Which Fund Should I Choose? Only $1k Initial.

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jtea3051
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Which Fund Should I Choose? Only $1k Initial.

Post by jtea3051 » Sun Jan 15, 2012 10:50 am

I have asked this question before; however, I have now come across the T. Rowe Price Cap App fund (PRWCX). In comparison with the Vanguard Star or 2020, it has done quite well despite an exp ratio of .70%. What are your thoughts on what I should do? This is my first roth, and I only have $1k to begin with. What would you do?

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Re: Which Fund Should I Choose? Only $1k Initial.

Post by livesoft » Sun Jan 15, 2012 10:54 am

I'd buy the Vanguard 2040 fund with my first Roth of just $1000 contribution. One has to think of the long-term plan and starting out with Vanguard is good for the short term as well as the long term.
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Re: Which Fund Should I Choose? Only $1k Initial.

Post by jtea3051 » Sun Jan 15, 2012 10:58 am

livesoft wrote:I'd buy the Vanguard 2040 fund with my first Roth of just $1000 contribution. One has to think of the long-term plan and starting out with Vanguard is good for the short term as well as the long term.
Why do you like the Vanguard Fund? I am not questioning you; I just want to make the right choice. In addition, I am currently 35 years old. I know I getting off to a slow start.

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Re: Which Fund Should I Choose? Only $1k Initial.

Post by livesoft » Sun Jan 15, 2012 11:00 am

It is composed of index funds (US, foreign and fixed income) and has a low expense ratio. The initial minimum investment is $1000.
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Re: Which Fund Should I Choose? Only $1k Initial.

Post by Noobvestor » Sun Jan 15, 2012 11:02 am

I have asked this question before; however, I have now come across the T. Rowe Price Cap App fund (PRWCX). In comparison with the Vanguard Star or 2020, it has done quite well despite an exp ratio of .70%. What are your thoughts on what I should do? This is my first roth, and I only have $1k to begin with. What would you do?
'Despite' is the operative word - why would you want to fight against both the (unrewarded, historically) risk of active management *and* a higher fee? You're also comparing apples and oranges - it took more risks to get where it is, and could have done worse (can't have known that ahead of time).

I agree with LiveSoft with one caveat: I'd consider an earlier date version like 2035 ... all of these TR funds run too risky in my opinion, for the dates they set. Regardless, as to why Vanguard: lowest fees. That stuff adds up over time in a huge way. It will become all the more important if/when you branch out from the TR funds.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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Re: Which Fund Should I Choose? Only $1k Initial.

Post by jtea3051 » Sun Jan 15, 2012 11:08 am

Noobvestor wrote:
I have asked this question before; however, I have now come across the T. Rowe Price Cap App fund (PRWCX). In comparison with the Vanguard Star or 2020, it has done quite well despite an exp ratio of .70%. What are your thoughts on what I should do? This is my first roth, and I only have $1k to begin with. What would you do?
'Despite' is the operative word - why would you want to fight against both the (unrewarded, historically) risk of active management *and* a higher fee? You're also comparing apples and oranges - it took more risks to get where it is, and could have done worse (can't have known that ahead of time).

I agree with LiveSoft with one caveat: I'd consider an earlier date version like 2035 ... all of these TR funds run too risky in my opinion, for the dates they set. Regardless, as to why Vanguard: lowest fees. That stuff adds up over time in a huge way. It will become all the more important if/when you branch out from the TR funds.
That make sense. Thank you for the reply. One more piece of information that I simply forgot to write. My roth is currently with Schwab with a balance of around $1,150. There is a $75 transfer fee. Is this small change to worry about?

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Re: Which Fund Should I Choose? Only $1k Initial.

Post by dickenjb » Sun Jan 15, 2012 11:12 am

"Past performance is not a predictor of future results"

Read that as many times as it takes until it sinks in.

You don't say what the rest of your portfolio looks like, but with only $1000 I would buy the Target Retirement fund which has a suitable asset allocation according to your need, willingness and ability to take risk and bearing in mind the rest of your portfolio.

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Re: Which Fund Should I Choose? Only $1k Initial.

Post by Noobvestor » Sun Jan 15, 2012 11:17 am

jtea3051 wrote:
Noobvestor wrote:
I have asked this question before; however, I have now come across the T. Rowe Price Cap App fund (PRWCX). In comparison with the Vanguard Star or 2020, it has done quite well despite an exp ratio of .70%. What are your thoughts on what I should do? This is my first roth, and I only have $1k to begin with. What would you do?
'Despite' is the operative word - why would you want to fight against both the (unrewarded, historically) risk of active management *and* a higher fee? You're also comparing apples and oranges - it took more risks to get where it is, and could have done worse (can't have known that ahead of time).

I agree with LiveSoft with one caveat: I'd consider an earlier date version like 2035 ... all of these TR funds run too risky in my opinion, for the dates they set. Regardless, as to why Vanguard: lowest fees. That stuff adds up over time in a huge way. It will become all the more important if/when you branch out from the TR funds.
That make sense. Thank you for the reply. One more piece of information that I simply forgot to write. My roth is currently with Schwab with a balance of around $1,150. There is a $75 transfer fee. Is this small change to worry about?
In the long run, I would say: yes. I'm a big believer in simplifying early ... I sold some stocks and stock funds a while back with slight cap gains (and closed a trading account in the process) but was happy to pay the taxes to have life easier going forward. However, I would suggest waiting until you're convinced you want to move - if it were me, knowing what I know now, I would have shifted to Vanguard a lot sooner than I did ;)
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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Re: Which Fund Should I Choose? Only $1k Initial.

Post by jtea3051 » Sun Jan 15, 2012 11:18 am

dickenjb wrote:"Past performance is not a predictor of future results"

Read that as many times as it takes until it sinks in.

You don't say what the rest of your portfolio looks like, but with only $1000 I would buy the Target Retirement fund which has a suitable asset allocation according to your need, willingness and ability to take risk and bearing in mind the rest of your portfolio.
We currently have a 401k with Fidelity with about $18k. It has limited options. Here is how it breaks down:

Spartan Total Market (FSTMX ER: .10): 50% ($9k)
Diversified International (FDIVX ER: .90) only int available: 20% ($3600)
Investment Grade Bond (FBNDX ER: .45) only bond available: 30% ($5400)

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Re: Which Fund Should I Choose? Only $1k Initial.

Post by Toons » Sun Jan 15, 2012 11:26 am

jtea3051 wrote:
Noobvestor wrote:
I have asked this question before; however, I have now come across the T. Rowe Price Cap App fund (PRWCX). In comparison with the Vanguard Star or 2020, it has done quite well despite an exp ratio of .70%. What are your thoughts on what I should do? This is my first roth, and I only have $1k to begin with. What would you do?
'Despite' is the operative word - why would you want to fight against both the (unrewarded, historically) risk of active management *and* a higher fee? You're also comparing apples and oranges - it took more risks to get where it is, and could have done worse (can't have known that ahead of time).

I agree with LiveSoft with one caveat: I'd consider an earlier date version like 2035 ... all of these TR funds run too risky in my opinion, for the dates they set. Regardless, as to why Vanguard: lowest fees. That stuff adds up over time in a huge way. It will become all the more important if/when you branch out from the TR funds.
That make sense. Thank you for the reply. One more piece of information that I simply forgot to write. My roth is currently with Schwab with a balance of around $1,150. There is a $75 transfer fee. Is this small change to worry about?
In the long term yes. Years from now, or not even that long, you will have forgotten about the 75.00 :dollar
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Re: Which Fund Should I Choose? Only $1k Initial.

Post by jtea3051 » Sun Jan 15, 2012 11:34 am

Toons wrote:
jtea3051 wrote:
Noobvestor wrote:
I have asked this question before; however, I have now come across the T. Rowe Price Cap App fund (PRWCX). In comparison with the Vanguard Star or 2020, it has done quite well despite an exp ratio of .70%. What are your thoughts on what I should do? This is my first roth, and I only have $1k to begin with. What would you do?
'Despite' is the operative word - why would you want to fight against both the (unrewarded, historically) risk of active management *and* a higher fee? You're also comparing apples and oranges - it took more risks to get where it is, and could have done worse (can't have known that ahead of time).

I agree with LiveSoft with one caveat: I'd consider an earlier date version like 2035 ... all of these TR funds run too risky in my opinion, for the dates they set. Regardless, as to why Vanguard: lowest fees. That stuff adds up over time in a huge way. It will become all the more important if/when you branch out from the TR funds.
That make sense. Thank you for the reply. One more piece of information that I simply forgot to write. My roth is currently with Schwab with a balance of around $1,150. There is a $75 transfer fee. Is this small change to worry about?
In the long term yes. Years from now, or not even that long, you will have forgotten about the 75.00 :dollar
I am sure that I am overthinking this. $75 is not enough money to stress about.

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Re: Which Fund Should I Choose? Only $1k Initial.

Post by dickenjb » Sun Jan 15, 2012 11:53 am

jtea3051 wrote: We currently have a 401k with Fidelity with about $18k. It has limited options. Here is how it breaks down:

Spartan Total Market (FSTMX ER: .10): 50% ($9k)
Diversified International (FDIVX ER: .90) only int available: 20% ($3600)
Investment Grade Bond (FBNDX ER: .45) only bond available: 30% ($5400)
So you seem to have decided on about a 70/30 allocation which seems appropriate given you are mid 30's.

The Fidelity Spartan Total Market at 10 basis points seems to be a very attractive option within your 401(k). I would be tempted to come up with another $2000 and buy Total International Stock in my Vanguard Roth at 26 bps and sell FDIVX in the 401 (k).

Overall allocation still at 50/20/30 based on $21K total:

In 401(k):

FSTMX $10500
FDIVX $1200
FBNDX $6300

In Vanguard Roth:

VGSTX: $3000

Then as you can afford to put more into the Roth keep selling the expensive Fido international fund in the 401(k).

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Re: Which Fund Should I Choose? Only $1k Initial.

Post by jtea3051 » Sun Jan 15, 2012 12:21 pm

dickenjb wrote:
jtea3051 wrote: We currently have a 401k with Fidelity with about $18k. It has limited options. Here is how it breaks down:

Spartan Total Market (FSTMX ER: .10): 50% ($9k)
Diversified International (FDIVX ER: .90) only int available: 20% ($3600)
Investment Grade Bond (FBNDX ER: .45) only bond available: 30% ($5400)
So you seem to have decided on about a 70/30 allocation which seems appropriate given you are mid 30's.

The Fidelity Spartan Total Market at 10 basis points seems to be a very attractive option within your 401(k). I would be tempted to come up with another $2000 and buy Total International Stock in my Vanguard Roth at 26 bps and sell FDIVX in the 401 (k).

Overall allocation still at 50/20/30 based on $21K total:

In 401(k):

FSTMX $10500
FDIVX $1200
FBNDX $6300

In Vanguard Roth:

VGSTX: $3000

Then as you can afford to put more into the Roth keep selling the expensive Fido international fund in the 401(k).
Right now, I don't have the additional $2k. However, TDA allows commission free ETF's, and Vanguard total is one of them. What are the dangers of these free etf's?

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Re: Which Fund Should I Choose? Only $1k Initial.

Post by wlpotts » Sun Jan 15, 2012 9:47 pm

dickenjb wrote:
jtea3051 wrote: We currently have a 401k with Fidelity with about $18k. It has limited options. Here is how it breaks down:

Spartan Total Market (FSTMX ER: .10): 50% ($9k)
Diversified International (FDIVX ER: .90) only int available: 20% ($3600)
Investment Grade Bond (FBNDX ER: .45) only bond available: 30% ($5400)
So you seem to have decided on about a 70/30 allocation which seems appropriate given you are mid 30's.

The Fidelity Spartan Total Market at 10 basis points seems to be a very attractive option within your 401(k). I would be tempted to come up with another $2000 and buy Total International Stock in my Vanguard Roth at 26 bps and sell FDIVX in the 401 (k).

Overall allocation still at 50/20/30 based on $21K total:

In 401(k):

FSTMX $10500
FDIVX $1200
FBNDX $6300

In Vanguard Roth:

VGSTX: $3000

Then as you can afford to put more into the Roth keep selling the expensive Fido international fund in the 401(k).


NOTE: With 401k, 403b and other Company Sponsored Plans this 1st quarter of 2012, new MANDATORY FEE DISCLOSURES are required be made available to the individual investor of these plans. Over the years, company sponsored plans have contained hidden fees. Fees and expenses which most all of us were never made aware of. These costs are accessed upon each of us and our retirement savings over the course on our investing lives. Most employees are unaware of these hidden additional costs or that they continue to compound with each investing year. How these expenses might affect our investment decisions as well as the imapact on our future financial situation is still a variable, but deserves consideration. Hidden costs within some of my past employer sponsored plans have ranged from an added expense ratio of .72% to 2.42%. As a recommendation, I would request full disclosure of any of these hidden fees or if you're exempted from surcharges from you benefits department.

You may find that it might be more beneficial to fully invest in your ROTH first and then consider the filling out either your taxable and other tax-deferred options accordingly.

Respectfully,

wlpotts
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Re: Which Fund Should I Choose? Only $1k Initial.

Post by nisiprius » Mon Jan 16, 2012 6:56 am

jtea3051 wrote:I have asked this question before; however, I have now come across the T. Rowe Price Cap App fund (PRWCX). In comparison with the Vanguard Star or 2020, it has done quite well despite an exp ratio of .70%. What are your thoughts on what I should do? This is my first roth, and I only have $1k to begin with. What would you do?
"Done quite well" is not keeping your eye on the ball. In any given year, various funds will do better than other funds. In any given decade, various funds will do better than other funds. Worrying too much about what has "done quite well" is just going to suck you into a performance-chasing greed/anxiety cycle. Keeping your eye on the ball means picking a sensible strategy and staying the course.
jtea3051 wrote:Spartan Total Market (FSTMX ER: .10): 50% ($9k)
Diversified International (FDIVX ER: .90) only int available: 20% ($3600)
Investment Grade Bond (FBNDX ER: .45) only bond available: 30% ($5400)
You started out with an admirably simple and sensible portfolio, consisting of good mainstream choices for the three big asset classes. Your task in the Roth is just to extend this plan.

Boring is the key here! Embrace boring! Don't look at this as an opportunity to seek novelty branch out in a new direction, look at it as a challenge to find the most boring, same-old same-old thing you can!

One thing to keep in mind is that since you already have $18,000 invested, another $1,000 is less than 6% of your total portfolio, and a 6% change in any of your asset allocation percentages isn't going to matter a whole awful lot. So you needn't feel obligated to maintain that ratio in your new investment, adding $1,000 of (say) pure bonds or pure stocks isn't going to throw you off that much. But if you do want to hold steady, in (most?) 401(k)'s you can exchange funds in any amount at any time you like with no costs or tax consequences. So your $1,000 Roth can be a pure stock, international stock, or bond fund, and you can bring your total portfolio back to a precise 50/20/30 by making the necessary exchanges in your 401(k).

Well, you know where I'm going. Subject to the constraint of the $1,000 minimum, and based on my suggestion to "keep doing what you're doing now," the only mutual fund choice at Vanguard would one of the Target Retirement funds, and in my personal opinion that would be a good choice, and glancing at the Bogleheads Wiki article about them the 2025 or 2030 funds come close to what you're doing already--2025 is 60% Total Stock, 15% Total International, 25% Total bond and therefore is the "appropriately boring" choice.

Apart from that, you're going to have to either go to
* buying ETFs instead of mutual funds; e.g. Vanguard Total Stock (VTI), Total International Stock (VXUS), and Total Bond (BND) in ETF form
* or, find a mutual fund company with lower minimum purchases, e.g. Schwab Total Stock Market Index (SWTSX), Schwab International Index Fund (SWISX), Schwab Total Bond Market Fund (SWLBX), and let's not go down the past issues with that fund just now. T. Rowe Price ($1,000 minimum for retirement accounts, it looks like)? Sure, why not, but keep it boring: T. Rowe Price T. Rowe Price Total Equity Market Index Fund (POMIX, 0.40% ER), International Equity Index (PIEQX, 0.70% ER--yikes!), U. S. Bond Enhanced Index (PBDIX, ER 0.29%) but, uh-oh, what does "enhanced" mean?
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Re: Which Fund Should I Choose? Only $1k Initial.

Post by YDNAL » Mon Jan 16, 2012 7:12 am

jtea3051 wrote:I have asked this question before; however, I have now come across the T. Rowe Price Cap App fund (PRWCX). In comparison with the Vanguard Star or 2020, it has done quite well despite an exp ratio of .70%. What are your thoughts on what I should do? This is my first roth, and I only have $1k to begin with. What would you do?
Another "my apples are larger than your oranges."

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Re: Which Fund Should I Choose? Only $1k Initial.

Post by livesoft » Mon Jan 16, 2012 7:15 am

wlpotts wrote:NOTE: With 401k, 403b and other Company Sponsored Plans this 1st quarter of 2012, new MANDATORY FEE DISCLOSURES are required be made available to the individual investor of these plans. Over the years, company sponsored plans have contained hidden fees. Fees and expenses which most all of us were never made aware of. These costs are accessed upon each of us and our retirement savings over the course on our investing lives. Most employees are unaware of these hidden additional costs or that they continue to compound with each investing year.
My experience with Fidelity 401(k) plans is that there are no hidden fees, so this would not be a concern to me for the OP''s 401(k) plan.
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Re: Which Fund Should I Choose? Only $1k Initial.

Post by dharrythomas » Mon Jan 16, 2012 11:16 am

I had a Fidelity 401(k) for awhile. Their fees are reasonable but they are pushing actively managed funds. As soon as I could, I transferred the funds to Vanguard.

We had some USAA funds earlier, I too wish I'd tranferred to Vanguard earlier.

Good Luck.

Harry

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Re: Which Fund Should I Choose? Only $1k Initial.

Post by nisiprius » Mon Jan 16, 2012 11:36 am

livesoft wrote:My experience with Fidelity 401(k) plans is that there are no hidden fees, so this would not be a concern to me for the OP''s 401(k) plan.
I'm not sure what you mean by "hidden." I was with an employer with a (pretty good, IMHO) Fidelity-managed plan for about fifteen years, and I had no idea for most of that time that a "management fee" was being added to the funds' stated expense ratios.

I closed out that plan about four years ago so I don't know if they're doing it the same way now, and I'm afraid I didn't take notes or save the paperwork or screenshot so I can't tell you numbers, and this is from memory, but I believe it was on the rough order of 0.15% or 0.2%. That is, I thought my account would grow absolutely identically to the same amounts of the same funds held in (say) a Roth, but in reality they were leeching an extra 0.15% or 0.2% off.

How I found out is interesting. I was planning to roll out my 401(k) at age 59.5 anyway, and in my "annual retirement checkup" with a Fidelity CFP, he commented that I "should" roll it over--into a Fidelity rollover IRA account--because "it would be to your advantage to do so." I said "Because of more choices?" He said something noncommittal. But later on I thought that he had probably been a Good Guy. Anyway, as a result of rolling over my current holdings while continuing to contribute to the plan, I had online access to both my 401(k) and my rollover accounts, and I discovered that if I visited to the fund description page online through my 401(k) plan login, I got a slightly higher ER% than if I viewed the same fund's description through my brokerage login. Some page included the fee breakdown, and the 401(k) plan showed that it included an extra "management fee."

Was this a "hidden" fee? I don't know. I can tell you that I'm a fair-to-middling fine-print reader and I missed it for fifteen years. Fidelity would surely have said it was in plain view, of course.
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Re: Which Fund Should I Choose? Only $1k Initial.

Post by Exige » Mon Jan 16, 2012 12:24 pm

With my first 1k last year I started with the vanguard 2030 fund
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Re: Which Fund Should I Choose? Only $1k Initial.

Post by jtea3051 » Mon Jan 16, 2012 12:29 pm

Thank you for all of your suggestions. I think that I am going to treat my Roth and 401k as one portfolio finally instead of two. Until I get to the $3k minimum, I am going to buy Schwab International Index and begin decreasing my 401k international to lower cost. I know the Schwab isn't as good, but it will do for now.

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Re: Which Fund Should I Choose? Only $1k Initial.

Post by sometimesinvestor » Mon Jan 16, 2012 3:35 pm

Price Cap Ap has an excellent long term record and is historically not a risky fund (morningstar moderate allocation) though morningstar suggests the latest manager is less risk averse than previous managers (there have been several over the life of the Fund.) On the other hand I agree with the view that it is not the one fund to have if you are having only one. It is diversified but nowhere near as well as your portfolio of total market + total international + total bond.
I would therefore wait with this fund until an investment would be a smaller % of your portfolio and you. can think of it as the Cherry on top of your sundae..
Like many bogleheads I try to outperform in the long run (I don't buy the latest "hot fund") with a small proportion of my money (it helps me pay attention)and yes, I do own Cap Ap as do many on this site but I am sure that almost all that do not have it as their largest investment or second largest or third largest ..

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