Author Topic: Help me understand my 401k and options!!  (Read 1257 times)

Jumpingbean

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Help me understand my 401k and options!!
« on: July 30, 2019, 01:13:29 PM »
I have been working for about 4 years now and have been maxing out my 401k the last 2 years. When I first set it up I just picked something so I could start contributing. I picked a target date fund with an expense ratio of 0.40%.
Here it is below:
3 Month :   3.80%
YTD :   16.56%
1 Year :   6.45%
3 Year :   12.14%
5 Year :   7.58%
10 Year :   -
Since Inception :   11.22%
01/13/2012
Gross Expense Ratio :   0.40%
Net Expense Ratio :   0.40%

Here are all my options with corresponding ER:
STOCKS
+AMER BEAC SMALL CAP VAL INST  AVFIX + 1   0.81%
+AMG TIMESSQUARE INTL SML CAP N TCMPX 1   1.23%
+DODGE & COX INTL STOCK DODFX + 1   0.63%
+GROWTH STOCK TRUST CLASS B GBT + 1 2   0.45%
+INST LARGE-CAP VALUE FUND TILCX + 1   0.57%
+INVESCO OPPENHEIMER DVP MKT R6 ODVIX 1   0.85%
+LORD ABBETT DEVELOPING GROWTH LADYX 1   0.68%
+MID-CAP GROWTH FUND RPMGX + 1   0.75%
+VANGUARD INST INDEX VINIX + 1   0.04%

BONDS
+BLACKROCK HIGH YIELD BOND K BRHYX 1   0.50%
+PIMCO TOTAL RETURN INSTL PTTRX 1 3   0.55%


Questions:
Would it be worthwhile to take my funds (100% invested in target date fund) and put it in the Vanguard option above? The vanguard one Seems like a better deal when it comes to expense ratios.
My AA with target date fund is 86% stocks/11% bonds/3% other.

If I do make a switch, do I put 86% of funds into vanguard fund and the other 14% into one of the bond options? If I put 100% into vanguard fund, that means Iím 100% stocks and no bonds, right?

Or, since itís clear I donít really know what Iím doing, should I just keep it in the target date fund?

FIRE 20/20

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Re: Help me understand my 401k and options!!
« Reply #1 on: July 30, 2019, 06:12:25 PM »
My recommendation is to keep it where it is, and do enough studying to create a plan that works for you before you make any changes.  This might sound difficult, but it's actually very easy and I think it will make you a better investor in the long run.  And by being a better investor I mean you'll be wealthier later in life, or you'll be able to retire earlier - and  you'll be confident as you get there.  I think that's worth a few hours of reading.  The reason for this is that yes, people here could tell you to put it all in VINIX, or put 86% in VINIX and 14% in a bond fund, but when you're hit with a market crash or someone - possibly someone smart who truly has your best interests at heart - tells you something different you won't know whether to stay the course or change.  You won't have the confidence to stick with the plan, or realize when the plan needs to change.  Generally, messing with your funds hurts you in the long run; people tend to get scared and sell when the markets are down and buy in when they're high.  We're our own worst enemies.  https://www.capital.co.uk/life/why-tinkering-with-your-investments-is-doomed-to-failure/

Fortunately, you really can learn most of what you need to know in just a few hours, or you could become extremely knowledgeable in tens of hours.  I'd recommend starting with JLCollinsNH's Stock Series:  https://jlcollinsnh.com/stock-series/

If you want to become even more knowledgeable, you could read the Bogleheads' Guide to Investing.  This is a simple introduction to investments that goes a bit deeper than the Stock Series. 

After reading these I think you'll know exactly what to do and why to do it.  You can then create an Investment Policy Statement to ensure you stay on track.  I firmly believe that knowing how to create an IPS and then writing you plan down will help most of us be much better investors.  An IPS doesn't have to be intimidating; it can just be a few lines of text on a sticky note if you have a simple plan.  https://forum.mrmoneymustache.com/investor-alley/who-has-a-written-investment-policy-statement/

Ok - with all that said, I realize that's probably a totally unsatisfactory answer.  What is the year on the Target Date Fund you're currently in?  I would expect it would be Target Date 2040, or something like that.  Assuming the date is a reasonable one given your age and plans, that fund isn't a bad option.  0.40% is worse than it could be (Vanguards are about 0.15%), but it's better than many.  If staying in that fund will let you sleep at night knowing you don't have do do anything and it'll remain appropriate for you as you age then you could do a lot worse than just staying there.  With that said, *if* you are comfortable with taking a little more ownership of your investments, are comfortable with the volatility of the markets, and you have a minimum of 7 years before you need the money, VINIX is a great fund.  I would put 100% there if I were in your position.  However, without knowing your age, your goals, your tolerance for volatility, or anything else I have a hard time just telling you to put it all there.  Just because that's the right approach for me doesn't mean it's right for you. 

MDM

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Re: Help me understand my 401k and options!!
« Reply #2 on: July 30, 2019, 06:18:43 PM »
Questions:
1. Would it be worthwhile to take my funds (100% invested in target date fund) and put it in the Vanguard option above?

2a. If I do make a switch, do I put 86% of funds into vanguard fund and the other 14% into one of the bond options?
2b. If I put 100% into vanguard fund, that means Iím 100% stocks and no bonds, right?

3. Or, since itís clear I donít really know what Iím doing, should I just keep it in the target date fund?
1.  Maybe.  Depends on unknowable future results.  E.g., see Callan periodic table of investment returns.

2a. That is defensible.
2b. Yes.

3. That is defensible.

You have reasonable choices.  I might lean toward the Vanguard fund in your 401k, then use IRAs and taxable to meet your desired Asset allocation, keeping in mind Tax-efficient fund placement - Bogleheads.

But the 0.4% expense ratio, while irritating compared with a straight Vanguard target date fund, isn't terrible.  In other words, you did pretty well for your first pick, and keeping status quo is reasonable.

Zamboni

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Re: Help me understand my 401k and options!!
« Reply #3 on: July 30, 2019, 06:58:35 PM »
Good job socking money away!

I think the first thing you should do it read Millionaire Teacher by Andrew Hallam. It's a very easy read, and he espouses index funds and the "couch potato" method of only rebalancing once or twice per year. If you can limit yourself to rebalancing infrequently, at planned times (rather than as the mood strikes you), then you'll be ready for going with the Vanguard Institutional shares mixed with some lower risk funds in small amounts.

You can probably see exactly what the asset allocation is in the Target date fund by clicking on it. If you have the same funds individually available in your plan, then you can replicate it for lower fees. That's what I did as my first move . . . fees do make a difference in the long run.

Good luck!

Jumpingbean

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Re: Help me understand my 401k and options!!
« Reply #4 on: July 30, 2019, 10:02:19 PM »


If you want to become even more knowledgeable, you could read the Bogleheads' Guide to Investing.  This is a simple introduction to investments that goes a bit deeper than the Stock Series. 
I have read the Boglehead book, millionaire next door and half of A random walk (I meant to finish that one). And Iíll have to look into the IPS thing as well.

Ok - with all that said, I realize that's probably a totally unsatisfactory answer.  What is the year on the Target Date Fund you're currently in?  I would expect it would be Target Date 2040, or something like that.  Assuming the date is a reasonable one given your age and plans, that fund isn't a bad option.  0.40% is worse than it could be (Vanguards are about 0.15%), but it's better than many.  If staying in that fund will let you sleep at night knowing you don't have do do anything and it'll remain appropriate for you as you age then you could do a lot worse than just staying there.  With that said, *if* you are comfortable with taking a little more ownership of your investments, are comfortable with the volatility of the markets, and you have a minimum of 7 years before you need the money, VINIX is a great fund.  I would put 100% there if I were in your position.  However, without knowing your age, your goals, your tolerance for volatility, or anything else I have a hard time just telling you to put it all there.  Just because that's the right approach for me doesn't mean it's right for you.

The target date fund is 2055 (Iím 29). I do plan on retiring early but but can make it work longer if the market takes a nosedive. I wanted to be pretty aggressive when I first started because I knew I had a while until retirement. I realize my portfolio would drop significantly during a bear market and Iím okay with that since my spouse is 10 years older and has a very secure pension and we could be fine on just the pension. The other investments give us flexibility in case he wants to leave his job which would result in a partial pension.

Jumpingbean

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Re: Help me understand my 401k and options!!
« Reply #5 on: July 30, 2019, 10:13:10 PM »


You have reasonable choices.  I might lean toward the Vanguard fund in your 401k, then use IRAs and taxable to meet your desired Asset allocation, keeping in mind Tax-efficient fund placement - Bogleheads.

But the 0.4% expense ratio, while irritating compared with a straight Vanguard target date fund, isn't terrible.  In other words, you did pretty well for your first pick, and keeping status quo is reasonable.

I also have a Roth IRA at Vanguard and Iím 100% in the 2050 target date fund. My AA in there is 90% stocks/10% bonds. The ER is 0.15% I am okay with being aggressive while younger. I realize I can also lower the ER to below 0.1 %. Is it bad to have the same or similar AA across all accounts?
« Last Edit: July 30, 2019, 10:24:49 PM by Jumpingbean »

Jumpingbean

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Re: Help me understand my 401k and options!!
« Reply #6 on: July 30, 2019, 10:22:09 PM »
Good job socking money away!
Thanks! I definitely have the frugal thing down.
I think the first thing you should do it read Millionaire Teacher by Andrew Hallam. It's a very easy read, and he espouses index funds and the "couch potato" method of only rebalancing once or twice per year. If you can limit yourself to rebalancing infrequently, at planned times (rather than as the mood strikes you), then you'll be ready for going with the Vanguard Institutional shares mixed with some lower risk funds in small amounts.
I do want to be clear that I donít plan to rebalance very often and this idea confuses me a little. Does that mean messing with AA or changing stock options twice a year? I know there would be ups and downs and I need to just stay the course and keep putting money away. I realize I will want less stock when I am 50-60 years old than I have now and need to adjust then. I guess I am saying I would rebalance once every 10 years!
You can probably see exactly what the asset allocation is in the Target date fund by clicking on it. If you have the same funds individually available in your plan, then you can replicate it for lower fees. That's what I did as my first move . . . fees do make a difference in the long run.
this was what I was trying to see if I could do but I can only pick the stuff listed above, I believe, which is way less options than what is listed in the target date fund

Good luck!

turtlefire

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Re: Help me understand my 401k and options!!
« Reply #7 on: July 31, 2019, 02:20:24 AM »
I got excited because I thought you were talking about stock options from your employer. Dang it.

Jumpingbean

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Re: Help me understand my 401k and options!!
« Reply #8 on: July 31, 2019, 06:16:57 AM »
I got excited because I thought you were talking about stock options from your employer. Dang it.

Ha, I donít even get a match :(

jinga nation

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Re: Help me understand my 401k and options!!
« Reply #9 on: August 02, 2019, 07:03:09 AM »
Just throwing this out there: https://www.guideline.com/blog/your-target-date-fund-is-not-great/

There's more articles out there about this, and @Zamboni also made good points on replicating your target date with individual funds.

I had VINIX in a previous employer's 401k. It's essentially a SP500, and it's benchmark is the SP500. https://investor.vanguard.com/mutual-funds/profile/portfolio/vinix

If I were you, young, I'd go 100% VINIX.

Set yourself a recurring 6-month reminder to review your investments.

Jumpingbean

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Re: Help me understand my 401k and options!!
« Reply #10 on: August 04, 2019, 08:58:16 PM »
Just throwing this out there: https://www.guideline.com/blog/your-target-date-fund-is-not-great/

This was what I was thinking. TDFs and VINIX are all a mix of a bunch of stocks, vanguard just has lower fees. Thanks for the input.

There's more articles out there about this, and @Zamboni also made good points on replicating your target date with individual funds.

I had VINIX in a previous employer's 401k. It's essentially a SP500, and it's benchmark is the SP500. https://investor.vanguard.com/mutual-funds/profile/portfolio/vinix

If I were you, young, I'd go 100% VINIX.

Set yourself a recurring 6-month reminder to review your investments.