Help me choose 401k funds

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
commissionfree
Posts: 4
Joined: Wed Oct 02, 2019 11:50 am

Help me choose 401k funds

Post by commissionfree » Thu Nov 14, 2019 3:37 pm

Hello,

Fairly new to the forum. I have a 401k and Roth IRA.

My employer offers the following funds in its 401k plan. I am looking to implement the three fund portfolio. What would you recommend? (ER is net.)

Name / Ticker / Expense ratio

American Funds EuroPacific Gr R6, RERGX, ER: .49%
DFA Emerging Markets Value I, DFEVX, ER: .64%
Vanguard Total Int'l Stock Index Instl, VTSNX, ER: .08%
BNY Mellon Small Cap Value Y, BOSYX, ER: .97%
Vanguard Small Cap Index I VSCIX, ER: .04
Vanguard Mid Cap Index I VMCIX, ER: .04
SSgA S&P 500(R) Index NL Ser N, ER .02
Touchstone Sands Capital Inst Gr, CISGX, ER.80
Vanguard FTSA Social Index Admiral, VFTAX, ER .14
PIMCO Int Bond (Unhedged) Inst, PFUIX, ER. 66
PIMCO Total Return Instl, PTTRX, ER .71
Vanguard Federal Money Market Inv., VMFXX, ER .11
T. Rowe Price Retirement Trusts (year varies based on target retirement date), ER: .43%

I currently put the money into a target date fund. Would be nice to manage it myself at lower ERs, but I don't have a good bond option. I suppose I could go with the Vanguard and S&P 500 options and put my bond fund in the Roth IRA.

What would you recommend?
How important are low ERs? I kind of like the ease of putting it in a target fund and not having to worry about it.

deikel
Posts: 882
Joined: Sat Jan 25, 2014 7:13 pm

Re: Help me choose 401k funds

Post by deikel » Thu Nov 14, 2019 3:44 pm

follow the lowest expense ration and you automatically land at the index funds...the only thing I don't see in your selection is a bond fund - the PIMCO is expensive.

ON the plus side you have a nice small cap if you want to tilt that way.

Maybe you forgo a bond for now and pick one on your TIRA/Roth side, depending on your age and overall invested amount
Everything you read in this post is my personal opinion. If you disagree with this disclaimer, please un-read the text immediately and destroy any copy or remembrance of it.

User avatar
oldcomputerguy
Moderator
Posts: 6390
Joined: Sun Nov 22, 2015 6:50 am
Location: In the middle of five acres of woods in East Tennessee

Re: Help me choose 401k funds

Post by oldcomputerguy » Thu Nov 14, 2019 3:50 pm

The S&P500 and Vanguard Total International funds are what I'd use for my equity allocation. I think you probably have the right idea to open an IRA and put bonds in there, although you're limited in how much you can contribute to an IRA in a year and that may or may not bite into your desired AA, depending on how much you can (and do) save in a year.

What is the ER of your target date fund options? Are they index-fund-based or actively managed? Sometimes they come in both varieties. For example, the Fidelity Freedom 2040 fund (FFFFX) is actively managed and has an ER of 0.75%, while the Freedom Index 2040 Fund (FBIFX) has an ER of 0.12%

As to how important a low expense ratio is, it's been said by Morningstar that the expense ratio is the single most reliable predictor of net fund performance (what the investor receives net of fees).
"I’ve come around to this: If you’re dumb, surround yourself with smart people; and if you’re smart, surround yourself with smart people who disagree with you." (Aaron Sorkin)

Topic Author
commissionfree
Posts: 4
Joined: Wed Oct 02, 2019 11:50 am

Re: Help me choose 401k funds

Post by commissionfree » Thu Nov 14, 2019 4:06 pm

Thanks

The target date funds carry a net ER of %0.43. They appear to be actively managed.

If I were to move away from the target date funds, would you recommend moving current investments out of the target date funds to the equity funds or just invest in the equity funds going forward and leave what's in the target funds alone?

Trader Joe
Posts: 1269
Joined: Fri Apr 25, 2014 6:38 pm

Re: Help me choose 401k funds

Post by Trader Joe » Thu Nov 14, 2019 4:56 pm

commissionfree wrote:
Thu Nov 14, 2019 3:37 pm
Hello,

Fairly new to the forum. I have a 401k and Roth IRA.

My employer offers the following funds in its 401k plan. I am looking to implement the three fund portfolio. What would you recommend? (ER is net.)

Name / Ticker / Expense ratio

American Funds EuroPacific Gr R6, RERGX, ER: .49%
DFA Emerging Markets Value I, DFEVX, ER: .64%
Vanguard Total Int'l Stock Index Instl, VTSNX, ER: .08%
BNY Mellon Small Cap Value Y, BOSYX, ER: .97%
Vanguard Small Cap Index I VSCIX, ER: .04
Vanguard Mid Cap Index I VMCIX, ER: .04
SSgA S&P 500(R) Index NL Ser N, ER .02
Touchstone Sands Capital Inst Gr, CISGX, ER.80
Vanguard FTSA Social Index Admiral, VFTAX, ER .14
PIMCO Int Bond (Unhedged) Inst, PFUIX, ER. 66
PIMCO Total Return Instl, PTTRX, ER .71
Vanguard Federal Money Market Inv., VMFXX, ER .11
T. Rowe Price Retirement Trusts (year varies based on target retirement date), ER: .43%

I currently put the money into a target date fund. Would be nice to manage it myself at lower ERs, but I don't have a good bond option. I suppose I could go with the Vanguard and S&P 500 options and put my bond fund in the Roth IRA.

What would you recommend?
How important are low ERs? I kind of like the ease of putting it in a target fund and not having to worry about it.
Welcome to the forum. I would choose this fund:

SSgA S&P 500(R) Index NL Ser N, ER .02

What a wonderful ER.

User avatar
ruralavalon
Posts: 16690
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Help me choose 401k funds

Post by ruralavalon » Thu Nov 14, 2019 5:00 pm

Welcome to the forum :) .

commissionfree wrote:
Thu Nov 14, 2019 3:37 pm
Hello,

Fairly new to the forum. I have a 401k and Roth IRA.

My employer offers the following funds in its 401k plan. I am looking to implement the three fund portfolio. What would you recommend? (ER is net.)

Name / Ticker / Expense ratio

American Funds EuroPacific Gr R6, RERGX, ER: .49%
DFA Emerging Markets Value I, DFEVX, ER: .64%
Vanguard Total Int'l Stock Index Instl, VTSNX, ER: .08%
BNY Mellon Small Cap Value Y, BOSYX, ER: .97%
Vanguard Small Cap Index I VSCIX, ER: .04
Vanguard Mid Cap Index I VMCIX, ER: .04
SSgA S&P 500(R) Index NL Ser N, ER .02
Touchstone Sands Capital Inst Gr, CISGX, ER.80
Vanguard FTSA Social Index Admiral, VFTAX, ER .14
PIMCO Int Bond (Unhedged) Inst, PFUIX, ER. 66
PIMCO Total Return Instl, PTTRX, ER .71
Vanguard Federal Money Market Inv., VMFXX, ER .11
T. Rowe Price Retirement Trusts (year varies based on target retirement date), ER: .43%

I currently put the money into a target date fund. Would be nice to manage it myself at lower ERs, but I don't have a good bond option. I suppose I could go with the Vanguard and S&P 500 options and put my bond fund in the Roth IRA.

What would you recommend?
How important are low ERs? I kind of like the ease of putting it in a target fund and not having to worry about it.
Low expense ratios are critical to long-term investing performance. Seemingly small annual fees have a large cumulative impact over time.

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.

In your 401k I suggest using these stock index funds:
1) SSgA S&P 500(R) Index NL Ser N, ER .02; and
2) Vanguard Total Int'l Stock Index Instl, VTSNX, ER: .08%.

I think you have the right idea about putting your bond fund in your Roth IRA. You could buy a good bond index fund in the IRA, and not have to use a higher cost actively managed bond fund in your 401k.

For domestic stocks I suggest using a total stock market index fund where available. "In a 401(k) plan with limited choices one might very well opt for an S&P 500 index fund to serve as the domestic stock component of a three-fund portfolio." Wiki article, Three-fund portfolio, "Other considerations".

In my opinion in a plan that lacks a total stock market index fund, a S&P 500 index fund is good enough by itself for a domestic stock allocation. A S&P 500 index fund covers 82% of the U.S. stock market, investing in stocks of selected large-cap and mid-cap U.S. companies. In the 27 years since the creation of the first total stock market index fund the performance of the two types of funds has been almost identical. Morningstar, "growth of $10k" graph (1992 – 2019), VTSAX vs VFIAX. 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.

See also:
1) Allan Roth, CBS Moneywatch (02/03/2010), "John C. Bogle on the S&P 500 vs. the Total Stock Market"; and
2) Wall Street Physician (01/17/2019), "Should You Invest in the S&P 500 or the Total Stock Market?".

If you want to add the "Vanguard Small Cap Index I VSCIX, ER: .04", then an 82/18 mix of the S&P 500 and small-cap funds 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.



commissionfree wrote:
Thu Nov 14, 2019 4:06 pm
Thanks

The target date funds carry a net ER of %0.43. They appear to be actively managed.

If I were to move away from the target date funds, would you recommend moving current investments out of the target date funds to the equity funds or just invest in the equity funds going forward and leave what's in the target funds alone?
I suggest switching both the existing balance and the new contributions to the separate index funds.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Bama12
Posts: 53
Joined: Fri Aug 30, 2019 11:48 pm

Re: Help me choose 401k funds

Post by Bama12 » Thu Nov 14, 2019 7:36 pm

How about 4 funds


Vanguard Total Int'l Stock Index Instl, VTSNX, ER: .08%- 20%
BNY Mellon Small Cap Value Y, BOSYX, ER: .97%-30%
Vanguard Small Cap Index I VSCIX, ER: .04-20%
SSgA S&P 500(R) Index NL Ser N, ER .02-30%

Post Reply