401K Fund Allocation

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Spur08
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Joined: Wed Aug 10, 2016 7:20 pm

401K Fund Allocation

Post by Spur08 » Wed Aug 08, 2018 8:01 am

So, I’m looking over my 401K quarterly statement and think something needs to change. I’ve been with this company for about 2 years (1 year in 401K participation), below are the stats:

· Current Allocation – Vanguard TD 2050 (VFIFX) 50% and Vanguard TD 2055 (VFFVX) 50%, both ER are 0.15%

· Rate of return for the last quarter – 0.95%

· Last quarter gains -- $76.37

· Last quarter fees -- $59.23 (77% of gains)

o Admin Expense -- $39.47 (66% of total fee)

o Investment Expense -- $19.76 (33% of total fee)

My guess is that admin expenses are the custodial provider’s expenses, so there’s nothing I can do about that, correct? If that’s the case, I assume my only option is to lower the investment (ER) expense. Below are my fund options, I’m okay with a fairly aggressive portfolio. Obviously, the most appealing to avoid expenses are the Vanguard funds. Any recommendations or advice out there?


Image

Also, I'm 33 this year, MFJ with a 14 month old. I hold a $1MM 30 year term on myself and my wife and kid have a lower and cheaper term as well (kid paid by inlaws). I contribute 12% (6% match) to my 401K with a little extra to a Roth and individual investment fund. Household income is just under $200K depending on bonuses. I have approximately 1 year of salary already saved in a rollover 401K (50% VFIAX 500 Index Admiral; 25% VEXMX Extended Market Index; 25% VGTSX Total International Index), SDIRA (Real estate), and rollover roth (ITOT). There is also a 529 that has a negligible amount in it. To be honest, I don't know any of what my wife currently has and it's my goal to correct that this year.

It looks like the composition of the 2050 fund is:

Holding Name Percent of TNA

Vanguard Total Stock Mkt Idx Inv 54.35%

Vanguard Total Intl Stock Index Inv 35.69%

Vanguard Total Bond Market II Idx Inv 6.97%

Vanguard Total Intl Bd Idx Investor 2.99%

Percent of Assets in Top Holdings 100.00%



So, I could get close to that by using VOO (S&P 500), a mixture of the small caps for international + bonds, and maybe one of the international funds; however, the 0.66% ER for the cheapest one is just too damn high.

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vineviz
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Re: 401K Fund Allocation

Post by vineviz » Wed Aug 08, 2018 8:13 am

Your investment choices are 100% fine.

Don’t change them.

Do figure out how the fees are calculated and whether you’re eligible for an employer match.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

b42
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Joined: Thu Apr 11, 2013 7:00 pm

Re: 401K Fund Allocation

Post by b42 » Wed Aug 08, 2018 8:16 am

Is there a reason that you hold both the 2050 and 2055 target retirement funds? They appear to hold the exact same funds:

(From Vanguard's website)
Vanguard Total US Stock - 54.3%
Vanguard Total Intl Stock - 35.5%
Vanguard Total US Bond - 7.20%
Vanguard Total Intl Bond - 3.00%

You could simplify by consolidating into one fund, since they are essentially the same for the next 15-20 years.

You can lower your expense ratio by breaking down the individual holdings, but since you don't have the ideal funds in your 401k, you will need to do this another way.

One method is to think of all your accounts as one total portfolio. That way you can be overweight in one account, but balance it out in another. For example, you could hold most of your stock fund in your 401k (Vanguard S&P 500), and then add in the international component and bonds in your Roth account or IRA.

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StuyPHD
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Location: New York

Re: 401K Fund Allocation

Post by StuyPHD » Wed Aug 08, 2018 8:22 am

Spur08 wrote:
Wed Aug 08, 2018 8:01 am
So, I’m looking over my 401K quarterly statement and think something needs to change. I’ve been with this company for about 2 years (1 year in 401K participation), below are the stats:

· Current Allocation – Vanguard TD 2050 (VFIFX) 50% and Vanguard TD 2055 (VFFVX) 50%, both ER are 0.15%

· Rate of return for the last quarter – 0.95%

· Last quarter gains -- $76.37

· Last quarter fees -- $59.23 (77% of gains)

o Admin Expense -- $39.47 (66% of total fee)

o Investment Expense -- $19.76 (33% of total fee)

My guess is that admin expenses are the custodial provider’s expenses, so there’s nothing I can do about that, correct? If that’s the case, I assume my only option is to lower the investment (ER) expense. Below are my fund options, I’m okay with a fairly aggressive portfolio. Obviously, the most appealing to avoid expenses are the Vanguard funds. Any recommendations or advice out there?


Image

Also, I'm 33 this year, MFJ with a 14 month old. I hold a $1MM 30 year term on myself and my wife and kid have a lower and cheaper term as well (kid paid by inlaws). I contribute 12% (6% match) to my 401K with a little extra to a Roth and individual investment fund. Household income is just under $200K depending on bonuses. I have approximately 1 year of salary already saved in a rollover 401K (50% VFIAX 500 Index Admiral; 25% VEXMX Extended Market Index; 25% VGTSX Total International Index), SDIRA (Real estate), and rollover roth (ITOT). There is also a 529 that has a negligible amount in it. To be honest, I don't know any of what my wife currently has and it's my goal to correct that this year.

It looks like the composition of the 2050 fund is:

Holding Name Percent of TNA

Vanguard Total Stock Mkt Idx Inv 54.35%

Vanguard Total Intl Stock Index Inv 35.69%

Vanguard Total Bond Market II Idx Inv 6.97%

Vanguard Total Intl Bd Idx Investor 2.99%

Percent of Assets in Top Holdings 100.00%



So, I could get close to that by using VOO (S&P 500), a mixture of the small caps for international + bonds, and maybe one of the international funds; however, the 0.66% ER for the cheapest one is just too damn high.
What's hurting your performance are international stocks. They haven't been doing well for the past few months. You're currently 90% in stocks, you could replicate what you have with VOO but then you will only have US stocks which makes you less diversified. That's a choice you have to make for yourself. For example, that's what I've done few years back, my 401k is only US.

You could technically replicate this for 90% in VOO @ 4bps + 10% in VTINX @ 13bps. That would be slightly lower than 5bps portfolio vs 15bps what you pay now. You will lose however most of your international stock exposure and you will have to adjust down the allocation yourself as you approach retirement.

This might be too much work given that your allocation seems completely fine to me. Definitely inquire about admin fees but as you mentioned, those are fees you get charged for general management and you are likely not able to do anything about them. but do let us know if they work with you

Cheers
if plan B was any good it would be plan A

Spur08
Posts: 12
Joined: Wed Aug 10, 2016 7:20 pm

Re: 401K Fund Allocation

Post by Spur08 » Wed Aug 08, 2018 8:28 am

b42 wrote:
Wed Aug 08, 2018 8:16 am
Is there a reason that you hold both the 2050 and 2055 target retirement funds? They appear to hold the exact same funds:

(From Vanguard's website)
Vanguard Total US Stock - 54.3%
Vanguard Total Intl Stock - 35.5%
Vanguard Total US Bond - 7.20%
Vanguard Total Intl Bond - 3.00%

One method is to think of all your accounts as one total portfolio. That way you can be overweight in one account, but balance it out in another. For example, you could hold most of your stock fund in your 401k (Vanguard S&P 500), and then add in the international component and bonds in your Roth account or IRA.
That is a great idea and I wish I thought of it sooner! To be honest, I don't recall why I picked two date funds. I think they were rushing me to get it in so I just did that. My only question is how to balance the exposure of the SP 500 to the total stock market? I.e. how do I get that remaining exposure that's not in the S&P?

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vineviz
Posts: 1751
Joined: Tue May 15, 2018 1:55 pm

Re: 401K Fund Allocation

Post by vineviz » Wed Aug 08, 2018 8:33 am

Spur08 wrote:
Wed Aug 08, 2018 8:28 am
b42 wrote:
Wed Aug 08, 2018 8:16 am
Is there a reason that you hold both the 2050 and 2055 target retirement funds? They appear to hold the exact same funds:

(From Vanguard's website)
Vanguard Total US Stock - 54.3%
Vanguard Total Intl Stock - 35.5%
Vanguard Total US Bond - 7.20%
Vanguard Total Intl Bond - 3.00%

One method is to think of all your accounts as one total portfolio. That way you can be overweight in one account, but balance it out in another. For example, you could hold most of your stock fund in your 401k (Vanguard S&P 500), and then add in the international component and bonds in your Roth account or IRA.
That is a great idea and I wish I thought of it sooner! To be honest, I don't recall why I picked two date funds. I think they were rushing me to get it in so I just did that. My only question is how to balance the exposure of the SP 500 to the total stock market? I.e. how do I get that remaining exposure that's not in the S&P?
If you stick with your target date fund (e.g. 2055) you don't need to worry about ANY of that.

Seriously, you don't need to fiddle with your fund choices. You're likely to cost yourself WAY more money doing that than you could possibly save in expense ratios.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

Flyer24
Posts: 300
Joined: Sun Apr 08, 2018 4:21 pm

Re: 401K Fund Allocation

Post by Flyer24 » Wed Aug 08, 2018 8:55 am

Just pick one target fund and be done with it. They both have good expense ratios.

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ruralavalon
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Location: Illinois

Re: 401K Fund Allocation

Post by ruralavalon » Wed Aug 08, 2018 8:59 am

In my opinion the better choices in your 401k are either:
Vanguard S&P 500 Index ETF (VOO);
or
one of the Vanguard Target Retirement funds.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

b42
Posts: 286
Joined: Thu Apr 11, 2013 7:00 pm

Re: 401K Fund Allocation

Post by b42 » Wed Aug 08, 2018 9:27 am

Spur08 wrote:
Wed Aug 08, 2018 8:28 am

That is a great idea and I wish I thought of it sooner! To be honest, I don't recall why I picked two date funds. I think they were rushing me to get it in so I just did that. My only question is how to balance the exposure of the SP 500 to the total stock market? I.e. how do I get that remaining exposure that's not in the S&P?
Check out this link to approximating the Total Stock Market:
https://www.bogleheads.org/wiki/Approxi ... ock_market

One method would be to buy funds in approximately this percentage:

81% Vanguard 500 Index Fund (VFINX)
19% Vanguard Extended Market Index Fund (VEXMX)

That is close to matching the US Stock Index. But in most cases, the S&P 500 tends to be extremely close in returns to the Total US Stock Index, so it isn't necessary to do this.

I think the overall advice from other posters is best, though. Staying in the Target Date fund may be the best strategy. Even if you can get the expense ratio down, the actual savings is not going to amount to much overall since the expense ratio was moderately low to begin with.

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vineviz
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Re: 401K Fund Allocation

Post by vineviz » Wed Aug 08, 2018 9:37 am

StuyPHD wrote:
Wed Aug 08, 2018 8:22 am
Definitely inquire about admin fees but as you mentioned, those are fees you get charged for general management and you are likely not able to do anything about them. but do let us know if they work with you
The reason I mentioned the fees is that some 401k plans have a fixed fee per account or per employee. If that's the case here, the dollar amount of the fee wouldn't increase proportionately with the assets, obviating the need to chase an extra $5 or $10 in ER savings.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

Spur08
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Joined: Wed Aug 10, 2016 7:20 pm

Re: 401K Fund Allocation

Post by Spur08 » Wed Aug 08, 2018 10:14 am

vineviz wrote:
Wed Aug 08, 2018 9:37 am
StuyPHD wrote:
Wed Aug 08, 2018 8:22 am
Definitely inquire about admin fees but as you mentioned, those are fees you get charged for general management and you are likely not able to do anything about them. but do let us know if they work with you
The reason I mentioned the fees is that some 401k plans have a fixed fee per account or per employee. If that's the case here, the dollar amount of the fee wouldn't increase proportionately with the assets, obviating the need to chase an extra $5 or $10 in ER savings.
I just called to ask about the fees.
Admin -- Proportionate to balance
Interest -- ER of the fund, so 0.15%

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Majormajor78
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Re: 401K Fund Allocation

Post by Majormajor78 » Wed Aug 08, 2018 10:56 am

Spur08 wrote:
Wed Aug 08, 2018 10:14 am
vineviz wrote:
Wed Aug 08, 2018 9:37 am
StuyPHD wrote:
Wed Aug 08, 2018 8:22 am
Definitely inquire about admin fees but as you mentioned, those are fees you get charged for general management and you are likely not able to do anything about them. but do let us know if they work with you
The reason I mentioned the fees is that some 401k plans have a fixed fee per account or per employee. If that's the case here, the dollar amount of the fee wouldn't increase proportionately with the assets, obviating the need to chase an extra $5 or $10 in ER savings.
I just called to ask about the fees.
Admin -- Proportionate to balance
Interest -- ER of the fund, so 0.15%
What is the percentage of the Admin fee? You posted dollar amounts for the fees but then quite reasonably didn't post your dollar balance. That's not really a lot of context to make an evaluation. It's the percentages that really matter when the goal of investing is compounding. Unless the admin fee is well up over 1% the tax benefits will probably outweigh the costs unless you are in a really low tax bracket like 10 or 12 percent.

As for your fees being equal to your gains... sometimes the math just works that way. Wait until a down year and you'll see the fees digging you just a little bit deeper than the market losses. On the other hand it always cheers me up to calculate how much tax savings I'm getting by investing the the 401K. Just take your contribution amount and multiply that by your tax bracket. If you deposit $10,000 and are in the 24% bracket then you just saved $2400. Bet that makes you feel better about the fees. Add to that the benefit of reinvesting gains and dividends tax fee for the next few decades and the fees on most plans don't seem bad at all. Any employer matching is icing on the cake.

As for your fund choices the target date funds are great for either just starting out or for those who do not want to manually re-balance their portfolio's once or twice a year.

Do you have or qualify for a Roth IRA and the ability to fund it? I used to not have a good cheap small cap fund in a 401K so I kept that portion of my overall portfolio in my Roth. Might be an option for your international.
"Oh, M. le Comte, it is only a loss of money which I have sustained... nothing worth mentioning, I assure you."

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StuyPHD
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Location: New York

Re: 401K Fund Allocation

Post by StuyPHD » Wed Aug 08, 2018 12:09 pm

Spur08 wrote:
Wed Aug 08, 2018 10:14 am
vineviz wrote:
Wed Aug 08, 2018 9:37 am
StuyPHD wrote:
Wed Aug 08, 2018 8:22 am
Definitely inquire about admin fees but as you mentioned, those are fees you get charged for general management and you are likely not able to do anything about them. but do let us know if they work with you
The reason I mentioned the fees is that some 401k plans have a fixed fee per account or per employee. If that's the case here, the dollar amount of the fee wouldn't increase proportionately with the assets, obviating the need to chase an extra $5 or $10 in ER savings.
I just called to ask about the fees.
Admin -- Proportionate to balance
Interest -- ER of the fund, so 0.15%
It looks like your admin fee is almost 0.30%. Can you check that? You didn't put the balance, so i was just extrapolating from info you've provided. If it's so, that seems high for the service they are providing, but you might not have an alternative.
if plan B was any good it would be plan A

Spur08
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Joined: Wed Aug 10, 2016 7:20 pm

Re: 401K Fund Allocation

Post by Spur08 » Fri Aug 10, 2018 8:02 pm

Admin fee 1.5%; investment expense 0.15%

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Majormajor78
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Re: 401K Fund Allocation

Post by Majormajor78 » Sat Aug 11, 2018 10:00 am

Spur08 wrote:
Fri Aug 10, 2018 8:02 pm
Admin fee 1.5%; investment expense 0.15%
I don't think I've ever heard of an admin fee that high. I assume this is a small business that's passing everything on to the employee cost wise? Is this fee truly asset based of is it a fixed amount and you have a relatively low balance so 1.5% is how the math shakes out?

An all is fee of 1.65% (admin + investment expense) will hurt your returns over the long haul but the employer match looks pretty generous. Certainly contribute enough to get the match. It takes a tremendous amount of fees to overcome the tax savings plus an employer match.

After that I'd try to calculate you tax savings for each additional dollar contributed vs the expenses you would incur for the length of time you honestly expect to stay at your company. If the fees appear to be more or about the same I'd just set up automatic investments to taxable. Only do this if you can avoid the behavioral pitfalls and pretty much guarantee that this money will be set aside for retirement. It's awfully tempting to touch it when it's not sitting in a tax sheltered account. If you're not going to stay with this company for 10+ years it may be much simpler to contribute and then wait to do a rollover after you leave.
"Oh, M. le Comte, it is only a loss of money which I have sustained... nothing worth mentioning, I assure you."

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