Investment strategies change in 401K

[Steven25]

Dear Community Members
I have 401K plan and selected fund is TRP RET HYB 2050 T14. After some research I found that it's better to change the investment strategies so I'm thinking to change it to SP 500 INDEX PL CL C. Please provide guidance on below:

• Is it good to change current investment to SP 500 OR I need to think about some different fund
• Should I change current investment( Swap one investment for another) OR future

Thank you!

[EliteZags]

I would absolutely swap any target retirement fund for S&P

target date funds are trash, wayy too heavy in bonds and international for anyone that's trying to build real wealth over time, most just default into it not knowing any better thinking it's the best standard or they can't mentally stomach short term volatility and rob themselves of returns over time

target date funds are like the Dave Ramsey of investments, helping the poor stay slightly less poor

beating the market is not easy, beating target date funds absolutely is

[bacchi]

How far are you from retiring? How much do you have outside of this 401k? Can you handle a 30% drop in one month?

The TRowe 2050 fund looks like it's actively managed. What's the ticker symbol for the S&P fund? Generally, index funds have lower expenses but not always.

[Steven25]

I would absolutely swap any target retirement fund for S&P

target date funds are trash, wayy too heavy in bonds and international for anyone that's trying to build real wealth over time, most just default into it not knowing any better thinking it's the best standard or they can't mentally stomach short term volatility and rob themselves of returns over time

target date funds are like the Dave Ramsey of investments, helping the poor stay slightly less poor

beating the market is not easy, beating target date funds absolutely is

Okay got it so swapping current investment with S&P 500 is better choice. Thank you for your response.

[Steven25]

How far are you from retiring? How much do you have outside of this 401k? Can you handle a 30% drop in one month?

The TRowe 2050 fund looks like it's actively managed. What's the ticker symbol for the S&P fund? Generally, index funds have lower expenses but not always.

I'm at 40 now. Outside 401K I have around 25K in checking account which I'm planning to move in Fidelity brokerage account(SPAXX) so that this money can earn some interest. I didn't get what does 30% drop in a month mean. Please explain little bit.

I'm not sure about ticker symbol but when I went into detail on available funds in my 401K, I got full name of S&P 500 is Spartan 500 Index Pool Class C

[bacchi]

How far are you from retiring? How much do you have outside of this 401k? Can you handle a 30% drop in one month?

The TRowe 2050 fund looks like it's actively managed. What's the ticker symbol for the S&P fund? Generally, index funds have lower expenses but not always.

I'm at 40 now. Outside 401K I have around 25K in checking account which I'm planning to move in Fidelity brokerage account(SPAXX) so that this money can earn some interest. I didn't get what does 30% drop in a month mean. Please explain little bit.

I'm not sure about ticker symbol but when I went into detail on available funds in my 401K, I got full name of S&P 500 is Spartan 500 Index Pool Class C

It sounds like the S&P fund is a Fidelity Spartan fund, which (probably) has very low fees. Great.

Re: a 30% drop, the S&P 500 is concentrated in 500 mostly large cap companies. It's less diversified than the 2050 fund, which has bonds and international stock and REITs (real estate). The S&P 500 will probably return more, over the long haul, but it's also more volatile.

Take a look at SPY's performance in early 2020. It closed at 338 on 2/19/20 and closed at 240 on 3/16/20. That's a 29% drop in less than 30 days. You have to ask yourself: Can you handle seeing your balance drop by that much? Will you continue as-is, and see it as an opportunity, or will you sell and go to cash or bonds?

[ChpBstrd]

The asking of the question, and the giving of affirmative advice, makes me think the top is in!

[Steven25]

How far are you from retiring? How much do you have outside of this 401k? Can you handle a 30% drop in one month?

The TRowe 2050 fund looks like it's actively managed. What's the ticker symbol for the S&P fund? Generally, index funds have lower expenses but not always.

I'm at 40 now. Outside 401K I have around 25K in checking account which I'm planning to move in Fidelity brokerage account(SPAXX) so that this money can earn some interest. I didn't get what does 30% drop in a month mean. Please explain little bit.

I'm not sure about ticker symbol but when I went into detail on available funds in my 401K, I got full name of S&P 500 is Spartan 500 Index Pool Class C

It sounds like the S&P fund is a Fidelity Spartan fund, which (probably) has very low fees. Great.

Re: a 30% drop, the S&P 500 is concentrated in 500 mostly large cap companies. It's less diversified than the 2050 fund, which has bonds and international stock and REITs (real estate). The S&P 500 will probably return more, over the long haul, but it's also more volatile.

Take a look at SPY's performance in early 2020. It closed at 338 on 2/19/20 and closed at 240 on 3/16/20. That's a 29% drop in less than 30 days. You have to ask yourself: Can you handle seeing your balance drop by that much? Will you continue as-is, and see it as an opportunity, or will you sell and go to cash or bonds?

I got it now. Switching to S&P 500 seems good decision. Thank you for additional information.

[Scandium]

The asking of the question, and the giving of affirmative advice, makes me think the top is in!

Talk of the top outside the "top is in" thread; a sure sign the top is in!!

[green2bend]

I would absolutely swap any target retirement fund for S&P

target date funds are trash, wayy too heavy in bonds and international for anyone that's trying to build real wealth over time, most just default into it not knowing any better thinking it's the best standard or they can't mentally stomach short term volatility and rob themselves of returns over time

target date funds are like the Dave Ramsey of investments, helping the poor stay slightly less poor

beating the market is not easy, beating target date funds absolutely is

I think it's important to make a distinction between the choice of picking a target date fund and sticking with it forever versus whether you should ever invest in a target date fund. I agree that picking a target date fund and sticking with it forever is a bad idea, but I disagree that you should never invest in one. As long as you buy them in retirement accounts, where you can sell them without any tax consequences, a valid strategy could be to always hold the target date fund with the latest year available to avoid them slowly moving from stocks to bonds.

In this case, I can't find the exact details of the target date fund but all of the other T Rowe Price 2050 target date funds have an expense ratio over 0.6%. That's way too high, ideally it would be under 0.1%. Swapping it out for the S&P 500 fund is a good idea, though you might want to consider also investing in a bond fund if you don't like the risk of 100% equities.

[Steven25]

The one which we're talking about is T. Rowe Price Retirement Hybrid 2050 Trust Class T14 with expense ratio of 0.16%. Below is asset allocation:
Domestic Stock - 66%
Foreign Stock - 29.91%
Short Term - 1.65%
Bonds - 1.56%
Other - 0.78%

Thank you for brining a good point adding bond funds as well. I'm at 40. In this case I guess one option is to switch from TRP RET HYB 2050 T14 to 95% stocks & 5% bonds that means
95% - SP 500 INDEX PL CL C ( Exp ratio: 0.015% and Management Fee: 0.01% )
5% - FidelityŽ U.S. Bond Index Fund-FXNAX( Exp ratio: 0.025% and Management Fee: 0.025% )

Does this looks good? But I think in this case every year I need to take care of rebalancing. Isn't it?

Other option as always is be with Target Date Fund which take care of rebalancing itself

[ChpBstrd]

Dive into the holdings of that fund. I've discovered that sometimes a fund offered in a 401k for a low ER is actually holding other funds owned by the same company, each with their own ER. But the ERs of the things being held are not reported cumulatively, so it only looks cheap when in fact you are paying for both.

[ATtiny85]

Dive into the holdings of that fund. I've discovered that sometimes a fund offered in a 401k for a low ER is actually holding other funds owned by the same company, each with their own ER. But the ERs of the things being held are not reported cumulatively, so it only looks cheap when in fact you are paying for both.

It was my understanding that the larger companies (TRP, FIDO, Vanguard) report TDF ER as the total, all-in, cumulative,  ER.

From the Vanguard website, footnote on the 0.08% ER:
The acquired fund fees and expenses based on the fees and expenses of the underlying funds.

From a Vanguard TDF prospectus:
This example assumes that the Fund provides a return of 5% each year
and that total annual fund operating expenses (of the Fund and its underlying
funds) remain as stated in the preceding table.

Neither of those are as clearly stated as I would like. I have often wondered just how cleanly they can actually separate the costs.

Do you have supporting docs that say or imply it is additive for some mainstream company? It is a very important point you bring up. I have CITs in my 401k from BlackRock, and I have completely given up on actually getting documentation that allows my to not be worried about those things. ERs, actual holdings, and so on. Having that entire system propped up by greedy finance people does not instill confidence, but that's for another thread.

[ChpBstrd]

Dive into the holdings of that fund. I've discovered that sometimes a fund offered in a 401k for a low ER is actually holding other funds owned by the same company, each with their own ER. But the ERs of the things being held are not reported cumulatively, so it only looks cheap when in fact you are paying for both.

It was my understanding that the larger companies (TRP, FIDO, Vanguard) report TDF ER as the total, all-in, cumulative,  ER.

From the Vanguard website, footnote on the 0.08% ER:
The acquired fund fees and expenses based on the fees and expenses of the underlying funds.

From a Vanguard TDF prospectus:
This example assumes that the Fund provides a return of 5% each year
and that total annual fund operating expenses (of the Fund and its underlying
funds) remain as stated in the preceding table.

Neither of those are as clearly stated as I would like. I have often wondered just how cleanly they can actually separate the costs.

Do you have supporting docs that say or imply it is additive for some mainstream company? It is a very important point you bring up. I have CITs in my 401k from BlackRock, and I have completely given up on actually getting documentation that allows my to not be worried about those things. ERs, actual holdings, and so on. Having that entire system propped up by greedy finance people does not instill confidence, but that's for another thread.

I don't have the details in front of me right now, but I did once look in my 401k (forgot the advisor, this was years ago) and noticed that the lifecycle funds simply held other funds by the same company, and the ER reported for the lifecycle fund was lower than most or all of the component funds. Thus I concluded, perhaps erroneously, that I would end up paying the lifecycle fund's fee plus the component funds' fees as a deduction from my returns. Send in a question to confirm. I'm curious what you find.