Help selecting bond options in 401k

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aaja
Posts: 36
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Help selecting bond options in 401k

Post by aaja » Fri Jul 13, 2018 1:41 pm

Hello,

I use the 3 fund portfolio and keep all my bond allocation in my Fidelity 401k right now. I have brokerage link available and currently, have all my bonds in FSITX (Fidelity total bond - Premium).

As an exercise, I would like to run my other options by the knowledgeable folks on this forum and get some feedback.

401K options
PIMCO TOTAL RETURN - 0.27 ER
VANG ST BD IDX IS PL (VBIPX) - 0.04 ER

Brokerage link options
AGG (iShares Barclays Aggregate Bond Fund)
FSITX (Fidelity total bond - Premium)
CD ladder
Any other?

What would you pick?

Thanks.

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ruralavalon
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Location: Illinois

Re: Help selecting bond options in 401k

Post by ruralavalon » Fri Jul 13, 2018 2:00 pm

Are there any fees for using the brokerage option? Often there are annual fees, or per transaction fees, and sometimes both.

When making contributions every pay period, even small fees can add up to destroy the benefit of a lower expense ratio you might get using the brokerage option.

Depending on the fee level for use of the brokerage option, I might simply choose to use PIMCO Total Return ER 0.27% in the 401k rather than use the brokerage option to buy iShares Core U.S. Aggregate Bond ETF (AGG) ER 0.05%. When investing for retirement my preference is for an intermediate-term bond fund. Both are good intermediate-term bond funds, well diversified, with low expense ratios.

Because Fidelity U.S. Bond Index Fund Premium Class (FSITX) is offered through the brokerage option, I would prefer that to iShares Core U.S. Aggregate Bond ETF (AGG). In my opinion traditional mutual funds are easier to use and have simpler trading mechanics than ETFs.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

aaja
Posts: 36
Joined: Mon Mar 12, 2018 9:40 pm

Re: Help selecting bond options in 401k

Post by aaja » Fri Jul 13, 2018 2:59 pm

ruralavalon wrote:
Fri Jul 13, 2018 2:00 pm
Are there any fees for using the brokerage option? Often there are annual fees, or per transaction fees, and sometimes both.

When making contributions every pay period, even small fees can add up to destroy the benefit of a lower expense ratio you might get using the brokerage option.
No fees for maintaining the account or any transaction fees. Just the regular fund fees apply which is the ERs for the fund below.

PIMCO is an actively managed fund and has a higher expense ratio and based on the principles of this forum, I do tend to stay away from such funds. Still considering it has outperformed the index going back 10-20 years I was wondering what others thought of it. At the lower expense ratio, 0.27 compared to 0.51 on morning star, is it worth keeping or would you advise against it with FSITX available as an option ?

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ruralavalon
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Location: Illinois

Re: Help selecting bond options in 401k

Post by ruralavalon » Fri Jul 13, 2018 4:23 pm

aaja wrote:
Fri Jul 13, 2018 2:59 pm
ruralavalon wrote:
Fri Jul 13, 2018 2:00 pm
Are there any fees for using the brokerage option? Often there are annual fees, or per transaction fees, and sometimes both.

When making contributions every pay period, even small fees can add up to destroy the benefit of a lower expense ratio you might get using the brokerage option.
No fees for maintaining the account or any transaction fees. Just the regular fund fees apply which is the ERs for the fund below.

PIMCO is an actively managed fund and has a higher expense ratio and based on the principles of this forum, I do tend to stay away from such funds. Still considering it has outperformed the index going back 10-20 years I was wondering what others thought of it. At the lower expense ratio, 0.27 compared to 0.51 on morning star, is it worth keeping or would you advise against it with FSITX available as an option ?
It is a hard choice because both funds are good.

In my opinion PIMCO Total Return offered in your 401k is a good choice for a bond fund. Although actively managed it is a well diversified intermediate-term bond fund with a low expense ratio. nisiprius post in forum discussion "Bond Fund for Three-Fund Portfolio", Total Bond Market vs PTTRX?. The ER of 0.27% is very low for that fund.

Morningstar, “Growth of 10k”, "PTTRX vs VBTLX". I used VBTLX for the comparison because it has a longer history than FSITX.

That low ER of 0.27% would tempt me, but generally I prefer a good index fund over a good actively managed fund. I think I would stick with Fidelity U.S. Bond Index Fund Premium Class (FSITX).
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

patrick
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Re: Help selecting bond options in 401k

Post by patrick » Fri Jul 13, 2018 6:19 pm

According to the PIMCO website, the PTTRX fund currently has 17.22% in emerging markets, and thus perhaps more risk than a "plain" bond fund. I also see negative 17.62% in "Non-USD Developed" though I'm not sure if that means they are shorting the bonds themselves, or instead shorting the currencies to hedge foreign currency bonds.

gostars
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Re: Help selecting bond options in 401k

Post by gostars » Sat Jul 14, 2018 4:14 am

FSITX is perfectly in line with BH-style investing and would be a core part of the standard portfolios for any investors using Fidelity. No reason to make any changes.

PTTRX is a good alternative for those using workplace plans that have no access to an aggregate bond index fund.

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