Author Topic: What to do if you don't like the funds available in 401k?  (Read 2110 times)

MrGville

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What to do if you don't like the funds available in 401k?
« on: August 02, 2016, 08:20:59 AM »
Been lurking for a while, but this is my first post...

I am 26, and my fiance is 25 (will be married in Nov.).  I work for a small company that does not offer a 401k, but does offer an SEP IRA (which only my employer can contribute to, ~10% of my income per year).  I have been maxing out my Roth every year since i began work in 2013. 

Once married and after combining finances, my fiance and I are planning on only living off of the equivalent of her income.  We have begun the process of determining where to invest the remainder of our money.  The plan is to max out her 401k, our IRAs, and then put the rest of the money into a taxable account.  Perhaps shift some of the IRA money to the taxable account if we feel we need access to our funds in the near future. 

Anyway, back to the point of this post...we were looking at the fund options within my fiance's 401k, and we were somewhat disappointed.  They currently have her invested in several high cost mutual funds (0.75% and higher).  There are two low cost Vanguard funds available....VFIAX and VEXAX.  Everything else available seems to jump up in expense ratio very quickly.  I was hoping to have access to VTSAX, but this is not an option.  Would you suggest splitting the yearly $18k 401K contribution between the two available vanguard funds? Or allocating that $18k to IRAs and taxable account?  I should also mention that my fiances automatically gets 7.5% of her income contributed to the 401k from her employer whether she contributes anything herself. 

I am new to all of this, and want to make sure we get off on the right foot.  Any advice is much appreciated!

mskyle

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Re: What to do if you don't like the funds available in 401k?
« Reply #1 on: August 02, 2016, 08:30:35 AM »
VFIAX (S&P500 fund) tracks VTSAX (total stock market) pretty closely. They're almost identical in terms of performance. VEXAX is a little more volatile and high-risk. I would consider VFIAX to be a pretty acceptable sub for VTSAX (like, if I wanted to move money around for tax-loss harvesting without changing my overall allocation/risk profile, I might move my VTSAX holdings to VFIAX). You can compare them on the Vanguard site.

How long is your fiancee planning on staying at her current job? Once she leaves, she can roll over the money she saves in the 401k into an IRA and you guys can invest in whatever you want.

TL;DR: VFIAX is fine, and it's almost always better to max out the 401k even if the funds are not great, because you can always roll it over later.

MrGville

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Re: What to do if you don't like the funds available in 401k?
« Reply #2 on: August 02, 2016, 08:53:32 AM »
Thanks for the input.  She'll be at her current job for at least 5 more years most likely.  I think we'll go with the VFIAX...definitely the best option within the available fund choices. 

RWD

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Re: What to do if you don't like the funds available in 401k?
« Reply #3 on: August 02, 2016, 12:06:08 PM »
JL Collins also recommends VFIAX if you don't have access to VTSAX (see Addendum I).
http://jlcollinsnh.com/2013/05/02/stocks-part-xvii-what-if-you-cant-buy-vtsax-or-even-vanguard/

Gronnie

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Re: What to do if you don't like the funds available in 401k?
« Reply #4 on: August 02, 2016, 12:18:51 PM »
Those two funds in a 4:1 ratio of SP500 (VFIAX) to Extended Market (VEXAX) approximates the Total Stock Market (VTSAX).

Just put 80% in VFIAX and 20% in VEXAX and you are set.
« Last Edit: August 02, 2016, 12:21:01 PM by Gronnie »

WSUCoug1994

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Re: What to do if you don't like the funds available in 401k?
« Reply #5 on: August 02, 2016, 12:34:36 PM »
Many 401K plans offer a Brokerage Option.  This option will let you invest 40-60% of your portfolio value in a broader offering than what has been selected for the 401K plan.  Our Vanguard 401K calls it VBO or Vanguard Brokerage Option.

seattlecyclone

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Re: What to do if you don't like the funds available in 401k?
« Reply #6 on: August 02, 2016, 02:26:23 PM »
Those two funds in a 4:1 ratio of SP500 (VFIAX) to Extended Market (VEXAX) approximates the Total Stock Market (VTSAX).

Just put 80% in VFIAX and 20% in VEXAX and you are set.

This. VFIAX is S&P 500 (500 large US companies). VEXAX is the rest of the US companies. Put them together in the right ratio and you basically have the same thing as VTSAX. That ratio is roughly 80/20.

mskyle

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Re: What to do if you don't like the funds available in 401k?
« Reply #7 on: August 02, 2016, 02:43:15 PM »
Those two funds in a 4:1 ratio of SP500 (VFIAX) to Extended Market (VEXAX) approximates the Total Stock Market (VTSAX).

Just put 80% in VFIAX and 20% in VEXAX and you are set.

This. VFIAX is S&P 500 (500 large US companies). VEXAX is the rest of the US companies. Put them together in the right ratio and you basically have the same thing as VTSAX. That ratio is roughly 80/20.

But if you do that, don't forget to rebalance. A lot of providers have an annual rebalancing feature - not a bad option if you want to set it and forget it. Otherwise, check in every quarter or so and if it's more than 5-10% out of balance, readjust.