Please help with TIAA CREF fund picking

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asdf1234
Posts: 7
Joined: Mon May 07, 2018 5:21 pm

Please help with TIAA CREF fund picking

Post by asdf1234 » Tue May 29, 2018 5:25 pm

Hello everyone.
I recently finished school and will be starting a job in MS. I don't have much background in investment but I have been reading up and am thinking of doing either 80 stocks/20 bonds or 90/10. I need help picking funds from our 403b plan with TIAA-CREF. Any advice on which ones? The lifecycle funds would mean less management but they seem to have higher expense ratios.

Here is my financial history:
Age: 25
Student loans at 6% about 100k
Emergency funds for 3 months ($3000) in savings

Here are the available funds:
https://imgur.com/a/pIWDmVi

Here is the link to the actual list: https://www.tiaa.org/public/tcm/msorp/v ... nId=151605

Thanks!
Last edited by asdf1234 on Tue May 29, 2018 10:06 pm, edited 1 time in total.

ExitStageLeft
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Joined: Sat Jan 20, 2018 4:02 pm

Re: Please help with retirement fund picking

Post by ExitStageLeft » Tue May 29, 2018 5:45 pm

I'd pick an allocation such as 90% stocks and 10% bonds, then find the lowest expenses. This is one possibility:

90% CREF Growth Account (R2) 0.32%
10% CREF Inflation-Linked Bond Account (R2) 0.31%

pingo
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Joined: Sat Sep 19, 2009 8:24 pm

Re: Please help with retirement fund picking

Post by pingo » Tue May 29, 2018 6:43 pm

Congratulations on graduation and the new job. Awesome. Let's get you started on your retirement savings!

You have an excellent plan. Retirement plans can be soooo expensive. Yours is not.

I realize you might feel it's expensive when you see us splitting hairs over how to reduce the weighted expenses of an entrie portfolio by hundredths of a percent, but you need to know you have a great plan.

My first suggestion will possibly be negated by my last suggestion, but here goes.

The TIAA-Cref Lifecycle funds are top notch. You're done.

If you choose the fund by your expected retirement date, the asset allocation will be 95% or more in stocks and reits. That's volatile and not my recommendation.

The 2040 fund is 90% stocks/10% bonds. The 2035 fund is 80% stocks/20% bonds. Fully diversified across stocks, bonds, countries, reits, everything you need. Awesome.


Now, you could pick individual funds for to meet your asset allocation needs, but you really only save money if you skimp on diversification. Nothing automatically wrong with that but I'd be very happy with a lifecycle fund, myself.

That said, there are experienced posters who can give you input that is more insightful concerning TIAA-Cref's unique options, i.e. TIAA Traditional Annuity and TIAA Real Estate Account, which I don't know anything about. It would probably be a good idea for you to edit the title of your original post to include TIAA-CREF in the title, so those posters will come and give you their input.

asdf1234
Posts: 7
Joined: Mon May 07, 2018 5:21 pm

Re: Please help with TIAA CREF fund picking

Post by asdf1234 » Tue May 29, 2018 10:09 pm

Thanks for all the recommendations. I had a few quick questions about the lifecycle funds...
If I pick one that is not close to my retirement, what happens when it hits 2040, do I then just move the money into other index fund options? Furthermore, if I pick a lifecycle fund lets say 2040, and end up not liking it, then could I move my money into something else or am I stuck with it until 2040?
And also, do lifecycle funds change in their ratios of stocks/bonds as you get closer to retirement (more bonds and less stocks closer to retirement)? Or do the ratios just stay the same?

ExitStageLeft
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Joined: Sat Jan 20, 2018 4:02 pm

Re: Please help with TIAA CREF fund picking

Post by ExitStageLeft » Wed May 30, 2018 12:53 pm

Those are probably good questions for the plan administrator. Generally, a target date fund slowly shifts the fixed income assets higher as the target date approaches. If you opt for the 2040 today you'll have a 90/10 allocation. In five years or so, the bond portion will have inched up to 15%. So by the time 2040 rolls around you would have something resembling a 60/40 allocation. There may be more information available at the plan web site.

Because this is a retirement account you can trade one fund for another with no tax implications. There might be a small fee to do that in your plan, or it may be limited to how many trades per month. But you are not locked in should you decide something else is a better fit for your retirement goals.

The best way forward is to pick a diverse, affordable fund or funds and add to that every paycheck. Keep the contributions on auto-pilot, but bump it up every time you get a pay increase. The biggest predictor to making your retirement goals is how much you save. The best thing is to get up to the maximum contribution allowed, currently $18,500 for a single 403b account. If you have additional savings options such as a 457b plan you can add to those too, over and above the 403b limit.

pingo
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Re: Please help with TIAA CREF fund picking

Post by pingo » Wed May 30, 2018 1:26 pm

Great questions!
asdf1234 wrote:
Tue May 29, 2018 10:09 pm
Furthermore, if I pick a lifecycle fund lets say 2040, and end up not liking it, then could I move my money into something else or am I stuck with it until 2040?
Not stuck at all. The date is not a contract; it merely has to do with the fund's asset allocation "glidepath" (slow changes over the years) so that it isn't aggressively risky when one retires in 2040.
asdf1234 wrote:
Tue May 29, 2018 10:09 pm
[D]o lifecycle funds change in their ratios of stocks/bonds as you get closer to retirement (more bonds and less stocks closer to retirement)? Or do the ratios just stay the same?
Yes, they change their asset allocation, as I said. Here's a link that explains how the TIAA-CREF Lifecycle funds are designed, and where you'll find a chart showing how the assets shift over time:

TIAA-CREF Lifecycle Funds: Methodology and Design

They gradually reduce risk by gradually reducing stock exposure as the retirement year approaches. Example: the 2040 fund is currently 90% stocks and 10% bonds. By the year 2040, the fund will hold ~50-55% stocks and 45-50% bonds.
asdf1234 wrote:
Tue May 29, 2018 10:09 pm
If I pick one that is not close to my retirement, what happens when it hits 2040, do I then just move the money into other index fund options?
The answer is similar, but different. You merely "hover" around your desired asset allocation.

Looking at the 2040 and 2045 funds, I see that they currently have the same asset allocation, but that 2040 will begin adding a few more bonds over the next five years. That means that if you want to stay at 90/10, you can start with either one (probably 2045) and then move to 2050 in five years to remain at 90/10. Then, move to 2055 in another five years if you wish to avoid the shift.

I'd say to just pick a date closest to when you want to retire, but if you're, say, 40 years from retirement and pick a fund with the same year you'll retire, you'd pick a fund with less than 5% bonds. Here, we Bogleheads tend to cringe at anything less than 20% bonds.

student
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Re: Please help with retirement fund picking

Post by student » Wed May 30, 2018 1:29 pm

ExitStageLeft wrote:
Tue May 29, 2018 5:45 pm
I'd pick an allocation such as 90% stocks and 10% bonds, then find the lowest expenses. This is one possibility:

90% CREF Growth Account (R2) 0.32%
10% CREF Inflation-Linked Bond Account (R2) 0.31%
My suggestion is similar in terms of asset allocation but with the following

70% CREF Equity Index (R2) 0.30% ER. It tracks the Russell 3000.
20% CREF Global Equity (R2) 0.40% ER. It includes US market.
10% TIAA Traditional. If you are not familiar with it. Do a search on this website and you will see many threads.

asdf1234
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Joined: Mon May 07, 2018 5:21 pm

Re: Please help with TIAA CREF fund picking

Post by asdf1234 » Wed May 30, 2018 9:50 pm

Thanks for clearing that up pingo! I just wanted to be sure about those things before picking a fund.

Student:
How come you suggested the equity index and global equity instead of growth account? Also, there is no "expense ratio" for the TIAA traditional so how would I determine its cost? And I am a little worried about the traditional because of their 10 year payout but it would be nice to have a stable 3-4%

And how come no one has recommended the Columbia Mid Gap with the lowest expense ratio?

ExitStageLeft
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Re: Please help with TIAA CREF fund picking

Post by ExitStageLeft » Thu May 31, 2018 12:44 pm

asdf1234 wrote:
Wed May 30, 2018 9:50 pm
And how come no one has recommended the Columbia Mid Gap with the lowest expense ratio?
Good point. CREF Growth is a large cap fund and is not a good match for a total stock market fund which would give you much more diversification. I would approximate a fund like Vanguard Total Stock Market with the choices you have, without getting too deep into the weeds. Some Columbia Mid Cap would broaden your equities holdings, but it looks like you'd still come up short on small cap stocks but I don't see an indexed option available for small cap.

pingo
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Re: Please help with TIAA CREF fund picking

Post by pingo » Thu May 31, 2018 5:32 pm

Here is a typical-style DIY 90/10 portfolio based on your plan's asset class fund options:

60% CREF Equity Index ER 0.30 <--Tracks the Russell 3000
25% American Funds EuroPacific Growth ER 0.50 <--One of the kings of international investing at rock bottom cost
05% TIAA Real Estate ER 0.79 <--TIAA's unique real property fund; top notch; diversification
10% CREF Bond Market ER 0.37 <--'Nuff said.

Weighted ER = 0.38%

- Holds US Lg, Md, and Sm Caps
- Holds International Developed and Emerging Markets
- Eliminating TIAA Real Estate would lower the weighted ER by 4 basis points.


Compare that to the asset allocation of TIAA-CREF 2040 Lifecycle:

60% US Lg, Md and Sm Caps
26% International Developed and Emerging Markets
03% Real Estate
11% Bonds

Weighted ER = 0.44%

- Still low cost
- Couldn't be simpler
- Automatically rebalances for you
- Professional designed and managed according to best practices
- Move your money to 2045 fund in a few years to maintain ~90/10 asset allocation
Last edited by pingo on Fri Jun 01, 2018 12:58 pm, edited 1 time in total.

student
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Joined: Fri Apr 03, 2015 6:58 am

Re: Please help with TIAA CREF fund picking

Post by student » Thu May 31, 2018 6:25 pm

asdf1234 wrote:
Wed May 30, 2018 9:50 pm
Thanks for clearing that up pingo! I just wanted to be sure about those things before picking a fund.

Student:
How come you suggested the equity index and global equity instead of growth account? Also, there is no "expense ratio" for the TIAA traditional so how would I determine its cost? And I am a little worried about the traditional because of their 10 year payout but it would be nice to have a stable 3-4%

And how come no one has recommended the Columbia Mid Gap with the lowest expense ratio?
In general, I prefer index funds so I picked equity index over growth. Since I want some exposure to international and your list do not have an international index fund (as far as I can see), I picked Global.

I did not pick Columbia Mid Cap as Equity Index already covers mid cap. Equity Index track Russell 3000, which I consider close enough to a "total market" fund.

TIAA Traditional does not have a expense ratio because it is not a mutual fund. You can think if it as a CD with a long duration (for the illiquid version) or a saving account (for the liquid version). It pays you an interest rate that is bounded below by 3%.

Edit: Others have suggest a target fund, which is also an excellent choice, if you want minimal maintenance.

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oldzey
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Re: Please help with retirement fund picking

Post by oldzey » Thu May 31, 2018 6:46 pm

student wrote:
Wed May 30, 2018 1:29 pm
ExitStageLeft wrote:
Tue May 29, 2018 5:45 pm
I'd pick an allocation such as 90% stocks and 10% bonds, then find the lowest expenses. This is one possibility:

90% CREF Growth Account (R2) 0.32%
10% CREF Inflation-Linked Bond Account (R2) 0.31%
My suggestion is similar in terms of asset allocation but with the following

70% CREF Equity Index (R2) 0.30% ER. It tracks the Russell 3000.
20% CREF Global Equity (R2) 0.40% ER. It includes US market.
10% TIAA Traditional. If you are not familiar with it. Do a search on this website and you will see many threads.
+1 - this is a very reasonable suggestion by student.

If you don't use international equities (like me), you could simply do 90% CREF Equity Index and 10% TIAA Traditional.
"The broker said the stock was 'poised to move.' Silly me, I thought he meant up." ― Randy Thurman

pingo
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Joined: Sat Sep 19, 2009 8:24 pm

Re: Please help with TIAA CREF fund picking

Post by pingo » Thu May 31, 2018 6:54 pm

Student just reminded me of what I keep forgetting to address:

Columbia Mid Cap ER 0.20% is nice, since it's ER is below average, considering the options on the list. The problem is that the CREF Equity Index fund eliminates the need for mid caps.

There might still be a few adherents to Mel's Unloved Mid Caps, which would simply use Columbia Mid Cap as their sole U.S. equity holding in this plan. (Click here to search that line of threads.)

I avoided CREF Global Equity to avoid having to calculate around the U.S. equities to know what the International allocation is in the portfolio. Judging by the strategy and the current asset allocation (60% U.S. stocks), I doubt it will remain fixed in it's US/Intl ratio. Instead, it will probably hover somewhere between 50-60% US and 40-50% International.

Besides, American Funds EuroPacific Growth is an excellent international investing option that is regularly recommended and acknowledged as excellent second choice when a "total" international index fund is not available, and when the ER is relatively reasonable. (It's one case where I don't worry about the word "growth" in the title.)

Just my 2¢.

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