Collective Investment Trust choice in 401k

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workerbeeengineer
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Collective Investment Trust choice in 401k

Post by workerbeeengineer » Sat Oct 13, 2018 7:24 pm

My company is rolling out a new set of fund choices for the 401k. To help achieve a total US stock market exposure I’ll need to utilize an Extended Market Collective Investment Trust from State Street. ER is very reasonable, but I have no experience with CITs. I believe there is less transparency with CITs and daily pricing is not available. I am comfortable overall with State Street, it’s the CIT nature of the fund that makes me hesitate. Any general comments on CITs from my fellow BHs or corrections on my understanding of how CITs work? Thanks

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FiveK
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Re: Collective Investment Trust choice in 401k

Post by FiveK » Sat Oct 13, 2018 7:27 pm

workerbeeengineer wrote:
Sat Oct 13, 2018 7:24 pm
Any general comments on CITs from my fellow BHs or corrections on my understanding of how CITs work? Thanks
Megacorp's CITs have very low expense ratios and track similar Vanguard funds very well.

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JoMoney
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Re: Collective Investment Trust choice in 401k

Post by JoMoney » Sat Oct 13, 2018 7:32 pm

https://www.bogleheads.org/wiki/Collect ... ent_Trusts

https://www.bogleheads.org/blog/what-is ... ent-trust/

They are more difficult to get information on, they don't follow the disclosure requirements the SEC would require for a mutual fund.
They are regulated, but by the Office of Comptroller of Currency, who regulates Banks and Trusts.
CITs are broadly considered as safe as mutual funds. There is an argument that can be made that the regulatory compliance and fiduciary responsibility is even greater on a CIT because of the nature of it being a trust inside an ERISA account.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

workerbeeengineer
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Re: Collective Investment Trust choice in 401k

Post by workerbeeengineer » Sat Oct 13, 2018 7:37 pm

FiveK, I think you are basically telling me not to worry. If you have experience with CITs, can I ask if you receive pricing/value info on perhaps a quarterly basis? I know it’s not in keeping with BH principles to constantly monitor how one’s investments are fluctuating, but I do like to check-in periodically

workerbeeengineer
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Re: Collective Investment Trust choice in 401k

Post by workerbeeengineer » Sat Oct 13, 2018 7:39 pm

Thanks JoMoney...I should of thought to check the Wiki :oops:

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FiveK
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Re: Collective Investment Trust choice in 401k

Post by FiveK » Sat Oct 13, 2018 7:44 pm

workerbeeengineer wrote:
Sat Oct 13, 2018 7:37 pm
FiveK, I think you are basically telling me not to worry. If you have experience with CITs, can I ask if you receive pricing/value info on perhaps a quarterly basis?
Megacorp uses Fidelity for the 401k, and Quicken can get the daily fund prices from the 401k account, so that's our usual route if we want to check. We can also log on to the Fidelity NetBenefits site and check there on a daily basis if desired.

drk
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Re: Collective Investment Trust choice in 401k

Post by drk » Sat Oct 13, 2018 7:45 pm

My employer's 401k is located at Vanguard and offers CIT versions of Vanguard 500, Total International, and Total Bond. They report NAV every day at the same time as the normal investor versions. The only real differences are that they don't have a ticker and don't issue dividends. As a result, tracking is a little harder: I use the institutional class tickers to translate and update quarterly. This actually got me started using Vanguard's Portfolio Watch.

workerbeeengineer
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Re: Collective Investment Trust choice in 401k

Post by workerbeeengineer » Sat Oct 13, 2018 7:52 pm

Thanks all. I’m feeling good about the CIT choice.

Miriam2
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Re: Collective Investment Trust choice in 401k

Post by Miriam2 » Sun Oct 14, 2018 3:03 pm

workerbeeengineer wrote: . . . If you have experience with CITs, can I ask if you receive pricing/value info on perhaps a quarterly basis? I know it’s not in keeping with BH principles to constantly monitor how one’s investments are fluctuating, but I do like to check-in periodically
drk wrote: My employer's 401k is located at Vanguard and offers CIT versions of Vanguard 500, Total International, and Total Bond. They report NAV every day at the same time as the normal investor versions. The only real differences are that they don't have a ticker and don't issue dividends. As a result, tracking is a little harder: I use the institutional class tickers to translate and update quarterly. This actually got me started using Vanguard's Portfolio Watch.
This inability to track and compare CITs with mutual funds is quite annoying for me and my suspicious nature suspects they do this because they don't want us to know :shock: I'm probably wrong here, but it's annoying and not consumer/personal finance-friendly.

What I did was save my 401k fund line-up sheet with the fund tickers and then when the company changed to CITs, which have no recognized tickers, I have the exact fund ticker to use "as if they were a fund." But again, I would be looking at that fund, not my CIT.

Will Vanguard's portfolio watch work if your 401k is not at Vanguard?

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JoMoney
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Re: Collective Investment Trust choice in 401k

Post by JoMoney » Sun Oct 14, 2018 3:20 pm

FWIW, if I log in to my 401k plan (administered through Fidelity), I can get a up to date quote on the value of a CIT share, see how many shares I own, and what the purchase/sale price was on any transactions.
It's difficult to get quotes external from the plan because there is no ticker, and since dividends are not distributed (they're just reinvested internally) it makes calculating on my own difficult as well. But there doesn't seem to be any issue tracking with the index.
Several years back one of the CITs in our plan ran into issues with securities lending income being handled in a way that was not beneficial to the beneficiaries. I don't have all the details/specifics, and I didn't notice any meaningful change in the CITs value verses the index it tracks, but apparently there was some unacceptable activity related to that and resulted in a settlement payout to owners, and the plan switching to a "non-lending" class of CIT. While I don't like the idea that there was anything questionable going on at all, I'm happy that I didn't notice any issues, and that there is someone out there watching this stuff and looking out for the interest of the owners - which I think might say something about the fiduciary responsibilities in a 'Trust', and I'm not sure it would be handled the same way in a mutual fund that may not have the same fiduciary responsibilities.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

Miriam2
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Re: Collective Investment Trust choice in 401k

Post by Miriam2 » Sun Oct 14, 2018 3:34 pm

JoMoney wrote: FWIW, if I log in to my 401k plan (administered through Fidelity), I can get a up to date quote on the value of a CIT share, see how many shares I own, and what the purchase/sale price was on any transactions.
Is their automatic reinvestment of dividends a "transaction?"
JoMoney wrote:It's difficult to get quotes external from the plan because there is no ticker, and since dividends are not distributed (they're just reinvested internally) it makes calculating on my own difficult as well. But there doesn't seem to be any issue tracking with the index. . . .
I assume this means that CITs could not be used as income-producing assets, such as dividend stock funds or bond funds - one would have to sell shares of the CIT instead. Then again, if the CITs are in our 401k's, we're not using that income now anyway, so maybe the theory is that we don't need dividends as "dividends" while the CIT is in a retirement account.

My suspicious nature appears again - if the CIT reinvests the dividends automatically and it never shows on any statements, how do we know they ARE doing what they say they're doing :annoyed

peppers
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Re: Collective Investment Trust choice in 401k

Post by peppers » Sun Oct 14, 2018 3:41 pm

fwiw

My 401k is with Fidelity and I use the Brokerage Link option for some of my funds. The CIT's in the core plan are updated next day and I can see dollar and percent changes for each CIT. The CIT's track their respective indices fairly close and are almost identical to a comparable index. Example, VTSAX and my total market CIT had a difference of 0.02 after Friday's close.
"..the cavalry ain't comin' kid, you're on your own..."

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JoMoney
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Re: Collective Investment Trust choice in 401k

Post by JoMoney » Sun Oct 14, 2018 4:07 pm

Miriam2 wrote:
Sun Oct 14, 2018 3:34 pm
JoMoney wrote: FWIW, if I log in to my 401k plan (administered through Fidelity), I can get a up to date quote on the value of a CIT share, see how many shares I own, and what the purchase/sale price was on any transactions.
Is their automatic reinvestment of dividends a "transaction?"
JoMoney wrote:It's difficult to get quotes external from the plan because there is no ticker, and since dividends are not distributed (they're just reinvested internally) it makes calculating on my own difficult as well. But there doesn't seem to be any issue tracking with the index. . . .
I assume this means that CITs could not be used as income-producing assets, such as dividend stock funds or bond funds - one would have to sell shares of the CIT instead. Then again, if the CITs are in our 401k's, we're not using that income now anyway, so maybe the theory is that we don't need dividends as "dividends" while the CIT is in a retirement account.

My suspicious nature appears again - if the CIT reinvests the dividends automatically and it never shows on any statements, how do we know they ARE doing what they say they're doing :annoyed
Some people do make withdrawals from 401k accounts, not everyone rolls over to an IRA in retirement.
There's no reason you can't withdraw income from a CIT. There are Bond fund CITs.
It's only an issue if you have a mental hangup on wanting to see a dividend transaction, there's no real difference if you just make the withdrawal transaction of an equivalent amount yourself. Even with regular mutual funds, dividends are usually only done quarterly, despite different stocks paying out dividends every month.

If you look at the value of a CIT (share price) you can track it over time and compare it to the index yourself, Fidelity does in the plan with a Morningstar growth chart that can be compared to indices or other funds.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

Miriam2
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Re: Collective Investment Trust choice in 401k

Post by Miriam2 » Sun Oct 14, 2018 4:23 pm

Thank you JoMoney and peppers for your help :happy
JoMoney wrote: It's only an issue if you have a mental hangup on wanting to see a dividend transaction, there's no real difference if you just make the withdrawal transaction of an equivalent amount yourself. Even with regular mutual funds, dividends are usually only done quarterly, despite different stocks paying out dividends every month.
Yes, I still have that hangup (along with many others) :wink:

drk
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Re: Collective Investment Trust choice in 401k

Post by drk » Sun Oct 14, 2018 4:31 pm

Miriam2 wrote:
Sun Oct 14, 2018 3:34 pm
My suspicious nature appears again - if the CIT reinvests the dividends automatically and it never shows on any statements, how do we know they ARE doing what they say they're doing :annoyed
In my case, these details are all reported on the plan's annual report, and I can also check their math after the non-CIT versions' quarterly dividends.

Miriam2
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Re: Collective Investment Trust choice in 401k

Post by Miriam2 » Sun Oct 14, 2018 8:04 pm

drk wrote:
Miriam2 wrote: My suspicious nature appears again - if the CIT reinvests the dividends automatically and it never shows on any statements, how do we know they ARE doing what they say they're doing :annoyed
In my case, these details are all reported on the plan's annual report, and I can also check their math after the non-CIT versions' quarterly dividends.
Thank you drk. I need to spend more time looking at my plan and searching through the web site & documents.

FunnelCakeBob
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Re: Collective Investment Trust choice in 401k

Post by FunnelCakeBob » Sun Oct 14, 2018 11:59 pm

I think they are commonly referred to as collective funds. Conceptually they work the same way as mutual funds but only accept money from very limited sources such as your company's 401k plan and other institutions or retirement plans that agree to follow the funds' rules. The funds may limit trading to only a few days of the month (such as when contributions to retirement plans are drawn from paychecks). By restricting funding sources (particularly to retirement and pension plans that invest in the long-term rather than frequent trading) and limiting trading days, collective funds can drive more internal efficiencies than mutual funds that are open to the general retail investors. Orders to sell the fund are matched with orders to buy the fund, minimizing sale of the fund's underlying securities. As someone had pointed out, dividends are not distributed but reinvested internally

The lack of transparency does take some getting used to however. More information on your fund should be available from State Street, though not to the extent as a mutual fund. Finding daily closing price is more of a hassle as well. But it may be available from State Street'a website or if you log on to your 401k.

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Earl Lemongrab
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Re: Collective Investment Trust choice in 401k

Post by Earl Lemongrab » Mon Oct 15, 2018 2:54 pm

Megacorp uses mostly CITs, some index. They have a page on the web site that shows the performance for all of them: one month, YTD, one year, three years, and five years.

All I have to do is compare that with the total return for an equivalent index fund. The performance should be nearly identical. As an example, here is Megacorp's S&P 500 CIT compared to the Vanguard Admiral (nearly the same ER) Morningstar total return:

S&P 500 Index Fund
Year to Date 5.04%
One Month -4.07%
Twelve Month 10.54%
Three Year 13.39%
Five Year 12.45%

VFIAX
YTD 5.03
1-Month -4.07
1-Year 10.54
3-Year 13.38
5-Year 12.44
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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