401k Investment Change - Target Fund to S&P Index 500 Fund
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401k Investment Change - Target Fund to S&P Index 500 Fund
Hello all, for a few years after I graduated college and began working, I had a large portion of my 401k contribution investing in a 2055 Target Retirement fund. After I discovered Bogleheads a little over a year ago, I changed my future 401k contributions to a three-fund approach and stopped investing anything in the 2055 Target Retirement fund. But I did not move the pre-existing investment in the 2055 Target Retirement fund to either a bond fund or a S&P 500 Index fund, which are the funds that all of my investments have been going towards for the last year and will continue to go towards in the future. I am considering re-investing the balance in the 2055 Target Retirement fund to the S&P 500 Index fund I am currently putting the majority of my contributions into.
Here is the breakdown of the 2055 Target Retirement fund:
Fees and Expenses as of 05-07-21
Expense Ratio 0.04%
Total Annual Operating Expense per $1000 $0.40
U.S. Stocks 57.4
Non-U.S. Stocks 31.6
Bonds 10.0
Cash 1.1
Other 0.0
Here is the breakdown of the S&P 500 Index fund:
Fees and Expenses as of 05-07-21
Expense Ratio 0.01%
Total Annual Operating Expense per $1000 $0.05
U.S. Stocks 98.0
Non-U.S. Stocks 1.1
Bonds 0.0
Cash 0.9
Other 0.0
My asset allocation on my investments for the past year/future is investments is 90% stocks and 10% bonds. The 2055 Target Retirement fund is fairly close to this asset allocation. Is there a reason to not move my investment in the 2055 Target Retirement fund to the S&P 500 Index fund? The target retirement fund does have a much higher operating expense, and re-investing to the S&P 500 Index fund would save a handful of dollars per year on expenses.
Canard Gris
Here is the breakdown of the 2055 Target Retirement fund:
Fees and Expenses as of 05-07-21
Expense Ratio 0.04%
Total Annual Operating Expense per $1000 $0.40
U.S. Stocks 57.4
Non-U.S. Stocks 31.6
Bonds 10.0
Cash 1.1
Other 0.0
Here is the breakdown of the S&P 500 Index fund:
Fees and Expenses as of 05-07-21
Expense Ratio 0.01%
Total Annual Operating Expense per $1000 $0.05
U.S. Stocks 98.0
Non-U.S. Stocks 1.1
Bonds 0.0
Cash 0.9
Other 0.0
My asset allocation on my investments for the past year/future is investments is 90% stocks and 10% bonds. The 2055 Target Retirement fund is fairly close to this asset allocation. Is there a reason to not move my investment in the 2055 Target Retirement fund to the S&P 500 Index fund? The target retirement fund does have a much higher operating expense, and re-investing to the S&P 500 Index fund would save a handful of dollars per year on expenses.
Canard Gris
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Re: 401k Investment Change - Target Fund to S&P Index 500 Fund
I personally would just keep a chunk in the Target Fund. That way you have more diversification. The ER difference is peanuts.
I asked a hypothetical that was related recently:
viewtopic.php?f=1&t=348786
I asked a hypothetical that was related recently:
viewtopic.php?f=1&t=348786
Re: 401k Investment Change - Target Fund to S&P Index 500 Fund
FWIW, the math doesn't look right. $1000 * .01% = $.10 but you wrote it's $.05. Maybe the ER is actually sub 1 basis point at 0.005% ?Canard Gris wrote: ↑Mon May 17, 2021 7:54 am Here is the breakdown of the 2055 Target Retirement fund:
Fees and Expenses as of 05-07-21
Expense Ratio 0.04%
Total Annual Operating Expense per $1000 $0.40
...
Here is the breakdown of the S&P 500 Index fund:
Fees and Expenses as of 05-07-21
Expense Ratio 0.01%
Total Annual Operating Expense per $1000 $0.05
Anyway, I agree with Stargazer65 about the diversification argument.
I'd also point out there are also "behavioral" reasons to use a Target Fund as opposed to the 3 fund approach. You may not be subject to those behavioral conditions (good for you!) in which case a mix of Target plus 3 fund is fine. But if you find yourself second-guessing your AA, or wanting to get out of stocks went the market is dropping, or thinking bond rates are going to skyrocket / bonds will plunge, then a Target Fund may help you avoid making portfolio changes that could easily swamp your savings in ER costs.
There's also the simplicity argument to use just a single fund.
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Re: 401k Investment Change - Target Fund to S&P Index 500 Fund
agreeStargazer65 wrote: ↑Mon May 17, 2021 8:00 am I personally would just keep a chunk in the Target Fund. That way you have more diversification. The ER difference is peanuts.
an SP500 fund is not as diversified as you may think.
the SP500 index -- recent results aside -- has also had lengthy periods of basically no appreciable return.
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Re: 401k Investment Change - Target Fund to S&P Index 500 Fund
Target date fund is a diversified fund. S&P 500 Index isn't a diversified fund. People use it along with other funds for diversification purposes.Canard Gris wrote: ↑Mon May 17, 2021 7:54 am ...I am considering re-investing the balance in the 2055 Target Retirement fund to the S&P 500 Index fund I am currently putting the majority of my contributions into...
People here recommend having and Investment Policy Statement (IPS). It is possible that your IPS calls for S&P 500 index fund only. Details about IPS can be found here: https://www.bogleheads.org/wiki/Investm ... _statement
For a diversified portfolio, Bogleheads' three-fund-portfolio can be found here: https://www.bogleheads.org/wiki/Three-fund_portfolio
"Know what you own, and know why you own it." — Peter Lynch
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Re: 401k Investment Change - Target Fund to S&P Index 500 Fund
In my opinion, no.Canard Gris wrote: ↑Mon May 17, 2021 7:54 am Is there a reason to not move my investment in the 2055 Target Retirement fund to the S&P 500 Index fund?
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Re: 401k Investment Change - Target Fund to S&P Index 500 Fund
There are several good reasons not to make this move, including the fact that the target date fund is globally diversified while the S&P 500 fund is not AND the very high likelihood that trying to cobble together your own asset allocation over the news 30 years will cost you FAR more in behavioral and tactical errors than the minuscule difference in fund fees.Canard Gris wrote: ↑Mon May 17, 2021 7:54 am My asset allocation on my investments for the past year/future is investments is 90% stocks and 10% bonds. The 2055 Target Retirement fund is fairly close to this asset allocation. Is there a reason to not move my investment in the 2055 Target Retirement fund to the S&P 500 Index fund? The target retirement fund does have a much higher operating expense, and re-investing to the S&P 500 Index fund would save a handful of dollars per year on expenses.
2055 Target Retirement is the gold standard for a reason. Stick with it.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Re: 401k Investment Change - Target Fund to S&P Index 500 Fund
I always recommend that an investor start with the target date fund, especially a low cost one (and i would consider your target date fund to be ULTRA low cost), unless they have some reason to believe they can outperform it on a risk adjusted basis.
you stated that you want to do the 3 fund after discovering Bogleheads. the three fund is a great portfolio, but it also, in the opinions of many here, has been supplanted by a low cost target date fund, which you have access to. it also tells me that you have no reason to believe you can beat the target date fund, as the foundational assumption of the 3 fund portfolio is to simply 'buy the haystack' and allow passive index investing to do its thing.
the three fund won't rebalance itself nor will it provide you a glidepath along the way as the years pass.
you stated that you want to do the 3 fund after discovering Bogleheads. the three fund is a great portfolio, but it also, in the opinions of many here, has been supplanted by a low cost target date fund, which you have access to. it also tells me that you have no reason to believe you can beat the target date fund, as the foundational assumption of the 3 fund portfolio is to simply 'buy the haystack' and allow passive index investing to do its thing.
the three fund won't rebalance itself nor will it provide you a glidepath along the way as the years pass.
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Re: 401k Investment Change - Target Fund to S&P Index 500 Fund
What is the third fund?Canard Gris wrote: ↑Mon May 17, 2021 7:54 am I changed my future 401k contributions to a three-fund approach and stopped investing anything in the 2055 Target Retirement fund. But I did not move the pre-existing investment in the 2055 Target Retirement fund to either a bond fund or a S&P 500 Index fund, which are the funds that all of my investments ... will continue to go towards in the future.
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Re: 401k Investment Change - Target Fund to S&P Index 500 Fund
Deleted.
Last edited by Triple digit golfer on Tue May 18, 2021 9:47 pm, edited 1 time in total.
Re: 401k Investment Change - Target Fund to S&P Index 500 Fund
Just stay focused on the OP, please.
Re: 401k Investment Change - Target Fund to S&P Index 500 Fund
OP, you appear to be considering making the change because of the cost difference. While a bogleheads mantra is "Costs matter", in fact it is not really a very strong factor when considering the difference between funds with expense ratios of 0.01% and 0.04%. When "Costs matter" was being emphasized by Jack Bogle, 5% front and/or back end sales loads and 1.5-2% annual expense ratios were the target. Letting cost differences of a few basis points influence your asset allocation is letting the tail wag the dog. If you like the allocation of the Target Fund, stick with it. Some mixture of international is in pretty much all target date funds I'm aware of, it is now pretty widely accepted in the industry as a good practice.