25 Year Old - Need help with picking 401k funds

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shreyasfifa
Posts: 9
Joined: Tue Oct 17, 2017 12:43 pm

25 Year Old - Need help with picking 401k funds

Post by shreyasfifa » Sat Jan 06, 2018 9:52 pm

Hello,

I started working in May of 2016 and I was told to call Fidelity to start my 401K fund. The customer service rep chose the Target Date 2055 fund for me but I want to know from your guys whether its the right strategy. Given below are the funds that are available to me.

I couldn't find the ticker for most of the funds here but I will be more than happy to any additional details. Thanks!

Tier Legend
1. ASSET ALLOCATION
3. ACTIVE TIER
2. PASSIVE TIER

EDIT: Added Expense Ratios

Code: Select all

+------+--------------------------+---------------+----------------------+---------------------------------------------+----------------+
| Tier |       Asset Class        |   Subclass    |      Fund Name       |                   Ticker                    | Expenses Ratio |
+------+--------------------------+---------------+----------------------+---------------------------------------------+----------------+
|    1 | Blended Fund Investments | --            | LIFEPATH INDEX RET F | LIRKX                                       |                |
|    1 | Blended Fund Investments | --            | LIFEPATH IDX 2020 F  |                                             |                |
|    1 | Blended Fund Investments | --            | LIFEPATH IDX 2025 F  |                                             |                |
|    1 | Blended Fund Investments | --            | LIFEPATH IDX 2030 F  |                                             |                |
|    1 | Blended Fund Investments | --            | LIFEPATH IDX 2035 F  |                                             |                |
|    1 | Blended Fund Investments | --            | LIFEPATH IDX 2040 F  |                                             |                |
|    1 | Blended Fund Investments | --            | LIFEPATH IDX 2045 F  |                                             |                |
|    1 | Blended Fund Investments | --            | LIFEPATH IDX 2050 F  |                                             |                |
|    1 | Blended Fund Investments | --            | LIFEPATH IDX 2055 F  | LIVIX                                       | 0.07%          |
|    2 | Stock Investments        | Large Cap     | BLKRK US EQ MKT IDX  | BlackRock US Equity Market Index-F          | 0.02%          |
|    2 | Stock Investments        | International | BLKRK INTL EQUITY F  | BlackRock International Equity Index Fund F | 0.06%          |
|    2 | Bond Investments         | Income        | BLKRK US DEBT INDEX  | BlackRock US Debt-F                         | 0.03%          |
|    3 | Stock Investments        | International | INTERNATIONAL EQUITY | International Equity Fund                   | 0.90%          |
|    3 | Bond Investments         | Stable Value  | STABLE VALUE         |                                             | 0.13%          |
|      |                          |               | view restriction(s)  |                                             |                |
|    3 | Bond Investments         | Income        | PIM TOTAL RT INST    | PIMCO Total Return Fund Institutional Class | 0.51%          |
+------+--------------------------+---------------+----------------------+---------------------------------------------+----------------+
Last edited by shreyasfifa on Sat Jan 06, 2018 10:44 pm, edited 1 time in total.

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9-5 Suited
Posts: 241
Joined: Thu Jun 23, 2016 12:14 pm

Re: 25 Year Old - Need help with picking 401k funds

Post by 9-5 Suited » Sat Jan 06, 2018 10:25 pm

shreyasfifa wrote:
Sat Jan 06, 2018 9:52 pm
Hello,

I started working in May of 2016 and I was told to call Fidelity to start my 401K fund. The customer service rep chose the Target Date 2055 fund for me but I want to know from your guys whether its the right strategy. Given below are the funds that are available to me.
Hi there! Great to be starting out a 401K! Let me back the truck up and share a few thoughts first. Start with a philosophy - let the tactics follow from that.

#1: Start by roughly defining your risk tolerance, which will help you determine the % stock and % bond you want.
#2: Next, determine if you prefer active funds or index funds. If you are a Bogleheads reader, this one is a slam dunk. But it is still best to know why so you can explain it out loud yourself.
#3: If you are very disinterested in messing with your investments, the Target Retirement Fund is fine. But there are several advantages to buying funds individually if you don't mind spending a few hours a year managing your accounts.
#4: Determine what % you want to allocate to US stock vs. International stock. Bogleheads search will be very helpful for this.

One you have an ironclad philosophy, the actual fund selection will be obvious. Happy reading!

JBTX
Posts: 4262
Joined: Wed Jul 26, 2017 12:46 pm

Re: 25 Year Old - Need help with picking 401k funds

Post by JBTX » Sat Jan 06, 2018 10:31 pm

shreyasfifa wrote:
Sat Jan 06, 2018 9:52 pm
Hello,

I started working in May of 2016 and I was told to call Fidelity to start my 401K fund. The customer service rep chose the Target Date 2055 fund for me but I want to know from your guys whether its the right strategy. Given below are the funds that are available to me.

I couldn't find the ticker for most of the funds here but I will be more than happy to any additional details. Thanks!

Tier Legend
1. ASSET ALLOCATION
3. ACTIVE TIER
2. PASSIVE TIER

Code: Select all

+------+--------------------------+---------------+----------------------+---------------------------------------------+
| Tier |       Asset Class        |   Subclass    |      Fund Name       |                   Ticker                    |
+------+--------------------------+---------------+----------------------+---------------------------------------------+
|    1 | Blended Fund Investments | --            | LIFEPATH INDEX RET F | LIRKX                                       |
|    1 | Blended Fund Investments | --            | LIFEPATH IDX 2020 F  |                                             |
|    1 | Blended Fund Investments | --            | LIFEPATH IDX 2025 F  |                                             |
|    1 | Blended Fund Investments | --            | LIFEPATH IDX 2030 F  |                                             |
|    1 | Blended Fund Investments | --            | LIFEPATH IDX 2035 F  |                                             |
|    1 | Blended Fund Investments | --            | LIFEPATH IDX 2040 F  |                                             |
|    1 | Blended Fund Investments | --            | LIFEPATH IDX 2045 F  |                                             |
|    1 | Blended Fund Investments | --            | LIFEPATH IDX 2050 F  |                                             |
|    1 | Blended Fund Investments | --            | LIFEPATH IDX 2055 F  | LIVIX                                       |
|    2 | Stock Investments        | Large Cap     | BLKRK US EQ MKT IDX  | BlackRock US Equity Market Index-F          |
|    2 | Stock Investments        | International | BLKRK INTL EQUITY F  | BlackRock International Equity Index Fund F |
|    2 | Bond Investments         | Income        | BLKRK US DEBT INDEX  | BlackRock US Debt-F                         |
|    3 | Stock Investments        | International | INTERNATIONAL EQUITY | International Equity Fund                   |
|    3 | Bond Investments         | Stable Value  | STABLE VALUE         |                                             |
|      |                          |               | view restriction(s)  |                                             |
|    3 | Bond Investments         | Income        | PIM TOTAL RT INST    | PIMCO Total Return Fund Institutional Class |
+------+--------------------------+---------------+----------------------+---------------------------------------------+

The key question is what is the expense ratio of the target date fund, and what are the expense rations of the other choices. If you dig into the details they should provide that information - and post it when you find out.

As a beginning investor, and for many experienced investors, the advantages of a target date fund are a generally reasonable and diversified age appropriate allocation is selected and that allocation is automatically rebalanced for you.

If the target date fund has comparable or lower expenses, it is going to be the way to go for most people. If its expenses are materially higher, then some combinations of the others may be better.

shreyasfifa
Posts: 9
Joined: Tue Oct 17, 2017 12:43 pm

Re: 25 Year Old - Need help with picking 401k funds

Post by shreyasfifa » Sat Jan 06, 2018 10:46 pm

Except for the US Equity fund, all the other funds have similar or higher expense ratios

shreyasfifa
Posts: 9
Joined: Tue Oct 17, 2017 12:43 pm

Re: 25 Year Old - Need help with picking 401k funds

Post by shreyasfifa » Sat Jan 06, 2018 10:49 pm

9-5 Suited wrote:
Sat Jan 06, 2018 10:25 pm
shreyasfifa wrote:
Sat Jan 06, 2018 9:52 pm
Hello,

I started working in May of 2016 and I was told to call Fidelity to start my 401K fund. The customer service rep chose the Target Date 2055 fund for me but I want to know from your guys whether its the right strategy. Given below are the funds that are available to me.
Hi there! Great to be starting out a 401K! Let me back the truck up and share a few thoughts first. Start with a philosophy - let the tactics follow from that.

#1: Start by roughly defining your risk tolerance, which will help you determine the % stock and % bond you want.
#2: Next, determine if you prefer active funds or index funds. If you are a Bogleheads reader, this one is a slam dunk. But it is still best to know why so you can explain it out loud yourself.
#3: If you are very disinterested in messing with your investments, the Target Retirement Fund is fine. But there are several advantages to buying funds individually if you don't mind spending a few hours a year managing your accounts.
#4: Determine what % you want to allocate to US stock vs. International stock. Bogleheads search will be very helpful for this.

One you have an ironclad philosophy, the actual fund selection will be obvious. Happy reading!
I'm reading about the allocations on the wiki and its honestly is just hard to understand. I will try to read it a couple of times. Thanks!

pingo
Posts: 2594
Joined: Sat Sep 19, 2009 8:24 pm

Re: 25 Year Old - Need help with picking 401k funds

Post by pingo » Sat Jan 06, 2018 10:50 pm

I’m a big fan of target funds, and I’m a big fan of Blackrock’s LifePath Index target funds.

They’re arguably as good as Vanguard’s with a straight forward glidepath. You are very fortunate to have them as an option.

There is no need to invest in anything else.

pingo
Posts: 2594
Joined: Sat Sep 19, 2009 8:24 pm

Re: 25 Year Old - Need help with picking 401k funds

Post by pingo » Sat Jan 06, 2018 11:42 pm

Okay, so I can't believe how many spelling error there were in that last post. I went ahead and edited them out.

student
Posts: 2677
Joined: Fri Apr 03, 2015 6:58 am

Re: 25 Year Old - Need help with picking 401k funds

Post by student » Sat Jan 06, 2018 11:54 pm

Your Target Index Fund has a ER of 0.17%. This is low. Vanguard's version is 0.16%. Since you said you found allocation difficult to understand and you are just started, I suggest stick with this low cost target index fund. Once you know more, you can always change it with no tax consequences.

shreyasfifa
Posts: 9
Joined: Tue Oct 17, 2017 12:43 pm

Re: 25 Year Old - Need help with picking 401k funds

Post by shreyasfifa » Sun Jan 07, 2018 2:46 pm

student wrote:
Sat Jan 06, 2018 11:54 pm
Your Target Index Fund has a ER of 0.17%. This is low. Vanguard's version is 0.16%. Since you said you found allocation difficult to understand and you are just started, I suggest stick with this low cost target index fund. Once you know more, you can always change it with no tax consequences.
Did you mean 0.07% ER?

youngpleb
Posts: 230
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Location: VA, USA

Re: 25 Year Old - Need help with picking 401k funds

Post by youngpleb » Sun Jan 07, 2018 3:14 pm

When you're just starting out, the target-style funds are the best place to be. They have a good blend, and are a good holding pattern until you decide on what (if any) changes you want to make.
27. Always learning.

student
Posts: 2677
Joined: Fri Apr 03, 2015 6:58 am

Re: 25 Year Old - Need help with picking 401k funds

Post by student » Sun Jan 07, 2018 3:28 pm

shreyasfifa wrote:
Sun Jan 07, 2018 2:46 pm
student wrote:
Sat Jan 06, 2018 11:54 pm
Your Target Index Fund has a ER of 0.17%. This is low. Vanguard's version is 0.16%. Since you said you found allocation difficult to understand and you are just started, I suggest stick with this low cost target index fund. Once you know more, you can always change it with no tax consequences.
Did you mean 0.07% ER?
I took the info from http://www.morningstar.com/funds/XNAS/LIVIX/quote.html
Blackrock also says 0.17% investment related expense and 0.10% acquired fund fees and expenses. See https://www.blackrock.com/investing/pro ... st-cl-fund

selters
Posts: 619
Joined: Thu Feb 27, 2014 9:26 am

Re: 25 Year Old - Need help with picking 401k funds

Post by selters » Sun Jan 07, 2018 4:17 pm

shreyasfifa wrote:
Sat Jan 06, 2018 10:49 pm

I'm reading about the allocations on the wiki and its honestly is just hard to understand. I will try to read it a couple of times. Thanks!

You could do a lot worse than the target retirement date fund that's been chosen for you. You don't really need to change anything in the near future. You can even go 100% Target Date Fund for the next 40 years and still have a Boglehead approved portfolio.

pingo
Posts: 2594
Joined: Sat Sep 19, 2009 8:24 pm

Re: 25 Year Old - Need help with picking 401k funds

Post by pingo » Mon Jan 08, 2018 1:00 pm

^ Exactly.

If your plan says the LifePath Index Fund has an ER of 0.07%, that's what it is. Some very large companies can negotiate a lower ER for their employees because of the large asset base of the plan.

Your 401k is excellent. The target funds are excellent. Some people would be tempted to "roll their own" portfolio to lower expenses, but best case scenario for your age, you'd probably lower the weighted ER by ~0.01%. That's a cost savings of only 10¢ (yes, cents) for a $1000 portfolio, and only $100 for a $1,000,000 portfolio. Not worth the extra hastle of managing a portfolio of separate pieces that end up being the same anyway.

If I were you, I would use a LifePath fund. Hold all your 401 money in one (yes, ONE) LifePath Index fund and focus on saving as much as you can for retirement, rather than portfolio management.

That said, I'll list a few exceptions to the recommendation:

1. If you marry and your spouse has a more expensive plan and/or weaker options necessitating his/her use of that plan's least bad option in order to use your 401k to compensate. (Don't worry about what it entails until you need to.)
2. If you are maximizing 401k contributions, and maximizing IRA contributions (whether Roth or Traditional), and maxing out those of a spouse (if applicable), and will begin saving in a taxable investment account. That would be another situation necessitating allocation across accounts to keep things tax efficient.
3. If you develop a strong opinion (through lots of reading and contemplation) that the stock allocations of your portfolio should be different than the LifePath Index Funds. Most of LifePath Index funds' stocks will be U.S. Large, Medium and Small cap stocks at market weight, with ~1/3 of stocks allocated to international equities (at market weight) and ~10% of stocks may even be in REITs, give or take. (A very efficient portfolio that is very Bogleheadish.)

I'll also add that the only issue to resolve concerning the LifePath 2055 fund that you currently hold is that by our standards, it is considered highly aggressive for one reason: it's bond allocation is very small. I don't have access to the fact sheet for your plan, but I would guess that the bond allocation is probably circa 5% or less.

On our forum, we hesitate to recommend less than 20% bonds. Compare the following easy to understand Portfolio Allocation Models. You'll see that there is a small difference in returns between 100% stocks and 80% stocks; however, the difference in risk/volatility is quite noticeable.

If you decide to hold more bonds than 2055 currently holds, go review your 401k’s fact sheets for each LifePath Index fund to pick one with enough bonds to satisfy your willingness, need and/or tolerance for risk. To know the amount of bonds (fixed income, actually) held by each one, look for any holding that says "bond", "cash","TIPS" and/or "Inflation-Protected" and add the percents together.

I'd wager a guess that the 2035 fund is somewhere near 20% in bonds...just sayin'. :happy

inbox788
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Re: 25 Year Old - Need help with picking 401k funds

Post by inbox788 » Sat Jan 13, 2018 8:52 pm

pingo wrote:
Mon Jan 08, 2018 1:00 pm
Most of LifePath Index funds' stocks will be U.S. Large, Medium and Small cap stocks at market weight, with ~1/3 of stocks allocated to international equities (at market weight) and ~10% of stocks may even be in REITs, give or take. (A very efficient portfolio that is very Bogleheadish.)

I'll also add that the only issue to resolve concerning the LifePath 2055 fund that you currently hold is that by our standards, it is considered highly aggressive for one reason: it's bond allocation is very small. I don't have access to the fact sheet for your plan, but I would guess that the bond allocation is probably circa 5% or less.
https://www.blackrock.com/investing/pro ... st-cl-fund
If this is the fund, it looks like 83% stocks, 16 REIT, 1 bond. I'm mixed about how to count REIT, since it's neither stock nor bond. I've used all stock, which means 99/1 or 50/50 which is 91/9. In either case, for a 25 year old, it's perfectly adequate and I wouldn't push for more bonds. YMMV.

BTW, why 33% turnover?

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ram
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Re: 25 Year Old - Need help with picking 401k funds

Post by ram » Sat Jan 13, 2018 9:18 pm

The customer service rep chose the Target Date 2055 fund for me. -----Good enough. Actually pretty good.

But I want to know from your guys whether its the right strategy. ---- Read the Wiki and give yourself 365 days to answer that question. You need to understand why you have chosen the strategy ( if you do). That way you can stick to it during bad times. "Because a guy on the internet told me to do so" is not a good answer. If you can not spare the time or can not understand it, then the Target date fund is the right choice for you. But stick around here for a year and you will be a pro at these basic questions in one year.

Tier Legend
1. ASSET ALLOCATION --- good enough.
3. ACTIVE TIER --- generally avoid.
2. PASSIVE TIER--- Perhaps. When you understand why.
Ram

pingo
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Joined: Sat Sep 19, 2009 8:24 pm

Re: 25 Year Old - Need help with picking 401k funds

Post by pingo » Sat Jan 13, 2018 9:45 pm

@inbox788

We won't know if it's the same iteration of the LifePath Index fund unless we see shreyasfifa's fund fact sheets, but the asset allocation will be similar, if not the same.

I've seen different iterations of the LifePath Index funds. Some have 0% REIT, others include it. Some are re-branded. Some use index ETFs, others use index funds, some of which are (or, at least, used to be) the same as ones used for the TSP, which BlackRock manages for the federal government.

This random internet guy tends to consider REIT as a part of equities, but I get the point. They're more stock than bond, especially if one (like me) simplistically says "stocks" and "bonds" when he really means "volatile, high risk, hopefully high return assets" versus "fixed income and low volatility/low return assets that dampen volatility". While REITs can dampen volatility through low correlation, I wouldn't count on it.

Generally, index bond funds have much higher turnover than index stock funds. That would skew the turnover number for an index target fund. By comparison, M* says that Vanguard's target funds are around 9% turnover, although that low figure actually surprises me. Let's see. Oh, yeah, they list the Vanguard Total Bond Index Fund (VBMFX) with 0% turnover, which is highly unlikely. Something may be more wrong with M*'s turnover numbers than with BlackRock's.

@ram

Good advice, and well said.

FWIW I'm not utterly opposed to one selecting a target fund by target date, but I am always hesitant to recommend less than 20%.

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