Author Topic: Is my John Hancock 401k a ripoff?  (Read 12209 times)

chrysanthemum72

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Is my John Hancock 401k a ripoff?
« on: April 07, 2015, 01:06:07 AM »
Baby mustachian here! Iím 24 years old, just started my first year of salaried employment.

Backstory: I have about $25k of student loans at around 5% interest, so Iím diverting 43% of my monthly income to pay those down and should have them paid off by next year. Hopefully sooner, since Iím 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 401kóbut 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 Ė 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%. Iím 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%Ē with some varying number, everything under 1%. For comparison Iíve 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 doesít add upÖ Am I missing something? Vanguardís website says the expense ratio for the same fund is 0.24%.

Itís likely that my employer selected John Hancock because itís 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!

msilenus

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Re: Is my John Hancock 401k a ripoff?
« Reply #1 on: April 07, 2015, 02:05:17 AM »
I've heard of those guys a few times.  Seems like they have really high fees.  Usually something like 1% on their cheapest funds.

I suspect that if you look at the timing of your contributions over the last few months you'll see that the money was going in at unfortunate times and that's why you're down overall.  The fees you're calling out shouldn't be high enough to do that much damage.  Maybe there are some fees that you're missing, but I doubt it's anything that annualizes out to 10+%.  So my suspicion is volatility.  But I'd certainly be digging deep into trying to make the numbers add up based on what you're saying.

If the expenses are as advertised, you should probably be taking the free money.

plainjane

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Re: Is my John Hancock 401k a ripoff?
« Reply #2 on: April 07, 2015, 06:22:45 AM »
With a 100% match on the first 4%, you should continue to be using your work's plan, even if it isn't ideal. 

Rebalancing after a month is way too soon - I think most people would recommend review at 6 months or a year.  I'm wondering if you got dinged with a fee for the fast turnover (caveat: I know nothing of John Hancock funds beyond their tv ads, but my mutual funds always have extra fees to discourage people from buying & selling quickly).  Instead of selling what you already have, just adjust your money going in to be at your desired allocation.  This will avoid any fees due to churning, and you don't have so much in the existing account that it will take long to balance out.

TN_Steve

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Re: Is my John Hancock 401k a ripoff?
« Reply #3 on: April 07, 2015, 07:03:31 AM »
Even with those fees, you are best served by using the plan at least to the 4% to get the match.  Since you are just starting out, you likely are eligible to contribute to a deductible IRA.  Anything above 4% that you want to be in a tax-deferred account should go in your IRA at a low cost provider.  Once you fill that bucket up (and after your student loans are repaid, I suppose?), you could then put more in the 401k--although not as good as a low-cost IRA, it would likely be better than funds in a regular investment account. 

BTW, DW has JHancock as well.  Hurts to see 80 bps expenses on hers, but what we've done is selected the relatively least expensive option among all available funds in that plan.  Then, we rearrange holdings in other accounts to get the portfolio mix that we target.

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ETA:  Second plainjane's comment on rebalancing.  Especially in your 20s, just let it ride.  In our mid-50s, we only rebalance once a year (and even then, we do it via redirecting new monies).
« Last Edit: April 07, 2015, 07:05:28 AM by TN_Steve »