Author Topic: 401k advice  (Read 3887 times)

NYExpat

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401k advice
« on: April 29, 2015, 07:25:26 AM »
I'm sure this is a little redundant, so I apologize, but I didn't find it on the forum. Is it normal for a 401k provider to require investing in a money market fund? Is this in essence a fee since it gives me no real return yet I don't have access to the money? If I use one of their templates, I automatically have 2% in a MMF. If I pick my own funds, majority of them Schwab products, they still require 1% in a MMF. Should I be frustrated by this or just think of it as a cost of doing business? I'm thinking about going:
SWTSX -70%
SWISX- 20%
SWLBX- 9%
MMF -1%

Or I have the option of choosing everything myself directly from Schwab and I could eliminate that 1% in an MMF. I have a fairly high risk tolerance as it will be a long time till retirement.

matchewed

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Re: 401k advice
« Reply #1 on: April 29, 2015, 08:18:17 AM »
I'm sure this is a little redundant, so I apologize, but I didn't find it on the forum. Is it normal for a 401k provider to require investing in a money market fund? Is this in essence a fee since it gives me no real return yet I don't have access to the money? If I use one of their templates, I automatically have 2% in a MMF. If I pick my own funds, majority of them Schwab products, they still require 1% in a MMF. Should I be frustrated by this or just think of it as a cost of doing business? I'm thinking about going:
SWTSX -70%
SWISX- 20%
SWLBX- 9%
MMF -1%

Or I have the option of choosing everything myself directly from Schwab and I could eliminate that 1% in an MMF. I have a fairly high risk tolerance as it will be a long time till retirement.

Normal in my experience. They need to put the cash somewhere so they put it in a money market account (the near cash equivalent). Not sure about the 1% requirement but I always had a (ridiculously) small amount in my MMF while I had a 401k.

skyrefuge

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Re: 401k advice
« Reply #2 on: April 29, 2015, 08:36:22 AM »
I've never had a requirement for a money-market fund in any of the 6 different 401(k) plans I've had, and this is the first time I've ever heard of one. Maybe you and matchewed work at the same company? :-)

But I'm confused. First you say:

If I use one of their templates, I automatically have 2% in a MMF. If I pick my own funds, majority of them Schwab products, they still require 1% in a MMF.

But then you say:

Or I have the option of choosing everything myself directly from Schwab and I could eliminate that 1% in an MMF.

Which one is it? Are there two different ways of "picking your own funds"? Maybe the second way, that avoids the MMF, is through a "brokerage window"? If so, is there any fee for that privilege? If not, I'd just go that way.

Since the MMF seems like it's something that's part of these pre-selected templates, yeah, it seems like it's their way of charging a fee for that "service" (especially if the templates are a Schwab thing, since they've already shown through their Intelligent Portfolios that that's a method they use to generate income for themselves).

Either way, you shouldn't stress too much about it, at least if the ERs on the funds are reasonable. Lots of 401(k)s have shitty things about them, and 1% in a MMF is fairly low on the shitty-things scale. If you have an expected return of 8% on your non-MMF investments, that 1% in a MMF will be equivalent to the drag of a 0.08% expense ratio.

NYExpat

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Re: 401k advice
« Reply #3 on: April 29, 2015, 09:25:29 AM »
They have three different selection tiers. The first lets me choose from 1 of 9 investment groups with predetermined funds and % of investment. The second tier lets you select your own funds and % of investment. The third tier leaves everything up to you and you have to contact Schwab directly. Tier 1, the minimum MMF is 2% for riskier long term investment pattern. Tier 2 has a 1% minimum. Do my fund elections look alright?

forummm

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Re: 401k advice
« Reply #4 on: April 29, 2015, 09:34:05 AM »
They have three different selection tiers. The first lets me choose from 1 of 9 investment groups with predetermined funds and % of investment. The second tier lets you select your own funds and % of investment. The third tier leaves everything up to you and you have to contact Schwab directly. Tier 1, the minimum MMF is 2% for riskier long term investment pattern. Tier 2 has a 1% minimum. Do my fund elections look alright?

So Tier 3 lets you avoid the MMF? And you can pick the lowest cost fund and put everything in it? If so, then I'd do that, even if it meant a phone call. If the fund choice doesn't give you what you want, you can balance out your total portfolio through what you hold in IRA and taxable accounts.

MDM

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Re: 401k advice
« Reply #5 on: April 29, 2015, 09:45:37 AM »
The third tier leaves everything up to you and you have to contact Schwab directly.
To "contact Schwab directly" takes a...10 minute phone call?

Quote
Do my fund elections look alright?
If you eliminate the MMF (and put that 1% in any of the other 3), then yes.

Another Reader

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Re: 401k advice
« Reply #6 on: April 29, 2015, 11:11:09 AM »
This sounds like another Schwab attempt to grab your cash, similar to what their robo-advisor is doing.  Schwab makes money off your idle funds, a lot if all of the idle funds of the participants in your 401k are added up.  I would investigate the independent option with Schwab, but don't be surprised if there is a fee associated with it.