Author Topic: Quick Question: Expense Ratios (gross or net?)  (Read 3327 times)

FI@2022Jem

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Quick Question: Expense Ratios (gross or net?)
« on: November 07, 2012, 04:01:12 PM »
Hi folks,
I am looking into rebalancing my 401k... I signed up on day one but basically chose funds based on zero understanding.  I know that I should look for low expense ratios but that is about it.  My employer offers a 401k through wells fargo with a bunch of options.  If anyone has any suggestions for what I should be looking for that would be welcomed! 

Basics:
I am 27.
I make about 46k / year. 
I currently have about 26k in my 401k, 19k in Roth
I contribute 11% with a 4% match (I also max a Roth)
I have a long term outlook and am generally comfortable with risk
My ultimate goal is to be able to have more flexibility: FI for basics, and ability to work on my own terms for fun $, travel, etc.
I own my home (with my husband) and refinanced using HARP: 15 yr mortgage at 2.89% on 175k mortgage, home worth around 140k.
I have about 26k is student loans at 6.8% (grad and undergrad) and am currently using all extra income (outside of said retirement savings) to pay these down. 

My basic question is if I chose funds based on expense ratios, should I be looking at the gross expense ratio or the net expense ratio?

If anyone has further suggestions or areas I should research I am open. 
Thanks everyone!  I don't comment that much in this community but I am always scanning these boards and really appreciate MMM and the community for what I am learning and providing encouragement! 

arebelspy

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Re: Quick Question: Expense Ratios (gross or net?)
« Reply #1 on: November 07, 2012, 06:29:49 PM »
My basic question is if I chose funds based on expense ratios, should I be looking at the gross expense ratio or the net expense ratio?

If you are comparing from a limited selection of funds, does it matter?  As long as you compare apples to apples (i.e. only gross to gross, or net to net) and choose the lowest...

That aside, I'd say net would make more sense, IMO.
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FI@2022Jem

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Re: Quick Question: Expense Ratios (gross or net?)
« Reply #2 on: November 08, 2012, 02:27:58 PM »
Thanks Arebelspy for your reply!  The info was helpful and the small nudge I needed to just make the change in my allocation (it was a mess and some expense ratios were over 1%!).  I chose an approximate mix of 2:1 domestic to international funds for 95% of 401k (American Funds Fundamental Investors R5 @.36% expense ratio, and American Funds EuroPacific Gr R5 @ .55% expense ratio) with 5% in bond funds (PIMCO Total Return Admin @ .71% expense ratio).  These were the lowest expense ratios available. 

I will use my Roth to further balance as needed. 

Thank you!




JohnGalt

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Re: Quick Question: Expense Ratios (gross or net?)
« Reply #3 on: November 08, 2012, 03:01:08 PM »
Thanks Arebelspy for your reply!  The info was helpful and the small nudge I needed to just make the change in my allocation (it was a mess and some expense ratios were over 1%!).  I chose an approximate mix of 2:1 domestic to international funds for 95% of 401k (American Funds Fundamental Investors R5 @.36% expense ratio, and American Funds EuroPacific Gr R5 @ .55% expense ratio) with 5% in bond funds (PIMCO Total Return Admin @ .71% expense ratio).  These were the lowest expense ratios available. 

I will use my Roth to further balance as needed. 

Thank you!

One additional thing to consider... treat all of your investments as one portfolio to get your desired asset allocation - using the lowest fee funds you can in your 401k then, since you should have more options, use the roth IRA to pick up the allocations with lower fee versions of what is available in the 401k.

grantmeaname

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Re: Quick Question: Expense Ratios (gross or net?)
« Reply #4 on: November 10, 2012, 12:36:56 PM »
You could also consider doing an in-service distribution to an IRA, if you're allowed.