Another "help me pick funds in this terrible 401K" thread

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middistancerunner
Posts: 289
Joined: Tue Aug 19, 2014 12:02 am

Another "help me pick funds in this terrible 401K" thread

Post by middistancerunner » Mon Aug 27, 2018 6:42 pm

Asking for my younger brother, who is just starting his first really good job. It's a smaller firm, so the 401K isn't exactly amazing, but it does have a match (for up to 5% of income) so he plans to contribute at least to get that.

Emergency funds: None, depleted by cross-country move for new job
Debt: About 14K in student loans (low interest rate) - will be paid off within the year
Marginal Tax Rate: Filing single, 22% Federal, 9% State
Age: 29
Desired Asset allocation: aggressive, has a solid history of putting money into his Roth and not looking at account balances or changing allocations

Current retirement assets
around $30,000 in a Vanguard Roth IRA, currently invested in VGHCX, Vanguard Health Care Fund.
He has paused contributions during the move but will restart them soon.

401K
Is with mykplan.com
May have some fees, but can't see details in prospectus
He puts in 5%, they put in 4%. Total going into 401K to start will thus be $7200 per year.

*******************************************************************************************************************
401K options:

State Street Target Retirement 2015 Sec Lending Series Fund - Class IX/ Target-Date (ER 0.62%)
State Street Target Retirement 2020 Sec Lending Series Fund - Class IX/ Target-Date (ER 0.62%)
State Street Target Retirement 2025 Sec Lending Series Fund - Class IX/ Target-Date (ER 0.62%)
State Street Target Retirement 2030 Sec Lending Series Fund - Class IX/ Target-Date (ER 0.62%)
State Street Target Retirement 2035 Sec Lending Series Fund - Class IX/ Target-Date (ER 0.62%)
State Street Target Retirement 2040 Sec Lending Series Fund - Class IX/ Target-Date (ER 0.62%)
State Street Target Retirement 2045 Sec Lending Series Fund - Class IX/ Target-Date (ER 0.62%)
State Street Target Retirement 2050 Sec Lending Series Fund - Class IX/ Target-Date (ER 0.62%)
State Street Target Retirement 2055 Sec Lending Series Fund - Class IX/ Target-Date (ER 0.62%)

(Benchmarks for the target date funds above are Morningstar Lifetime Moderate 2015-Morningstar Lifetime Moderate 2055)

State Street Target Retirement Income Sec Lending Series Fund - Class IX/ Target-Date (ER 0.62%)
Benchmark – Morningstar Lifetime Moderate Income

Invesco Stable Asset Fund/ Stable Value (ER 1.08%)
Benchmark – USTREAS T-Bill Cnst Mat Rate 3 Yr

JPMorgan Government Bond Fund - Class A/ Intermediate Government (ER 0.75%)
Benchmark – BarCap US Government TR USD
You are allowed 1 transfers in and out of the fund within 60 days. Once you reach this restriction you will be blocked from future transfers into this fund for 90 days.

PIMCO Total Return Fund - Class A/ Intermediate-Term Bond (ER 0.85%)
Benchmark – Barclays US Agg Bond TR USD

Franklin Strategic Income Fund - Class A/ Multisector Bond (ER 0.89%)
Benchmark – BarCap US Universal TR USD

Ivy High Income Fund - Class A/ High Yield Bond (ER 0.95%)
Benchmark – BofAML US HY Master II TR USD
Transfers into this fund are not permitted for 60 days after you transfer out of the fund.

Legg Mason BW Global Opportunities Bond Fund - Class A/ World Bond (ER 0.95%)
Benchmark – Citi WGBI NonUSD USD

BlackRock Global Allocation Fund, Inc. - Investor A Class/ Risk Based (ER 1.08%)
Benchmark – Morningstar Global Allocation TR USD index

Nuveen Strategy Balanced Allocation Fund - Class A/ Risk Based (ER 1.17%)
Benchmark – Morningstar Moderate Target Risk
You are allowed 2 transfers in and out of the fund within 60 days. Once you reach this restriction you will be blocked from future transfers into this fund for 0 days.

Thornburg Investment Income Builder Fund - Class R4/ Risk Based (ER 1.60%)
Benchmark – Morningstar Global Allocation TR USD index

Davis Appreciation & Income Fund - Class A/ Aggressive Allocation (ER 1.02%)
Benchmark – Morningstar Moderately Aggr Target Risk
Transfers into this fund are not permitted for 30 days after you transfer out of the fund.

BlackRock Equity Dividend Fund - Investor A Class/ Large Value (ER 0.98%)
Benchmark – Russell 1000 Value TR USD

Invesco Comstock Fund - Class A/ Large Value (ER 0.84%)
Benchmark – Russell 1000 Value TR USD
Transfers into this fund are not permitted for 30 days after you transfer out of the fund.

Lord Abbett Fundamental Equity Fund - Class A/ Large Value (ER 0.96%)
Benchmark – Russell 1000 Value TR USD

Neuberger Berman Large Cap Value Fund - Advisor Class/ Large Value (ER 1.21%)
Benchmark – Russell 1000 Value TR USD

Neuberger Berman Sustainable Equity Fund - Trust Class/ Large Blend (ER 1.02%)
Benchmark – Russell 1000 TR USD

BlackRock Large Cap Focus Growth Fund - Class A/ Large Growth (ER 1.13%)
Benchmark – Russell 1000 Growth TR USD

Franklin Growth Fund - Class A/ Large Growth (ER 0.87%)
Benchmark – Russell 1000 Growth TR USD

BlackRock Mid Cap Dividend Fund - Class A/ Mid-Cap Value (ER 1.10%)
Benchmark – Russell Mid Cap Value TR USD

Goldman Sachs Mid Cap Value Fund - Class A/ Mid-Cap Value (ER 1.16%)
Benchmark – Russell Mid Cap Value TR USD
You are allowed 2 transfers in and out of the fund within 90 days. Once you reach this restriction you will be blocked from future transfers into this fund for 90 days.

Neuberger Berman Mid Cap Growth Fund - Advisor Class/ Mid-Cap Growth (ER 1.24%)
Benchmark – Russell Mid Cap Growth TR USD

Nuveen Mid Cap Growth Opportunities Fund - Class A/ Mid-Cap Growth (ER 1.17%)
Benchmark – Russell Mid Cap Growth TR USD
You are allowed 2 transfers in and out of the fund within 60 days. Once you reach this restriction you will be blocked from future transfers into this fund for 0 days.

Victory Munder Mid-Cap Core Growth Fund - Class A/ Mid-Cap Growth (ER 1.31%)
Benchmark – Russell Mid Cap Growth TR USD
You are allowed 2 transfers in and out of the fund within 90 days. Once you reach this restriction you will be blocked from future transfers into this fund for 90 days.

Franklin Small Cap Value Fund - Class A/ Small Value (ER 1.05%)
Benchmark – Russell 2000 Value TR USD

Royce Total Return Fund - Service Class/ Small Blend (ER 1.50%)
Benchmark – Russell 2000 TR USD

Lord Abbett Alpha Strategy Fund - Class A/ Small Growth (ER 1.57%)
Benchmark – Russell 2000 Growth TR USD

Templeton Foreign Fund - Class A/ Foreign Large Value (ER 1.10%)
Benchmark – MSCI ACWI Ex USA Value NR USD

Thornburg International Value Fund - Class R4/ Foreign Large Blend (ER 1.25%)
Benchmark – MSCI AC World Ex USA NR USD

Neuberger Berman International Select Fund - Class A/ Foreign Large Growth (ER 1.16%)
Benchmark – MSCI ACWI Ex USA Growth NR USD - Foreign Large Growth

Columbia Acorn International Fund - Class A/ Foreign Small/Mid Growth (ER 1.24%)
Benchmark – MSCI World Ex USA SMID NR USD
You are allowed 1 transfers in and out of the fund within 30 days. Once you reach this restriction you will be blocked from future transfers into this fund for 30 days.

Invesco European Growth Fund - Class A/ Europe Stock (ER 1.40%) Benchmark – MSCI Europe NR USD
Transfers into this fund are not permitted for 30 days after you transfer out of the fund.

BlackRock Emerging Markets Fund, Inc. - Investor A Class/ Diversified Emerging Mkts (ER 1.24%)
Benchmark – MSCI EM NR USD

Davis Financial Fund - Class A/ Financial (ER 0.98%)
Benchmark – S&P 1500 Financials TR
Transfers into this fund are not permitted for 30 days after you transfer out of the fund.

State Street REIT Index Non-Lending Series Fund - Class G/ Real Estate (ER 0.59%)
Benchmark – S&P United States REIT TR USD

Columbia Seligman Communications and Information Fund - Class A/ Technology (ER 1.27%)
Benchmark – Morningstar SEC/Technology TR USD
You are allowed 1 transfers in and out of the fund within 30 days. Once you reach this restriction you will be blocked from future transfers into this fund for 30 days.

Franklin Utilities Fund - Class A/ Utilities (ER 0.73%)
Benchmark – S&P 1500 Utilities TR

*******************************************************************************************************************

Questions/Comments:
1. The plan should be mostly set-and-forget... he will likely choose these options and only revisit if prompted to think about it (i.e., by me).
2. He is open to changing what's in his Roth - the Health Care fund was a decision made in his early 20s and he has expressed that he would be happy to move towards more diversification.
3. To me the obvious choice in the 401K seems to either be a State Street Target Date fund, or maybe something like the JPMorgan Government Bond Fund? I can't find anything online about the State Street funds (no ticker symbol provided) which seems weird, so hard to know if they are any good. According to the prospectus, they tend to underperform their benchmarks significantly, i.e., for 1 year/5 year/10 year/inception:

State Street Target Retirement 2045 Sec Lending Series Fund - Class IX/ Target-Date
9.90% 8.70% 6.93% 6.35%
Benchmark – Morningstar Lifetime Moderate 2045
10.96% 9.39% 7.28% 10.13%
State Street Target Retirement 2050 Sec Lending Series Fund - Class IX/ Target-Date
9.89% 8.70% 6.97% 5.27%
Benchmark – Morningstar Lifetime Moderate 2050
11.00% 9.35% 7.22% 10.13%

4. Alternatively, he could put bonds in the 401K, and stocks in his Roth. (I.e., the JPMorgan Government Bond Fund) The problem with that is that it isn't set and forget... eventually his bond allocation will probably grow too large due to greater 401K than roth contributions, and he'll have to figure out something else in his 401K.
5. What does "Sec Lending Series Fund" on the State Street funds mean?
6. What's the deal with these notes about transfers into and out of the fund? If he is on auto-contribute from paycheck semi-monthly, how does a restriction like "You are allowed 1 transfers in and out of the fund within 60 days." work?

Basically, sincerely hoping for some advice for him regarding what to choose for the 401K. Thank you very much in advance!
Last edited by middistancerunner on Mon Aug 27, 2018 7:09 pm, edited 1 time in total.

ExitStageLeft
Posts: 1798
Joined: Sat Jan 20, 2018 4:02 pm

Re: Another "help me pick funds in this terrible 401K" thread

Post by ExitStageLeft » Mon Aug 27, 2018 7:00 pm

I would recommend going with the State Street 2055 fund and be done with it. He should do the same for his Roth IRA as well and move it to a Vanguard target date fund. Then he will have an agressively balanced portfolio with excellent diversification and he won't have to worry about balancing it at all until he' ready to learn more about his investment opportunities.

I suspect the 60-days rule has to do with swapping shares from one fund to another. That is something one does when balancing and shouldn't need to be done often, even when managing your own lazy portfolio. With a target date fund it's a non-issue. That's my guess anyhow, best to confirm with the plan administrator at his company.

Topic Author
middistancerunner
Posts: 289
Joined: Tue Aug 19, 2014 12:02 am

Re: Another "help me pick funds in this terrible 401K" thread

Post by middistancerunner » Mon Aug 27, 2018 7:07 pm

ExitStageLeft wrote:
Mon Aug 27, 2018 7:00 pm
I would recommend going with the State Street 2055 fund and be done with it. He should do the same for his Roth IRA as well and move it to a Vanguard target date fund. Then he will have an agressively balanced portfolio with excellent diversification and he won't have to worry about balancing it at all until he' ready to learn more about his investment opportunities.

I suspect the 60-days rule has to do with swapping shares from one fund to another. That is something one does when balancing and shouldn't need to be done often, even when managing your own lazy portfolio. With a target date fund it's a non-issue. That's my guess anyhow, best to confirm with the plan administrator at his company.
Thank you for the response. That was my initial instinct as well, knowing him well. (He picked Vanguard health care fund at about 24 and basically just socked money into it for 4 or 5 years without ever even logging on... the original fund choice may not have been ideal but his overall behavioral patterns are going to serve him well I think.)

Only hesitation with the State Street fund is the underperformance relative to benchmark. Any thoughts on what that might mean about the fund overall? Given I have nothing else to go on, it did give me pause.

HEDGEFUNDIE
Posts: 3973
Joined: Sun Oct 22, 2017 2:06 pm

Re: Another "help me pick funds in this terrible 401K" thread

Post by HEDGEFUNDIE » Mon Aug 27, 2018 7:07 pm

Man that is a terrible 401k.
middistancerunner wrote:
Mon Aug 27, 2018 6:42 pm
3. To me the obvious choice in the 401K seems to either be a State Street Target Date fund, or maybe something like the JPMorgan Government Bond Fund? I can't find anything online about the State Street funds (no ticker symbol provided) which seems weird, so hard to know if they are any good. According to the prospectus, they tend to underperform their benchmarks significantly, i.e., for 1 year/5 year/10 year/inception:

State Street Target Retirement 2045 Sec Lending Series Fund - Class IX/ Target-Date
9.90% 8.70% 6.93% 6.35%
Benchmark – Morningstar Lifetime Moderate 2045
10.96% 9.39% 7.28% 10.13%
State Street Target Retirement 2050 Sec Lending Series Fund - Class IX/ Target-Date
9.89% 8.70% 6.97% 5.27%
Benchmark – Morningstar Lifetime Moderate 2050
11.00% 9.35% 7.22% 10.13%
Subtract the ER and you are closer to the benchmark. not entirely but closer.
middistancerunner wrote:
Mon Aug 27, 2018 6:42 pm
4. Alternatively, he could put bonds in the 401K, and stocks in his Roth. (I.e., the JPMorgan Government Bond Fund) The problem with that is that it isn't set and forget... eventually his bond allocation will probably grow too large due to greater 401K than roth contributions, and he'll have to figure out something else in his 401K.
Just do the target date fund
middistancerunner wrote:
Mon Aug 27, 2018 6:42 pm

5. What does "Sec Lending Series Fund" on the State Street funds mean?
It means they lend out the securities in the fund to generate more income, apparently not to your benefit, given the high ER.
middistancerunner wrote:
Mon Aug 27, 2018 6:42 pm

6. What's the deal with these notes about transfers into and out of the fund? If he is on auto-contribute from paycheck semi-monthly, how does a restriction like "You are allowed 1 transfers in and out of the fund within 60 days." work?
This is restriction on how often you can change investment choices, not on the deposits themselves. Since you want this to be set-and-forget, this doesn't apply to you.

retiredjg
Posts: 39026
Joined: Thu Jan 10, 2008 12:56 pm

Re: Another "help me pick funds in this terrible 401K" thread

Post by retiredjg » Mon Aug 27, 2018 7:12 pm

It appears the employers are passing on the cost of the plan to the employees....then making it up with a match.

I'd use the plan for sure. Probably one of the target funds - chosen by the stock to bond ratio instead of date. Adjust the rest of his portfolio to work with this.

It's not pretty, but certainly not as ugly as many we've seen. He should just invest and be happy he has a usable plan and a match both. Everybody should be so fortunate.

Topic Author
middistancerunner
Posts: 289
Joined: Tue Aug 19, 2014 12:02 am

Re: Another "help me pick funds in this terrible 401K" thread

Post by middistancerunner » Mon Aug 27, 2018 7:16 pm

retiredjg wrote:
Mon Aug 27, 2018 7:12 pm
It appears the employers are passing on the cost of the plan to the employees....then making it up with a match.

I'd use the plan for sure. Probably one of the target funds - chosen by the stock to bond ratio instead of date. Adjust the rest of his portfolio to work with this.

It's not pretty, but certainly not as ugly as many we've seen. He should just invest and be happy he has a usable plan and a match both. Everybody should be so fortunate.
Agree, and sorry if it came off wrong. The firm is small enough that when he took the job he was unsure there would be a 401K, so that there is one with a match was a pleasant surprise. They are clearly trying with their benefits - also have a good health plan. He's over the moon about the new job and not complaining.

I am having an actually difficult time figuring out where to look for the ratio of stocks to bonds in the State Street fund (I found a similar fund online, but it didn't specify), though I guess I could assume it's the same as the Morningstar benchmark?

Edit: Nevermind, found it here I think, assuming "Class K" has the same allocation (https://www.ssgafunds.com/product/fund. ... cker=SSDQX)
Last edited by middistancerunner on Mon Aug 27, 2018 7:27 pm, edited 1 time in total.

Topic Author
middistancerunner
Posts: 289
Joined: Tue Aug 19, 2014 12:02 am

Re: Another "help me pick funds in this terrible 401K" thread

Post by middistancerunner » Mon Aug 27, 2018 7:20 pm

HEDGEFUNDIE wrote:
Mon Aug 27, 2018 7:07 pm
Man that is a terrible 401k.
middistancerunner wrote:
Mon Aug 27, 2018 6:42 pm
3. To me the obvious choice in the 401K seems to either be a State Street Target Date fund, or maybe something like the JPMorgan Government Bond Fund? I can't find anything online about the State Street funds (no ticker symbol provided) which seems weird, so hard to know if they are any good. According to the prospectus, they tend to underperform their benchmarks significantly, i.e., for 1 year/5 year/10 year/inception:

State Street Target Retirement 2045 Sec Lending Series Fund - Class IX/ Target-Date
9.90% 8.70% 6.93% 6.35%
Benchmark – Morningstar Lifetime Moderate 2045
10.96% 9.39% 7.28% 10.13%
State Street Target Retirement 2050 Sec Lending Series Fund - Class IX/ Target-Date
9.89% 8.70% 6.97% 5.27%
Benchmark – Morningstar Lifetime Moderate 2050
11.00% 9.35% 7.22% 10.13%
Subtract the ER and you are closer to the benchmark. not entirely but closer.
middistancerunner wrote:
Mon Aug 27, 2018 6:42 pm
4. Alternatively, he could put bonds in the 401K, and stocks in his Roth. (I.e., the JPMorgan Government Bond Fund) The problem with that is that it isn't set and forget... eventually his bond allocation will probably grow too large due to greater 401K than roth contributions, and he'll have to figure out something else in his 401K.
Just do the target date fund
middistancerunner wrote:
Mon Aug 27, 2018 6:42 pm

5. What does "Sec Lending Series Fund" on the State Street funds mean?
It means they lend out the securities in the fund to generate more income, apparently not to your benefit, given the high ER.
middistancerunner wrote:
Mon Aug 27, 2018 6:42 pm

6. What's the deal with these notes about transfers into and out of the fund? If he is on auto-contribute from paycheck semi-monthly, how does a restriction like "You are allowed 1 transfers in and out of the fund within 60 days." work?
This is restriction on how often you can change investment choices, not on the deposits themselves. Since you want this to be set-and-forget, this doesn't apply to you.
This is all helpful and exactly what I was looking for. Thank you!

HEDGEFUNDIE
Posts: 3973
Joined: Sun Oct 22, 2017 2:06 pm

Re: Another "help me pick funds in this terrible 401K" thread

Post by HEDGEFUNDIE » Mon Aug 27, 2018 7:25 pm

You're welcome.

In case you wanted to learn about the Morningstar Lifetime Index:

https://www.morningstar.com/content/dam ... t_2017.pdf

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