Author Topic: American Funds 401k options  (Read 2300 times)

FI by 2035

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American Funds 401k options
« on: November 22, 2016, 11:13:10 AM »
I am looking for some advice on my wifes 401k through American Funds.  Currently, we just have it in the 2050 Target Date Fund.  We will most likely be retired before that, but that was the default fund when she opened the account based on her age.  I took a look at the list of Fund options available, and listed them below along with their expense ratios.  They are quite a bit different than the options through my employers plan which has a handful of low expense index funds which my 401k and 457 are invested in.  The options and expense ratios are listed below. 

I am wondering if it makes sense to just leave hers in the target date fund since its expenses are pretty similar to the other options, or if it would really pay off to try and pick other funds out of this list.

Feel free to ask if more information is necessary to help, and as always, thanks in advance for any suggestions.


Fund                                                                TOAER (Total Annual Operating Expense Ratio)
American Funds AMCAP Fund R5                        0.42
American Funds EuroPacific Gr R5                0.54
Oppenheimer Main Street Mid Cap Y                0.86
Prudential Jennison Mid Cap Growth Z                0.76
T. Rowe Price Blue Chip Growth                        0.71
Vanguard Small-Cap Index Fund- Inv                0.2
Vanguard FTSE All World ex-US Index Inv             0.26
American Funds Capital World G/I R5                0.49
American Funds Fundamental Investors R5             0.35
American Funds Washington Mutual R5                0.35
Invesco Real Estate R5                                0.87
American Funds Capital Inc Bldr R5                       0.34
Putnam Convertible Securities Y                        0.81
American Funds Global Balanced Fund R5             0.6
American Funds High Income Trust R5                0.39
American Funds Interm Bd Fd of Amer R5             0.32
PIMCO Income Instl                                        0.45
Prudential Short-Term Corporate Bd Z                0.52
INVESCO Stable Value Fund                                0.78
American Funds 2050 Target Date Fund R5             0.49

Mother Fussbudget

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Re: American Funds 401k options
« Reply #1 on: November 23, 2016, 11:39:29 AM »
I would do more research on these funds before you do anything - especially before taking some sight-unseen advice from strangers on the internet. ;-)  That being said....

Your statement is incorrect - paying 0.2 for a fund vs 0.49 for a fund is NOT equivalent - the Vanguard fund fees are half-the-price.

To evaluate the funds, use the Morningstar website.  I followed this link http://performance.morningstar.com/fund/performance-return.action?t=REITX (American Funds 2050 Target Date fund R5) then clicked the <Compare> button, and input NAESX (Vanguard Small-Cap fund.  The results are in the attached screenshot.  Clearly the Vanguard fund has better historical returns, and for half the cost. YMMV.

Bottom line... do your own research, and invest in what YOU feel comfortable investing in.

(If I were you, *I* would put some percentage into the Vanguard Small-Cap fund - you could also consider the FTSE Vanguard fund, but I'm not so sure about the European market... I don't personally follow it.  All the best!)


chasesfish

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Re: American Funds 401k options
« Reply #2 on: November 23, 2016, 01:48:34 PM »
I would do two things:

1) Put all your money in the Vanguard Small Cap Index Fund
2) Write your plan administration and specifically request an S&P 500 Index Fund option

As long as the small cap index isn't above 30-40% of your total investments, I think you're fine.

Mother Fussbudget

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Re: American Funds 401k options
« Reply #3 on: November 23, 2016, 03:11:33 PM »
I would do two things:

1) Put all your money in the Vanguard Small Cap Index Fund
2) Write your plan administration and specifically request an S&P 500 Index Fund option

As long as the small cap index isn't above 30-40% of your total investments, I think you're fine.

+1.

FI by 2035

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Re: American Funds 401k options
« Reply #4 on: December 16, 2016, 10:55:14 AM »
It's taken me a while to get back to this.  I appreciate the feedback, and pointing out me that my thought process was way off the expense ratio in her 401k. 
I've looked at the options spread out over her 401k, my 457 and 401k, and both of our vanguard Roth IRAs.  I'd like to target 10% of total in bonds and 90% in stocks for now.

If I were to put all of her 401k into the vanguard small cap fund, we'd be right around
-40% of total in small cap
- 29% large cap
-14% mid cap
-13% world stock market
- 4% bonds. 
*Approximately 1% in American funds Euro Pacific Growth Fund

I am considering rearranging all of our accounts so that everything is in index funds.  It would put us at the following:
-39% of total in small cap
-43% large cap
-14% mid cap
-0% world stock market
- 4% bonds

My concern is that the bond allocation is lower than I'd prefer, but with being young, the only way we'll need these funds sooner than 25-30 years from now is if we decided to retire early(sure would be nice, but it's not a necessity).  Does this type of allocation seem unreasonable to start with, and rebalance occasionally to try getting more toward the 90/10 target?  Also, we'll be contributing more to my 401k and 457 than her 401k because of IRS rules, so eventually our small cap stock allocation will get a little lower, and with occasional rebalancing of my accounts, the large cap, mid cap and bond allocations can increase. 

Another option that could bring us closer to the 90/10 allocation would be switching Roth IRA funds into a bond index instead of total stock market index.  We do not contribute to these accounts anymore, and plan to start t IRAs in the near future.  I'm just not sure if a Roth account is the best investment vehicle for bonds.  Any thoughts or opinions on doing that would be appreciated. 
Hopefully this isn't just a bunch of rambling, I'm pretty new to investing, and trying to build a better knowledge base on it. Up until now we focused mainly on paying of student loans, and blindly saving for retirement with the extra (luckily we haven't followed that path for too many years).