Exchanging investments in 401K

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ThisJustIn
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Joined: Sun Mar 11, 2018 10:53 pm

Exchanging investments in 401K

Post by ThisJustIn » Thu Sep 13, 2018 12:21 pm

Hi,

Back in February, due to the correction, I remember exchanging some of my stock investments in 401K with bonds, and then buying back stocks after the market oscillations. What are the implications of exchanging in terms of expenses, inside a 401K? Every time I buy, do I pay the expense ratio on the amount I invested? Or is this expense ratio prorated based on the time period I hold that investment?

Thanks.

chevca
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Re: Exchanging investments in 401K

Post by chevca » Thu Sep 13, 2018 12:30 pm

I'd say expense ratio fluctuations are the least of your worries. :happy

That's market timing talk and likely to cost you much more than different ERs. But, as far as I know, you simply pay the ER of whatever fund while you hold it.

ThisJustIn
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Re: Exchanging investments in 401K

Post by ThisJustIn » Fri Sep 14, 2018 2:01 am

"Expense ratio fluctuations" => I didn't mention this, I guess I wasn't clear.

I'm trying to learn the cost due to ER at each investment fund exchange. Say you have 20K worth of VTSAX with ER 0.04%. You exchange it with VTIAX with ER 0.11%. Do you pay 20K * (0.04% + 0.11%), or is the cost prorated based on how long you hold the investment?

And yes, it is market timing, which was a mistake. I buy and hold, just not at that time.

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hoppy08520
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Re: Exchanging investments in 401K

Post by hoppy08520 » Fri Sep 14, 2018 7:05 am

Expense ratios are built into the net fund returns, so what you're asking doesn't really apply.

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madsinger
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Re: Exchanging investments in 401K

Post by madsinger » Fri Sep 14, 2018 9:50 am

The operating expenses of the funds are taken out of the holdings of the fund on an ongoing basis. If you have $20K in a fund with a 0.04% expense ratio, that means $8 per year will be taken out of your account to pay for expenses. This does not happen at any one time, but rather your account value will be drop approximately 3 to 4 cents each trading day. You don't see this explicitly, because it comes from a low reduction of the NAV of the share price. If you switch from a 0.04% expense ratio fund to a 0.11% fund, that just means instead of 3 to 4 cents per day, your account will be about 8 to 9 cents per day lower. To use your words, the expenses are "pro rated" to the days that you hold that specific fund.

-Brad.

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ruralavalon
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Re: Exchanging investments in 401K

Post by ruralavalon » Fri Sep 14, 2018 10:16 am

ThisJustIn wrote:
Thu Sep 13, 2018 12:21 pm
Hi,

Back in February, due to the correction, I remember exchanging some of my stock investments in 401K with bonds, and then buying back stocks after the market oscillations. What are the implications of exchanging in terms of expenses, inside a 401K? Every time I buy, do I pay the expense ratio on the amount I invested? Or is this expense ratio prorated based on the time period I hold that investment?

Thanks.
ThisJustIn wrote:
Fri Sep 14, 2018 2:01 am
"Expense ratio fluctuations" => I didn't mention this, I guess I wasn't clear.

I'm trying to learn the cost due to ER at each investment fund exchange. Say you have 20K worth of VTSAX with ER 0.04%. You exchange it with VTIAX with ER 0.11%. Do you pay 20K * (0.04% + 0.11%), or is the cost prorated based on how long you hold the investment?

And yes, it is market timing, which was a mistake. I buy and hold, just not at that time.
It just doesn't matter.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

ThisJustIn
Posts: 147
Joined: Sun Mar 11, 2018 10:53 pm

Re: Exchanging investments in 401K

Post by ThisJustIn » Fri Sep 14, 2018 11:50 am

madsinger wrote:
Fri Sep 14, 2018 9:50 am
The operating expenses of the funds are taken out of the holdings of the fund on an ongoing basis. If you have $20K in a fund with a 0.04% expense ratio, that means $8 per year will be taken out of your account to pay for expenses. This does not happen at any one time, but rather your account value will be drop approximately 3 to 4 cents each trading day. You don't see this explicitly, because it comes from a low reduction of the NAV of the share price. If you switch from a 0.04% expense ratio fund to a 0.11% fund, that just means instead of 3 to 4 cents per day, your account will be about 8 to 9 cents per day lower. To use your words, the expenses are "pro rated" to the days that you hold that specific fund.

-Brad.
Thanks, this clarifies everything.

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