Does a 5 basis points difference matter when deciding between 500 Index and TSM?

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llmgwc
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Does a 5 basis points difference matter when deciding between 500 Index and TSM?

Post by llmgwc » Thu Apr 26, 2018 8:41 pm

I'm in a 401k that is pretty poor with high overall expense ratios.

Right now, I'm pretty much all in on the John Hancock 500 Index fund which has an expense ratio of 1.13.

Recently John Hancock added a Total Stock Market fund with an expense ratio of 1.18.

I would probably prefer to be in the TSM fund, but I wonder: Do the 5 basis points matter in the long run? Or do the benefits of a TSM fund make up for the (minimal) extra fee?

Doesn't really matter, but I also have the Vanguard Total International Index available for 1.21 and the Vanguard Total Bond for 1.15. May use them sometime, but what I'm really tryin to decide here is between 500 Index and a minimally more expensive TSM.

Thanks!

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Duckie
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Re: Does a 5 basis points difference matter when deciding between 500 Index and TSM?

Post by Duckie » Thu Apr 26, 2018 9:00 pm

llmgwc wrote:I'm in a 401k that is pretty poor with high overall expense ratios.
Jeez, they're really sticking it to you.
I would probably prefer to be in the TSM fund, but I wonder: Do the 5 basis points matter in the long run? Or do the benefits of a TSM fund make up for the (minimal) extra fee?
I don't know if the benefits make up for it, but I'd pay the extra to have the TSM fund.

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Epsilon Delta
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Re: Does a 5 basis points difference matter when deciding between 500 Index and TSM?

Post by Epsilon Delta » Thu Apr 26, 2018 9:11 pm

I think I'd stick with the cheaper 500 Index and settle for highway robbery without the extra side of insult.

If my other money outside of this 401k that could be used for a completion index such as Vanguard extended market I would definitely use the 500 Index.

I'd also check that the 500 Index was the lowest ER fund in the 401k, if not that would change my answer.

llmgwc
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Re: Does a 5 basis points difference matter when deciding between 500 Index and TSM?

Post by llmgwc » Thu Apr 26, 2018 9:15 pm

Epsilon Delta wrote:
Thu Apr 26, 2018 9:11 pm
I think I'd stick with the cheaper 500 Index and settle for highway robbery without the extra side of insult.

If my other money outside of this 401k that could be used for a completion index such as Vanguard extended market I would definitely use the 500 Index.

I'd also check that the 500 Index was the lowest ER fund in the 401k, if not that would change my answer.
i have all of our other accounts with Vanguard and use their TSM plus Total international index to complete our portfolio. The 500 index fund is the lowest ER in the 401k, unfortunately.

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Silly Wabbit
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Re: Does a 5 basis points difference matter when deciding between 500 Index and TSM?

Post by Silly Wabbit » Thu Apr 26, 2018 10:35 pm

Talk to your plan administrator. Those fees are outrageous.

PFInterest
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Re: Does a 5 basis points difference matter when deciding between 500 Index and TSM?

Post by PFInterest » Thu Apr 26, 2018 10:39 pm

llmgwc wrote:
Thu Apr 26, 2018 8:41 pm
I'm in a 401k that is pretty poor with high overall expense ratios.

Right now, I'm pretty much all in on the John Hancock 500 Index fund which has an expense ratio of 1.13.

Recently John Hancock added a Total Stock Market fund with an expense ratio of 1.18.

I would probably prefer to be in the TSM fund, but I wonder: Do the 5 basis points matter in the long run? Or do the benefits of a TSM fund make up for the (minimal) extra fee?

Doesn't really matter, but I also have the Vanguard Total International Index available for 1.21 and the Vanguard Total Bond for 1.15. May use them sometime, but what I'm really tryin to decide here is between 500 Index and a minimally more expensive TSM.

Thanks!
they need to be sued given how much they are charging you.

llmgwc
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Re: Does a 5 basis points difference matter when deciding between 500 Index and TSM?

Post by llmgwc » Fri Apr 27, 2018 5:28 am

Silly Wabbit wrote:
Thu Apr 26, 2018 10:35 pm
Talk to your plan administrator. Those fees are outrageous.
I should clarify, those are the TOTAL fees, not the expense ratio only.

The plan has 1.1% fee + expense ratio, I.e., Vanguard Total Bond Index is .04% + 1.1% = 1.15% total fee.

The 1.1% fee is broken down further to:
.55% - John Hancock fee
.55% - 3rd party administrators fee (people who actually run the plan)

Still high I know, but maybe doesn’t look so bad now?

llmgwc
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Re: Does a 5 basis points difference matter when deciding between 500 Index and TSM?

Post by llmgwc » Fri Apr 27, 2018 5:53 am

PFInterest wrote:
Thu Apr 26, 2018 10:39 pm
llmgwc wrote:
Thu Apr 26, 2018 8:41 pm
I'm in a 401k that is pretty poor with high overall expense ratios.

Right now, I'm pretty much all in on the John Hancock 500 Index fund which has an expense ratio of 1.13.

Recently John Hancock added a Total Stock Market fund with an expense ratio of 1.18.

I would probably prefer to be in the TSM fund, but I wonder: Do the 5 basis points matter in the long run? Or do the benefits of a TSM fund make up for the (minimal) extra fee?

Doesn't really matter, but I also have the Vanguard Total International Index available for 1.21 and the Vanguard Total Bond for 1.15. May use them sometime, but what I'm really tryin to decide here is between 500 Index and a minimally more expensive TSM.

Thanks!
they need to be sued given how much they are charging you.
Not sure if you saw my response above, but I may have misspoke when I said those were the expense ratios. They are actually the TOTAL fees.

Maybe that doesn't make it better, but figured it was worth mentioning.

MrBeaver
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Re: Does a 5 basis points difference matter when deciding between 500 Index and TSM?

Post by MrBeaver » Fri Apr 27, 2018 6:03 am

llmgwc wrote:
Fri Apr 27, 2018 5:28 am
Silly Wabbit wrote:
Thu Apr 26, 2018 10:35 pm
Talk to your plan administrator. Those fees are outrageous.
I should clarify, those are the TOTAL fees, not the expense ratio only.

The plan has 1.1% fee + expense ratio, I.e., Vanguard Total Bond Index is .04% + 1.1% = 1.15% total fee.

The 1.1% fee is broken down further to:
.55% - John Hancock fee
.55% - 3rd party administrators fee (people who actually run the plan)

Still high I know, but maybe doesn’t look so bad now?
I don’t know what balance you have or what your salary is, but an extra 1%+ is outrageous. I would go to HR, your plan administrator, and tell your boss that your company 401k is costing you an extra $5000 per year (for 500k balance) above what other employers would, so you expect that to be fixed in your plan or to have your total compensation raised to adjust for that.

llmgwc
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Re: Does a 5 basis points difference matter when deciding between 500 Index and TSM?

Post by llmgwc » Fri Apr 27, 2018 6:14 am

MrBeaver wrote:
Fri Apr 27, 2018 6:03 am
llmgwc wrote:
Fri Apr 27, 2018 5:28 am
Silly Wabbit wrote:
Thu Apr 26, 2018 10:35 pm
Talk to your plan administrator. Those fees are outrageous.
I should clarify, those are the TOTAL fees, not the expense ratio only.

The plan has 1.1% fee + expense ratio, I.e., Vanguard Total Bond Index is .04% + 1.1% = 1.15% total fee.

The 1.1% fee is broken down further to:
.55% - John Hancock fee
.55% - 3rd party administrators fee (people who actually run the plan)

Still high I know, but maybe doesn’t look so bad now?
I don’t know what balance you have or what your salary is, but an extra 1%+ is outrageous. I would go to HR, your plan administrator, and tell your boss that your company 401k is costing you an extra $5000 per year (for 500k balance) above what other employers would, so you expect that to be fixed in your plan or to have your total compensation raised to adjust for that.
Balance is low 6-figures as well as salary. Work in a small medical office with ~10 employees. The 401k was in place prior to the current owner. There is a match up to 5% and profit sharing (which combined came out to around $15k last year). My concern is complaining about it could open a can of worms where the employer does their due diligence and realizes the plan (or ANY plan) is more expensive than it's worth and gets rid of the benefit altogether (have no idea if that's the case, but it worries me).

Feel a little stuck :|

MrBeaver
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Re: Does a 5 basis points difference matter when deciding between 500 Index and TSM?

Post by MrBeaver » Fri Apr 27, 2018 6:20 am

llmgwc wrote:
Fri Apr 27, 2018 6:14 am
MrBeaver wrote:
Fri Apr 27, 2018 6:03 am

I don’t know what balance you have or what your salary is, but an extra 1%+ is outrageous. I would go to HR, your plan administrator, and tell your boss that your company 401k is costing you an extra $5000 per year (for 500k balance) above what other employers would, so you expect that to be fixed in your plan or to have your total compensation raised to adjust for that.
Balance is low 6-figures as well as salary. Work in a small medical office with ~10 employees. The 401k was in place prior to the current owner. There is a match up to 5% and profit sharing (which combined came out to around $15k last year). My concern is complaining about it could open a can of worms where the employer does their due diligence and realizes the plan (or ANY plan) is more expensive than it's worth and gets rid of the benefit altogether (have no idea if that's the case, but it worries me).

Feel a little stuck :|
Ya, that’s a hard situation. At this point, it’s only costing a couple thousand dollars a year more than it should. But going forward, it will rise. I’d probably still bring it up but more as a ‘in a couple years this will start to be onerous on me’ way. Then it’s something they can look into over a longer period without feeling pressured. The fact that it’s a new owner might work in your favor as I imagine 401k admin fees have been coming down.

You might also offer an alternative that in-service rollovers to IRA accounts be allowed in order to give you more flexibility?

llmgwc
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Re: Does a 5 basis points difference matter when deciding between 500 Index and TSM?

Post by llmgwc » Fri Apr 27, 2018 6:32 am

MrBeaver wrote:
Fri Apr 27, 2018 6:20 am
llmgwc wrote:
Fri Apr 27, 2018 6:14 am
MrBeaver wrote:
Fri Apr 27, 2018 6:03 am

I don’t know what balance you have or what your salary is, but an extra 1%+ is outrageous. I would go to HR, your plan administrator, and tell your boss that your company 401k is costing you an extra $5000 per year (for 500k balance) above what other employers would, so you expect that to be fixed in your plan or to have your total compensation raised to adjust for that.
Balance is low 6-figures as well as salary. Work in a small medical office with ~10 employees. The 401k was in place prior to the current owner. There is a match up to 5% and profit sharing (which combined came out to around $15k last year). My concern is complaining about it could open a can of worms where the employer does their due diligence and realizes the plan (or ANY plan) is more expensive than it's worth and gets rid of the benefit altogether (have no idea if that's the case, but it worries me).

Feel a little stuck :|
Ya, that’s a hard situation. At this point, it’s only costing a couple thousand dollars a year more than it should. But going forward, it will rise. I’d probably still bring it up but more as a ‘in a couple years this will start to be onerous on me’ way. Then it’s something they can look into over a longer period without feeling pressured. The fact that it’s a new owner might work in your favor as I imagine 401k admin fees have been coming down.

You might also offer an alternative that in-service rollovers to IRA accounts be allowed in order to give you more flexibility?
I've kinda brought it up in a round about way a couple of times; planted the seed if you will. Probably need to do more research to see what small plan 401k fees average across the country and see how far off we are.

To my original question, though: Since for the moment I am stuck in this 401k, what do you think about the 500 Index Fund vs. the Total Stock Market Fund? Is it worth getting out of the 500 Index to get into the TSM, even though it is 5 basis points more? Even more generally than that thought, how many basis points matter when deciding between investments? If 1 basis point difference isn't significant, what about 10? Or 20?

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Watty
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Re: Does a 5 basis points difference matter when deciding between 500 Index and TSM?

Post by Watty » Fri Apr 27, 2018 6:37 am

About 80% of the total stock market fund is the same as an S&P 500 fund.

The .05% cost for getting the other 20% into small and mid-cap stocks be counted against that part of the investment so the effective ER for that 20% would be even higher. To me it would not be worth it since while they will vary some the performance if the small and mid cap stocks will not be that much different then the S&P 500. If you, or a spouse, have some other retirement account then you can just buy more of those fund in that account.

One thing keep in mind about the high expense ratio is what it is costing you in dollar terms. If you have $100,000 in the 401k then a 1% ER is costing you $1,000 a year but if your overall pay and other benefits are good that may more than make up for that so you could save an extra $1,000 a year.

There is a wiki on how to try to get a better 401k.

https://www.bogleheads.org/wiki/How_to_ ... 01(k)_plan

There have been some threads on finding low cost 401k plans, the company "Employee Fiduciary" is often mentioned in those threads so if you search the boards for that you can find them.

Managers likely have their own money in the 401k so they have a lot of incentive to improve a 401k if it does not cost the company much or cause a lot of extra effort. They may just not realize the impact of the high expense ratios. Changing 401k plans does take a lot of review and planning even if they want to change it the change can take a couple of years to get into place.

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Re: Does a 5 basis points difference matter when deciding between 500 Index and TSM?

Post by nolesrule » Fri Apr 27, 2018 7:15 am

I have an expensive John Hancock plan too. The TSM fund would cost me about 1.49% total including the admin fees. I'm working on them finding a cheaper plan, but I've been told they can't change for now... probably some sort of contract length.

I get a 50% match up to 6% (so a 3% match), so for now the match is covering the fees. Now, we're maxing out 2 401ks, 2 IRAs and adding money to a taxable account, so what I've chosen to do is hold only the Bonds in my expensive 401k to minimize the growth of this particular account which limits the fees relative to our overall portfolio. I hold the stock funds elsewhere where they are less expensive and we have better options.

If you have other investment accounts you are putting money into, I suggest you do similar if you can.

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Re: Does a 5 basis points difference matter when deciding between 500 Index and TSM?

Post by deltaneutral83 » Fri Apr 27, 2018 7:54 am

5% match and 1.15% (combined fees+ERs) is the same as 4% match and 0.15% (fees+ER)???? I would think of the whole picture, though one doesn't preclude the other. 4% is about standard from what I can tell. I don't even have to look beyond thread titles that have 401k and John Hancock in the title. We all know what's coming.

llmgwc
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Re: Does a 5 basis points difference matter when deciding between 500 Index and TSM?

Post by llmgwc » Fri Apr 27, 2018 8:00 am

deltaneutral83 wrote:
Fri Apr 27, 2018 7:54 am
5% match and 1.15% (combined fees+ERs) is the same as 4% match and 0.15% (fees+ER)???? I would think of the whole picture, though one doesn't preclude the other. 4% is about standard from what I can tell. I don't even have to look beyond thread titles that have 401k and John Hancock in the title. We all know what's coming.
I didn't clarify that well. My match is a little more complicated than that. Technically, it's 100% for the first 3% of income then 50% for the next 2% of income. In other words, it's 4% if I contribute 5%. Does that change the math at all? I guess I could consider it a 3% match now?

TIAX
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Re: Does a 5 basis points difference matter when deciding between 500 Index and TSM?

Post by TIAX » Fri Apr 27, 2018 8:03 am

llmgwc wrote:
Thu Apr 26, 2018 9:15 pm
Epsilon Delta wrote:
Thu Apr 26, 2018 9:11 pm
I think I'd stick with the cheaper 500 Index and settle for highway robbery without the extra side of insult.

If my other money outside of this 401k that could be used for a completion index such as Vanguard extended market I would definitely use the 500 Index.

I'd also check that the 500 Index was the lowest ER fund in the 401k, if not that would change my answer.
i have all of our other accounts with Vanguard and use their TSM plus Total international index to complete our portfolio. The 500 index fund is the lowest ER in the 401k, unfortunately.
Perhaps you didn't understand the comment. The suggestion was to use the Vanguard Extended Market Index Fund, which is a complement to the S&P 500 index. See the BH wiki on approximating the total stock market using these two funds.

llmgwc
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Re: Does a 5 basis points difference matter when deciding between 500 Index and TSM?

Post by llmgwc » Fri Apr 27, 2018 8:07 am

nolesrule wrote:
Fri Apr 27, 2018 7:15 am
Now, we're maxing out 2 401ks, 2 IRAs and adding money to a taxable account, so what I've chosen to do is hold only the Bonds in my expensive 401k to minimize the growth of this particular account which limits the fees relative to our overall portfolio. I hold the stock funds elsewhere where they are less expensive and we have better options.
I really like this idea. As of right now, we max the one 401k, plus a SEP (which comes out to ~11k per year), plus a backdoor Roth. We do NOT have a taxable account yet. The issue I would have right now with holding all bonds in my 401k is that because of the match and profit share (and higher contribution limit), my 401k is growing faster now than the other accounts. It would throw my AA all out of whack and make it bond heavy relatively quickly.

We are about 2 years away from opening a taxable account (plan is to pay off student loans prior to that), and when that happens it will be the fastest growing account. At that time, it would make since to slowly transition the 401k into the "bond" account and use the SEP, Roth and Taxable as our equity accounts... then I will just stress about whether or not I should have my bonds in my taxable accounts instead of my 401k :P

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Re: Does a 5 basis points difference matter when deciding between 500 Index and TSM?

Post by Glockenspiel » Fri Apr 27, 2018 8:07 am

I'd do a little research on small employer 401(k) plans. I know that there are some affordable options out there that will save BOTH you AND your employer money. To not scare them off, I would offer up your time to HELP them do the research to find a different administrator.

TIAX
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Re: Does a 5 basis points difference matter when deciding between 500 Index and TSM?

Post by TIAX » Fri Apr 27, 2018 8:10 am

llmgwc wrote:
Fri Apr 27, 2018 8:07 am
I really like this idea. As of right now, we max the one 401k, plus a SEP (which comes out to ~11k per year), plus a backdoor Roth.
Do you leave your contributions in the SEP IRA? Are you aware aware of the pro rata rule for backdoor Roths? You should set up a solo 401(k) and use that instead of the SEP IRA to avoid the rule.
Last edited by TIAX on Fri Apr 27, 2018 8:14 am, edited 1 time in total.

MrBeaver
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Re: Does a 5 basis points difference matter when deciding between 500 Index and TSM?

Post by MrBeaver » Fri Apr 27, 2018 8:11 am

llmgwc wrote:
Fri Apr 27, 2018 6:32 am
Is it worth getting out of the 500 Index to get into the TSM, even though it is 5 basis points more? Even more generally than that thought, how many basis points matter when deciding between investments? If 1 basis point difference isn't significant, what about 10? Or 20?
For expenses, the cost compounds. Because it's compounding on top of the returns, the cost is a function of the initial principal, the returns you realize (which explains the theory from nolesrule about using bond funds in the 401k), and the length of time invested.

In real dollars, with 6% (before expenses) real return, 150k initial principal, and 18500 contributions each year (adjusted for inflation), the ending balance is reduced by the following:

Basis points : 10 years / 20 years / 30 years / 40 years
5 : 0.38% / 0.73% / 1.11% / 1.51%
10 : 0.76% / 1.47% / 2.23% / 3.05%
20 : 1.53% / 2.96% / 4.51% / 6.20%
50 : 3.86% / 7.57% / 11.70% / 16.28%
75 : 5.84% / 11.59% / 18.09% / 25.45%
100 : 7.87% / 15.76% / 24.87% / 35.39%

While rare, if someone were to rollover 150k into your 401k plan and then contribute the max while working there for 30 years, their retirement income from their 401k would be reduced roughly 25% from what it would have been in a 'good' plan with ER < 0.1%.

But for 5 basis points, it's only going to cost you ~1% balance after 20 years (if your time horizon is even that long). As a result, I wouldn't sweat the TSM vs 500 index question - do what makes you feel better or easier from an allocation perspective. But I WOULD sweat the 1.1% plan admin fees.

MrBeaver
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Re: Does a 5 basis points difference matter when deciding between 500 Index and TSM?

Post by MrBeaver » Fri Apr 27, 2018 8:18 am

deltaneutral83 wrote:
Fri Apr 27, 2018 7:54 am
5% match and 1.15% (combined fees+ERs) is the same as 4% match and 0.15% (fees+ER)???? I would think of the whole picture, though one doesn't preclude the other. 4% is about standard from what I can tell. I don't even have to look beyond thread titles that have 401k and John Hancock in the title. We all know what's coming.
Maybe I'm wrong here, but I believe that is only the case for a given year that your salary equals your 401k balance, correct?

In order to continue being true, your salary would have to grow by the same dollar amount as your 401k balance, which seems highly unlikely unless your salary is very high. This would mean your salary would rise by 18.5k per year plus the investment return on your existing 401k balance, which could be 30k+ at a 500k balance. I doubt many people are getting $50k raises per year unless they are making a million+ a year.

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Re: Does a 5 basis points difference matter when deciding between 500 Index and TSM?

Post by deltaneutral83 » Fri Apr 27, 2018 8:20 am

llmgwc wrote:
Fri Apr 27, 2018 8:00 am
I didn't clarify that well. My match is a little more complicated than that. Technically, it's 100% for the first 3% of income then 50% for the next 2% of income. In other words, it's 4% if I contribute 5%. Does that change the math at all? I guess I could consider it a 3% match now?
I guess I just look at the situation that if I'm getting anything over 4% match, then it's gravy. I read a host of people that get more, but a lot that get 3% or even nothing. It sounds like you're getting 4% matched from 5% contributed, pretty standard. Paying over 1% all in for ER's and AUM/Admin/ER is bad, but not sure there's anything actionable other than a nice succinct email to HR to ask them to investigate more options. Some of the responses from other BH's are a little more aggressive, but they also probably make mid six figures and are a vital part of the company where they work. The difference in your 401k with the S&P and TSM of 5 basis points in ER is a non issue. You can see where the BH's jumped in to bring up the bigger issue, which is the overall number for combined fees and for you it's well over 1%.

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Re: Does a 5 basis points difference matter when deciding between 500 Index and TSM?

Post by BolderBoy » Fri Apr 27, 2018 9:12 am

llmgwc wrote:
Thu Apr 26, 2018 8:41 pm
I would probably prefer to be in the TSM fund, but I wonder: Do the 5 basis points matter in the long run? Or do the benefits of a TSM fund make up for the (minimal) extra fee?
One thing I would do is to look at the underlying portfolio of the so-called TSM fund being offered. Does it really contain all publicly traded companies? It is funny how some fund companies like to name their funds.

You are really getting hosed with costs.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

3funder
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Re: Does a 5 basis points difference matter when deciding between 500 Index and TSM?

Post by 3funder » Fri Apr 27, 2018 9:56 am

The difference of 5 basis points is insignificant. That said, I'd purchase whichever is cheaper, as both cover the majority of publicly-traded companies that are domiciled in the United States.

llmgwc
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Re: Does a 5 basis points difference matter when deciding between 500 Index and TSM?

Post by llmgwc » Fri Apr 27, 2018 10:03 am

TIAX wrote:
Fri Apr 27, 2018 8:10 am
llmgwc wrote:
Fri Apr 27, 2018 8:07 am
I really like this idea. As of right now, we max the one 401k, plus a SEP (which comes out to ~11k per year), plus a backdoor Roth.
Do you leave your contributions in the SEP IRA? Are you aware aware of the pro rata rule for backdoor Roths? You should set up a solo 401(k) and use that instead of the SEP IRA to avoid the rule.
The SEP is spousal, the Roth is mine, so the pro rata rule doesn't apply in this case. I didn't make that clear earlier.

Now, if we ever want the spouse to begin Backdoor Roth contributions, we will need to get rid of the SEP first.

llmgwc
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Re: Does a 5 basis points difference matter when deciding between 500 Index and TSM?

Post by llmgwc » Fri Apr 27, 2018 10:06 am

MrBeaver wrote:
Fri Apr 27, 2018 8:11 am
llmgwc wrote:
Fri Apr 27, 2018 6:32 am
Is it worth getting out of the 500 Index to get into the TSM, even though it is 5 basis points more? Even more generally than that thought, how many basis points matter when deciding between investments? If 1 basis point difference isn't significant, what about 10? Or 20?
For expenses, the cost compounds. Because it's compounding on top of the returns, the cost is a function of the initial principal, the returns you realize (which explains the theory from nolesrule about using bond funds in the 401k), and the length of time invested.

In real dollars, with 6% (before expenses) real return, 150k initial principal, and 18500 contributions each year (adjusted for inflation), the ending balance is reduced by the following:

Basis points : 10 years / 20 years / 30 years / 40 years
5 : 0.38% / 0.73% / 1.11% / 1.51%
10 : 0.76% / 1.47% / 2.23% / 3.05%
20 : 1.53% / 2.96% / 4.51% / 6.20%
50 : 3.86% / 7.57% / 11.70% / 16.28%
75 : 5.84% / 11.59% / 18.09% / 25.45%
100 : 7.87% / 15.76% / 24.87% / 35.39%

While rare, if someone were to rollover 150k into your 401k plan and then contribute the max while working there for 30 years, their retirement income from their 401k would be reduced roughly 25% from what it would have been in a 'good' plan with ER < 0.1%.

But for 5 basis points, it's only going to cost you ~1% balance after 20 years (if your time horizon is even that long). As a result, I wouldn't sweat the TSM vs 500 index question - do what makes you feel better or easier from an allocation perspective. But I WOULD sweat the 1.1% plan admin fees.
That's a great visual. Thanks for doing that!

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TinkerPDX
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Re: Does a 5 basis points difference matter when deciding between 500 Index and TSM?

Post by TinkerPDX » Fri Apr 27, 2018 10:15 am

Can you roll it out? Those ERs are appalling. Stealing more than 10% of your expected return.

nolesrule
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Re: Does a 5 basis points difference matter when deciding between 500 Index and TSM?

Post by nolesrule » Fri Apr 27, 2018 10:26 am

llmgwc wrote:
Fri Apr 27, 2018 8:07 am
nolesrule wrote:
Fri Apr 27, 2018 7:15 am
Now, we're maxing out 2 401ks, 2 IRAs and adding money to a taxable account, so what I've chosen to do is hold only the Bonds in my expensive 401k to minimize the growth of this particular account which limits the fees relative to our overall portfolio. I hold the stock funds elsewhere where they are less expensive and we have better options.
I really like this idea. As of right now, we max the one 401k, plus a SEP (which comes out to ~11k per year), plus a backdoor Roth. We do NOT have a taxable account yet. The issue I would have right now with holding all bonds in my 401k is that because of the match and profit share (and higher contribution limit), my 401k is growing faster now than the other accounts. It would throw my AA all out of whack and make it bond heavy relatively quickly.

We are about 2 years away from opening a taxable account (plan is to pay off student loans prior to that), and when that happens it will be the fastest growing account. At that time, it would make since to slowly transition the 401k into the "bond" account and use the SEP, Roth and Taxable as our equity accounts... then I will just stress about whether or not I should have my bonds in my taxable accounts instead of my 401k :P
You don't have to go 100% bonds in the account if it would make you too bond-heavy. Just put all the bonds per your overall asset allocation in the account to slow down the growth of the account and thus the AUM costs.


For those people hating on the plan, it's a John Hancock plan. Like the OP, I have one too. It sucks, but it is what it is. As long as the match continues to (more than) pay for the fees, it's better than nothing. It's not so high that taxable would be a better alternative. The only things that can be done are to continue to push the employer to improve the plan (which would benefit everyone in the company) or find a different employer with a better plan. With these plans, it's generally a smaller employer that doesn't know what they are doing and that is also having the employees cover the costs of the plan from their investment balances. With my employer's plan I've seen the AUM fee percentage drop little by little as the plan assets have grown.

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ruralavalon
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Re: Does a 5 basis points difference matter when deciding between 500 Index and TSM?

Post by ruralavalon » Fri Apr 27, 2018 10:41 am

llmgwc wrote:
Thu Apr 26, 2018 8:41 pm
I'm in a 401k that is pretty poor with high overall expense ratios.

Right now, I'm pretty much all in on the John Hancock 500 Index fund which has an expense ratio of 1.13.

Recently John Hancock added a Total Stock Market fund with an expense ratio of 1.18.

I would probably prefer to be in the TSM fund, but I wonder: Do the 5 basis points matter in the long run? Or do the benefits of a TSM fund make up for the (minimal) extra fee?

Doesn't really matter, but I also have the Vanguard Total International Index available for 1.21 and the Vanguard Total Bond for 1.15.

Those are horrible expense ratios, John Hancock must be ashamed of themselves.

llmgwc wrote:May use them sometime, but what I'm really tryin to decide here is between 500 Index and a minimally more expensive TSM.

Thanks!
That's a very close call, either choice would be reasonable, I don't think this is anything other than a guess. Don't spend a lot of time worrying about this choice.

1) Certainly contribute enough to get the full employer match offered each year.

2) Also contribute to an IRA at a low cost provider like Vanguard, if you are eligible.

3) The expenses in your 401k are not so high that you should omit contributions beyond the match.

Please see the wiki article "Prioritizing investments".

Ask the owner/manager to consider a new plan provider other than John Hancock, for lower fees. Point out how much the current high expenses cost anyone using the plan, and how much money could be saved. Remember that management is paying the same horrible expenses as you are, so probably can be persuaded.

Low cost 401k plan providers for small businesses include Employee Fiduciary, Vanguard, and Fidelity.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

llmgwc
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Re: Does a 5 basis points difference matter when deciding between 500 Index and TSM?

Post by llmgwc » Fri Apr 27, 2018 5:42 pm

TIAX wrote:
Fri Apr 27, 2018 8:03 am
llmgwc wrote:
Thu Apr 26, 2018 9:15 pm
Epsilon Delta wrote:
Thu Apr 26, 2018 9:11 pm
I think I'd stick with the cheaper 500 Index and settle for highway robbery without the extra side of insult.

If my other money outside of this 401k that could be used for a completion index such as Vanguard extended market I would definitely use the 500 Index.

I'd also check that the 500 Index was the lowest ER fund in the 401k, if not that would change my answer.
i have all of our other accounts with Vanguard and use their TSM plus Total international index to complete our portfolio. The 500 index fund is the lowest ER in the 401k, unfortunately.
Perhaps you didn't understand the comment. The suggestion was to use the Vanguard Extended Market Index Fund, which is a complement to the S&P 500 index. See the BH wiki on approximating the total stock market using these two funds.
Sorry, just saw this reply. I've considered adding an extended market fund in the past, but I've resisted due to the (perceived) extra effort it would require when it comes to rebalancing...

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Re: Does a 5 basis points difference matter when deciding between 500 Index and TSM?

Post by llmgwc » Fri Apr 27, 2018 5:47 pm

ruralavalon wrote:
Fri Apr 27, 2018 10:41 am
llmgwc wrote:
Thu Apr 26, 2018 8:41 pm
I'm in a 401k that is pretty poor with high overall expense ratios.

Right now, I'm pretty much all in on the John Hancock 500 Index fund which has an expense ratio of 1.13.

Recently John Hancock added a Total Stock Market fund with an expense ratio of 1.18.

I would probably prefer to be in the TSM fund, but I wonder: Do the 5 basis points matter in the long run? Or do the benefits of a TSM fund make up for the (minimal) extra fee?

Doesn't really matter, but I also have the Vanguard Total International Index available for 1.21 and the Vanguard Total Bond for 1.15.

Those are horrible expense ratios, John Hancock must be ashamed of themselves.

llmgwc wrote:May use them sometime, but what I'm really tryin to decide here is between 500 Index and a minimally more expensive TSM.

Thanks!
That's a very close call, either choice would be reasonable, I don't think this is anything other than a guess. Don't spend a lot of time worrying about this choice.

1) Certainly contribute enough to get the full employer match offered each year.

2) Also contribute to an IRA at a low cost provider like Vanguard, if you are eligible.

3) The expenses in your 401k are not so high that you should omit contributions beyond the match.

Please see the wiki article "Prioritizing investments".

Ask the owner/manager to consider a new plan provider other than John Hancock, for lower fees. Point out how much the current high expenses cost anyone using the plan, and how much money could be saved. Remember that management is paying the same horrible expenses as you are, so probably can be persuaded.

Low cost 401k plan providers for small businesses include Employee Fiduciary, Vanguard, and Fidelity.
Thanks for the advice! Going to spend some time on the "Prioritizing Investments" wiki and try to wrap my head around this thing. I like the idea above to make my 401k account my "bond" account to lower fees, and will probably implement those principles here pretty soon.

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JoMoney
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Re: Does a 5 basis points difference matter when deciding between 500 Index and TSM?

Post by JoMoney » Fri Apr 27, 2018 5:51 pm

llmgwc wrote:
Thu Apr 26, 2018 8:41 pm
... do the benefits of a TSM fund make up for the (minimal) extra fee?...
Personally, I'm one of the few who actually prefers the 500 index over TSM, but I really don't believe they're different in a way that makes much of a difference. I would consider switching from 500 to TSM if it was a couple basis points cheaper and didn't create a taxable event.
Out of curiosity, what are the "benefits" you believe TSM offers over the 500 index ?
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

TIAX
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Re: Does a 5 basis points difference matter when deciding between 500 Index and TSM?

Post by TIAX » Fri Apr 27, 2018 5:54 pm

llmgwc wrote:
Fri Apr 27, 2018 5:42 pm
Sorry, just saw this reply. I've considered adding an extended market fund in the past, but I've resisted due to the (perceived) extra effort it would require when it comes to rebalancing...
I certainly appreciate the importance of simplicity. But the extended market fund was made exactly for these situations and I doubt it will add more than a few minutes a year when doing your rebalancing. I would consider it if you decide to use the S&P 500 fund.

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Re: Does a 5 basis points difference matter when deciding between 500 Index and TSM?

Post by ExitStageLeft » Fri Apr 27, 2018 6:08 pm

Anyone stuck with a 401k program like OP has is deserving of our sympathy. I don't have personal experience in setting up 401k providers, but my experience with execs is that you won't find much support if you come to them with a problem. Come to them with a solution, on the other hand, and you'll get a much more enthusiastic response. Show them how the solution impacts their pocket book and you will likely have a sponsor.

Good luck!

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Re: Does a 5 basis points difference matter when deciding between 500 Index and TSM?

Post by randomizer » Fri Apr 27, 2018 8:14 pm

Wow. That is some serious scumbaggery.
75:25 — HODL the course!

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Re: Does a 5 basis points difference matter when deciding between 500 Index and TSM?

Post by unclescrooge » Sat Apr 28, 2018 12:44 am

llmgwc wrote:
Fri Apr 27, 2018 6:14 am
MrBeaver wrote:
Fri Apr 27, 2018 6:03 am
llmgwc wrote:
Fri Apr 27, 2018 5:28 am
Silly Wabbit wrote:
Thu Apr 26, 2018 10:35 pm
Talk to your plan administrator. Those fees are outrageous.
I should clarify, those are the TOTAL fees, not the expense ratio only.

The plan has 1.1% fee + expense ratio, I.e., Vanguard Total Bond Index is .04% + 1.1% = 1.15% total fee.

The 1.1% fee is broken down further to:
.55% - John Hancock fee
.55% - 3rd party administrators fee (people who actually run the plan)

Still high I know, but maybe doesn’t look so bad now?
I don’t know what balance you have or what your salary is, but an extra 1%+ is outrageous. I would go to HR, your plan administrator, and tell your boss that your company 401k is costing you an extra $5000 per year (for 500k balance) above what other employers would, so you expect that to be fixed in your plan or to have your total compensation raised to adjust for that.
Balance is low 6-figures as well as salary. Work in a small medical office with ~10 employees. The 401k was in place prior to the current owner. There is a match up to 5% and profit sharing (which combined came out to around $15k last year). My concern is complaining about it could open a can of worms where the employer does their due diligence and realizes the plan (or ANY plan) is more expensive than it's worth and gets rid of the benefit altogether (have no idea if that's the case, but it worries me).

Feel a little stuck :|
My wife is a junior partner at a small medical firm. We are in the same boat. Complaining to the senior partner has had little effect.

Also, her selection choices are truly bottom of the barrel. The large cap fund was in the bottom 10% over the past several years.

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