Author Topic: What if your 401k doesn't have index funds?  (Read 2536 times)

sdavis

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What if your 401k doesn't have index funds?
« on: October 14, 2013, 08:54:27 AM »
My 401k doesn't have index funds at all..  and my husbands has one, but the fees are .55 %, what is the mustachian way to this situation? Is there a blog post somewhere I'm missing?

JohnGalt

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Re: What if your 401k doesn't have index funds?
« Reply #1 on: October 14, 2013, 08:58:41 AM »
No index funds?  What does it have?

As far as the fees go - mine are comparable to your husbands fees and I've been trying to get us to change providers so we can lower those fees.  That said, I'm still maxing out my contributions every year because the tax savings are just too good to pass up. 

MKinVA

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Re: What if your 401k doesn't have index funds?
« Reply #2 on: October 14, 2013, 09:27:49 AM »
What is the employer match? If it's not a good percentage of all deposits, just put in enough to get the employer match (free money), and put the rest of what you would have invested, up to the legal limit, in an Ira.

Frankies Girl

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Re: What if your 401k doesn't have index funds?
« Reply #3 on: October 14, 2013, 10:42:15 AM »
I've read that sometimes the retirement target date funds can be an okay solution if there are no index funds, but someone else would need to chime in and clarify.




matchewed

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Re: What if your 401k doesn't have index funds?
« Reply #4 on: October 14, 2013, 11:15:56 AM »
Try to find a happy medium between lowest fees available and a diverse investment. The tax savings are too good to pass up for most people.

seattlecyclone

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Re: What if your 401k doesn't have index funds?
« Reply #5 on: October 14, 2013, 12:30:43 PM »
My 401(k) plan is similar. There are a few stock funds with expense ratios around 0.5%, but most of the stock and bond funds have expense ratios in the 1-2% range. I max out the contributions and invest in the 0.5% funds despite their relatively high expenses. Keep in mind that you probably won't be with your current employer forever. Plan to roll your account over to Vanguard or another low-cost brokerage as soon as you move to a different job (or retire completely). The long-term savings from tax deferral will far outweigh the short-term cost of investing in these funds while you're stuck in a bad 401(k) plan.

In the meantime, try to get in touch with the benefits department at your employer. Politely remind them that they have a legal fiduciary responsibility to their 401(k) plan participants (i.e. you), and that some people might argue that they aren't keeping up with that deal if they fail to offer investment options with reasonable fees.

StarryC

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Re: What if your 401k doesn't have index funds?
« Reply #6 on: October 14, 2013, 01:47:21 PM »
I asked something similar in this thread: http://www.mrmoneymustache.com/forum/ask-a-mustachian/new-401(k)-options-no-sp-500-(/msg128208/#msg128208

Response, from salmp01:
The difference between the .24 fund and a .15 fund that you could get somewhere else is 9 basis points 1% of .09 = .0009.  If you have 100k invested in the .24 fund the added expense will consume $90/year.  So the added tax benefit of contributing to your 401k probably makes it worth your while to put as much as you can in your 401k

So, the difference between a .15 fund and your .5 fund would be 35 basis points, or .0035.  So, on $100,000 you are losing $350 a year.  My top tax rate is 25%.  So, I save an additional $2,500 per year in taxes by contributing $10,000.  If you are similarly situated, tax deferral probably outweighs the fees. 

Trying to speak up is a good idea, but might not work.  I asked about fees in our meeting and they said "the company pays all the fees" and I said, "no, the fees on the individual investments" and everyone was like "those are less than 1%, so don't worry about it!"