Which Stock Funds for New 401k and HSA?

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Topic Author
prickly_comment
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Which Stock Funds for New 401k and HSA?

Post by prickly_comment »

I have a new 401k and HSA from a new job. I'm looking at which stock funds to choose from. I would like to just throw everything into VIIIX so it is simple, but I know that doesn't cover everything. Which funds are best?

Funds available in 401(k)
Fidelity Growth Company Commingled Pool (?????) (0.43%)
Vanguard Institutional Index Fund Institutional Plus Shares (VIIIX) (0.02%)
Vanguard Mid-Cap Index Fund Institutional Shares (VMCIX) (0.04%)
Neuberger Berman Genesis Fund Class R6 (NRGSX) (0.75%)
Vanguard Small-Cap Index Fund Institutional Shares (VSCIX) (0.04%)
Dodge & Cox International Stock Fund (DODFX) (0.63%)
MFS International Growth Fund CLass R6 (MGRDX) (0.74%)


Funds available in HSA
Vanguard Emerging Mkts Stock IDX Instl (VEMIX) (0.1%)
Vanguard Total Intl Stock IDX INSTLPLS (VTPSX) (0.07%)
Vanguard Inst Index Instl Plus (VIIIX) (0.02%)
Vanguard Growth Index Institutional (VIGIX) (0.04%)
Vanguard Value Index Adm (VVIAX) (0.05%)
Vanguard Extended Market Index Instlplus (VEMPX) (0.04%)
Vanguard Mid-cap Value Index Admiral (VMVAX) (0.07%)
Vanguard Small Cap Index Adm (VSMAX) (0.05%)
Vanguard Small Cap Value Index Admiral (VSIAX) (0.07%)
lakpr
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Re: Which Stock Funds for New 401k and HSA?

Post by lakpr »

prickly_comment wrote: Sun Nov 15, 2020 10:22 am I have a new 401k and HSA from a new job. I'm looking at which stock funds to choose from. I would like to just throw everything into VIIIX so it is simple, but I know that doesn't cover everything. Which funds are best?

Funds available in 401(k)
Fidelity Growth Company Commingled Pool (?????) (0.43%)
Vanguard Institutional Index Fund Institutional Plus Shares (VIIIX) (0.02%)
Vanguard Mid-Cap Index Fund Institutional Shares (VMCIX) (0.04%)
Neuberger Berman Genesis Fund Class R6 (NRGSX) (0.75%)
Vanguard Small-Cap Index Fund Institutional Shares (VSCIX) (0.04%)
Dodge & Cox International Stock Fund (DODFX) (0.63%)
MFS International Growth Fund CLass R6 (MGRDX) (0.74%)


Funds available in HSA
Vanguard Emerging Mkts Stock IDX Instl (VEMIX) (0.1%)
Vanguard Total Intl Stock IDX INSTLPLS (VTPSX) (0.07%)
Vanguard Inst Index Instl Plus (VIIIX) (0.02%)
Vanguard Growth Index Institutional (VIGIX) (0.04%)
Vanguard Value Index Adm (VVIAX) (0.05%)
Vanguard Extended Market Index Instlplus (VEMPX) (0.04%)
Vanguard Mid-cap Value Index Admiral (VMVAX) (0.07%)
Vanguard Small Cap Index Adm (VSMAX) (0.05%)
Vanguard Small Cap Value Index Admiral (VSIAX) (0.07%)
I highlighted the funds I would choose, if I were in your shoes. Too bad that there is no good international fund in your 401k (the DODFX comes closest to 'good' international fund but very expensive!). Decide on a percentage of international stocks for your portfolio, and stuff them all into your HSA to the extent it can house them (I mean, the limit in HSA is only $7200, but if that is less than 20% or 30% of your annual portfolio addition, obviously you will have to spill it over to somewhere else, even if you allocate the entire $7200 to VTPSX).

For the US domestic stocks, a 80:20 split between VIIIX:VSCIX, or VIIIX:VEMPX would approximate the total stock market. Between VSCIX and VEMPX, I prefer the extended market, as the latter is a more "complete"index. Stocks like TESLA and ZOOM have become mega-cap stocks, so not available in the small-cap category any more, nor are they included in the Institutional Index funds. But they are included in Extended Market Index fund. Depending on the availability, and of course how you feel about owning them (or not), choose the appropriate fund for that 20% allocation.
retired@50
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Re: Which Stock Funds for New 401k and HSA?

Post by retired@50 »

lakpr hit the nail on the head. Consider this a +1 to his advice.

Regards,
This is one person's opinion. Nothing more.
Helo80
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Re: Which Stock Funds for New 401k and HSA?

Post by Helo80 »

+1 for previous suggestion.
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ruralavalon
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Re: Which Stock Funds for New 401k and HSA?

Post by ruralavalon »

There are some very good stock funds offered in both accounts, you are fortunate.


In my opinion in your employer's 401k plan these are the stock funds to use:
1) Vanguard Institutional Index Fund Institutional Plus Shares (VIIIX) (0.02%); and
2) Dodge & Cox International Stock Fund (DODFX) (0.63%).


1) Vanguard Institutional Index Fund Institutional Plus Shares (VIIIX) (0.02%) is a S&P 500 index fund, which covers over 80% of the U.S. stock market investing in stocks of selected large-cap and mid-cap U.S. companies. In the 28 years since the creation of the first total stock market index fund the two types of funds have had almost identical performance. Portfolio Visualizer, 1993-2020.

If you want to add some Vanguard Small-Cap Index Fund Institutional Shares (VSCIX) (0.04%) then an 82/18 mix of S&P 500 and small-cap index funds will mimic the content of a total stock market index fund. Approximating Total Stock Market. In my opinion opinion this is not necessary, it is optional and of you prefer to do this.



2) Although actively managed Dodge & Cox International Stock Fund (DODFX) (0.63%) is a good international stock fund with a "below average" expense ratio, it is diversified covering both developed and emerging markets. Historically it's performance has compared well to a total stock market index fund. Portfolio Visualizer, 2002-2020.

Dodge & Cox funds including international have had better total returns than competing Vanguard index funds. Morningstar (9/6/2019), "Be Thankful That You Don't Compete Against Vanguard", link. "After reading this column, Morningstar’s Russ Kinnel informed me that Jack Bogle told him that Dodge & Cox was his favorite fund family. 'My God, they’re boring,' said Bogle. You can’t ask for a higher fund-family compliment than that".

Dodge & Cox is one of just five top rated fund companies
Morningstar (1/28/2020), "The Best Fund Companies and Their Ratings", link.


In my opinion in your Health Savings Account (HSA) the stock funds to use are these:
1) Vanguard Inst Index Instl Plus (VIIIX) (0.02%); and
2) Vanguard Total Intl Stock IDX INSTLPLS (VTPSX) (0.07%).
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
Topic Author
prickly_comment
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Re: Which Stock Funds for New 401k and HSA?

Post by prickly_comment »

Thank you lakpr and the +1s on this! Thank you ruralavalon for your insight! I will take a deeper look at the valuable information posted.
Topic Author
prickly_comment
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Re: Which Stock Funds for New 401k and HSA?

Post by prickly_comment »

Ouch, I just realized there's a 0.03% investment administration fee at Health Equity. All of the money can be invested once I get to $1,000. I'm reading on the forums that I can simply transfer all the money including my employer contributions to Fidelity or Lively? I tried to look for Vanguard HSAs but they are with Health Equity too....haha!

Is Health Equity still a good option or is it easy to transfer the money to another HSA each time?

Update: I need a minimum of $25 to remain in Health Equity. Unlimited transfers. Takes 3 weeks. No transfer fee.
bg5
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Re: Which Stock Funds for New 401k and HSA?

Post by bg5 »

I also have an HSA with healthy equity and have just started to Max it out this year with $7200 annually. I went 100% Viiix but I like the other options listed by others above.

I also have to pay .o3% fee. Are you saying that we can transfer this cash into vanguard as often as possible and have 2 HSA”s as long as I keep $25 in my health equity account?

I plan to Max it out for next 20 years so that fee makes me nervous
Topic Author
prickly_comment
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Re: Which Stock Funds for New 401k and HSA?

Post by prickly_comment »

bg5 wrote: Fri Nov 20, 2020 8:41 pm I also have an HSA with healthy equity and have just started to Max it out this year with $7200 annually. I went 100% Viiix but I like the other options listed by others above.

I also have to pay .o3% fee. Are you saying that we can transfer this cash into vanguard as often as possible and have 2 HSA”s as long as I keep $25 in my health equity account?

I plan to Max it out for next 20 years so that fee makes me nervous
That is correct from the information I have gathered. If you search for "HSA partial transfers" you can find a Health Equity page that explains it. Another way to get to it is the help link at the top right of Health Equity home page, and then search for the phrase in the search bar. Be sure that you are logged into your account already for both searches.

I'm still learning more about this. The last info that I read is to initiate the transfer at the new HSA custodian. For example, if I want Fidelity, then I will set up a HSA there first and initiate all transfers at Fidelity to get the money from Health Equity.

I still plan on contributing everything through payroll. I need to make sure that taxes remain the same even if I transfer...
retired@50
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Re: Which Stock Funds for New 401k and HSA?

Post by retired@50 »

prickly_comment wrote: Fri Nov 20, 2020 8:06 pm Ouch, I just realized there's a 0.03% investment administration fee at Health Equity.
While paying additional fees isn't ideal, 3 basis points probably won't make too much of a difference.

Regards,
This is one person's opinion. Nothing more.
Topic Author
prickly_comment
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Re: Which Stock Funds for New 401k and HSA?

Post by prickly_comment »

retired@50 wrote: Fri Nov 20, 2020 9:48 pm
prickly_comment wrote: Fri Nov 20, 2020 8:06 pm Ouch, I just realized there's a 0.03% investment administration fee at Health Equity.
While paying additional fees isn't ideal, 3 basis points probably won't make too much of a difference.

Regards,
I should clarify, it is 0.03% per month. So 0.36% per year?
lakpr
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Re: Which Stock Funds for New 401k and HSA?

Post by lakpr »

prickly_comment wrote: Fri Nov 20, 2020 9:50 pm I should clarify, it is 0.03% per month. So 0.36% per year?
prickly_comment wrote: Fri Nov 20, 2020 9:21 pm I still plan on contributing everything through payroll. I need to make sure that taxes remain the same even if I transfer...
1. I have Health Equity through my employer for HSA too, and yes it is 0.36% per year. Personally it is irrelevant to me since I get my health insurance through my wife's employer.

2. What is your gross income at your employer? This may be a long shot -- but if it is more than $150k (= $143k + $7k), then you are going to incur the payroll tax regardless. The Medicare tax of 6.2% will be levied on the first $143k of salary in 2021 (up from $138k in 2020); the only payroll contribution that can escape this taxation is HSA contribution. Not even 401k contributions. Since the max you can contribute to a HSA including employee + employer contributions for a family is $7200, if your salary less $7200 is more than $143k, the amount of Medicare tax withheld from your paycheck does not change.

Which in turn means you are NOT obligated to run the contributions through payroll. You can open the Fidelity HSA and contribute the entire $7200 in one shot at the beginning of the year.

3. That said, note that Medicaid tax of 1.45% is levied on unlimited amounts of income. If you run the HSA contribution through payroll, it is possible to escape this Medicaid tax; but not if you contribute privately to the HSA. So even if you earn more than $150k on your income alone, it becomes a question of paying 0.36% fee to Health Equity vs. paying 1.45% to the government. It *MAY* be possible to claim that excess tax at the time you file tax returns, but then I don't know that end of it (haven't had a HSA in more than a decade).
Topic Author
prickly_comment
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Re: Which Stock Funds for New 401k and HSA?

Post by prickly_comment »

lakpr wrote: Sat Nov 21, 2020 7:41 am
prickly_comment wrote: Fri Nov 20, 2020 9:50 pm I should clarify, it is 0.03% per month. So 0.36% per year?
prickly_comment wrote: Fri Nov 20, 2020 9:21 pm I still plan on contributing everything through payroll. I need to make sure that taxes remain the same even if I transfer...
2. What is your gross income at your employer? This may be a long shot -- but if it is more than $150k (= $143k + $7k), then you are going to incur the payroll tax regardless. The Medicare tax of 6.2% will be levied on the first $143k of salary in 2021 (up from $138k in 2020); the only payroll contribution that can escape this taxation is HSA contribution. Not even 401k contributions. Since the max you can contribute to a HSA including employee + employer contributions for a family is $7200, if your salary less $7200 is more than $143k, the amount of Medicare tax withheld from your paycheck does not change.

Which in turn means you are NOT obligated to run the contributions through payroll. You can open the Fidelity HSA and contribute the entire $7200 in one shot at the beginning of the year.
Thanks for this info. My gross is $96k. My health insurance enrollment just ended too. I think my HSA contributions are locked in :) :oops: . I can still transfer this money out though.

With my salary, it is then best to go through payroll, correct?
3. That said, note that Medicaid tax of 1.45% is levied on unlimited amounts of income. If you run the HSA contribution through payroll, it is possible to escape this Medicaid tax; but not if you contribute privately to the HSA. So even if you earn more than $150k on your income alone, it becomes a question of paying 0.36% fee to Health Equity vs. paying 1.45% to the government. It *MAY* be possible to claim that excess tax at the time you file tax returns, but then I don't know that end of it (haven't had a HSA in more than a decade).
I read about this. If going through payroll, is the Medicaid tax not applied? I read that it is better to pay the medicaid...I don't know. I can't remember.
lakpr
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Re: Which Stock Funds for New 401k and HSA?

Post by lakpr »

Yeah, given the gross income of $96k, it is better to go through the payroll to make the HSA contributions. Regarding your other question about Medicaid, it is meant for the indigent (unless you count the Medicaid expansion for the ACA), you really don't want to end up there -- and consequently if you can avoid paying that tax, you should.
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Re: Which Stock Funds for New 401k and HSA?

Post by ruralavalon »

I read about this. If going through payroll, is the Medicaid tax not applied? I read that it is better to pay the medicaid...I don't know. I can't remember.
You probably mean Medicare Tax?
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Re: Which Stock Funds for New 401k and HSA?

Post by grabiner »

lakpr wrote: Sat Nov 21, 2020 7:41 am 2. What is your gross income at your employer? This may be a long shot -- but if it is more than $150k (= $143k + $7k), then you are going to incur the payroll tax regardless. The Medicare tax of 6.2% will be levied on the first $143k of salary in 2021 (up from $138k in 2020); the only payroll contribution that can escape this taxation is HSA contribution. Not even 401k contributions. Since the max you can contribute to a HSA including employee + employer contributions for a family is $7200, if your salary less $7200 is more than $143k, the amount of Medicare tax withheld from your paycheck does not change.
This 6.2% tax is the Social Security tax,not the Medicare tax. Avoiding it may not necessarily be a benefit, as paying less into SS reduces your SS benefit.

Which in turn means you are NOT obligated to run the contributions through payroll. You can open the Fidelity HSA and contribute the entire $7200 in one shot at the beginning of the year. See Payroll deduction on the wiki, which recommends not using payroll deduction if you are below the second SS bend point (average indexed monthly earnings under $6002 in 2021).
3. That said, note that Medicaid tax of 1.45% is levied on unlimited amounts of income. If you run the HSA contribution through payroll, it is possible to escape this Medicaid tax; but not if you contribute privately to the HSA. So even if you earn more than $150k on your income alone, it becomes a question of paying 0.36% fee to Health Equity vs. paying 1.45% to the government. It *MAY* be possible to claim that excess tax at the time you file tax returns, but then I don't know that end of it (haven't had a HSA in more than a decade).
This is the Medicare (not Medicaid) tax. If you are over the SS maximum wage, you avoid the 1.45% tax, and you get no benefit from paying that tax. Therefore, payroll deduction is worthwhile. If you don't like your HSA provider, you can roll over the HSA to a different provider every year, and avoid paying the extra expenses on more than one year's contributions.
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prickly_comment
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Re: Which Stock Funds for New 401k and HSA?

Post by prickly_comment »

grabiner wrote: Sat Nov 21, 2020 9:03 pm
lakpr wrote: Sat Nov 21, 2020 7:41 am 2. What is your gross income at your employer? This may be a long shot -- but if it is more than $150k (= $143k + $7k), then you are going to incur the payroll tax regardless. The Medicare tax of 6.2% will be levied on the first $143k of salary in 2021 (up from $138k in 2020); the only payroll contribution that can escape this taxation is HSA contribution. Not even 401k contributions. Since the max you can contribute to a HSA including employee + employer contributions for a family is $7200, if your salary less $7200 is more than $143k, the amount of Medicare tax withheld from your paycheck does not change.
This 6.2% tax is the Social Security tax,not the Medicare tax. Avoiding it may not necessarily be a benefit, as paying less into SS reduces your SS benefit.

Which in turn means you are NOT obligated to run the contributions through payroll. You can open the Fidelity HSA and contribute the entire $7200 in one shot at the beginning of the year. See Payroll deduction on the wiki, which recommends not using payroll deduction if you are below the second SS bend point (average indexed monthly earnings under $6002 in 2021).
3. That said, note that Medicaid tax of 1.45% is levied on unlimited amounts of income. If you run the HSA contribution through payroll, it is possible to escape this Medicaid tax; but not if you contribute privately to the HSA. So even if you earn more than $150k on your income alone, it becomes a question of paying 0.36% fee to Health Equity vs. paying 1.45% to the government. It *MAY* be possible to claim that excess tax at the time you file tax returns, but then I don't know that end of it (haven't had a HSA in more than a decade).
This is the Medicare (not Medicaid) tax. If you are over the SS maximum wage, you avoid the 1.45% tax, and you get no benefit from paying that tax. Therefore, payroll deduction is worthwhile. If you don't like your HSA provider, you can roll over the HSA to a different provider every year, and avoid paying the extra expenses on more than one year's contributions.
Oh, that's it! Thanks for the Payroll deduction link. I remember scanning this in the past and finding out that it might still be good to pay SS. I'll read through this again.

SS and Medicare tax, not medicaid, got it! :thumbsup
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prickly_comment
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Re: Which Stock Funds for New 401k and HSA?

Post by prickly_comment »

lakpr wrote: Sun Nov 15, 2020 10:31 am
prickly_comment wrote: Sun Nov 15, 2020 10:22 am I have a new 401k and HSA from a new job. I'm looking at which stock funds to choose from. I would like to just throw everything into VIIIX so it is simple, but I know that doesn't cover everything. Which funds are best?

Funds available in 401(k)
Fidelity Growth Company Commingled Pool (?????) (0.43%)
Vanguard Institutional Index Fund Institutional Plus Shares (VIIIX) (0.02%)
Vanguard Mid-Cap Index Fund Institutional Shares (VMCIX) (0.04%)
Neuberger Berman Genesis Fund Class R6 (NRGSX) (0.75%)
Vanguard Small-Cap Index Fund Institutional Shares (VSCIX) (0.04%)
Dodge & Cox International Stock Fund (DODFX) (0.63%)
MFS International Growth Fund CLass R6 (MGRDX) (0.74%)
For the US domestic stocks, a 80:20 split between VIIIX:VSCIX, or VIIIX:VEMPX would approximate the total stock market. Between VSCIX and VEMPX, I prefer the extended market, as the latter is a more "complete"index. Stocks like TESLA and ZOOM have become mega-cap stocks, so not available in the small-cap category any more, nor are they included in the Institutional Index funds. But they are included in Extended Market Index fund. Depending on the availability, and of course how you feel about owning them (or not), choose the appropriate fund for that 20% allocation.
What is the reason for not including Vanguard Mid-Cap Index Fund Institutional Shares (VMCIX)?
lakpr
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Re: Which Stock Funds for New 401k and HSA?

Post by lakpr »

In spite of its name, the small cap index fund does include a large percentage of mid cap stocks.
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Re: Which Stock Funds for New 401k and HSA?

Post by grabiner »

prickly_comment wrote: Sat Nov 28, 2020 9:36 am
lakpr wrote: Sun Nov 15, 2020 10:31 am
prickly_comment wrote: Sun Nov 15, 2020 10:22 am I have a new 401k and HSA from a new job. I'm looking at which stock funds to choose from. I would like to just throw everything into VIIIX so it is simple, but I know that doesn't cover everything. Which funds are best?

Funds available in 401(k)
Fidelity Growth Company Commingled Pool (?????) (0.43%)
Vanguard Institutional Index Fund Institutional Plus Shares (VIIIX) (0.02%)
Vanguard Mid-Cap Index Fund Institutional Shares (VMCIX) (0.04%)
Neuberger Berman Genesis Fund Class R6 (NRGSX) (0.75%)
Vanguard Small-Cap Index Fund Institutional Shares (VSCIX) (0.04%)
Dodge & Cox International Stock Fund (DODFX) (0.63%)
MFS International Growth Fund CLass R6 (MGRDX) (0.74%)
For the US domestic stocks, a 80:20 split between VIIIX:VSCIX, or VIIIX:VEMPX would approximate the total stock market. Between VSCIX and VEMPX, I prefer the extended market, as the latter is a more "complete"index. Stocks like TESLA and ZOOM have become mega-cap stocks, so not available in the small-cap category any more, nor are they included in the Institutional Index funds. But they are included in Extended Market Index fund. Depending on the availability, and of course how you feel about owning them (or not), choose the appropriate fund for that 20% allocation.
What is the reason for not including Vanguard Mid-Cap Index Fund Institutional Shares (VMCIX)?
It's not really needed because of the MSCI index definitions. Large-cap is the top 70% of the market, mid-cap is 70-85%, and small-cap is 85-98% (with the micro-cap 2% included in the total market but not in any of the three cap ranges). The S&P 500 is 78% of the market, and not quite the top 78%, so it covers most of the mid-cap range.
Wiki David Grabiner
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