Author Topic: Advice on which 457(b) funds to use?  (Read 2957 times)

SheepDog

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Advice on which 457(b) funds to use?
« on: June 04, 2017, 09:39:21 AM »
I'm just starting to fund my 457(b) account and have several options to select.  Luckily I have a bunch of Vanguard options and some others I'm not sure about.  I'm relatively young and have quite a few projected working years ahead so I'm not shy of risk right now.

My options are as follows:

Index name is followed by expense ratio...

International Stocks
TEMPLETON FOREIGN -  ER = .72
VANGUARD INTERNATIONAL GROWTH - ER = .34
VANGUARD TOTAL INTERNATIONAL STOCK INDEX - ER = .07

 Small-Cap Stocks
OHIO DC SMALL-CAP GROWTH - ER = .77
OHIO DC SMALL-CAP VALUE - ER = .59
VANGUARD SMALL CAP INDEX - ER = .05

 Mid-Cap Stocks
VANGUARD CAPITAL OPPORTUNITY - ER = .38

Large-Cap Stocks
DODGE & COX STOCK - ER = .52
FIDELITY CONTRAFUND COMMINGLED POOL - ER = .43
FIDELITY GROWTH COMPANY COMMINGLED POOL - ER = .43
OHIO DC LARGE - CAP GROWTH - ER = .37
VANGUARD INSTITUTIONAL INDEX - ER = .02

 Asset Allocation Funds
LIFEPATH 2045 - ER = .09

 Bonds
OHIO DC INTERMEDIATE BOND - ER = .25
VANGUARD TOTAL BOND MARKET INDEX - ER = .04

Currently I'm split at 75% Vanguard Institutional Index and 25% Vanguard Cap Opportunity.

What would you guys recommend I do?  More diversification or dump it all into one fund? 

 

letired

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Re: Advice on which 457(b) funds to use?
« Reply #1 on: June 04, 2017, 11:51:32 AM »
First off, congrats on picking the institutional index! That has an amazing expense ratio!

I think step 1 is revisiting your Investment Plan and/or desired asset allocation. Step 2 is picking the fund(s) that match your desired asset allocation.

Since you have several ultra-low-cost index funds available to you, in your shoes I would go with something cheaper than the Vanguard Cap Opportunity, but since it is still less than 0.5% expense ratio, it's by no means a bad choice, if that is where you need to be to match your desired asset allocation.

SheepDog

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Re: Advice on which 457(b) funds to use?
« Reply #2 on: June 04, 2017, 01:13:58 PM »
I don't have any real asset allocation right now.  I have some cash savings, a defined benefit pension plan that I don't control, and this new 457 plan.  Wife has some very small individual dividend stocks.  And that's pretty much it.  I understand later on towards retirement I'll need more stable investments like bonds and some more diversity like foreign funds as well.

Right now I'm just worried about leaving money on the table in the way of missed gains.  The Cap Opportunity has outperformed the Institutional Index by like 3 or 4 percent the last 5 years, even with the higher fee.  So that's why I stuck some money in there.

I get up to 3 free transfers between funds every 45 days so I can change pretty much as needed.

letired

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Re: Advice on which 457(b) funds to use?
« Reply #3 on: June 04, 2017, 01:27:40 PM »
You might want to read through some of the material here and come up with an overall philosophy: https://www.bogleheads.org/wiki/Investment_policy_statement

Worrying about 'missing gains' is not going to help you make level-headed logical decisions. It's a great way to try to talk yourself into various types of market timing, which is why I'm recommending the Boggleheads material on creating an overarching investment policy, including the asset allocation you are comfortable with.

In my case, my foreign index fund has been going NUTSO the last few months. Would it be cool if I had more of those gains? Yeah. Am I going to change my desired asset allocation based on short-term past performance? No.

SheepDog

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Re: Advice on which 457(b) funds to use?
« Reply #4 on: June 04, 2017, 04:09:07 PM »
I'm definitely a buy and hold type. Want to get it set up solid at the start and go on auto pilot. I read some of those articles and got some ideas.

How does 60% Institutional Index, 30% International Index, and 10% Total Bond Index sound? All Vanguard of course

MDM

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Re: Advice on which 457(b) funds to use?
« Reply #5 on: June 04, 2017, 04:19:43 PM »
I'm definitely a buy and hold type. Want to get it set up solid at the start and go on auto pilot. I read some of those articles and got some ideas.

How does 60% Institutional Index, 30% International Index, and 10% Total Bond Index sound? All Vanguard of course
Very defensible.  Good luck!

TomTX

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Re: Advice on which 457(b) funds to use?
« Reply #6 on: June 04, 2017, 06:51:07 PM »
I'm definitely a buy and hold type. Want to get it set up solid at the start and go on auto pilot. I read some of those articles and got some ideas.

How does 60% Institutional Index, 30% International Index, and 10% Total Bond Index sound? All Vanguard of course

Meh, if you like playing around with it and you are disciplined to stay the course with your asset allocation - sure.

My standard advice for a new investor is: Dump all you can into VIIIX with auto contribution from your paycheck and just forget about it until you either get a raise (and crank up the contribution) or you check the annual statement and you have more than $50k.

Diversification into other broad-based funds just doesn't matter enough until you have more money, and it just encourages bad habits of spending too much time watching the markets, which often then leads to market timing - a game that most people lose at. If you are splitting between accounts and your smallest account has less than $10k, you're doing it wrong.

Dump all you can into VIIIX until you have at least $50k. Waiting til around $250k is perfectly fine too.

SheepDog

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Re: Advice on which 457(b) funds to use?
« Reply #7 on: June 05, 2017, 06:00:59 AM »
I have about 28k in one account that I can no longer contribute to because I switched employers.  Then my wife and I each have 2 brand new accounts which gets funded every pay check.

As a new, younger investor, I don't care that the market will go up and down and that an all stock portfolio is volatile.  I just want to grow it as much as possible and then worry about the volatility later.  I believe my investment timeline is still long enough to not worry about bonds and stuff like that for now.  If this is dead wrong, please let me know lol.

DrF

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Re: Advice on which 457(b) funds to use?
« Reply #8 on: June 05, 2017, 11:21:18 AM »
I'd cancel the bond portion and throw it into vanguard small caps. Bonds are for when you are close to/just acheived FIRE, not when you're just starting to save.

https://earlyretirementnow.com/2016/08/17/bond-diversification-is-a-myth/

10% bonds gets you almost zero diversification. All it's doing is lowering your return.

TomTX

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Re: Advice on which 457(b) funds to use?
« Reply #9 on: June 05, 2017, 09:00:36 PM »
I have about 28k in one account that I can no longer contribute to because I switched employers.  Then my wife and I each have 2 brand new accounts which gets funded every pay check.

As a new, younger investor, I don't care that the market will go up and down and that an all stock portfolio is volatile.  I just want to grow it as much as possible and then worry about the volatility later.  I believe my investment timeline is still long enough to not worry about bonds and stuff like that for now.  If this is dead wrong, please let me know lol.

If expenses are low with the new fund, see if they can take an incoming rollover from the old employer fund.

If not, make sure fees in the old fund are lower than Vanguard directly. If not, roll over to an IRA.

SheepDog

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Re: Advice on which 457(b) funds to use?
« Reply #10 on: June 06, 2017, 07:31:46 AM »

If expenses are low with the new fund, see if they can take an incoming rollover from the old employer fund.

If not, make sure fees in the old fund are lower than Vanguard directly. If not, roll over to an IRA.

They old fund was a pension plan I had contributed to for about 6 years.  The service credit I earned was not transferable to my new employer.  I was able to roll the old money into a new 457(b) under my current employer's name.  I can still move the funds around in whatever indexes I want.  I'm just not allowed to add any new money into it, so they made me open a new account as well...  Kind of redundant but oh well.

TomTX

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Re: Advice on which 457(b) funds to use?
« Reply #11 on: June 06, 2017, 08:45:34 PM »

If expenses are low with the new fund, see if they can take an incoming rollover from the old employer fund.

If not, make sure fees in the old fund are lower than Vanguard directly. If not, roll over to an IRA.

They old fund was a pension plan I had contributed to for about 6 years.  The service credit I earned was not transferable to my new employer.  I was able to roll the old money into a new 457(b) under my current employer's name.  I can still move the funds around in whatever indexes I want.  I'm just not allowed to add any new money into it, so they made me open a new account as well...  Kind of redundant but oh well.

Keeping 457b money isolated is actually important due to the withdrawal rules.

Unlike 401k, once you leave an employer you can draw that money without penalty or "additional tax" - just your normal income tax. If you mixed it into the 457 you are currently contributing to, you would probably not be able to draw it until you leave the new employer.