401k S&P 500 vs S&P 500-Small Cap-Mid Cap? Or Target date option?

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passive101
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401k S&P 500 vs S&P 500-Small Cap-Mid Cap? Or Target date option?

Post by passive101 »

My largest account is my Roth IRA. Vanguard target date 2060. Close to 60% US 40% International. I'm 41, but go with the idea of using target date funds way far out so I don't have to rebalance anything and they'll stay close to the allocations I want.

My 401k is at 60% S&P 500, 40% International RERGX. I see small cap is doing great (even though long term is looks like a total US market act vs S&P 500 perform very close historically) I don't have access to a total US market fund.

Please help me with my allocations with my available options. I also can't tell if the international funds are frontloaded with fees or not. I don't quite understand how to see that. I'm trying to include the links to all the funds that aren't just the low cost Vanguard ones.

These are my low cost options

Vanguard S&P 500 -Fee .04%
Vanguard Mid Cap - Fee .05%
Vanguard Small Cap - Fee .07%

International options

American Funds EuroPacific Growth R6 Fund (RERGX) - Fee .46%
https://www.principal.com/InvestmentPro ... tail=false

MFS International Diversification R6 Fund (MDIZX) - Fee .75%
https://www.principal.com/InvestmentPro ... tail=false

Virtus AllianzGI Emging Mkts Opps Inst'l Fund (AOTIX) - Fee 1.22%
https://www.principal.com/InvestmentPro ... tail=false

Target Date Fund

Prudential Day One 2060 Institutional CIT - Fee .47%
https://www.principal.com/InvestmentPro ... tail=false

QMA Large Cap Quant Core Equity 25.50
QMA Intl Dev Market Index 22.80
QMA US Broad Market Index Fund 16.50
QMA Mid Cap Quant Core Equity Fund 10.00
Pru Ret QMA Emerging Markets SP 8.80
Pru Ret Jennison Small Cap Core Eq SP 5.00
Pru Ret Prudential Total Return Bond SP 4.40
Prudential Retirement Real Estate Fund 4.00
Pru Ret QMA Commodity Strategy Fund SP 3.00

Total 100%
terran
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Re: 401k S&P 500 vs S&P 500-Small Cap-Mid Cap? Or Target date option?

Post by terran »

The expense ratio on that target date fund would get me to go another way. You might find Approximating the total stock market on the wiki helpful
whereskyle
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Re: 401k S&P 500 vs S&P 500-Small Cap-Mid Cap? Or Target date option?

Post by whereskyle »

passive101 wrote: Tue Oct 12, 2021 4:21 pm My largest account is my Roth IRA. Vanguard target date 2060. Close to 60% US 40% International. I'm 41, but go with the idea of using target date funds way far out so I don't have to rebalance anything and they'll stay close to the allocations I want.

My 401k is at 60% S&P 500, 40% International RERGX. I see small cap is doing great (even though long term is looks like a total US market act vs S&P 500 perform very close historically) I don't have access to a total US market fund.

Please help me with my allocations with my available options. I also can't tell if the international funds are frontloaded with fees or not. I don't quite understand how to see that. I'm trying to include the links to all the funds that aren't just the low cost Vanguard ones.

These are my low cost options

Vanguard S&P 500 -Fee .04%
Vanguard Mid Cap - Fee .05%
Vanguard Small Cap - Fee .07%

International options

American Funds EuroPacific Growth R6 Fund (RERGX) - Fee .46%
https://www.principal.com/InvestmentPro ... tail=false

MFS International Diversification R6 Fund (MDIZX) - Fee .75%
https://www.principal.com/InvestmentPro ... tail=false

Virtus AllianzGI Emging Mkts Opps Inst'l Fund (AOTIX) - Fee 1.22%
https://www.principal.com/InvestmentPro ... tail=false

Target Date Fund

Prudential Day One 2060 Institutional CIT - Fee .47%
https://www.principal.com/InvestmentPro ... tail=false

QMA Large Cap Quant Core Equity 25.50
QMA Intl Dev Market Index 22.80
QMA US Broad Market Index Fund 16.50
QMA Mid Cap Quant Core Equity Fund 10.00
Pru Ret QMA Emerging Markets SP 8.80
Pru Ret Jennison Small Cap Core Eq SP 5.00
Pru Ret Prudential Total Return Bond SP 4.40
Prudential Retirement Real Estate Fund 4.00
Pru Ret QMA Commodity Strategy Fund SP 3.00

Total 100%
Target date fund is too expensive.

Put 70% of equity in SP 500, 20% in Midcap, and 10% in small to replicate the US market portfolio.

If it costs that much to invest in international, I say forget it entirely. The only thing you control is expenses and when you buy expensive funds you lock in expected underperformance. If costs are too high, US is enough. Diversification is not a free lunch if it's not free.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
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Beensabu
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Re: 401k S&P 500 vs S&P 500-Small Cap-Mid Cap? Or Target date option?

Post by Beensabu »

passive101 wrote: Tue Oct 12, 2021 4:21 pm My 401k is at 60% S&P 500, 40% International RERGX.
You can leave it like that if you want. Your overall ER in the 401k is 0.21%. That's better than the target date option.

Going with the target date option would put your overall ER in the 401k at 0.47%.

Some might see the ER of your international fund (0.46%) as too high (it is pretty high, but not completely outrageous like the other international options you have). It is high because it's an actively managed developed markets growth-oriented (or so they say) fund. There's no load for RERGX.

If you think the ER is too high, you can:

(1) go all S&P 500 (or replicate total US market) in the 401k

or

(2) do #1 but then in your IRA:

- have a separate allocation to international, and
- switch to a different target date fund that has a bit more bonds (to bring your overall bond allocation back to where you want it to be)
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Ferdinand2014
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Re: 401k S&P 500 vs S&P 500-Small Cap-Mid Cap? Or Target date option?

Post by Ferdinand2014 »

Keep it simple. If it were me I’d buy the S&P 500 fund and never look back. If you want international, buy it outside of your 401K plan given the options you provided.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett
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ruralavalon
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Re: 401k S&P 500 vs S&P 500-Small Cap-Mid Cap? Or Target date option?

Post by ruralavalon »

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 over 80% of the U.S. stock market investing in stocks of selected large-cap and mid-cap U.S. companies. In the 29 years since the creation of the first total stock market index fund the performance of the two types of funds has been almost identical. Portfolio Visualizer, 1993-2021. 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?".



Although actively managed American Funds EuroPacific Growth R6 Fund (RERGX) ER 0.46% is a good, diversified international stock fund, investing in stocks of 872 companies, both developed markets and emerging markets, with a "low" expense ratio according to Morningstar.

The performance of American Funds EuroPacific Growth has compared well to a total international stock index fund with higher returns, higher Compound Annual Growth Rate (CAGR), lower volatility and higher risk adjusted returns. Portfolio Visualizer, 1997-2021. I used the oldest share classes to get the longest period for comparison.

I would not hesitate to use the fund in a company plan which lacked a total international stock index fund.

EDIT: fixed link.
Last edited by ruralavalon on Tue Oct 12, 2021 9:36 pm, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
whereskyle
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Re: 401k S&P 500 vs S&P 500-Small Cap-Mid Cap? Or Target date option?

Post by whereskyle »

ruralavalon wrote: Tue Oct 12, 2021 7:44 pm 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 over 80% of the U.S. stock market investing in stocks of selected large-cap and mid-cap U.S. companies. In the 29 years since the creation of the first total stock market index fund the performance of the two types of funds has been almost identical. Portfolio Visualizer, 1993-2021. 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?".



Although actively managed American Funds EuroPacific Growth R6 Fund (RERGX) ER 0.46% is a good, diversified international stock fund, investing in both developed markets and emerging markets, with a "low" expense ratio according to Morningstar.

The performance of American Funds EuroPacific Growth has compared well to a total international stock index fund with higher returns, higher Compound Annual Growth Rate (CAGR), lower volatility and higher risk adjusted returns. Portfolio Visualizer, 1997-2021. I used the oldest share classes to get the longest period for comparison.

I would not hesitate to use the fund in a company plan which lacked a total international stock index fund.
PV link is empty!
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ruralavalon
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Re: 401k S&P 500 vs S&P 500-Small Cap-Mid Cap? Or Target date option?

Post by ruralavalon »

whereskyle wrote: Tue Oct 12, 2021 7:49 pm
ruralavalon wrote: Tue Oct 12, 2021 7:44 pm 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 over 80% of the U.S. stock market investing in stocks of selected large-cap and mid-cap U.S. companies. In the 29 years since the creation of the first total stock market index fund the performance of the two types of funds has been almost identical. Portfolio Visualizer, 1993-2021. 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?".



Although actively managed American Funds EuroPacific Growth R6 Fund (RERGX) ER 0.46% is a good, diversified international stock fund, investing in both developed markets and emerging markets, with a "low" expense ratio according to Morningstar.

The performance of American Funds EuroPacific Growth has compared well to a total international stock index fund with higher returns, higher Compound Annual Growth Rate (CAGR), lower volatility and higher risk adjusted returns. Portfolio Visualizer, 1997-2021. I used the oldest share classes to get the longest period for comparison.

I would not hesitate to use the fund in a company plan which lacked a total international stock index fund.
PV link is empty!
I fixed the link. Portfolio Visualizer, 1997-2021
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
exodusNH
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Re: 401k S&P 500 vs S&P 500-Small Cap-Mid Cap? Or Target date option?

Post by exodusNH »

ruralavalon wrote: Tue Oct 12, 2021 7:44 pm 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 over 80% of the U.S. stock market investing in stocks of selected large-cap and mid-cap U.S. companies. In the 29 years since the creation of the first total stock market index fund the performance of the two types of funds has been almost identical. Portfolio Visualizer, 1993-2021. 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?".



Although actively managed American Funds EuroPacific Growth R6 Fund (RERGX) ER 0.46% is a good, diversified international stock fund, investing in stocks of 872 companies, both developed markets and emerging markets, with a "low" expense ratio according to Morningstar.

The performance of American Funds EuroPacific Growth has compared well to a total international stock index fund with higher returns, higher Compound Annual Growth Rate (CAGR), lower volatility and higher risk adjusted returns. Portfolio Visualizer, 1997-2021. I used the oldest share classes to get the longest period for comparison.

I would not hesitate to use the fund in a company plan which lacked a total international stock index fund.

EDIT: fixed link.
I agree. It holds all of my international in my 401k. It's got 30 years of performance. Going back that far requires the class A shares, with both a higher ER and load.

In taxable, I'm VXUS.
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passive101
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Re: 401k S&P 500 vs S&P 500-Small Cap-Mid Cap? Or Target date option?

Post by passive101 »

Thank you everyone for your advice. I've looked over what everyone has wrote and I think that even though the international fund is .46% that I will keep it at 60/40 split between the US and International. I think I'll just eat the cost of the international a bit to make it easy to keep the ratio close to the same as that is what I think can be a good long term strategy for me with the growing international markets. I do realize that in the future I could end up changing this around some or thinking about it differently.

I have looked over the S&P 500 vs the Total US stock performance differences and they do seem to be very close to the same. Using the link provided I could get very close to the Vanguard total US stock index with a 90/10 split. If I'm thinking correctly since I have 60% in the S&P 500 that would be 54/6 S&P 500/Small cap since 6% is 10% of 60?

The fee is almost 2x between the S&P 500 vs the Vanguard Small cap .04 vs .07. I'm still debating if it would be worth it mathematically to do the 90/10 split into the small cap. I wish my brain worked with numbers a little better then it does.
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Re: 401k S&P 500 vs S&P 500-Small Cap-Mid Cap? Or Target date option?

Post by whereskyle »

passive101 wrote: Wed Oct 13, 2021 2:36 am Thank you everyone for your advice. I've looked over what everyone has wrote and I think that even though the international fund is .46% that I will keep it at 60/40 split between the US and International. I think I'll just eat the cost of the international a bit to make it easy to keep the ratio close to the same as that is what I think can be a good long term strategy for me with the growing international markets. I do realize that in the future I could end up changing this around some or thinking about it differently.

I have looked over the S&P 500 vs the Total US stock performance differences and they do seem to be very close to the same. Using the link provided I could get very close to the Vanguard total US stock index with a 90/10 split. If I'm thinking correctly since I have 60% in the S&P 500 that would be 54/6 S&P 500/Small cap since 6% is 10% of 60?

The fee is almost 2x between the S&P 500 vs the Vanguard Small cap .04 vs .07. I'm still debating if it would be worth it mathematically to do the 90/10 split into the small cap. I wish my brain worked with numbers a little better then it does.
3 basis points is negligible. If you want the extra diversification, I think 3 basis points is worth it. If you're happy with simplicity, just stick with the 500.

You really can't go wrong, and I personally think simplicity trumps
everything.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
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Re: 401k S&P 500 vs S&P 500-Small Cap-Mid Cap? Or Target date option?

Post by ruralavalon »

passive101 wrote: Wed Oct 13, 2021 2:36 am . . . . .
I have looked over the S&P 500 vs the Total US stock performance differences and they do seem to be very close to the same. Using the link provided I could get very close to the Vanguard total US stock index with a 90/10 split. If I'm thinking correctly since I have 60% in the S&P 500 that would be 54/6 S&P 500/Small cap since 6% is 10% of 60?

The fee is almost 2x between the S&P 500 vs the Vanguard Small cap .04 vs .07. I'm still debating if it would be worth it mathematically to do the 90/10 split into the small cap. I wish my brain worked with numbers a little better then it does.
The 0.3% difference in expense ratios is very small, and should not be a factor in the decision.

But I would not bother adding the small-cap, in my opinion a S&P 500 index fund is good enough by itself for a domestic stock allocation.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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Re: 401k S&P 500 vs S&P 500-Small Cap-Mid Cap? Or Target date option?

Post by nisiprius »

Never compare expense ratios as multiples. Never compare them just by looking which is lower.

Always do the math.

Always use the actual number of dollars--a rough rounded ballpark of the actual number of dollars--that you are planning to invest in the fund.

The annual cost--it's very important to remember that happens every year and you will be paying it twenty or thirty or forty times--works out to something like this:

$50,000 in the Prudential Day One 2060 fund: $50,000 x 0.47% = $235/year. For 20 or 30 or 40 years.

$50,000 in the Vanguard 500 Index Fund = $50,000 x 0.04% = $20/year.

$40,000 in 500 Index = $40,000 x 0.04% = $16/year
$7,000 in Mid-cap index = $7,000 x 0.05% = $3.50/year
$3,000 in Small-cap index = $3,000 x 0.07% = $2.10/year
---------
$50,000 in an rough approximation to the total market = $16 + $3.50 + $2.10 = $21.60/year.

Always do the math. After a while the mental arithmetic will get easy enough to do in your head, closely enough to appreciate what's important (0.05% versus 0.50%) and what isn't (0.05% versus 0.07%... or even 0.05% versus 0.01%... or even 0.05% versus ZERO%).
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passive101
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Re: 401k S&P 500 vs S&P 500-Small Cap-Mid Cap? Or Target date option?

Post by passive101 »

nisiprius wrote: Wed Oct 13, 2021 7:58 am Never compare expense ratios as multiples. Never compare them just by looking which is lower.

Always do the math.

Always use the actual number of dollars--a rough rounded ballpark of the actual number of dollars--that you are planning to invest in the fund.

The annual cost--it's very important to remember that happens every year and you will be paying it twenty or thirty or forty times--works out to something like this:

$50,000 in the Prudential Day One 2060 fund: $50,000 x 0.47% = $235/year. For 20 or 30 or 40 years.

$50,000 in the Vanguard 500 Index Fund = $50,000 x 0.04% = $20/year.

$40,000 in 500 Index = $40,000 x 0.04% = $16/year
$7,000 in Mid-cap index = $7,000 x 0.05% = $3.50/year
$3,000 in Small-cap index = $3,000 x 0.07% = $2.10/year
---------
$50,000 in an rough approximation to the total market = $16 + $3.50 + $2.10 = $21.60/year.

Always do the math. After a while the mental arithmetic will get easy enough to do in your head, closely enough to appreciate what's important (0.05% versus 0.50%) and what isn't (0.05% versus 0.07%... or even 0.05% versus 0.01%... or even 0.05% versus ZERO%).
This really does put it into perspective better. :happy
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