The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Murse on August 12, 2016, 09:53:33 AM
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My goal is 100% equities
80% domestic
20% international
Why? Because I want the diversification
My problem is that I just started a new job a few months ago and my funds just made it into my 457. I checked the fees today, the fund charges 0.17% just for participating
Domestic fee-0.045 (yay)
International fees- 0.35 (boo)
I will have about 25k in this account once my funds from my previous account is rolled over
I have about 12k in my Roth (vanguard)
And currently 5k in my taxable (vanguard)
This is the job I will likely stay at until FI
The best option I can think of is to do all of my international investing through my taxable account, any words of wisdom? Thanks. (I want to avoid the Roth because my crystal ball tells me domestic will outperform, so I would rather that be tax free)
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The best option I can think of is to do all of my international investing through my taxable account, any words of wisdom?
Don't know about wisdom, but at least in taxable you get to deduct foreign income taxes if those hit your fund.
See Foreign tax credit - Bogleheads (https://www.bogleheads.org/wiki/Foreign_tax_credit) and Tax-efficient fund placement - Bogleheads (https://www.bogleheads.org/wiki/Tax-efficient_fund_placement).
Also, those fees aren't high compared with many 401k/403b/457 plans.
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I agree with MDM's opinion -- a 0.35 expense ratio for a tax-deferred fund is quite good compared to many accounts.
To know for sure, you should try a quick case study in excel with your exact numbers, like the ones from the MadFIentist, to see if the tax benefits from the 457 account outweigh the lower expense ratio at Vanguard. Depending on the expense ratio difference, foreign tax reimbursement, federal tax benefits, your actual tax load while working and your particular time horizon to FI, it might be hard to say which is better without running real numbers.
http://www.madfientist.com/retire-even-earlier/
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I agree with MDM's opinion -- a 0.35 expense ratio for a tax-deferred fund is quite good compared to many accounts.
To know for sure, you should try a quick case study in excel with your exact numbers, like the ones from the MadFIentist, to see if the tax benefits from the 457 account outweigh the lower expense ratio at Vanguard. Depending on the expense ratio difference, foreign tax reimbursement, federal tax benefits, your actual tax load while working and your particular time horizon to FI, it might be hard to say which is better without running real numbers.
http://www.madfientist.com/retire-even-earlier/
I understand they are not high compared to many but I can get half the cost with vanguard. I am confident the tax benefits outweigh the costs anyway I slice it, I am just trying to optimize
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or just take Sir Bogle's advice and invest in the US stock market b/c the economy is already global and you're getting plenty of foreign exposure thru VTSAX to create that diversification.
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I'd kill for anything under 1% in my 401k. I can get as low as 1.13 on a S&P fund or a money market fund. From there they range up to 1.9%.
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Why not hold the international in an account other than your 457?
I will have about 25k in this account once my funds from my previous account is rolled over
With the .17% account fee, is there a reason why you are rolling your previous account into your new 457?
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Why not hold the international in an account other than your 457?
I will have about 25k in this account once my funds from my previous account is rolled over
With the .17% account fee, is there a reason why you are rolling your previous account into your new 457?
Previous account is with the same company, also charging 0.17 on top of regular fees
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0.35% isn't bad for international. It isn't great, but it isn't horrible either. Each asset class has different fees depending on the nature of the market. Anchoring your expectations on a domestic index fund is like anchoring your restaurant expectations on McDonalds pricing.
One question: If this is so bad compared to expectations, why are you rolling funds into this account? Consider rolling funds into an IRA instead.
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0.35% isn't bad for international. It isn't great, but it isn't horrible either. Each asset class has different fees depending on the nature of the market. Anchoring your expectations on a domestic index fund is like anchoring your restaurant expectations on McDonalds pricing.
One question: If this is so bad compared to expectations, why are you rolling funds into this account? Consider rolling funds into an IRA instead.
The point of this post is not "oh no the sky is falling, am I better off in a taxable?" I am already going to max out my Roth and 457 and have leftovers to go into the taxable. My question is "am I better off putting my international in a taxable account given that my fees are 0.35+0.17, because at vanguard with admiral funds I can get 0.12?" Or "where should I place my funds for optimization?"
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Why not hold the international in an account other than your 457?
I will have about 25k in this account once my funds from my previous account is rolled over
With the .17% account fee, is there a reason why you are rolling your previous account into your new 457?
Previous account is with the same company, also charging 0.17 on top of regular fees
Why not roll it to an IRA where you wouldn't have the 0.17% fee?
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Why not hold the international in an account other than your 457?
I will have about 25k in this account once my funds from my previous account is rolled over
With the .17% account fee, is there a reason why you are rolling your previous account into your new 457?
Previous account is with the same company, also charging 0.17 on top of regular fees
Why not roll it to an IRA where you wouldn't have the 0.17% fee?
Because I would like to keep it in the 457 for easy access
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Why not hold the international in an account other than your 457?
I will have about 25k in this account once my funds from my previous account is rolled over
With the .17% account fee, is there a reason why you are rolling your previous account into your new 457?
Previous account is with the same company, also charging 0.17 on top of regular fees
Why not roll it to an IRA where you wouldn't have the 0.17% fee?
Because I would like to keep it in the 457 for easy access
That makes sense. No complaints here!
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Do you have a 403b as well?
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I'd kill for anything under 1% in my 401k. I can get as low as 1.13 on a S&P fund or a money market fund. From there they range up to 1.9%.
As has been said many times, Fees are important"
I just did a quick a probably inaccurate calculation.
I started with $100k and each year added $50k figuring growth and additional savings.
When I got to $500k I added $100k each year figuring growth on larger amount and and more savings on higher income. This is very Mustachian saving. After 20 years I stopped all growth and just figured 1% times $1.6 million
The total for a 1% Fee for 30 years came to $296,000 .
0.2% came to $59,200, with the lower fee you could have had an additional $236,800 in your pocket.
Love my VTSAX! 0.05% Under the scenerio above that would be $14,800 in fees over 30 years.
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Do you have a 403b as well?
No, I only have access to a 457.
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I'd kill for anything under 1% in my 401k. I can get as low as 1.13 on a S&P fund or a money market fund. From there they range up to 1.9%.
As has been said many times, Fees are important"
I just did a quick a probably inaccurate calculation.
I started with $100k and each year added $50k figuring growth and additional savings.
When I got to $500k I added $100k each year figuring growth on larger amount and and more savings on higher income. This is very Mustachian saving. After 20 years I stopped all growth and just figured 1% times $1.6 million
The total for a 1% Fee for 30 years came to $296,000 .
0.2% came to $59,200, with the lower fee you could have had an additional $236,800 in your pocket.
Love my VTSAX! 0.05% Under the scenerio above that would be $14,800 in fees over 30 years.
1% is about what they tack on to all the underlying funds for their variable group annuity garbage. The couple of Vanguard fund offerings especially drive me nuts. I've done the math though, and it looks like the tax advantages still outweigh the expensive fees.