Author Topic: 401(k) options  (Read 2460 times)

Keekster

  • 5 O'Clock Shadow
  • *
  • Posts: 23
401(k) options
« on: October 28, 2015, 07:33:20 PM »
Hello,

I just started a new job and have a couple questions about my 401(k).

The plan is with Vanguard. I can invest in VITSX which is the US Total Stock Market Index with .05% expense ratio. I was planning on doing 70% US Index and 30% International for my asset allocation, however, the only International fund available is VWILX, which is an International 'Growth' fund with an expense ratio of .34%. Alternatively, I can invest in the Target Retirement 2060 fund, which invests 54% in the Total US index, 36% in the Total International index, and 10% in bonds. My only gripe with the target retirement date option is that I would prefer to be 100% stock. I am 24 years old, grossing $62k before taxes.

What do you guys think?

nereo

  • Senior Mustachian
  • ********
  • Posts: 17418
  • Location: Just south of Canada
    • Here's how you can support science today:
Re: 401(k) options
« Reply #1 on: October 28, 2015, 07:53:14 PM »
Hello,

I just started a new job and have a couple questions about my 401(k).

The plan is with Vanguard. I can invest in VITSX which is the US Total Stock Market Index with .05% expense ratio. I was planning on doing 70% US Index and 30% International for my asset allocation, however, the only International fund available is VWILX, which is an International 'Growth' fund with an expense ratio of .34%. Alternatively, I can invest in the Target Retirement 2060 fund, which invests 54% in the Total US index, 36% in the Total International index, and 10% in bonds. My only gripe with the target retirement date option is that I would prefer to be 100% stock. I am 24 years old, grossing $62k before taxes.

What do you guys think?

I think it depends on how you want to invest your money.  Since it appears you've already given this some thought and want a 70/30 US:International ratio I think you've answered your own question.  Personally, I think this is a fine allocation for someone who is 24 and who can tolerate market volatility (as in: don't panic when the markets tank and keep investing).

To be fair, an expense ratio of 0.34% for an international fund is still very, very low.  International stocks have extra costs associated with owning them, which is why the fees are higher. 

The 'blended' 2060 fund is another fine choice, but realize that it's AA will change with time.  As you get closer to 2060 the bond holdings will increase and the equity holdings will decrease.

Finally - remember that you need to consider what you are investing in outside your 401(k).  For example, if you are putting $10k into your 401(k) but also putting $5500 into your IRA, you'll want to make sure your investments in both keep you are your chosen 70/30 US:international ratio.

forestj

  • Stubble
  • **
  • Posts: 102
Re: 401(k) options
« Reply #2 on: October 28, 2015, 07:56:49 PM »
You are really lucky:

  • A: to have a 401k at all. This unlocks big tax savings which cannot be underestimated.
  • B: to have a Vangaurd 401k. Pretty much every index fund they offer will have less than half of the fees compared to the cheapest mutual fund offerings from everyone else. For example, the lowest expense ratio I can get from my 401k offering is around 1.5%

I think your plan sounds reasonable. I don't see why you can't pay the .34%. That's approximately a 10% fee on only 30% of your money over 30 years. If you are really worried about the effect of the expense ratio over time, maybe you will get a lower cost option to switch to in the future?


MDM

  • Senior Mustachian
  • ********
  • Posts: 11457
Re: 401(k) options
« Reply #3 on: October 28, 2015, 10:05:59 PM »
...however, the only International fund available is VWILX, which is an International 'Growth' fund with an expense ratio of .34%.
...Alternatively, ...the Target Retirement 2060 fund, which invests...10% in bonds. My only gripe with the target retirement date option is that I would prefer to be 100% stock.

What do you guys think?
As other posters have suggested, I think you should stop complaining. :)

1) An international fund with a 0.34% ER is not bad.
2) 90/10 stock/bond is not much different from 100/0 stock/bond.

seattlecyclone

  • Walrus Stache
  • *******
  • Posts: 7233
  • Age: 39
  • Location: Seattle, WA
    • My blog
Re: 401(k) options
« Reply #4 on: October 28, 2015, 10:25:01 PM »
Yeah, your 401(k) options aren't perfect, but they are pretty good!

If you don't like the international fund your 401(k) offers, consider making your IRA be mostly (or all) your preferred international fund, and invest the whole 401(k) in US stocks.