if that is an option.

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Earl Lemongrab
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Re: when current 401K options suck

Post by Earl Lemongrab » Tue Oct 03, 2017 5:15 pm

peterinjapan wrote:
Tue Oct 03, 2017 2:51 am
I have only American funds, all obfuscated and all with a 1.3% expense rate or so. Does anyone know if you always have the right to transfer from one 401(k) providor to another, like to Vanguard?
For employee deferrals or Roth contributions, you are prohibited by law from rolling them over while employed and less than age 59-1/2.
This week's fortune cookie: "The stock market may be your ticket to success." I sure hope so!

Mr.BB
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Re: when current 401K options suck

Post by Mr.BB » Tue Oct 03, 2017 5:31 pm

You could look into opening a 401k Brokerage account.
My wife's company changed her 401k plan to basic Blackrock index/ Intl index a bunch of target date funds and only a global bond fund. The 2 basic index funds are fine, but they really limit our choices (small cap/ other bond funds), so I opened a 401k Brokerage account and got the funds I wanted to complement her other 401k fund. Only draw back is you cannot get the admiral exp ratio's and because her 401k is through Fidelity, if I use Vanguard funds there is a $75 fee whenever I exchange in or out the funds. But I did get the funds I wanted.
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."

Mors
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Re: when current 401K options suck

Post by Mors » Tue Oct 03, 2017 5:33 pm

Its good enough for price matching. You should also probably try to max it, only after you max your IRA though.

finite_difference
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Re: when current 401K options suck

Post by finite_difference » Tue Oct 03, 2017 7:14 pm

Do you get a match? If so, definitely contribute to get the match. Then max Roth IRA and then continue contributing to the 401k. If you leave your company you can roll it over to Vanguard, etc. Also see if you can work with your company to improve their 401k program.

Post your funds and expense ratios and you’ll get help to find the least worst one.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

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ruralavalon
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Re: when current 401K options suck

Post by ruralavalon » Wed Oct 04, 2017 8:45 am

finite_difference wrote:
Tue Oct 03, 2017 7:14 pm
Do you get a match? If so, definitely contribute to get the match. Then max Roth IRA and then continue contributing to the 401k. If you leave your company you can roll it over to Vanguard, etc. Also see if you can work with your company to improve their 401k program.

Post your funds and expense ratios and you’ll get help to find the least worst one.
The OP, CB53HF, didn't state their tax bracket or age.

Therefore we don't know if a Roth IRA or traditional IRA is better, after contributing enough to the 401k to get the full employer match.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

retiredjg
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Re: when current 401K options suck

Post by retiredjg » Wed Oct 04, 2017 8:50 am

mega317 wrote:
Tue Oct 03, 2017 12:03 am
I would choose the best fund available and build the rest of your portfolio around that.
This is what I recommend as well. If the best fund(s) is not a target fund and if you prefer the target fund, the cost is not high enough to prevent that in my opinion.

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