Author Topic: 403b Investment Mix?  (Read 878 times)

onemorebike

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403b Investment Mix?
« on: October 30, 2018, 01:08:38 PM »
Do you stick with the index fund approach with your 403b as well? Mine doesn't have the same options touted around here (VTSAX, SWSTX, etc) and I'm setting up an account with the option to pick a retirement date fund, a mix of funds I select (but I don't have this kind of knowledge), or a couple of index funds I'm not familiar with. Curious what others have done in this situation?

Thanks,

onemorebike
« Last Edit: October 30, 2018, 01:12:43 PM by onemorebike »

MDM

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Re: 403b Investment Mix?
« Reply #1 on: October 30, 2018, 01:55:52 PM »
If the retirement date fund has an expense ratio close to the weighted average of the underlying fund ratios, that is a reasonable choice.  Some do, but some target date funds charge an extra 0.4% or so for the privilege, and that seems high.

See Three-fund portfolio - Bogleheads and Approximating total stock market - Bogleheads for some ideas on the type of funds you might choose, if not using the target date fund.

onemorebike

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Re: 403b Investment Mix?
« Reply #2 on: October 30, 2018, 04:25:12 PM »
MDM, is there a way to look at the weighted average of the underlying fund ratios? I'm not clear on where to look for that.

If the retirement date fund has an expense ratio close to the weighted average of the underlying fund ratios, that is a reasonable choice.  Some do, but some target date funds charge an extra 0.4% or so for the privilege, and that seems high.

See Three-fund portfolio - Bogleheads and Approximating total stock market - Bogleheads for some ideas on the type of funds you might choose, if not using the target date fund.

MDM

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Re: 403b Investment Mix?
« Reply #3 on: October 30, 2018, 05:43:19 PM »
MDM, is there a way to look at the weighted average of the underlying fund ratios? I'm not clear on where to look for that.
You would have to find the expense ratios of the underlying funds, then multiply each by the fraction of the target date fund devoted to the underlying fund.

For example, VTTSX holds
1.   Vanguard Total Stock Market Index Fund Investor Shares         54.10%
2.   Vanguard Total International Stock Index Fund Investor Shares   35.90%
3.   Vanguard Total Bond Market II Index Fund Investor Shares†      7.10%
4.   Vanguard Total International Bond Index Fund Investor Shares   2.90%

The expense ratios of those funds (or a close approximation) are
1. 0.14%
2. 0.17%
3. 0.09%
4. 0.13%

The weighted average is .541 * 0.14% + .359 * 0.17% + .071 * 0.09% + .029 * 0.113% = 0.15%, the same as VTTSX's expense ratio.

terran

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Re: 403b Investment Mix?
« Reply #4 on: October 31, 2018, 06:02:35 AM »
MDM, is there a way to look at the weighted average of the underlying fund ratios? I'm not clear on where to look for that.
You would have to find the expense ratios of the underlying funds, then multiply each by the fraction of the target date fund devoted to the underlying fund.

For example, VTTSX holds
1.   Vanguard Total Stock Market Index Fund Investor Shares         54.10%
2.   Vanguard Total International Stock Index Fund Investor Shares   35.90%
3.   Vanguard Total Bond Market II Index Fund Investor Shares†      7.10%
4.   Vanguard Total International Bond Index Fund Investor Shares   2.90%

The expense ratios of those funds (or a close approximation) are
1. 0.14%
2. 0.17%
3. 0.09%
4. 0.13%

The weighted average is .541 * 0.14% + .359 * 0.17% + .071 * 0.09% + .029 * 0.113% = 0.15%, the same as VTTSX's expense ratio.

Note that all of these funds have other classes with lower expense ratio's which is one reason people will often invest in the component funds instead of the target date fund.

MDM

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Re: 403b Investment Mix?
« Reply #5 on: October 31, 2018, 08:10:00 AM »
Note that all of these funds have other classes with lower expense ratio's which is one reason people will often invest in the component funds instead of the target date fund.
Yes.  See pros and cons of target date funds? - Bogleheads.org and the cost of having Vanguard manage the funds for more.

In an IRA, one has ~complete freedom to choose funds.  In a 401k, there is only one class of each fund.