Author Topic: Bad 401k options?  (Read 4512 times)

gdborton

  • Bristles
  • ***
  • Posts: 254
  • Age: 31
  • Location: Muncie, Indiana
    • Gary Borton
Bad 401k options?
« on: October 02, 2012, 02:29:55 PM »
Looking for some advice  on my 401k options. First a little background on where I am... I'm currently 23 and making $52,000 gross (more than I ever dreamed possible), I've already maxed out my Roth IRA this year, paid off all of my student loan debt (6.8%), and have a comfortable enough emergency fund.  I haven't yet started my 401k, because I didn't like my options, there is no match, and until a few weeks ago I had other great options in front of me.  Also if it matters at all, I'm looking to sock $200 in the 401k weekly.

Any advice based on the funds offered through my plan?
  •    Fidelity Freedom 2050 Fund   0.77%   
  •    Wells Fargo Advantage Heritage Money Market   0.2%   
  •    Dreyfus Bond Market Index   0.4%   
  •    Dodge & Cox Stock   0.52%   
  •    Wells Fargo Advantage Index   0.75%   
  •    Fidelity Contrafund   0.81%   
  •    Perkins Mid Cap Value Fund   1%   
  •    American Funds Growth Fund of America   0.68%   
  •    American Beacon Small Value Plan   1.17%   
  •    JPMorgan Small Cap Equity Select   1%   
  •    Fidelity Diversified International   0.9%   

Given my limited knowledge, I think the best bet is Dodge & Cox or the Wells Fargo Advantage Index.  D&C has a lower expense ratio, but  WFIRX probably follows the S&P 500 more closely.  Also the plan is through Wells Fargo, and I'm not sure what account/maintenance/trading fees there are.

Any insight is greatly appreciated, thanks!

JohnGalt

  • Bristles
  • ***
  • Posts: 484
  • Age: 36
  • Location: TX
Re: Bad 401k options?
« Reply #1 on: October 02, 2012, 02:47:51 PM »
You're options are as bad as mine...

I'm at a small company and am pushing to get us to change providers (should happen sometime in the next 6 months I think).  Any chance you can talk to HR about changing?  In the mean time between us switching, I was also able to get the full list of fund choices we were offered by our current provider and had them add a few funds.

That aside - I still personally like the tax advantages of the 401k and contribute the annual max allowed by the IRS. 

I would figure out what you want your full portfolio (401k, IRA, taxable accounts, everything) to look like.  If that includes bonds - maybe use the Dreyfus Bond Market fund to cover that (I didn't do any research but it has the lowest expense ratio).  Same for international if you want a fund for that because their expense ratios are usually higher anyways. 

If you don't have plans for either of those - I'd read the prospectus for all of the options w/ <1% expense ratio and choose the one that fits your desired portfolio philosophy best.  I had american funds with a previous employer 401k and seem to remember the growth fund being one of the least terrible options...

Good luck!

gdborton

  • Bristles
  • ***
  • Posts: 254
  • Age: 31
  • Location: Muncie, Indiana
    • Gary Borton
Re: Bad 401k options?
« Reply #2 on: October 02, 2012, 11:18:14 PM »
I guess that I could look into the bond fund, but because the 401k is potentially larger than Roth IRA  I think I need to focus more on one of the other funds.  I'll take a deeper look into each.

fiveoh

  • Bristles
  • ***
  • Posts: 375
Re: Bad 401k options?
« Reply #3 on: October 03, 2012, 04:34:31 AM »
You're options are as bad as mine...

I'm at a small company and am pushing to get us to change providers (should happen sometime in the next 6 months I think).  Any chance you can talk to HR about changing?  In the mean time between us switching, I was also able to get the full list of fund choices we were offered by our current provider and had them add a few funds.

That aside - I still personally like the tax advantages of the 401k and contribute the annual max allowed by the IRS. 

I would figure out what you want your full portfolio (401k, IRA, taxable accounts, everything) to look like.  If that includes bonds - maybe use the Dreyfus Bond Market fund to cover that (I didn't do any research but it has the lowest expense ratio).  Same for international if you want a fund for that because their expense ratios are usually higher anyways. 

If you don't have plans for either of those - I'd read the prospectus for all of the options w/ <1% expense ratio and choose the one that fits your desired portfolio philosophy best.  I had american funds with a previous employer 401k and seem to remember the growth fund being one of the least terrible options...

Good luck!

I also hold the  American Funds Growth Fund of America in one of my employer accounts.  It's actually has had a decent return for me.

JohnGalt

  • Bristles
  • ***
  • Posts: 484
  • Age: 36
  • Location: TX
Re: Bad 401k options?
« Reply #4 on: October 03, 2012, 07:27:44 AM »
I guess that I could look into the bond fund, but because the 401k is potentially larger than Roth IRA  I think I need to focus more on one of the other funds.  I'll take a deeper look into each.

having the bonds in 401k isn't any different than the Roth IRA from a tax treatment perspective.  I meant compared to a non-tax advantaged account.  If you're not investing outside of your 401k/IRA, then it doesn't matter what you invest in each account.  Though - I would recommend you do at least some investing outside of 401k/IRA.  Hopefully that's in addition to maxing them out. 

gdborton

  • Bristles
  • ***
  • Posts: 254
  • Age: 31
  • Location: Muncie, Indiana
    • Gary Borton
Re: Bad 401k options?
« Reply #5 on: October 03, 2012, 08:19:53 AM »
Why have anything outside of the Roth/401k?  If I were to max both, it would be just shy of 50% gross or 62% net savings rate...  I'd have to find some fat to cut (no pun intended but this would probably be largely fast food) in order to even reach that amount.

JohnGalt

  • Bristles
  • ***
  • Posts: 484
  • Age: 36
  • Location: TX
Re: Bad 401k options?
« Reply #6 on: October 03, 2012, 09:47:56 AM »
Why have anything outside of the Roth/401k?  If I were to max both, it would be just shy of 50% gross or 62% net savings rate...  I'd have to find some fat to cut (no pun intended but this would probably be largely fast food) in order to even reach that amount.

I guess it all depends on when you want to access the money.  The best way I've found to access 401k funds before retirement age is the roth rollover pipeline - but even that will require you cover 5 years in between when you start it and when you can actually get the money penalty free.  Do you plan on having enough in roth accounts to cover that period?  If so, then you're probably good to just max out the tax advantaged.   

gdborton

  • Bristles
  • ***
  • Posts: 254
  • Age: 31
  • Location: Muncie, Indiana
    • Gary Borton
Re: Bad 401k options?
« Reply #7 on: October 03, 2012, 09:54:11 AM »
At this point, that's pretty hard to say.  At my current rate the earliest I'd be able to retire is 17 years from now at 40.  At that point I think I could suffer through 2-3 more years, and live off of the principle in my Roth.  Also something I've intentionally left out in all my calculations are pay raises... Once those are factored in I'd have additional money to put towards a non tax advantaged account.