Question re: my high fee 401k plan/my investments

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ohiobucks1
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Question re: my high fee 401k plan/my investments

Post by ohiobucks1 » Thu Nov 16, 2017 11:54 am

Hi, longtime lurker, with a question regarding my high fee 401k plan.

I have the following options in my 401k plan:
Prudential Total Return Bond Fund (.76 exp)
T. Rowe Price Retirement 2060 Fund (.76 exp)
Dreyfus Institutional S&P 500 Stock Index Fund (.20 exp)
T. Rowe Price Growth Stock Fund (.68 exp)
Dreyfus Mid Cap Index Fund (.50 exp)
Columbia Small Cap Value II Fund (.49 exp)
Dreyfus Small Cap Stock Index Fund (.44 exp)
T. Rowe Price New Horizons Fund (.79 exp)
American Funds EuroPacific Growth Fund (.85 exp)


No good cheap bond options, no total stock or total international stock options, etc.

Right now I have it as:
50% T. Rowe Price Retirement 2060 Fund
30% Dreyfus Institutional S&P 500 Stock Index Fund
10% American Funds EuroPacific Growth Fund
10% T. Rowe Price New Horizons Fund

However, I've been reading this forum and realized that I probably am losing future growth due to the high fees. Would I be better off just putting 100% of it into the .20% S&P 500 Stock Index Fund?

More info that might help:
I currently have ~$19,000 in the 401k (6,000 as traditional, and then 13,000 as Roth once I realized I should do a Roth).
My employer matches 4%. I max out my 401k.

I also max out my Roth IRA, which currently has ~$13,000.
In it, is ~5,000 VNQ (Vanguard Reit) and ~8,000 BND (Vanguard Total Bond).

My Taxable Brokerage Accounts have ~60,000 split between two brokerages:
1. $40,000 in Vanguard Total Stock Market Index
2. $20,000 at Wealthfront invested in a bunch of things but it comes out to about 40% US Stock, 40% International Stock, 10% Commodities/Resources, 10% Bonds


I've read about the 3-fund approach and I am trying to mimic it to an extent. I want to have around a 85-15 stock to bond allocation overall. Do you guys think I am following the right plan? Am I screwing myself by putting bonds in my Roth rather then more higher earning options? Should I sell out my REIT and change to just Total Stock, Total International, and Bond in the accounts I have full control over?

ohiobucks1
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Joined: Thu Nov 16, 2017 11:40 am

Re: Question re: my high fee 401k plan/my investments

Post by ohiobucks1 » Thu Nov 16, 2017 2:50 pm

Also please note that I have an emergency fund at Ally.com with ~$11,000 in it, I will be putting $1,000 in a month for the next 3 years in order to try to afford a house down payment.

sjt
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Re: Question re: my high fee 401k plan/my investments

Post by sjt » Thu Nov 16, 2017 2:58 pm

ohiobucks1 wrote:
Thu Nov 16, 2017 11:54 am

However, I've been reading this forum and realized that I probably am losing future growth due to the high fees. Would I be better off just putting 100% of it into the .20% S&P 500 Stock Index Fund?
YES
ohiobucks1 wrote:
Thu Nov 16, 2017 11:54 am

I've read about the 3-fund approach and I am trying to mimic it to an extent. I want to have around a 85-15 stock to bond allocation overall. Do you guys think I am following the right plan? Am I screwing myself by putting bonds in my Roth rather then more higher earning options? Should I sell out my REIT and change to just Total Stock, Total International, and Bond in the accounts I have full control over?
Your overall AA means all your accounts combined. Just add bonds in your Roth to balance out the amount in your 401k. Still a lot of information missing (age, goals, etc) but you seem to be young with the amounts in your accounts and saving for a house downpayment. I wouldn't hesitate to put 100% of 401k in S&P fund at a young age.

P.S. Go Bucks!

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flamesabers
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Location: Rochester, MN

Re: Question re: my high fee 401k plan/my investments

Post by flamesabers » Thu Nov 16, 2017 3:15 pm

Welcome to the forum! :beer

For your 401k do you have any other fees? (i.e. AUM fees, admin, recordkeeping, etc.)

If I was in your position here's how I would concentrate my areas of investment:

401k-Domestic Equity (Dreyfus S&P 500)

Roth IRA-Bonds (Total Bond Index)

Taxable-International Equity (Total International Stock Index)

If you need additional tax-advantaged space for bonds, I would suggest going with savings bonds.

For simplicity sake I would recommend trying to dedicate each investment account (401k, taxable, IRA, etc.) to a specific portion of your portfolio as opposed to having something of a 3-fund setup in each of your investment accounts.

ohiobucks1
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Re: Question re: my high fee 401k plan/my investments

Post by ohiobucks1 » Thu Nov 16, 2017 4:06 pm

flamesabers wrote:
Thu Nov 16, 2017 3:15 pm
Welcome to the forum! :beer

For your 401k do you have any other fees? (i.e. AUM fees, admin, recordkeeping, etc.)

If I was in your position here's how I would concentrate my areas of investment:

401k-Domestic Equity (Dreyfus S&P 500)

Roth IRA-Bonds (Total Bond Index)

Taxable-International Equity (Total International Stock Index)

If you need additional tax-advantaged space for bonds, I would suggest going with savings bonds.

For simplicity sake I would recommend trying to dedicate each investment account (401k, taxable, IRA, etc.) to a specific portion of your portfolio as opposed to having something of a 3-fund setup in each of your investment accounts.
Thanks for the advice! That sounds like a great idea. I want to have around a 60-30-10 split, but since I have 40k in a taxable, right now, I cannot do it without having either bonds, or intentional stock in my taxable. Therefore, I think i'll go with (approximates):

401k - Dreyfus SP500 - $19k
Taxable - Total Stock Market - 20k
Taxable - Total International Stock - 20k
Roth IRA - Total Bond Market - 10k
Roth IRA - Reit Index - 3k
Wealthfront - 12k US Stock
Wealthfront - 7k International Stock
Wealthfront - 1k Bond/Resources/Commodities

As I get more in my 401k and IRA, I can change the proportions, but that seems like a fair jist. I was just worried about not having bonds in my 401k and having them in my Roth IRA since I have read people on here talking about having the highest earning potential stocks in the IRA.

Also, the fees I posted were the net fees all things included. There are also some admin fees for the 401k, I think theyre currently like 75 cents a month.

mega317
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Re: Question re: my high fee 401k plan/my investments

Post by mega317 » Thu Nov 16, 2017 5:50 pm

What is your tax bracket? That will affect the recommendation somewhat.

Concurrent thread about bonds in Roth:
viewtopic.php?f=1&t=232404

Go blue

ohiobucks1
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Re: Question re: my high fee 401k plan/my investments

Post by ohiobucks1 » Fri Nov 17, 2017 11:05 am

mega317 wrote:
Thu Nov 16, 2017 5:50 pm
What is your tax bracket? That will affect the recommendation somewhat.

Concurrent thread about bonds in Roth:
viewtopic.php?f=1&t=232404

Go blue

Tax Bracket is 25%

Go Bucks.

mega317
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Re: Question re: my high fee 401k plan/my investments

Post by mega317 » Fri Nov 17, 2017 4:15 pm

Another consideration could be all bonds in taxable in the form of munis, but not in your bracket.

Does your 401k have an option for after-tax contributions and in-service rollovers? That would be a way to get additional Roth space and mitigate the effect of having bonds in Roth.

ohiobucks1
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Re: Question re: my high fee 401k plan/my investments

Post by ohiobucks1 » Mon Nov 20, 2017 4:47 pm

mega317 wrote:
Fri Nov 17, 2017 4:15 pm
Another consideration could be all bonds in taxable in the form of munis, but not in your bracket.

Does your 401k have an option for after-tax contributions and in-service rollovers? That would be a way to get additional Roth space and mitigate the effect of having bonds in Roth.
Can you explain the after-tax contribution and in-service rollover idea a little more? I'm not sure the answer.

mega317
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Re: Question re: my high fee 401k plan/my investments

Post by mega317 » Mon Nov 20, 2017 4:52 pm

Search this site for mega backdoor roth

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Meg77
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Re: Question re: my high fee 401k plan/my investments

Post by Meg77 » Mon Nov 20, 2017 4:53 pm

I would 100% put all of your 401k assets and future contributions into the S&P 500 index. That's what I do and what my husband does as well. We use Roths and taxable to diversify further with bonds/international/small caps as we can. In a perfect world we'd just use total market index funds, but our options are what they are and I'm not worried about it.

At your stage new contributions matter MUCH more for portfolio growth than your asset allocation does anyway. To be fair, your savings rate matters a lot more than your fund fees do too. But I wouldn't sweat it at all to put everything into that ideal fund.

Plus who knows, if more people start doing that maybe your company will eventually add a few more index funds as options.
"An investment in knowledge pays the best interest." - Benjamin Franklin

ohiobucks1
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Re: Question re: my high fee 401k plan/my investments

Post by ohiobucks1 » Tue Nov 21, 2017 1:57 pm

mega317 wrote:
Mon Nov 20, 2017 4:52 pm
Search this site for mega backdoor roth
I emailed MassMutual to ask them about it and I believe they said I cannot move money out of my account until I leave the job.

ohiobucks1
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Joined: Thu Nov 16, 2017 11:40 am

Re: Question re: my high fee 401k plan/my investments

Post by ohiobucks1 » Wed Dec 06, 2017 3:34 pm

I have done the following based on everyone's advice:

401k - Dreyfus SP500 - $20k
Taxable - Total Stock Market - 38k
Roth IRA - Total Bond Market - 4.5k
Roth IRA - Total International Stock - 4.5k
Roth IRA - Reit Index - 4k
Wealthfront - 20.5k

Emergency Funds:
11K Ally
7k PNC

I am currently doing maxing out my 401k at a 66% Roth, 34% Traditional. I will max out my IRA at the start of next year. Starting on Jan 1, I will be adding $2,000 a year to my HSA. I already contribute $100 a month to a 529 plan for a future child.

My goal is to save for a down payment on a house within the next 2 years. My Fiancee has saved 40k in her ally account to split it with me. I'm putting away 1k a month to catch up to her.

I am just trying to figure out if I am on the right track or if I can be doing something different to be more tax efficient. Before reading Bogleheads I was all about buying and selling and switching things up in my taxable account, which is going to hurt me during tax season this year (show a cost basis of +$6,000 this year.

ohiobucks1
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Joined: Thu Nov 16, 2017 11:40 am

Re: Question re: my high fee 401k plan/my investments

Post by ohiobucks1 » Mon Dec 11, 2017 9:19 am

Found out that my 401k actually has the Prudential Total Bond Fund at an expense ratio of .01 (we have a contract with them to take it from .76 to .01 while I am employed).

Therefore, does it make sense for me to move approximately 10-15 of my total investment worth into that? I would then have no other bonds in my taxable or IRA.

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