Help lowering my expense ratio

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wizardling
Posts: 24
Joined: Wed Nov 28, 2018 12:01 am

Help lowering my expense ratio

Post by wizardling » Wed Dec 05, 2018 11:18 am

Hi all, I have some pretty atrocious fund options in my 401(k), but my employer matches 6% of my contributions so I'm happy to take that. Could I get your opinions on my fund choices? I'd like to lower my expense ratio if possible, but considering what's available I think my options are slim. I have listed below all of the equity options in my 401(k), but not bonds/TDs/etc.

Emergency funds: Three months of expenses (saving for more)
Debt: Student loan debt at average 5.49%, small car loan at 3.09%
Tax Filing Status: Single
Tax Rate: 14.76% Federal, 4.88% State
State of Residence: CA
Age: 28
Desired Asset allocation: 100% stocks
Desired International allocation: 40% of stocks, per Bogle's recommendation in Common Sense on Mutual Funds, but I'm open to other opinions

Current total portfolio is in the high 4-figures.

Current retirement assets:

401k
60% Total Stock Market Index Fund (JETSX) (0.68%)
40% International Equity Index Fund (JIEQX) (0.72%)
Company match? Yes, 100% on 3% and 50% on 3%, for 4.5% matching on 6%

Also working on temporarily using a Roth IRA as an emergency fund per this Bogleheads article so that I'm able to develop both simultaneously

New Annual Contributions: $4,020 plus $3,015 employer contribution to 401(k)

Funds Available in 401(k):
  • EuroPacific Growth Fund (RERFX) (1.09%)
  • Franklin Small-Mid Growth (FRSGX) (1.05%)
  • Intl Equity Index Fund (JIEQX) (0.72%)
  • Intl Small Cap Fund (JIIMX) (1.18%)
  • International Value Fund (JIVIX) (1.00%)
  • Invesco International Growth (AIEVX) (1.23%)
  • Mid Cap Index Fund (JECIX) (0.66%)
  • Mid Cap Stock Fund (JIMSX) (1.02%)
  • Science & Technology Fund (JESTX) (1.23%)
  • Small Cap Index Fund (JESIX) (0.68%)
  • T. Rowe Price Sci & Tech (PASTX) (1.26%)
  • Vanguard Energy Fund (VGELX) (0.93%)
  • Vanguard Small Cap Grow Index (VSGAX) (0.67%)
  • 500 Index Fund (JFIVX) (0.63%)
  • BlackRock Global Allocation (MALOX) (1.15%)
  • Capital Appreciation Fund (JICPX) (0.89%)
  • ClearBridge Aggressive Growth (SHRAX) (1.22%)
  • Domini Impact Equity Fund (DIEQX) (1.29%)
  • Franklin Mutual Beacon Fund (BEGRX) (1.15%)
  • Mutual Global Discovery (MDISX) (1.34%)
  • John Hancock Disciplined Value (JDVWX) (0.87%)
  • JPMorgan US Equity Fund (JUSRX) (0.94%)
  • Oppenheimer Global (OPPAX) (1.25%)
  • T. Rowe Price Equity Inc (PRFDX) (1.11%)
  • T. Rowe Price Health Sci (PRHSX) (1.22%)
  • Templeton World (TEMWX) (1.17%)
  • The Growth Fund of America (RGAEX) (0.93%)
  • Total Stock Market Index Fund (JETSX) (0.68%)
  • US Growth Fund (JHUPX) (0.90%)
  • Utilities Fund (JEUTX) (1.03%)
Questions:
1. Given my fund options, do you think that I've made the best I can of the situation? Are there any better options you see that might lower my ER?

2. Given my fund options, what are your opinions on international vs. domestic stock allocation?

Thanks for any help! :happy

Jack FFR1846
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Joined: Tue Dec 31, 2013 7:05 am

Re: Help lowering my expense ratio

Post by Jack FFR1846 » Wed Dec 05, 2018 11:29 am

100% to 500 Index Fund (JFIVX) (0.63%)

Fill out whatever you need in your AA in other accounts (tIRA, Roth, etc)

Jack's rule (me, not Bogle) is that under $100k saved, AA doesn't matter. Use the lowest ER, period.
Bogle: Smart Beta is stupid

EHEngineer
Posts: 723
Joined: Sat Feb 28, 2015 4:35 pm

Re: Help lowering my expense ratio

Post by EHEngineer » Wed Dec 05, 2018 11:46 am

you've done the best you can. I tried to look at morningstar performance for jetsx and jieqx. There's nothing. No data in portfolio visualizer either. Yahoo finance has data, but I don't know how to do a total return comparison on that site. I would like to see if John Hancock ERs are a good measure of tracking error / underpeformance.

I would probably use growth fund of america, RGAEX, for the US TSM allocation. It's not my favorite, but it has followed the US stock index, and has demonstrated reasonable tracking error for a long time.

those expense ratios should not affect your US/int'l allocation decision.

be sure to focus on your savings rate. it matters more than anything else. good luck.
Or, you can ... decline to let me, a stranger on the Internet, egg you on to an exercise in time-wasting, and you could say "I'm probably OK and I don't care about it that much." -Nisiprius

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ruralavalon
Posts: 14254
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Location: Illinois

Re: Help lowering my expense ratio

Post by ruralavalon » Wed Dec 05, 2018 12:08 pm

In my opinion you out have done as best you can with what is offered.

You could consider using 80% in 500 Index Fund (JFIVX) ER 0.63%, reducing the international fund, and thus achieving a modest improvement in overall expense ratio.

Despite the poor selection of funds offered, contribute as much to your 401k as is practical for you, in addition to making maximum contributions to an an IRA at a low cost provider like Vanguard or Fidelity
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

wizardling
Posts: 24
Joined: Wed Nov 28, 2018 12:01 am

Re: Help lowering my expense ratio

Post by wizardling » Thu Dec 06, 2018 12:18 am

Jack FFR1846 wrote:
Wed Dec 05, 2018 11:29 am
Jack's rule (me, not Bogle) is that under $100k saved, AA doesn't matter. Use the lowest ER, period.
Interesting, is that just because it's small peanuts up till then?

wizardling
Posts: 24
Joined: Wed Nov 28, 2018 12:01 am

Re: Help lowering my expense ratio

Post by wizardling » Thu Dec 06, 2018 12:21 am

EHEngineer wrote:
Wed Dec 05, 2018 11:46 am
you've done the best you can. I tried to look at morningstar performance for jetsx and jieqx. There's nothing. No data in portfolio visualizer either. Yahoo finance has data, but I don't know how to do a total return comparison on that site. I would like to see if John Hancock ERs are a good measure of tracking error / underpeformance.

I would probably use growth fund of america, RGAEX, for the US TSM allocation. It's not my favorite, but it has followed the US stock index, and has demonstrated reasonable tracking error for a long time.

those expense ratios should not affect your US/int'l allocation decision.

be sure to focus on your savings rate. it matters more than anything else. good luck.
Thanks so much! I know, there's not a lot of info on these JH funds...it's really annoying. The RGAEX fund has such a high ER I think I'll probably pass on it, though. I'll definitely focus on my savings rate primarily—certainly not gaining much with these fund options!

wizardling
Posts: 24
Joined: Wed Nov 28, 2018 12:01 am

Re: Help lowering my expense ratio

Post by wizardling » Thu Dec 06, 2018 12:23 am

ruralavalon wrote:
Wed Dec 05, 2018 12:08 pm
In my opinion you out have done as best you can with what is offered.

You could consider using 80% in 500 Index Fund (JFIVX) ER 0.63%, reducing the international fund, and thus achieving a modest improvement in overall expense ratio.

Despite the poor selection of funds offered, contribute as much to your 401k as is practical for you, in addition to making maximum contributions to an an IRA at a low cost provider like Vanguard or Fidelity
Thank you! I've considered JFIVX...would you be able to tell me the difference between that and Total Stock Market Index Fund (JETSX) (0.68%)? Like, would it be better to just switch my domestic allocation to JFIVX?

jalbert
Posts: 3917
Joined: Fri Apr 10, 2015 12:29 am

Re: Help lowering my expense ratio

Post by jalbert » Thu Dec 06, 2018 12:43 am

You could lower your overall ER a little bit by implementing a total market index using the SP500, midcap 400, and smallcap 600.

JFIVX 48%
JECIX 6%
JESIX 6%
JIEQX 40%

Would be pretty much equivalent to the original portfolio, but with a slightly lower aggregate ER, about 3bp lower. The extra complexity may not be worth the trouble. The total US market portfolio simulated in this case is the S&P Composite 2500 which has more stringent liquidity screens than the total market indices tracked by more total market index funds but performance should be very similar.
Risk is not a guarantor of return.

wizardling
Posts: 24
Joined: Wed Nov 28, 2018 12:01 am

Re: Help lowering my expense ratio

Post by wizardling » Thu Dec 06, 2018 1:44 am

jalbert wrote:
Thu Dec 06, 2018 12:43 am
You could lower your overall ER a little bit by implementing a total market index using the SP500, midcap 400, and smallcap 600.

JFIVX 48%
JECIX 6%
JESIX 6%
JIEQX 40%

Would be pretty much equivalent to the original portfolio, but with a slightly lower aggregate ER, about 3bp lower. The extra complexity may not be worth the trouble. The total US market portfolio simulated in this case is the S&P Composite 2500 which has more stringent liquidity screens than the total market indices tracked by more total market index funds but performance should be very similar.
Ha! This is amazing (and somewhat heartening): I had originally intended to have this precise allocation, but someone on Reddit told me not to bother and just go 60% JETSX. If I have to annual readjust my allocation anyway, I suppose it's not THAT big of a pain to include these funds...but perhaps it wouldn't provide any meaningful difference. I don't know enough to be able to decide. I also don't know what "more stringent liquidity screens" means, precisely. :P

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ruralavalon
Posts: 14254
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Help lowering my expense ratio

Post by ruralavalon » Thu Dec 06, 2018 9:35 am

wizardling wrote:
Thu Dec 06, 2018 12:23 am
ruralavalon wrote:
Wed Dec 05, 2018 12:08 pm
In my opinion you out have done as best you can with what is offered.

You could consider using 80% in 500 Index Fund (JFIVX) ER 0.63%, reducing the international fund, and thus achieving a modest improvement in overall expense ratio.

Despite the poor selection of funds offered, contribute as much to your 401k as is practical for you, in addition to making maximum contributions to an an IRA at a low cost provider like Vanguard or Fidelity
Thank you! I've considered JFIVX...would you be able to tell me the difference between that and Total Stock Market Index Fund (JETSX) (0.68%)? Like, would it be better to just switch my domestic allocation to JFIVX?
I generally recommend a total stock market index fund over an S&P 500 index fund, whenever both are offered and the expense ratios are the same. Here there is a small difference in expense ratio of 0.05%.

A S&P 500 index fund invests in stocks of selected U.S. large-cap and mid-cap companies. A total stock market index funds is a little more diversified, adding stocks of small-cap companies and more mid-cap companies.

The Morningstar style box of Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) is:
24/24/28 -- large-cap
06/06/06 -- mid-cap
02/02/02 -- small-cap

The Morningstar style box for Vanguard 500 Index Fund Admiral Shares (VFIAX) is:
29/29/32 -- large-cap
04/04/02 -- mid-cap
00/00/00 -- small-cap

In the 26 years since the creation of the first total stock market index fund the total return of the two types of funds has been almost identical. Morningstar, "growth of $10k" graph, VTSAX vs VFIAX. In the first 10 years the S&P 500 fund did better, in the last 10 years the total market fund did better, and over the 26 years the total market fund gave a little more return (0.11% per year), but at the cost of a little more volatility (risk): nisiprius post, in the forum discussion "Exchanging the S&P 500 for the TSM". See also Allan Roth, CBS Moneywatch, "John C. Bogle on the S&P 500 vs. the Total Stock Market". So it seems that adding a little in mid/small cap stocks trying to mimic the holdings of a total stock market fund has historically made little difference in performance.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Jack FFR1846
Posts: 8082
Joined: Tue Dec 31, 2013 7:05 am

Re: Help lowering my expense ratio

Post by Jack FFR1846 » Thu Dec 06, 2018 9:41 am

wizardling wrote:
Thu Dec 06, 2018 12:18 am
Jack FFR1846 wrote:
Wed Dec 05, 2018 11:29 am
Jack's rule (me, not Bogle) is that under $100k saved, AA doesn't matter. Use the lowest ER, period.
Interesting, is that just because it's small peanuts up till then?
Partly. I've noticed that many times, people with low amounts saved have outrageously complicated portfolios and to me, it's for no reason. Under $100k, I feel the most important thing, by far is to simply save and invest more. After $100k, then it's potentially worthwhile to add an AA to soften volatility or broaden into international. Of course, time horizon is even more important. My 22 year old son is 100% equities. Both because he's way under $100k and because who cares if the market tanks 80% in 5 years. It'll come back up in 10 years, probably and that'll still be many, many years from retirement.
Bogle: Smart Beta is stupid

jalbert
Posts: 3917
Joined: Fri Apr 10, 2015 12:29 am

Re: Help lowering my expense ratio

Post by jalbert » Thu Dec 06, 2018 12:40 pm

wizardling wrote:
Thu Dec 06, 2018 1:44 am
jalbert wrote:
Thu Dec 06, 2018 12:43 am
You could lower your overall ER a little bit by implementing a total market index using the SP500, midcap 400, and smallcap 600.

JFIVX 48%
JECIX 6%
JESIX 6%
JIEQX 40%

Would be pretty much equivalent to the original portfolio, but with a slightly lower aggregate ER, about 3bp lower. The extra complexity may not be worth the trouble. The total US market portfolio simulated in this case is the S&P Composite 2500 which has more stringent liquidity screens than the total market indices tracked by more total market index funds but performance should be very similar.
Ha! This is amazing (and somewhat heartening): I had originally intended to have this precise allocation, but someone on Reddit told me not to bother and just go 60% JETSX. If I have to annual readjust my allocation anyway, I suppose it's not THAT big of a pain to include these funds...but perhaps it wouldn't provide any meaningful difference. I don't know enough to be able to decide. I also don't know what "more stringent liquidity screens" means, precisely. :P
If you hold large caps, mid caps, and small caps at market cap weight you should not have to rebalance between them as the market moves. However when you rebalance between stocks and bonds you will be moving assets in or out of 3 stock funds instead of 1.

Total market index funds screen out the most illiquid stocks in the total market. Different indices have different filters. The CRSP total market index tracked by vanguard’s fund has over 3600 stocks in it. The S&P Composite 1500 has about 1500 stocks in it. The small cap component (SP 600 small cap index) has stringent filters based on liquidity and profitability. Holding the three US index funds thus is not holding the same as the total market index fund. There will be some fairly small short-term deviations, but differences in performance over time should be extremely close.

The int’l index fund offered tracks an index that I think includes large and mid caps but not small caps. If that is true (I didn’t look it up), you could hold the ETF VSS in a Roth IRA for non-US small cap exposure. Since this would be part of your int’l allocation, the percentage of non-US held in the 401K could be reduced to compensate, further lowering your ER in the 401K.
Last edited by jalbert on Sat Dec 08, 2018 12:00 am, edited 2 times in total.
Risk is not a guarantor of return.

wizardling
Posts: 24
Joined: Wed Nov 28, 2018 12:01 am

Re: Help lowering my expense ratio

Post by wizardling » Thu Dec 06, 2018 5:21 pm

ruralavalon wrote:
Thu Dec 06, 2018 9:35 am
wizardling wrote:
Thu Dec 06, 2018 12:23 am
ruralavalon wrote:
Wed Dec 05, 2018 12:08 pm
In my opinion you out have done as best you can with what is offered.

You could consider using 80% in 500 Index Fund (JFIVX) ER 0.63%, reducing the international fund, and thus achieving a modest improvement in overall expense ratio.

Despite the poor selection of funds offered, contribute as much to your 401k as is practical for you, in addition to making maximum contributions to an an IRA at a low cost provider like Vanguard or Fidelity
Thank you! I've considered JFIVX...would you be able to tell me the difference between that and Total Stock Market Index Fund (JETSX) (0.68%)? Like, would it be better to just switch my domestic allocation to JFIVX?
I generally recommend a total stock market index fund over an S&P 500 index fund, whenever both are offered and the expense ratios are the same. Here there is a small difference in expense ratio of 0.05%.

A S&P 500 index fund invests in stocks of selected U.S. large-cap and mid-cap companies. A total stock market index funds is a little more diversified, adding stocks of small-cap companies and more mid-cap companies.

The Morningstar style box of Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) is:
24/24/28 -- large-cap
06/06/06 -- mid-cap
02/02/02 -- small-cap

The Morningstar style box for Vanguard 500 Index Fund Admiral Shares (VFIAX) is:
29/29/32 -- large-cap
04/04/02 -- mid-cap
00/00/00 -- small-cap

In the 26 years since the creation of the first total stock market index fund the total return of the two types of funds has been almost identical. Morningstar, "growth of $10k" graph, VTSAX vs VFIAX. In the first 10 years the S&P 500 fund did better, in the last 10 years the total market fund did better, and over the 26 years the total market fund gave a little more return (0.11% per year), but at the cost of a little more volatility (risk): nisiprius post, in the forum discussion "Exchanging the S&P 500 for the TSM". See also Allan Roth, CBS Moneywatch, "John C. Bogle on the S&P 500 vs. the Total Stock Market". So it seems that adding a little in mid/small cap stocks trying to mimic the holdings of a total stock market fund has historically made little difference in performance.
Wow, thank you so much for this response. That's all super clear and I really appreciate the resources you've shared. With that being the case, then I suppose sticking with what I've got should be just fine for me at the moment.

wizardling
Posts: 24
Joined: Wed Nov 28, 2018 12:01 am

Re: Help lowering my expense ratio

Post by wizardling » Fri Dec 07, 2018 6:22 pm

jalbert wrote:
Thu Dec 06, 2018 12:40 pm
wizardling wrote:
Thu Dec 06, 2018 1:44 am
jalbert wrote:
Thu Dec 06, 2018 12:43 am
You could lower your overall ER a little bit by implementing a total market index using the SP500, midcap 400, and smallcap 600.

JFIVX 48%
JECIX 6%
JESIX 6%
JIEQX 40%

Would be pretty much equivalent to the original portfolio, but with a slightly lower aggregate ER, about 3bp lower. The extra complexity may not be worth the trouble. The total US market portfolio simulated in this case is the S&P Composite 2500 which has more stringent liquidity screens than the total market indices tracked by more total market index funds but performance should be very similar.
Ha! This is amazing (and somewhat heartening): I had originally intended to have this precise allocation, but someone on Reddit told me not to bother and just go 60% JETSX. If I have to annual readjust my allocation anyway, I suppose it's not THAT big of a pain to include these funds...but perhaps it wouldn't provide any meaningful difference. I don't know enough to be able to decide. I also don't know what "more stringent liquidity screens" means, precisely. :P
If you hold large caps, mid caps, and small caps at market cap weight you should bout have to rebalance between them as the market moves. However when you rebalance between stocks and bonds you will be moving assets in or out of 3 stock funds instead of 1.

Total market index funds screen out the most illiquid stocks in the total market. Different indices have different filters. The CRSP total market index tracked by vanguard’s fund has over 3600 stocks in it. The S&P Composite 1500 has about 1500 stocks in it. The small cap component (SP 600 small cap index) has stringent filters based on liquidity and profitability. Holding the three US index funds this is not holding the same as the total market index fund. There will be some fairly small short-term deviations, but differences in performance over time should be extremely close.

The int’l index fund offered tracks an index that I think includes large and mid caps but not small caps. If that is true (I didn’t look it up), you could hold the ETF VSS in a Roth IRA for non-US small cap exposure. Since this would be part of your int’l allocation, the percentage of non-US held in the 401K could be reduced to compensate, further lowering your ER in the 401K.
Wow, thank you for your detailed clarification. I understand some of it, but not all of it...I'll keep this page saved for future reference, however. I don't have a Roth IRA yet but am considering building one using the temporary emergency fund format, and this could be helpful in a couple years.

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