Baby mustachian here! I’m 24 years old, just started my first year of salaried employment.
Backstory: I have about $25k of student loans at around 5% interest, so I’m diverting 43% of my monthly income to pay those down and should have them paid off by next year. Hopefully sooner, since I’m working on developing my frugality muscles by reading every MMM post.
So my employer set up a John Hancock 401k plan with a 100% match up to 4% of eligible pay. (Correct me if I'm wrong, but I think this means they will match 100% of my contributions with a max ceiling of 4% of my taxable income, which is 70k). So I set up my account to auto-deduct 4% of my paychecks. I figured that with roughly 5-7% ROI on my 401k, I should put in the bare minimum to get a 100% match by my employer for the first year, then increase this once my loans are paid off. It didn't make sense for me to neglect my loans for a 401k—but I may be wrong and I'm open to suggestions here.
When setting up my 401k allocation in December, I followed the John Hancock instructions for a Growth Portfolio by selecting funds with the lowest expense ratio they offered – which was about 1.03. I saw a 4% return for the first month of contribution, but I decided to rebalance my account. MMM recommended S&P 500 and VFINX, so I rebalanced to those funds. I guess that was a big mistake. Today, I logged in to check how my account was doing and saw that I lost -0.29% in the last three months. This is really puzzling because for the same time period the S&P 500 has gone up 3.9% and VFINX has gone up 3.8%. I’m now starting to suspect that John Hancock fees and expense ratios are the culprit.
After some googling, I took a quiz at futureadvisor.com and got advice on rebalancing my portfolio with John Hancock. Underneath each recommendation, they listed "Reasonable expense ratio: 0.15% to 0.30%” with some varying number, everything under 1%. For comparison I’ve selected a Vanguard Growth Index Fund from the John Hancock website. It has an expense ratio of 1.06 and Underlying fund expense ratios of 0.09% gross and 0.09% net. That does’t add up… Am I missing something? Vanguard’s website says the expense ratio for the same fund is 0.24%.
It’s likely that my employer selected John Hancock because it’s cheap, but is it worth it for me to continue to contribute to it? If so, I'm definitely going to rebalance it with more international holdings, emerging market stocks, bonds, etc.
But I'm not even sure if I want to keep this account. Is John Hancock 401k worth it? If I contribute to a Roth IRA with lower expense ratios, can I possibly come out ahead here? Am I getting screwed by John Hancock or am I overreacting? Please help me untangle this situation!