Help w/3 Fund Selections from Employer

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Topic Author
lexaunculpt
Posts: 7
Joined: Sun Sep 02, 2018 6:15 pm

Help w/3 Fund Selections from Employer

Post by lexaunculpt » Sun Sep 02, 2018 7:29 pm

After great advice here, I finished the Boglehead’s “Guide to the 3 fund Portfolio” and I'm ready to get started. I’m looking into the options available from my employer and wanted to see if I could get recommendations for the 3 (stock, bond, international) from what I have available to select. I’m hoping to see if I’m on the right general path.

https://nationwidefinancial.com/iApp/pu ... =725059565

Emergency funds: Finishing up 3 months of funds shortly
Debt: No debt but Mortgage (@3.625%)
Tax Filing Status: Married
Tax Rate: Unsure (sorry!) Wife and I gross about 200k total (both members of teacher retirement system- CALSTRS)
State of Residence: California
Age: 39
Desired Asset allocation: 60% stocks / 30% bonds
Desired International allocation: not sure

Is there an employer match offered in your work-based plan? If so what is it? How much (in dollars) do you have to contribute annually to get the full employer match each year?
No match. I am part of a traditional Defined Benefit Plan where the benefit is calculated from a formula (years served x 2% x final year salary) and everything I'm doing is to supplement that plan.

Do you have any debt? If so what types, amounts, and interest rates?
Mortgage only. 685k/30 year load @3.625%

Is there a High Deductible Health Plan (HDHP) offered at work, iso that you are eligible to use a Health Savings Account (HSA)?
I'm not sure about this... I use my wife's health plan and get a stipend of about $250/month.

About how much (in dollars) do you believe that you can contribute to investing annually?
Somewhere between 1500-2500/month (18k/30k a year)
(I have a strong desire to pay down the home loan although I suspect that is a peace of mind thing and not pragmatic or mathematically intelligent)

What are the relative sizes of all accounts, in other words what percentage of the total portfolio is in each account?
45k w/EJ (ack!) that is in 529s for my 2 kids (age 5 and 7) and an IRA
& 25k in the 403(b) from my work (which isn't currently in index funds... just a mix of mutual funds that I'm planning to get out of as soon as I understand what the next moves are)

Thank you!
Last edited by lexaunculpt on Mon Sep 03, 2018 3:39 pm, edited 2 times in total.

b42
Posts: 341
Joined: Thu Apr 11, 2013 7:00 pm

Re: Help w/3 Fund Selections from Employer

Post by b42 » Sun Sep 02, 2018 8:46 pm

Welcome to the forums!

Do you have a general projection of what you think you and your wife's future pensions will be worth at retirement? That will affect how much risk you need to take.

Most of the funds on the Nationwide site aren't too great, but I do see some Vanguard funds like the 500 Index. If you think of all your accounts as one big portfolio, you could go 100% Vanguard S&P 500 Index in your employer's plan, and then balance that out with your IRA and put the bonds and international stocks there.

miles monroe
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Re: Help w/3 Fund Selections from Employer

Post by miles monroe » Sun Sep 02, 2018 10:11 pm

holy smokes, didya look at that list?

vanguard sp500:

0.04 expense ratio
0.65 extra admin fee charged by nationwide

0.69 total expense ratio

there oughta be a law.

gostars
Posts: 439
Joined: Mon Oct 09, 2017 7:53 pm

Re: Help w/3 Fund Selections from Employer

Post by gostars » Sun Sep 02, 2018 10:48 pm

80% Vngrd 500 Index Fd AS + 20% Fid SpartExtdMktIndxAdvtg would give you total stock market. NW Intl Indx A is the only international fund I would consider, and that's only if the initial purchase fee is waived in the plan. PIMCO Ttl Rtn Inst is a decent bond fund in spite of the relatively high ER. I would prefer a low-cost aggregate bond index fund, but in the absence of that, I wouldn't mind using PIMCO Total Return. However, given how crappy your plan is in general, fees are going to eat a lot of the returns there, so I'd probably stick to the stock funds and hold bonds elsewhere. I'd also complain long and loud to whoever is responsible for picking the retirement plan, because that is a lousy plan.

Topic Author
lexaunculpt
Posts: 7
Joined: Sun Sep 02, 2018 6:15 pm

Re: Help w/3 Fund Selections from Employer

Post by lexaunculpt » Sun Sep 02, 2018 11:22 pm

Welcome to the forums!
Thanks! I'm excited!

Do you have a general projection of what you think you and your wife's future pensions will be worth at retirement? That will affect how much risk you need to take.

I've been crunching the numbers and it's quite hard to ascertain because I teach a lot of extra classes beyond my contract (and at other schools) so it's a weird calculation. I guess I'm operating a bit on the assumption that "it will be nice if I actually get my pension - but I can't count on anything!"

Most of the funds on the Nationwide site aren't too great, but I do see some Vanguard funds like the 500 Index. If you think of all your accounts as one big portfolio, you could go 100% Vanguard S&P 500 Index in your employer's plan, and then balance that out with your IRA and put the bonds and international stocks there.

Does that mean that the Bond options are sub-par so I should just only go for the Vanguard *knowing* that I'll balance it out elsewhere (outside of this particular account)?

Thanks for helping a complete newbie!

Topic Author
lexaunculpt
Posts: 7
Joined: Sun Sep 02, 2018 6:15 pm

Re: Help w/3 Fund Selections from Employer

Post by lexaunculpt » Sun Sep 02, 2018 11:28 pm

gostars wrote:
Sun Sep 02, 2018 10:48 pm
80% Vngrd 500 Index Fd AS + 20% Fid SpartExtdMktIndxAdvtg would give you total stock market. NW Intl Indx A is the only international fund I would consider, and that's only if the initial purchase fee is waived in the plan. PIMCO Ttl Rtn Inst is a decent bond fund in spite of the relatively high ER. I would prefer a low-cost aggregate bond index fund, but in the absence of that, I wouldn't mind using PIMCO Total Return. However, given how crappy your plan is in general, fees are going to eat a lot of the returns there, so I'd probably stick to the stock funds and hold bonds elsewhere. I'd also complain long and loud to whoever is responsible for picking the retirement plan, because that is a lousy plan.
As a total newbie, what is it that makes it such a "lousy plan?" Is it the choices that are lousy or that they have extra expenses tacked on by Nationwide?

gostars
Posts: 439
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Re: Help w/3 Fund Selections from Employer

Post by gostars » Sun Sep 02, 2018 11:54 pm

The extra expenses. If it was just the fund expenses, it would be a good plan. The 3 funds I listed from Vanguard, Fidelity, and PIMCO would be enough to make a Boglehead investor happy if there were no extra fees. With the extra fees, we would still use it for the tax advantages, but grumble about it and try to get it improved. That extra .65% adds up to huge sums of money over 25 years. It might be hard to get rid of fees entirely, but cutting it in half would probably be well into the 5 figures in difference of what you would have accumulated by retirement.

b42
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Re: Help w/3 Fund Selections from Employer

Post by b42 » Mon Sep 03, 2018 6:47 am

lexaunculpt wrote:
Sun Sep 02, 2018 11:22 pm
I've been crunching the numbers and it's quite hard to ascertain because I teach a lot of extra classes beyond my contract (and at other schools) so it's a weird calculation. I guess I'm operating a bit on the assumption that "it will be nice if I actually get my pension - but I can't count on anything!"

Most of the funds on the Nationwide site aren't too great, but I do see some Vanguard funds like the 500 Index. If you think of all your accounts as one big portfolio, you could go 100% Vanguard S&P 500 Index in your employer's plan, and then balance that out with your IRA and put the bonds and international stocks there.

Does that mean that the Bond options are sub-par so I should just only go for the Vanguard *knowing* that I'll balance it out elsewhere (outside of this particular account)?

Thanks for helping a complete newbie!
Do you have a traditional defined benefit pension where the benefit is calculated via a formula (like years served x 2% x final year salary)? Sometimes when a district offers an additional retirement plan like a 403(b), they tend to not be as great, and it may make more sense to just continue on with the pension, keep contributing to the IRAs, and then use the additional funds to pay off the mortgage earlier (or put into another cash-advantaged account like a 529 plan or HSA if offered).

The bond options offered are extremely expensive once you add in the Nationwide fee, which essentially eats away at a huge percentage of returns. So it would be better to buy the most cost-effective fund in each account rather than to try to get everything in each account.

Topic Author
lexaunculpt
Posts: 7
Joined: Sun Sep 02, 2018 6:15 pm

Re: Help w/3 Fund Selections from Employer

Post by lexaunculpt » Mon Sep 03, 2018 10:14 am

b42 wrote:
Mon Sep 03, 2018 6:47 am
lexaunculpt wrote:
Sun Sep 02, 2018 11:22 pm

Do you have a traditional defined benefit pension where the benefit is calculated via a formula (like years served x 2% x final year salary)? Sometimes when a district offers an additional retirement plan like a 403(b), they tend to not be as great, and it may make more sense to just continue on with the pension, keep contributing to the IRAs, and then use the additional funds to pay off the mortgage earlier (or put into another cash-advantaged account like a 529 plan or HSA if offered).

The bond options offered are extremely expensive once you add in the Nationwide fee, which essentially eats away at a huge percentage of returns. So it would be better to buy the most cost-effective fund in each account rather than to try to get everything in each account.
Yes, exactly.... It's a traditional defined benefit with the formula you listed. If the 403b offered is weak, do you mean that I should just open my own account at Vanguard and make contributions to it (blowing off the 403b offered by the district) or do you mean that I should only purchase the Vanguard SP500 funds from my employer and get the bonds elsewhere due to the fees?

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ruralavalon
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Location: Illinois

Re: Help w/3 Fund Selections from Employer

Post by ruralavalon » Mon Sep 03, 2018 11:41 am

Welcome to the forum :) .

Are there other providers besides Nationwide offered in the 403b plan? If so what are the other providers?


lexaunculpt wrote:
Sun Sep 02, 2018 7:29 pm
After great advice here, I finished the Boglehead’s “Guide to the 3 fund Portfolio” and I'm ready to get started. I’m looking into the options available from my employer and wanted to see if I could get recommendations for the 3 (stock, bond, international) from what I have available to select. I’m hoping to see if I’m on the right general path.

https://nationwidefinancial.com/iApp/pu ... =725059565

Emergency funds: Finishing up 3 months of funds shortly
Debt: No debt but Mortgage (@3.625%)
Tax Filing Status: Married
Tax Rate: Unsure (sorry!) Wife and I gross about 200k total (both members of teacher retirement system- CALSTRS)
State of Residence: California
Age: 39
Desired Asset allocation: 60% stocks / 30% bonds
Desired International allocation: not sure

Current portfolio (planning to move from Edward Jones) has about 45k in it (529s and IRA)

Thank you!
Tax rate.
Here are calculators you can use to estimate your federal tax bracket. First estimate your "taxable income". money chimp, "Tax Calculator". Then use your "taxable income" to estimate your "tax bracket". Moneychimp, "Federal Tax Brackets".


Asset allocation.
In my opinion your desired stock bond allocation is within the range of what is reasonable.

I suggest around 20 - 30% of stocks in international stocks. Vanguard paper (March 2012), "Considerations for investing in non-U.S. equities". Historically, allocating 20% of an equity portfolio to non-U.S. stocks would have captured about 84% of the maximum possible diversification benefit, and allocating 30% of an equity portfolio to non-U.S. stocks would have captured about 99% of the maximum possible diversification benefit (p. 6). (You can find lots of debate here on international allocation, opinions ranging all the way from 00% to 50% of stocks in international stocks. If you want more viewpoints on international stocks please try the Google search box (upper right, this page).

That works out to about 30% bonds, 15-20% international stocks, and 50-55% domestic stocks. Asset allocation is a very personal decision. You must decide on an allocation that is comfortable for you based on your own ability, willingness and need to take risk.


Accounts and fund selection.
I suggest rolling over your IRA at Edward Jones to an IRA at a low cost provider like Vanguard or Fidelity.

I think its a good idea to switch to a three-fund type portfolio. In selecting funds strive for a combination of broad diversification (to reduce risk) and low expense ratios (to increase your net gain). To simply and easily achieve those two goals I suggest choosing funds to simulate the very well diversified, low expense ratio "three-fund portfolio". Wiki article "Three-fund portfolio". Forum discussion, "The Three-Fund Portfolio".

In my opinion the better funds to consider using in Nationwide's plan include:
1) Vanguard 500 Index Fund Admiral Shares (VFIAX) ER 0.04%;
2) American Funds EuroPacific Growth Fund R5(RERFX) ER 0.53%; and
3) PIMCO Total Return Institutional (PTTRX) ER 0.51% OR
Dodge & Cox Income Fund (DODIX) ER 0.43%

Those extra fees (0.65%) added onto the expense ratio by Nationwide are awful. Low expenses are critical to long-term investing performance. Seemingly small annual fees have a large cumulative impact over time. Here is a calculator you could use to estimate the impact of investing expenses. Bankrate.com, "Mutual fund fees calculator". Are there other providers besides Nationwide offered in the 403b plan? If so what are the other providers?

Also, low expense ratios are the best predictor of future performance. Morningstar, 8/9/10 . “If there's anything in the whole world of mutual funds that you can take to the bank, it's that expense ratios help you make a better decision. In every single time period and data point tested, low-cost funds beat high-cost funds.” “Investors should make expense ratios a primary test in fund selection. They are still the most dependable predictor of performance.”

"The expense ratio is the most proven predictor of future fund returns." "There are many other things to consider, but investors should make expense ratios their first or second screen." Morningstar, 5/5/18.

It is often better coordinate investments across all accounts, in other words treat all accounts together as a single unified portfolio, rather than view each account separately. Select just one or two of the better funds (most diversified + lower expense ratio) in the work-based account (401k, 403b, 457, TSP etc.), where the choices offered are limited. Then complete the rest of the asset allocation using the nearly unlimited or choices available in a taxable account or any IRAs. This approach lets you avoid having to use sub-par funds often found in work-based accounts like 401ks.

An S&P 500 index fund covers 81% of the U.S. stock market investing in stocks of selected large-cap and mid-cap U.S. companies, and in the 26 years since the creation of the first total stock market index fund the total return of the two types of funds has been almost identical. Morningstar, "growth of $10k" graph, VTSAX vs VFIAX. In the first 10 years the S&P 500 fund did better, in the last 10 years the total market fund did better, and over the 26 years the total market fund gave a little more return (0.11% per year), but at the cost of a little more volatility (risk): nisiprius post, in the forum discussion "Exchanging the S&P 500 for the TSM". See also Allan Roth, CBS Moneywatch, "John C. Bogle on the S&P 500 vs. the Total Stock Market". So it seems that adding a little in mid/small cap stocks trying to mimic the holdings of a total stock market fund has historically made little difference in performance.

If you want to add the Fidelity extended market fund, then an 81/19 mix of S&P 500 and extended market will approximate the content of a total stock market index fund. Wiki article, "Approximating total stock market". In my opinion this is not necessary, it is optional if you prefer to do this.


Priority.
Some additional information is needed.

Is there an employer match offered in your work-based plan? If so what is it? How much (in dollars) do you have to contribute annually to get the full employer match each year?

Do you have any debt? If so what types, amounts, and interest rates?

Is there a High Deductible Health Plan (HDHP) offered at work, iso that you are eligible to use a Health Savings Account (HSA)?

About how much (in dollars) do you believe that you can contribute to investing annually?

What are the relative sizes of all accounts, in other words what percentage of the total portfolio is in each account?

Please simply add this to your original post using the edit button, (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.

Here is a general account funding priority that usually works well for many people (when there is no high interest debt or HSA use):
1) Contribute to the work-based plans (401k, 403b, 457, TSP, etc.) enough to get the full employer match (the match is like free money, your best possible investment);
2) Contribute the maximum to an IRA, traditional or Roth (or backdoor Roth technique), depending on eligibility and personal circumstances;
3) Contribute the remainder of the maximum employee contribution to the work-based accounts; and
4) Contribute to a taxable investing account.

Please see the wiki article "Prioritizing investments".

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Duckie
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Re: Help w/3 Fund Selections from Employer

Post by Duckie » Mon Sep 03, 2018 5:20 pm

lexaunculpt wrote:I’m looking into the options available from my employer and wanted to see if I could get recommendations for the 3 (stock, bond, international) from what I have available to select.
The best options are:
  • Vanguard 500 Index 0.69% -- Large caps, 80% of US stocks
  • Fidelity Extended Market Index 0.72% -- Mid/small caps, 20% of US stocks
  • Nationwide International Index 0.95% -- Developed markets, 75% of international stocks
  • Vanguard Short-Term Bond Index 0.72% -- Short-term US bonds
  • Or Vanguard Balanced Index 0.72% -- 60% total US stocks, 40% US bonds
What you choose in this account depends on your other accounts earmarked for retirement. If you have IRAs (and you should) you could put a better international fund there.

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ruralavalon
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Location: Illinois

Re: Help w/3 Fund Selections from Employer

Post by ruralavalon » Mon Sep 03, 2018 6:00 pm

lexaunculpt wrote:
Sun Sep 02, 2018 7:29 pm
After great advice here, I finished the Boglehead’s “Guide to the 3 fund Portfolio” and I'm ready to get started. I’m looking into the options available from my employer and wanted to see if I could get recommendations for the 3 (stock, bond, international) from what I have available to select. I’m hoping to see if I’m on the right general path.

https://nationwidefinancial.com/iApp/pu ... =725059565

Emergency funds: Finishing up 3 months of funds shortly
Debt: No debt but Mortgage (@3.625%)
Tax Filing Status: Married
Tax Rate: Unsure (sorry!) Wife and I gross about 200k total (both members of teacher retirement system- CALSTRS)
State of Residence: California
Age: 39
Desired Asset allocation: 60% stocks / 30% bonds
Desired International allocation: not sure

Is there an employer match offered in your work-based plan? If so what is it? How much (in dollars) do you have to contribute annually to get the full employer match each year?
No match. I am part of a traditional Defined Benefit Plan where the benefit is calculated from a formula (years served x 2% x final year salary) and everything I'm doing is to supplement that plan.

Do you have any debt? If so what types, amounts, and interest rates?
Mortgage only. 685k/30 year load @3.625%

Is there a High Deductible Health Plan (HDHP) offered at work, iso that you are eligible to use a Health Savings Account (HSA)?
I'm not sure about this... I use my wife's health plan and get a stipend of about $250/month.

About how much (in dollars) do you believe that you can contribute to investing annually?
Somewhere between 1500-2500/month (18k/30k a year)
(I have a strong desire to pay down the home loan although I suspect that is a peace of mind thing and not pragmatic or mathematically intelligent)

What are the relative sizes of all accounts, in other words what percentage of the total portfolio is in each account?
45k w/EJ (ack!) that is in 529s for my 2 kids (age 5 and 7) and an IRA
& 25k in the 403(b) from my work (which isn't currently in index funds... just a mix of mutual funds that I'm planning to get out of as soon as I understand what the next moves are)

Thank you!
How much is in the IRA at Edward Jones?

Are there other providers besides Nationwide available in your 403b plan?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

loslebenrl483
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Joined: Sun Sep 02, 2018 12:23 pm

Re: Help w/3 Fund Selections from Employer

Post by loslebenrl483 » Tue Sep 04, 2018 3:26 pm

I am glad you posted this because my 403b is through Schools First also.

I called Nationwide and asked about the funds. It turns out that I actually have access to pretty much all the Vanguard funds through the Nationwide website. Schools First doesn't convey that information because they have their own people pre-select funds they think are the best. They only show those funds.

Log onto the Nationwide retirement website with your credentials and select "research funds." If you search for Vanguard, they should all pop up.

Topic Author
lexaunculpt
Posts: 7
Joined: Sun Sep 02, 2018 6:15 pm

Re: Help w/3 Fund Selections from Employer

Post by lexaunculpt » Tue Sep 04, 2018 5:07 pm

loslebenrl483 wrote:
Tue Sep 04, 2018 3:26 pm
I am glad you posted this because my 403b is through Schools First also.

I called Nationwide and asked about the funds. It turns out that I actually have access to pretty much all the Vanguard funds through the Nationwide website. Schools First doesn't convey that information because they have their own people pre-select funds they think are the best. They only show those funds.

Log onto the Nationwide retirement website with your credentials and select "research funds." If you search for Vanguard, they should all pop up.
Thank you SO much for posting this... great to hear!

gostars
Posts: 439
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Re: Help w/3 Fund Selections from Employer

Post by gostars » Wed Sep 05, 2018 12:47 am

If they're still tacking on the .65% then all it really changes is giving you VTSAX (total US stock market) instead of needing to split into S&P 500 and extended market, and adding VTIAX as an international option. Bonds are still kind of a tossup. The .65% you'd pay in expenses on the 403b is roughly equal to what you'd be paying in taxes on a 3% return in a 22% marginal tax bracket, and the last time I checked the yields, municipal bonds don't return enough in that tax bracket to be a superior option. If rates climb, that favors holding in the 403b, but if they decline, that favors holding in taxable.

If that IRA you have at EJ is traditional, once I moved it from EJ to Fidelity or Vanguard I would use that to hold as much of the bond allocation as possible, because that would be the best place for it. Put it in FXNAX or VBTLX and use the 403b for stocks.

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ruralavalon
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Location: Illinois

Re: Help w/3 Fund Selections from Employer

Post by ruralavalon » Wed Sep 05, 2018 7:54 am

Have you checked to see what additional providers other than Nationwide are available in your employer's 403b plan?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

krow36
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Re: Help w/3 Fund Selections from Employer

Post by krow36 » Thu Sep 06, 2018 5:51 pm

ruralavalon has already mentioned this twice3 times. The usual situation with K-12 (14?) public school districts is to have a number of vendors on their 403b (457) list(s). So the question is, do you have other vendors besides Nationwide through SchoolsFirst Federal Credit Union?

Nationwide has a AMC/Net Asset fee that is added to each fund’s expense ratio (ER) so that even Vanguard’s index funds end up with a fee of over 0.70%. https://nationwidefinancial.com/iApp/pu ... =725059565

You can use the 403bcompare website (run by CalSTRS) to find out all the 403b vendors your district allows you to use. https://www.403bcompare.com/Employers/Browse
If you will copy and paste the vendor list here, we can help you decide if you have better alternatives to the Nationwide 403b plan. You should also check with your district’s HR office about any 457 plan vendors which most districts offer.

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